Challenging an expert's final determination - Court of Appeal affirms approach

Challenging an expert's final determination - Court of Appeal affirms approach

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Author: Jonathan Grigg

In (1) Premier Telecom Communications Group Limited (2) Darren Michael Ridge v Darren John Webb [2014] EWCA Civ 994 Shoosmiths LLP acted for the successful respondent Mr Darren Webb.

The Court of Appeal examined the relevant principles when a party seeks to challenge the report of an expert and re-affirmed previous decisions, stressing the need to consider the individual facts to construe the extent and confines of the expert's mandate.

Background

Premier Telecom Communications Group Limited (PTCG) was a successful telecoms company which was 60% owned by Mr Ridge and 40% by Mr Webb. The success of its operations depended, amongst other factors, on personal relationships built up between Mr Ridge and certain companies with which PTCG did business.

Unusually Mr Ridge had no contract with PTCG so everything depended on trust and good working relationships. Mr Webb was a director of PTCG and was so employed until October 2011 at which point a dispute arose between himself and Mr Ridge/PTCG. In December 2012 a compromise was reached whereby it was agreed that PTCG and/or Mr Ridge were to buy out Mr Webb's shareholding in PTCG and, in an attempt to avoid recourse to the court by Mr Webb with an action for unfair prejudice, the parties agreed to appoint an expert (GT) to value Mr Webb's shareholding. GT's appointment was governed by terms set out in a letter of engagement of December 2012.

GT issued a final valuation report on 21 March 2013. Immediately on receipt PTCG and Mr Ridge took issue with the valuation and subsequently commenced proceedings in which they sought to have the report set aside. Mr Webb, acting on Shoosmiths' advice, didn't hesitate and issued an immediate application for summary judgment on the grounds that the claim issued had no real prospect of success as the compromise reached clearly stated that any valuation was to be 'final and binding' and, further, the challenges put forward by PTCG and Mr Ridge had no merit in satisfying the legal hurdles necessary to set aside an expert report.

Mr Webb was successful at first instance securing summary judgment and an order declaring that the valuation report of 21 March 2013 was final and binding. PTCG and Mr Ridge were given permission to appeal and did so.

The challenge

Challenging an expert report in the courts is not an obvious or usual step, as the very nature of parties appointing an expert, is designed to avoid recourse to the Court; consequently the parties are usually seen as delegating significant decision making powers to the expert. The Court of Appeal acknowledged that the Judge at first instance provided practitioners with an accurate summary of the case law which lays down the precedent for challenging expert reports.

The burden was on PTCG and Mr Ridge to demonstrate that, essentially, GT had materially departed from their instruction and/or that issues on which they may have made the wrong decision were ones which the parties had agreed that the Court (rather than the expert) would have decision making authority.

PTCG and Mr Ridge argued that the parties had intended that the court should decide all questions of law bearing on the valuation, with the result that GT's decision was not intended to be binding on any such questions so far as they were derived from a question of law. From this the appellants argued that this meant the report was flawed as GT got numerous questions intended for the Court wrong. Principally it was said that GT should have valued PTCG by reference to the fact that Mr Ridge had no contract in place with PTCG, and so this would likely to have reduced the amount a willing buyer would have agreed to pay for the company. Importantly this argument was made notwithstanding that the engagement letter with GT, signed by all parties, stated they were 'to assume that relationships continue to exist' as at the valuation date.

Mr Webb's case was relatively simple in response - it did not matter whether GT did, or did not, get elements of the report wrong as, ultimately, the parties had agreed that GT had the decision making authority in respect of all the issues being challenged and, therefore, the report itself was not open to challenge.

Decision

The leading judgment of Lord Justice Moore-Bick made it clear that only by interpreting the contract of engagement could the matters that were referred for the valuer's decision, the meaning and effect of any special instructions, and the extent to which any decisions were intended to bind the parties, be identified.

Lord Justice Moore-Bick identified that parties had to be taken to have recognised that mistakes might be made, both of fact and law, but they were prepared to take that risk because they placed a high degree of confidence in their chosen expert. In this instance the scope of GT's instruction was defined by the letter of engagement; this therefore became the key document to construe. In conducting this exercise the overwhelming conclusion was that the letter of engagement contained nothing that suggested that the parties intended that the court should exercise the close degree of control over the performance of their functions that PTCG and Mr Ridge claimed.

On the key issue the construction was clear: GT were required to assume for the purposes of the valuation that the relationships in place continued to exist and this was understood by them to mean that they were to assume that the existing informal arrangements held by Mr Ridge would continue unchanged. Indeed this was, as per Lord Justice Moore-Bick's judgment, the only way such wording in the letter of engagement could be construed. The Court of Appeal concluded that GT did not depart from their mandate in a manner which invalidated their decision. Accordingly, there was no real prospect that the claim would succeed at trial and summary judgment was upheld.

Impact

The Court of Appeal has affirmed that the principles applicable to challenging expert valuations are to be based on the construction of the contract document by which the expert has been appointed

Indeed the Court of Appeal stated that only by construing the contract could the matters that were referred for the valuer's decision be identified including the extent to which their decision on questions of law or mixed fact and law were intended to bind the parties

Learning Points

  • Parties must take extreme care when drafting, and agreeing, their contractual instructions to an expert
  • The entire instruction could come under intense scrutiny by the courts - parties must take care to ensure that the intention envisaged by them is accurately documented
  • Instructions should not be ambiguous as to whether or not the expert has the necessary decision making authority

About the Author

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Jonathan Grigg

Partner

03700 86 6708

Jonathan is a partner in the commercial litigation team and recently acted successfully for Ageas in High Court actions reported in 2013 and 2014 against Kwik-Fit and AIG. Jonathan has a wealth of experience dealing with and resolving a wide-range of high value commercial and contractual disputes in this jurisdiction and overseas, either using litigation in the Court of Appeal and High Court, arbitration, or through the use of alternative dispute resolution methods such as mediation. Jonathan is also a pensions litigation specialist and qualified mediator.

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