Griffin v Wainwright & Anor

This hearing arises from a dispute between two shareholders in a company called Hi2 Ltd. Mr Griffin, the petitioner, is one of the minority shareholders in that company. Mr Wainwright, the respondent, is the majority shareholder.

Mr Griffin was dissatisfied with the way that Hi2 was being run. In January 2015 he presented a petition under s. 994 of the Companies Act 2006. That petition was compromised by a settlement agreement dated 23 June 2015. The settlement agreement provided that all of the minority shares in Hi2 held by the petitioners would be bought out by Mr Wainwright (or Hi2, or third parties, or a combination of those) at a price to be determined by an independent expert. The nominated expert was Ms Angela Hennessy.

The expert told the parties on 17 February 2016 that she had completed her determination of the share price. For reasons discussed further below, that determination was never sent to the parties. Instead, following further correspondence between the expert and Mr Griffin, it appears that the original determination was amended by the expert. The amended determination was sent to the parties on 17 May 2016.

Although the matter originally came before this court by way of an application by Mr Griffin for an injunction, the main issue for decision in these proceedings is the validity of the determination sent on 17 May 2016. Mr Wainwright contends that it is invalid on the grounds that (1) the expert was functus officio on 17 February 2016, after she had signed the first version of the determination and notified the parties that it was complete; (2) the expert materially departed from her instructions by taking into account, in her final determination, the fact that one of the assets of Hi2, a property known as The Boathouse, was placed on the market in March 2016 at a price significantly higher than the valuation provided by the surveyors chosen by the expert; (3) the expert also departed from her instructions by failing to apply a discount to the full valuation of Hi2 to reflect the minority status of the minority shareholdings; and (4) the expert materially breached her duty of fairness by accepting further submissions from Mr Griffin after declaring that submissions were closed, and without giving Mr Wainwright the opportunity to comment.

Mr Griffin was represented by Mr Andrew Butler, Mr Wainwright was represented by Mr Alex Barden. I am grateful to both counsel for their very helpful written and oral arguments. I was also greatly assisted by the preparation of an agreed case summary and chronology. In the course of this judgment, when discussing the issues which arise, I will make any appropriate findings of fact based on the written and oral evidence.

The settlement agreement was attached to a Tomlin Order made by Deputy Registrar Middleton on 30 June 2015. The settlement agreement provided, as explained above, that Mr Wainwright or others would purchase all of the minority shares in Hi2 held by the petitioners. The purchase price for the shares would be the price determined by an expert in accordance with the letter of instruction signed by both parties. The valuation date was specified as being 30 June 2015.

Clause 3.1.5 of the settlement agreement described the expert’s role as follows:

“the Expert shall act as an expert and not as an arbitrator and the Expert’s written decision on matters referred to her pursuant to the Joint Letter of Instruction shall be final and binding in the absence of manifest error or fraud.”

The settlement agreement also contained a provision for interest to be paid on the share price if completion of the share sale had not taken place by six months from the date of notification of the determined price from the expert.

Ms Hennessy was duly instructed as the nominated expert under a letter of instruction dated 23 June 2015. The letter included the following clauses:

“2.1

Please accept this letter as our joint instructions to prepare a written valuation of each of the minority shareholdings in Hi2 Limited set out in the table below (‘the Minority Shareholdings’). The valuations are to be on such bases as you shall consider appropriate save as provided in this letter of instruction. Please provide your valuations in writing as soon as possible, it being acknowledged that it is likely to take in the region of 8 to 12 weeks for you to complete your valuation. A copy of the valuation should be sent simultaneously by email to both of us when it is completed.

2.2

Your valuations will be legally binding upon the two of us and the Minority Shareholders and will determine the price to be paid for the purchase by DGW (or parties nominated by him) of all or some of the Minority Shareholdings.

4.1

The valuations shall be as at 30 June 2015 (‘Valuation Date’).

4.2

The valuation of each Minority Shareholding shall be at a discount against the full value of Hi2 to reflect the minority status of the Minority Shareholdings.

4.3

The percentage rate of the discount shall be determined by you in your professional capacity by reference to discounts applicable in companies operating in similar industries to Hi2 and having taken account of the representations made by each of us and all relevant factors that you consider appropriate. DGW is of the opinion that each Minority Shareholding should be valued independently of the others, whereas RG is of the opinion the minority shares should be valued as 1 block.

4.6

You are instructed to take the following matters into account in reaching your valuation:

4.6.1

Non-business related payments: any funds or assets of whatever nature withdrawn or transferred from Hi2 (or any of its subsidiaries) by DGW or his members of his family, his agents or associates since 1^st January 2007 for any purpose which was not strictly related to the needs of the business will be treated as a debt owed to Hi2 by DGW at the Valuation Date and the valuation shall be based on the assumption that (a) the debt is owed by DGW and (b) that no discount of this debt is applicable. …

4.6.5

Asset transfers: any transfers of assets, including intellectual property, to other companies, including but not exclusively to companies in which Hi2 has a shareholding, shall be fully declared to you by DGW and/or Hi2 within 5 working days of the date of your acceptance of these instructions. Where such a transfer is deemed by you to have resulted in material prejudice to the value of Hi2, you shall be entitled to take account of that prejudice in reaching your valuation of the Minority Shareholdings.

