JULIET CATHERINE WHITE & Ors v HANNAH NICHOLSON

The claimants sought specific performance of share sale provisions in a shareholder agreement and a deed which required the defendant to sell her shares at the current market price as determined by an agreed valuer. The parties agreed the valuer's determination would be final and binding except for manifest error or fraud. The defendant challenged the valuer's report on the basis of manifest errors: that two loans (the "White Loans") had been wrongly treated as liabilities, that the valuer had failed to account properly for stock movements and had relied on forecast figures when up-to-date data existed, and that there was double counting of losses for January and February 2020.

The court applied the exacting two-stage test for manifest error (an obvious error and one capable of affecting the determination). It concluded that the valuer’s treatment of the White Loans as liabilities was open to reasonable debate and therefore not a manifest error. The admission of a double-counting error was recognised but the resulting adjustment was insufficient to change the outcome because the enterprise value remained below debt levels. The court ordered a declaration that the valuation was final and binding and granted specific performance of the shareholder agreement.

This is a first instance Companies Court judgment concerning enforcement of valuation and share sale provisions contained in a shareholder agreement (SHA) dated 8 February 2017 and a deed dated 15 May 2020. The claimants (founder shareholders) sought (i) a declaration that the written valuation report dated 27 August 2020 by the jointly appointed valuer, Mr Julian Beressi, is final and binding as to the market price of the defendant’s shares, and (ii) specific performance of the obligation in the SHA/Deed requiring the defendant to sell her shares to a purchaser nominated by the board at that market price.

Background facts:

• The company is a cosmetics retailer whose shares are held by the three founders, the claimants and the defendant. The defendant left employment on 27 April 2020 and wished to sell her shares. The parties agreed a Deed providing for a valuer whose determination would be final and binding except for manifest error or fraud.
• The valuer produced a report concluding the enterprise value was modest and, after deducting debt (including two loans by Mr White, the "White Loans"), that the defendant’s minority ordinary and preference shares were of de minimis value.

Issues framed by the court:

• Whether the valuer’s determination contained any manifest error (so as to permit the court to set it aside), applying the two-stage, exacting test derived from authorities cited in the judgment.
• Whether the White Loans should have been treated as liabilities rather than equity or deferred capital as contended by the defendant.
• Whether the valuer erred by relying on forecast figures rather than available real‑time accounting data and by failing to account properly for stock movements; and whether any double-counting error materially affected the valuation.

Court’s reasoning and conclusions:

• The court reviewed the legal principles governing challenges to expert determinations and manifest error clauses and emphasised the exacting two-stage test: (a) the error must be an oversight or blunder so obvious as to admit no real difference of opinion, and (b) the error must be capable of materially affecting the determination.
• The Venson Agreement and related documents were examined. The judge found the contractual language ambiguous and that it was not manifestly wrong for the valuer to treat the White Loans as liabilities: the agreement contained terms (interest payments, repayment waterfall on sale/float) consistent with a loan. At best for the defendant, reasonable minds could differ, so no manifest error was made on that point.
• The judge accepted that a double-counting of January/February 2020 loss occurred and quantified its effect (approximately £18,644.71), but concluded that correcting this did not change the overall outcome because the enterprise value remained below indebtedness.
• Challenges based on use of forecasts and stock movements were rejected as showing no manifest error. The court accepted the company’s explanation that real‑time accounting prints required manual adjustments and that the valuer’s use of a forecast was not an oversight so obvious as to be characterised as manifest error. Even if the EBITDA were adjusted upwards by the defendant’s best case, the value would remain insufficient to exceed debt.

Outcome: the court made the declaration that the valuation report is final and binding and ordered specific performance of the SHA.

The court ordered a declaration that the valuer's written valuation dated 27 August 2020 is final and binding and granted specific performance of the shareholder agreement. The judge applied the exacting two-stage test for manifest error and found that (i) the valuer’s treatment of the White Loans as liabilities was not a manifest error because reasonable minds could differ, (ii) the admitted double-counting error was quantified but did not materially alter the result, and (iii) the other challenges to the valuation (stock movements and use of forecasts) did not establish a manifest error. Accordingly the valuer’s determination stood and specific performance was ordered.