DR OLUREMI AKIM AGBAJE v THE ROBERT FREW MEDICAL COMPANY LIMITED

In valuing shares under a shareholders’ agreement, the court must construe the agreement as a whole. Where it expressly requires the valuer to consider the size of the holding, the fair market value is the value of the interest actually transferred, not the value of a controlling or pro rata interest. A minority discount will normally be appropriate unless the agreement provides otherwise. The fact that a company is a quasi-partnership is relevant background, but does not itself exclude such a discount. The valuation date is the date specified by the agreement, here the date of the deemed transfer notice. A court should not reject expert valuation evidence merely because the discount might be open to debate where the expert applied the contractual criteria and no competing expert evidence establishes error.

The claimant sought an order requiring the defendant company to purchase 1,600 ordinary shares under a 2006 Shareholders’ Agreement, following his expulsion from the associated partnership in 2009. The right to sell the shares was no longer disputed. The remaining issues concerned the proper construction of the valuation provisions, whether a minority discount should be applied, the relevance of the partnership’s business, and the appropriate valuation date.

The claimant contended that the shares should be valued pro rata, subject only to the agreement’s express 10% discount. The company relied on the agreement’s requirement that the size of the holding be taken into account and supported the appointed expert’s valuation at 18 April 2009 and 4 November 2011.

1. Application refused and valuation determined. Permission to amend the claim was refused. The proposed amendments were late, would require an adjournment and further disclosure, and were disproportionate to the amount and importance of the issues. Granting an adjournment would conflict with the overriding objective and the proper use of court resources (paras [5]-[13]).
2. The valuation provisions had to be construed according to the language used in the 2006 Shareholders’ Agreement. The company’s status as a quasi-partnership was relevant background, but did not establish that a minority discount was inappropriate (paras [36]-[38]).
3. The agreement expressly required the expert to take into consideration the size of the holding being sold. The fair market value was therefore the value of the minority shareholding actually transferred, rather than a pro rata share of the value of the company or a controlling interest. A minority discount would normally follow, subject to the expert’s assessment of the particular facts (paras [39]-[44]).
4. The pre-emption provisions did not require a pro rata valuation. They did not prescribe a price per share, and the shares might be acquired by only one existing member, by the company, or by a third party (paras [41]-[43]).
5. The valuation date was 18 April 2009, the date of the deemed transfer notice. The claimant could not change to a trial-date valuation at the final hearing, particularly where the earlier procedural decision and directions had not been appealed (paras [46]-[48]).
6. The court accepted Ms Hart’s expert valuation. There was no sufficient basis to reject it merely because the size of the discount might be questioned, and no alternative expert evidence established that the contractual criteria had been misapplied (paras [45], [49]-[51]). The shares were valued at £21,188.