4.8

Properties – the two freehold properties (The Boathouse, Richmond, which is owned by Hi2 and Warren Farm, which is owned by Hi2’s subsidiary, Warren Farm (Culham) Limited) shall be professionally valued as at the Valuation Date by independent valuers chosen by you.

5.2

RG and DGW or their respective advisors shall each be permitted to make written representations to you provided that you shall not be obliged to take into account representations made after the expiration of 21 days from the date on which the bank statements are provided to RG pursuant to paragraph 4.4 above.

6.

There shall be no variation to these instructions unless agreed in writing by both of us.”

The letter of instruction did not contain any provision requiring the expert to give reasons for her determination. The expert’s engagement letter dated 25 June 2015, and signed by both Mr Griffin and Mr Wainwright, confirmed among other things that “My report will be a short form report and will not provide reasons”. On this basis it was common ground that the expert was entitled not to provide any reasons at all for her valuation. Nevertheless, in the event her determination did include some partial reasons, which are of significance to the issues in dispute.

The expert’s engagement letter of 25 June 2015 also provided that “I will release my written valuation opinion only after receipt of all outstanding sums due to me.”

During the course of the remainder of 2015, and January 2016, the parties made various submissions to the expert on matters relevant to her valuation of the minority shareholdings. An important issue was the valuation of the two properties owned by Hi2 (or its subsidiaries), namely The Boathouse and Warren Farm, which were the main assets of the company. The expert commissioned Charterfields, Chartered Surveyors, to provide an independent valuation of those properties.

Mr Wainwright was cross-examined about the information that he provided to the expert and Charterfields for the purposes of their valuation of The Boathouse. A key issue was whether that property, albeit classified as a commercial property, might satisfy the criteria to obtain planning permission for residential use by reason of the fact that it had in practice been let out to numerous individual residential tenants over the previous years.

On this question, the contemporaneous documents submitted by Mr Wainwright to the expert present an inconsistent picture of the use of the property. By way of example, on 17 August 2015 Mr Wainwright had told the expert that the property “was purchased by Hi2 circa 5 years ago. It was used for 3 years as offices/commercial and has been used for the past 3 years as an HMO … the environment agency will not allow residential accommodation on the ground floor.” A month later, on 22 September 2015, Mr Wainwright sent the expert a document giving a different story: that the property “has been 100% residential accommodation since November 2009”, with details of the tenancy of two ground floor flats since December 2009/January 2010. His witness statement gave a yet further explanation, saying that the property “was divided into 3 flats in circa October 2011 and let to individual tenants. The first tenant to move into the self-contained studio flat was in October 2011.” In oral evidence, Mr Wainwright was unable to reconcile these discrepancies. His evidence was also confused on other points, in particular on the question of whether the property was ever “being cleared to [be] let as commercial” as he had claimed in a further email on 17 August 2015.

It is regrettable that Mr Wainwright gave such contradictory information to the expert and Charterfields regarding the use of The Boathouse. Mr Wainwright repeatedly said, in oral evidence, that the use of the property was “complex”. It does not seem to me, however, that this should have prevented Mr Wainwright from providing clear and consistent details of the occupation and use of the premises since its acquisition by Hi2, particularly given the fact that the property was one of the main assets of the company that fell to be valued.

Charterfields ultimately valued Warren Farm at £1,600,000 and The Boathouse at £1,650,000. It appears that the expert informed the parties orally of these valuations. Those were the figures then used by Mr Griffin in his final submissions on the value of the company, sent to the expert on 20 January 2016. Mr Wainwright’s final submissions to the expert, sent on 18 January 2016, did not refer to the value of either of the two properties.

A further issue relevant to the present proceedings, which was disputed in the submissions to the expert, was the discount against the full value of the company to be determined by the expert pursuant to clause 4.2 of the letter of instruction, to reflect the minority status of the minority shareholdings. On 18 October 2015 the expert sent the parties an email in which she noted, among other things, that:

“DW asked me … for sources of information about appropriate ‘discounts’ applied to arrive a minority valuations when compared with entire entity valuations. There is a large body of research about this subject and as concerns shareholder disputes a large amount of case law. In summary, there is no general rule and it depends on the specific circumstances. I am required to take into account all relevant factors which I consider appropriate. It seems to me that paragraph 4.6.1 of the agreed instructions is also relevant.”

On 19 October 2015, Mr Wainwright replied querying the relevance of clause 4.6.1 to the minority discount calculation, on the basis that he understood that “this refers to the Debt … and not to the minority share discount. I previously clarified this with Robert [Griffin] in an email prior to the signature of the agreement.” His position was that the minority discount should be applied to the entirety of the company valuation.

According to Mr Griffin’s witness statement, after a meeting with the parties on 4 November 2015 the expert stated that she believed that the monies found to have been withdrawn by Mr Wainwright (which under clause 4.6.1 were to be treated as debt owed by Mr Wainwright to the company) should be “subject to a discount rate of 0%”. The next day, the expert sent the parties an email saying that “As far as the ‘discount’ is concerned the parties will be at liberty to make representations. My reading of paragraph 4.6.1 is that … the debt adjustment is not subject to a discount. If this paragraph means something else to both parties then the meaning needs to be clarified in writing. It seems unambiguous and clear to me.”

Mr Wainwright’s final submission to the expert maintained that there should be a minority share discount, saying that:

“Given clauses 4.2 and 4.6.1, it is clear that both parties agreed that there would be a minority share discount and that the parties expressly excluded my debt to the company from this discount. If there has been any detriment to the value of Hi2 as a result of any asset transfers (which I deny) then the detriment has already been taken into account.”

This submission, to which no reference was made at the hearing, is ambiguous. Read in isolation, the statement that “the parties expressly excluded my debt to the company from this discount” could possibly be interpreted as indicating that the debt referred to in clause 4.6.1 should not be subject to the minority discount. However, given the comments in the remainder of the paragraph and Mr Wainwright’s previous email of 19 October 2015, it seems likely that he was intending to say the opposite.

Mr Griffin’s final submissions on the minority discount were, by contrast, clear. He said that (1) no discount should be applied to the funds diverted from the company for Mr Griffin’s personal use, which he said was “in line with practice in cases like this”; (2) the discount on the property value should be low, on the basis that both buildings could be sold relatively quickly; and (3) he accepted that the discount on the intangible assets should be “far greater”, given that these assets would be far more difficult to sell.

On 17 February 2016 the expert emailed the parties saying “I have completed my determination and will release it once my invoice has been paid in full”. In a further email on 24 February 2016, in response to a query from Mr Griffin, she said that “My determination was ready to collect on 17 February and was signed and dated on that day, the date on which I sent out my invoice”.

On 1 March 2016, following further correspondence between the parties and the expert, the expert emailed both Mr Griffin and Mr Wainwright stating that:

“My determination is complete and will be released once I have received payment in full. In keeping with my usual procedure, I am not entering into any discussion or further correspondence about it with either party. This is a policy generally adopted by experts carrying out binding determinations in order for the determination to bind the parties.”

The reason for the delay in releasing the determination was, as those emails indicate, the fact that the expert’s outstanding invoice had not been paid. Mr Griffin paid his share of the fees on 4 March 2016, but Mr Wainwright said that neither he nor the company had sufficient cash to pay his share.

On 11 March 2016, Mr Wainwright told Mr Griffin that The Boathouse had been put on the market. On 24 March 2016, Mr Griffin discovered that the property was being advertised for sale through Foxtons Estate Agents, with an asking price of £4.5m. He emailed the expert the same day, attaching a link to the Foxtons advertisement and saying that:

“I understand that property valuers commonly ascribe differing values but where there is a valuation delta of nearly 300% with London’s largest estate agency, I think it is only reasonable that a review of the valuation be made.

…

During this process we have seen many instances of David prejudicing shareholders. In my humble opinion, this is just another example.

I apologise for raising this issue but I hope you appreciate that in the circumstances 300% is too large a valuation delta to be ignored.”

On 5 April 2016, Mr Griffin forwarded to the expert an email exchange between himself and an employee of Foxtons as to the classification of The Boathouse as commercial or residential property. On 23 April 2016 he sent another email saying that

“One point that I can’t recall if I mentioned the other day but which did occur to me is that Foxtons produce statistics of the percentage deviation from their initial valuation quote at which their properties are sold.

You could agree a given number of standard deviations from the Foxtons initial value would be appropriate based on their valuation. This seems a better way than getting a new valuer who will face the same issues. Perhaps that valuer could themselves speak to Foxtons but this must be handled delicately in [that] David believes that such interaction is against the interests of the company.”

On 12 May 2016 Mr Griffin forwarded to the expert a note of a conversation between an associate of his, Chris Goodall, and the Foxtons valuer responsible for The Boathouse. The note recorded the Foxtons valuer as saying that many developers had been interested in the property, but that the vendor was “completely unwilling to contemplate a price below £4m and was turning all interest away below that level.” Mr Griffin said to the expert that “I have not sent this document to David [Wainwright]. Given the personal issues between him and Chris, I would prefer for it not to go to David.” In the same email, Mr Griffin informed the expert that he had, that day, paid Mr Wainwright’s share of the outstanding invoice. (Mr Wainwright subsequently repaid Mr Griffin.)

Mr Griffin’s evidence was that, in addition to the email communications set out above, he had three conversations with the expert regarding the valuation of The Boathouse. It appears from Mr Griffin’s account of those conversations that the expert took the view that she could amend her determination. It also appears that the expert went back to Charterfields and asked them for their view on their valuation in light of Foxtons’ marketed price. Charterfields apparently considered that their original valuation was still a fair one based on the information that they had been provided with, and said that they would not be happy to revise it. The expert also, apparently, contacted both Foxtons and Richmond Council with various queries, and had also approached a different valuer with a view to commissioning a further valuation, although it seems that she did not pursue that further.

None of Mr Griffin’s communications with the expert between 24 March 2016 and 12 May 2016 were disclosed to Mr Wainwright. Nor did the expert approach Mr Wainwright to invite any further representations from him on the matter. Mr Griffin commented on this in his witness statement as follows:

“I recall asking the Expert whether she would be speaking to Mr Wainwright. She stated to me that she had concluded that she did not need to speak to Mr Wainwright because he had already had ample opportunity to make representations about the Property valuation and that the appointment of Foxtons to market the Property at this price was already known to him. The expert also informed me that having revisited the [letter of instruction] and considered all of the options, she had decided that the best way to deal with the issue was by way of an adjustment. I did not press for clarification of what she meant by that.”

Following the conversations and correspondence with Mr Griffin set out above, the expert revised her determination. She emailed that revised determination to the parties on 17 May 2016. The determination took the form of a letter to the parties, bearing the same date. The letter noted at the outset that:

“In accordance with your agreed instructions I have determined the value of the minority shareholdings in Hi2 Limited (‘Hi2’) as at 30 June 2015. The valuation is … solely for the purpose of determining the settlement agreed between the parties and it is not to be relied upon for any other purpose or by any other party. This valuation has been prepared on the specific bases set out in your Joint Letter of Instruction. It is not an open market valuation. …

The parties and they have made representations and commented upon the representations of the other party. Two joint meetings [were] held with the parties.”

After setting out the number of shares held by the various minority shareholders, the letter then contained three paragraphs which are of central relevance to the present dispute:

“Property valuation

There were two freehold properties. The Boathouse, Richmond was owned by Hi2 and Warren Farm which was owned by Hi2’s subsidiary, Warren Farm (Culham) Limited. These two properties were independently valued by a professional property valuer, Charterfields, Chartered Surveyors, a RICS registered valuer … Warren Farm was valued at £1,600,000 and The Boathouse at £1,650,000 by Charterfields.

Shortly after the valuation date, in I believe, July 2015, The Boathouse property was transferred out of Hi2 at a value of around £1.3 million. It was put on the market with Foxtons at £4.5 million in around March 2016 after I had confirmed on 17 February 2016 to the parties that my determination was completed but before my determination was released as I had not been paid in full. There appears to have been no material changes to the property and no change in the planning status since the valuation date.

Paragraph 4.6.5 of the agreed instructions provide that where there has been a transfer of assets which is deemed by me to have resulted in material prejudice to the value of Hi2 then I am entitled to take account of that prejudice in reaching my valuation of the Minority Shareholders.”

No further details were given of how the expert had “taken account of that prejudice” as set out in the third paragraph. Instead, after the paragraphs set out above, the letter proceeded directly to conclude that the value for each of the shares held by the minority shareholders was £310, giving a total value of the minority shareholding of £1,187,610.

For completeness it should be noted that the original version of the determination that had (the expert said) been signed on 17 February 2016 was never sent to the parties, and its contents remain unknown. In a letter to Mr Wainwright’s solicitors on 9 December 2016, the expert’s solicitors said that the “document referred to in AH’s email to RG and DGW of 17 February 2016 was never published or produced in hard copy. Furthermore, the electronic document of 17 February 2016 became the Determination.”

Following receipt of the email from the expert attaching her determination, Mr Wainwright did not pay the certified price to complete the share purchase. Nor, six months on, did he pay interest on the amount as stipulated in the settlement agreement.

Mr Griffin therefore brought proceedings in the County Court, in December 2016, claiming the interest. Mr Wainwright’s defence to those proceedings challenged the validity of the expert determination on the grounds that are now the subject of these proceedings.

Meanwhile, The Boathouse was sold to a third party on 25 May 2016 at a price of £4m, £2m of which was paid in cash with the remaining £2m structured as a loan to the buyer. That sale caused Mr Griffin to bring proceedings in this court seeking an injunction restraining Mr Wainwright from dissipating the proceedings of the sale of The Boathouse.

At a hearing on 24 May 2017, Rose J accepted interim undertakings from Mr Wainwright, and ordered an expedited hearing of Mr Griffin’s application, at which the court would resolve the question of whether the determination issued by the expert on 17 May 2016 was a valid determination. In the event the hearing before me solely addressed the latter of those issues. By agreement with the parties I directed that the determination of Mr Griffin’s injunction application should be adjourned until judgment on the validity point had been handed down, upon the continuation of the undertakings given to Rose J.

I now turn to the four grounds on which Mr Wainwright disputes the validity of the determination that was sent to the parties on 17 May 2016.

Mr Wainwright’s first ground is that once the expert signed and dated her determination on 17 February 2016, she became functus officio and could therefore no longer adopt a valid determination on 17 May 2016.

Mr Barden, representing Mr Wainwright, put his submissions on two alternative bases. What he described as his “hard case” was that the expert was functus officio at the moment when she signed her original determination. His “intermediate case” was that the expert was functus officio once she had both signed her original determination and announced to the parties (by email on the same day) that it was complete.

Mr Barden placed central reliance on the case of Hiscox v Outhwaite [1992] 1 AC 562, where an issue arose as to the place where an arbitrator had made his award – in Paris, where the award had been signed and dated, or in London, where it had been delivered to the parties. The Court of Appeal found that the award was made in Paris, and the House of Lords agreed. Lord Oliver said that:

“A document is made when and where it is perfected. An award is perfected when it is signed.

The alternative submission is that an award is ‘made’ when the arbitrator becomes functus officio and it is urged in the instant case that Mr. MacCrindle did not become functus officio until the parties were invited by the clerk of his chambers in London to take up the award. Up to that point of time, it is submitted, the arbitrator could have altered or withdrawn his award. Authority is of little assistance, but in so far as it exists it seems to me to be against the respondent’s proposition. Brooke v Mitchell (1840) 6 M. & W. 472, was a case in which, under a court order which provided for an arbitration, the award of the umpire was to be made and published, ‘in writing, ready to be delivered to the parties …’ The award was executed by the umpire in the presence of two witnesses to whom its contents were made known and was to be collected on the afternoon of the following day. One of the parties having died on the morning of that day, the question arose whether it had been ‘made and published’ in his lifetime. It was held that it had, Parke B. remarking, at p. 476:

‘it is only necessary that the act should be complete, so far as the arbitrator is concerned; that he should have done some act whereby he becomes functus officio and has declared his final mind.’

Alderson B. similarly observed, at p. 478: ‘the award is made and published, when the arbitrator, by some act, has expressed his final determination on the matters referred to him.’ The judgments in this case, which in any event depended on the award being ‘published’, certainly employed the term ‘functus officio’ but they in no way help the respondent. Indeed they seem to me to point strongly to the conclusion contended for by the appellant that it is the signature of the award that makes it complete so far as the arbitrator is concerned: see the interlocutory observation of Parke B., at p. 475. I do not, for my part, consider that it can be seriously open to doubt that Mr. MacCrindle had ‘declared his final mind’ when he signed the award in Paris.”

Mr Barden submitted that this passage supported both versions of his case. The difficulty with that submission is that Hiscox v Outhwaite concerned the question of where the award was “made”, rather than when the arbitrator became functus officio. The House of Lords did not pronounce on the question of when, precisely, the arbitrator had become functus officio; nor did it need to do so, since the dispute turned on where the award (the validity of which was not disputed) was made rather than the point in time at which the arbitrator had fully discharged his duties to the parties.

Mr Barden also relied on the 19^th century judgment in Brooke v Mitchell, which Lord Oliver referred to in the passage cited above. While the court in that case did clearly consider that the arbitrator was functus officio and could not revoke his award, at a point in time before the award had been collected by the parties, the basis for that conclusion was that the award had been executed in the presence of two attesting witnesses: see in particular Gurney B. at p. 478: “After the execution of the award, and its having been read over to the witnesses, there was as complete a publication of it as could be; the umpire could not afterwards revoke or alter it; and it was then ready to be delivered.”

In the present case, as at 17 February 2016, the most that the expert had done was to sign and date her determination. I do not think that it is relevant whether that was done in soft copy (i.e. electronically) or by printing a hard copy and manually signing the document. The point is that she had not provided it to the parties; nor had she “executed” it before witnesses (unsurprisingly, since the letter of instructions to her contained no such requirement). By contrast with Brooke v Mitchell, therefore, it cannot be said that by 17 February 2016 there was “as complete a publication of it as could be”. There was, indeed, absolutely nothing to stop her from changing her mind and revising the document before it was given to the parties.

The expert only became functus officio when she had sent her document to the parties. That was what clause 2.1 of the letter of instruction required her to do. Kendall on Expert Determination (5^th ed, 2014) likewise notes at p. 295 that “Once a decision which deal with all the points requiring to be dealt with has been issued to the parties, the decision is binding on the parties and the expert is functus officio.”

Mr Butler, representing Mr Griffin, also referred me to the case of Camden v McInerney (1986) 9 Con LR 99, where his Honour Judge Esyr Lewis QC considered the status of certificates for payment of building works, which were signed but never issued as required by the contract. He said this at pp. 115–16:

“If the final certificate was not issued to the employer as required by clause 3(8) of the conditions, as I have found, it seems to me that it has no effect at all. It is not binding on the parties. As I have said, it may have been signed in error by Mr Watts who, upon discovering his error refrained from issuing it. In any event, there is no reason that I can see why an architect should not change his mind after signing a certificate before issuing it and then deciding that he will not issue it. The mere act of signing a document which appears to be a certificate cannot, in my view, have any binding or conclusive effect when the contract under which it is issued requires it to be brought to the attention of the employer by the issue of it. I consider that the mere fact that the final certificate and interim certificate no. 56 were signed has no significance.

I do not consider that by writing his signature on a certificate the architect in the context of this contract is irrevocably committed to the opinion which the certificate purports to give. In my view, the final certificate only comes to life as a document which is legally enforceable as a certificate, opinion or decision of the architect if he issues it as required by clause 3(8). Before that, in my view, the final certificate was never more than a piece of paper with a signature on it.”

I respectfully agree. The same analysis applies in the present case. The expert was entitled to change her mind up to the point in time at which she sent her determination to the parties. It was only then that she became functus officio and her determination (as sent) became binding on the parties.

Mr Wainwright’s second challenge to the determination is based on the contention that the expert departed from her instructions in a material way by taking into account the fact that Foxtons had put The Boathouse on the market for an asking price of £4.5m, rather than relying solely on the Charterfields valuation of the property.

The general principle regarding a departure by an expert from her instructions is set out by the Court of Appeal in Jones v Sherwood Computer Services [1992] 1 WLR 277. In that case, Dillon LJ said this at p. 287:

“On principle, the first step must be to see what the parties have agreed to remit to the expert, this being, as Lord Denning MR said in Campbell v Edwards [1976] 1 WLR 403, 407G, a matter of contract. The next step must be to see what the nature of the mistake was, if there is evidence to show that. If the mistake made was that the expert departed from his instructions in a material respect – e.g., if he valued the wrong number of shares, or valued shares in the wrong company, or if, as in Jones (M.) v Jones (R.R.) [1971] 1 WLR 840, the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that – either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do.”

While there was some debate before me as to the nature of the materiality requirement referred to in that passage, this arose primarily in the context of the procedural fairness ground of challenge addressed below. In relation to the valuation point, if there was a departure from the expert’s instructions in the way alleged, it cannot plausibly be said that this was immaterial, given the importance of the properties to the valuation of Hi2 and the fact that the letter of instruction gave specific direction to the expert regarding the valuation of the properties.

The valuation point turns therefore on two questions: what did the letter of instruction require the expert to do, and what did she in fact do?

The relevant provision in the letter of instruction is clause 4.8. As set out above, that clause stipulated that The Boathouse and Warren Farm “shall be professionally valued as at the Valuation Day by independent valuers chosen by you”. It is common ground that this provision was inserted because the expert had no expertise in property valuation.

Mr Butler argued that the sole effect of clause 4.8 was to require the expert to obtain an independent valuation of the properties. It did not require her to use that valuation. In the alternative, he submitted that the most that the expert was required to do was to give due weight to that valuation. The first of those contentions takes literalism to absurdity. Clause 4.8 cannot be interpreted as allowing the expert to commission two property valuations by expert valuers, at the expense of the parties, and then simply to ignore them and adopt her own valuation, not least given the undisputed fact that she was not a property valuer and had no relevant expertise in that area.

As for Mr Butler’s alternative submission, clause 4.8 did not simply require the expert to “take account of”, or give “due weight” to, the property valuation she had obtained (by contrast with other provisions in the letter, such as clauses 4.3 and 4.6, which did refer to factors that should be “taken into account” by the expert). Rather, clause 4.8 simply specified that the valuation was to be conducted by the independent valuers selected by the expert. That difference in language, in my view, must mean that the element of the expert’s calculation of the total value of Hi2 representing the valuation of the two properties was to be, straightforwardly, the valuation of those properties obtained from the independent valuers. That does not require (contrary to Mr Butler’s submissions) the implication of any term into the letter of instruction. It simply requires clause 4.8 to be interpreted properly and in context.

The remaining question is what the expert actually did in this regard. Mr Butler says that this is a matter of conjecture, and that it is unclear whether the expert did indeed depart from her instructions. I disagree. The section of the expert’s determination entitled “Property valuation”, which I have set out in full above, makes abundantly clear that the expert did take into account, in determining the property valuation element of the total value of Hi2, the price at which Foxtons had put The Boathouse onto the market. It is also clear, not only from the wording of the determination in that regard but also from Mr Griffin’s evidence, that this is precisely the reason why the expert revised her determination after 17 February 2016. Indeed, as I have noted above, it appears that the expert told Mr Griffin that she was going to deal with the issue “by way of an adjustment”. Given the terms of this section of the determination, that adjustment must have been to the property valuation.

The determination does not set out the extent of the adjustment. But the nature of the adjustment is apparent from the determination: the expert sought to use clause 4.6.5 of the letter of instruction for that purpose. On its face, clause 4.6.5 permitted the expert to take account of transfers of assets that were deemed by her to have resulted in material prejudice to the value of the company. Mr Barden was, however, in my view right to say that this clause did not permit the expert to adopt a property valuation different from the valuation provided to her by the independent valuer she had chosen. To do so would have been a circumvention of the clear language of clause 4.8.

It would, I think, have been open to the expert to go back to the property valuers and ask them to take into account the further information she had received in considering whether their valuation should be revised. That is, indeed, precisely what the expert did. Charterfields’ response was to say that their original valuation should stand. Given that response, and absent any further valuation from a different valuer, it was not open to the expert to revise or adjust Charterfields’ valuation based on her own assessment of the matter.

I therefore conclude that the expert did depart materially from her instructions in relation to the valuation of The Boathouse.

Mr Wainwright’s third objection to the determination is the contention that the expert did not apply a minority discount as required by clauses 4.2 and 4.3 of the letter of instruction. Prior to the hearing, that objection was put on the basis that the expert had failed to apply any minority discount at all. At the hearing, however, Mr Barden sensibly narrowed his case to focus on the question of the discount (if any) applied to the monies withdrawn by Mr Wainwright for purposes not strictly related to the needs of the business, which (as explained above) under clause 4.6.1 were to be treated as a debt owed by him to Hi2 at the valuation date. Mr Barden’s position was that the expert had indicated to the parties, prior to the determination, that she considered that the clause 4.6.1 debt adjustment should not be subject to any discount. He said that this was a departure from her instructions, because clauses 4.2 and 4.3 did not allow any part of the asset base of Hi2 to be subject to a 0% discount. The discount percentage chosen was, Mr Barden accepted, within the discretion of the expert, but he argued that it had to be greater than zero.

As with the valuation point, the first question is what the letter of instruction required the expert to do. While clauses 4.2 and 4.3 did require the expert to apply a discount to the value of Hi2, thus requiring the value of Hi2 to be reduced to some extent, I consider that the language of those clauses did not require the expert to apply a uniform discount percentage across all categories of assets. Rather, the expert was given a broad discretion to decide the appropriate discount to the value of the company by reference not only to the practice of other similar companies but also taking account of “all relevant factors” that she considered appropriate. The expert was therefore not precluded from applying a 0% discount to the sums withdrawn by Mr Wainwright, provided that she did indeed apply some discount in relation to the other assets of the company.

In their submissions at the hearing, counsel also debated whether clause 4.6.1 itself specified that the debt adjustment should be subject to no discount for these purposes, by providing that “(b) … no discount of this debt is applicable”. The word “discount” in clause 4.6.1(b) is on its face ambiguous. While it could (as Mr Butler submitted) be a reference to the minority discount point, it could also (as Mr Barden submitted) be interpreted as saying that for the purpose of the valuation of the debt as an asset, there should be no discount to the sum calculated as having been improperly withdrawn, to reflect for example the risk of non-repayment of the debt. I consider that Mr Barden’s interpretation is the right one. I do not think that this clause was intended to be a derogation from the unqualified stipulation in clause 4.3 that the rate of the discount was to be determined by the expert. This does not, however, assist Mr Barden’s challenge to the determination given my conclusion regarding the meaning of clauses 4.2 and 4.3.

Had it been necessary to decide what the expert ultimately did in this regard, I would have been reluctant to find that she applied a 0% discount to the clause 4.6.1 debt adjustment. The determination is entirely silent on the point, and Mr Barden accepted that the expert was entitled not to set out what discount she had applied. He therefore rested his case on the comments by the expert prior to her determination. Those are certainly relevant, but it is also necessary to bear in mind that Mr Wainwright disputed the expert’s proposed approach in at least some of his submissions to her. In those circumstances, the expert’s initial indications of her thinking cannot be decisive. In light of my conclusions above, however, nothing turns on this: even if the expert did maintain her initial view, and decided that a 0% discount should be applied to the clause 4.6.1 debt adjustment, it follows from my interpretation of clauses 4.2 and 4.3 that she was entitled to do so.

The final ground of challenge to the determination turns on the fact that the expert entertained further submissions from Mr Griffin on the valuation of The Boathouse, after telling both parties that her determination was complete and that she would not enter into any further correspondence with either party, and without giving Mr Wainwright the opportunity to respond in any way to Mr Griffin’s comments.

The general principles on an expert’s duty of fairness were largely common ground. Both counsel referred me to the statement of Vos J (as he then was) in Ackerman v Ackerman [2011] EWHC 3428 (Ch), at [264], that “It is well established that an expert is not bound to observe all the rules of natural justice, though he does have an implied obligation of fairness”. I was also referred to Amec Civil Engineering v Secretary of State for Transport [2005] 1 WLR 2339, where May LJ said at [48] that if the expert

“entertains representations for one party over and above those inherent in making the request for a decision in the first place, fairness may require him to invite representations from the other party. But I would not go so far as to say that this is a straitjacket requirement in all circumstances. He may be well aware, as in the present case, what the other party’s position is.”

It was also common ground that a breach of the requirement of fairness would not be fatal to the decision where the result would “inevitably” (Amec at [50]) have been the same, or at least where it was at least “overwhelmingly likely” (Worrall v Topp [2007] EWHC 1809 (Ch) at [29]) that the decision would have been the same.

If it could not be said that the decision would inevitably or “overwhelmingly likely” have been the same, Mr Barden submitted that the decision should be regarded as invalid, or at least that this should be the court’s starting point. Mr Butler preferred the formulation of Vos J at [379] of Ackerman, that:

“it is generally the case that each party should have an opportunity to respond to contentions made by another party, and that the test for materiality in cases of departures from express or implied procedural instructions including an obligation of fairness is that: (a) if the decision was inevitable, it will not be material; (b) whether a determination is otherwise invalidated depends upon all the circumstances of the case, the nature of the omission or departure, and the effect it had on the expert in reaching his decision.”

It should be noted that the Court of Appeal gave permission to appeal from the judgment of Vos J in Ackerman. In stating his reasons for giving permission to appeal, Moore-Bick LJ said at [22]:

“The fact that the outcome would have been the same is arguably irrelevant ... The authorities tend to support the conclusion that the critical question is whether the expert adopted a non-contractual method, or (which is the same thing) departed to a more than insignificant degree from the procedure that had been agreed.”

Ackerman was, however, settled before the appeal was heard by the Court of Appeal, and this point was therefore not resolved. I do not think that it is necessary for me to resolve that debate either. In this case, it seems quite plain to me that, whichever test of materiality is adopted, the expert materially breached her duty of procedural fairness by engaging in discussions with Mr Griffin regarding the marketing of The Boathouse by Foxtons without giving Mr Wainwright an opportunity to comment on the issue.

The Boathouse was the single most valuable asset of the company, and its valuation would therefore inevitably have a material effect on the overall valuation of the minority shareholdings. The difference between the Charterfields valuation of The Boathouse and the Foxtons asking price was very large indeed, and Mr Griffin sent the expert three emails on the subject, as well as discussing the matter with her by telephone on three occasions. His comments did not merely provide information as to the Foxtons price but also relayed conversations between Foxtons and Mr Goodall, and suggested a methodology for taking account of the Foxtons price in the expert’s valuation. There is no doubt that these communications were designed to (and did in fact as I have found above) persuade the expert to revise her valuation. Those circumstances alone indicate that the expert should have invited Mr Wainwright to respond on the point.

Mr Butler said that any further submissions on the part of Mr Wainwright would have made no difference, because he had already made extensive submissions on the valuation of The Boathouse. Mr Butler also relied on the inconsistency of the statements made by Mr Wainwright in that regard, and the sale price ultimately realised for The Boathouse, and invited me to take account of these factors in the overall assessment of the fairness of the expert’s conduct. He referred in this regard to the comments of May LJ in Amec at [47] that the concept of fairness in this context “is flexible and tempered to the particular facts and occasion”, and the judge’s adoption of Cooke’s statement in the New Zealand Court of Appeal in Canterbury Pipe Lines v Christchurch Drainage Board (1979) 16 BLR 76, 98 that “[f]airness is a broad and even elastic concept”.

I do not consider that the concept of fairness is elastic enough in this case to accommodate Mr Butler’s submissions. I accept that Mr Wainwright had ample opportunity, prior to 17 February 2016, to provide information to the expert and Charterfields regarding the valuation of the property, and I have commented above on the unsatisfactory nature of those submissions. In relation to the specific issue of the Foxtons price, however, Mr Wainwright had made no submissions – not surprisingly, because Foxtons only put the property on the market in March 2016. Mr Wainwright has said, in his evidence, that if he had been given the chance to comment he would have made a number of points to the expert concerning the basis of the Foxtons valuation, the nature of the offers he had received for the property, and the structure of the ultimate sale of The Boathouse. It is not necessary for me to determine the merits of those points. It is sufficient to say that they are relevant comments which go specifically to the weight to be placed on the Foxtons price and the ultimate sale price, and which might well have affected the expert’s decision as to how to deal with this issue in her determination. In those circumstances, the failure to allow Mr Wainwright to respond to Mr Griffin’s submissions was a material breach of the expert’s duty of procedural fairness.

It follows that Mr Wainwright’s challenge fails on the functus officio and minority discount points, but succeeds on the valuation and procedural fairness points. The expert’s determination of 17 May 2016 is therefore invalid. I will hear further submissions on the injunction application in light of that conclusion.