Valuation Experts and The Nature of Personal Goodwill – The case of CSB 123 Limited and Caroline Stanbury [2021] EWHC 2506

Caroline Stanbury developed a business in which she provided personal fashion styling services to between five and ten extremely high net worth clients. She provided an intensely personal service, based on a close knowledge of fashion trends and the preferences of her clients.

She also habitually arranged all her clients’ gifts, for birthdays and Christmas. She realised that this part of the services that she provided could be expanded into a luxury gifts business with the potential to cater to a large number of customers. This was in clear contrast to the intimate client base that she maintained as a personal stylist. This new business was known as Gift Library.com Limited.

The Gift Library business model required significant infusions of cash: a main selling point was that all lines were always in stock and available for immediate delivery. This included some very expensive items of designer jewellery and handbags costing many thousands of pounds.

Artemis agreed to provide further funding; however, one of the terms of the offer was that Gift Library acquired Ms Stanbury’s personal styling business.

Trading continued, aided by the additional cash resources from Artemis. At a later stage other external investors became involved, and this resulted in increasing tensions in the boardroom. Ms Stanbury maintained that at least one of these investors was difficult to work with as he had insufficient knowledge of the luxury retail sector.

Ms Stanbury decided to leave Gift Library. It was agreed that her personal fashion styling business would be transferred to her for a nominal £1. The relevant company remained owned by Gift Library but became dormant.

The serial infusions of cash were not enough to resolve the various problems of Gift Library. Liquidators were appointed: they brought a claim against Ms Stanbury, stating that the personal styling business had been wrongfully transferred. A claim was made for £1.4 million.

The Judge was critical of the case brought by the liquidators: they had been careless in losing records and not finding out basic facts. There was a long delay in bringing the proceedings and the Judge stated that there was no adequate explanation for this.

The Judge also stated: “Read as a whole, the correspondence in evidence exchanged between the parties on the issue of access to documents casts the Applicant and his solicitors in an extremely poor light.” He also described this as an extremely lazy and unhelpful way of conducting litigation.

Each side appointed business valuation experts: they fared very differently both in the witness box and in the written decision.

The expert appointed on behalf of the liquidators did not fare well in the witness box. His report did not stand up to close scrutiny and he had no persuasive answer to a number of key questions put to him in cross examination. The written decision included the comment:

“One of his responses in cross examination was so astonishing that he had to be reminded by the court that he was giving evidence under oath and that the court process was 'not a game'. He twice apologised to the court for his answer after that intervention.”

The expert attempted to defend his position by stating that his valuation was done at a high level and that he did not go into extensive detail given his instructions and budget. He also stated that there had not been an in-depth analysis of various valuation metrics and that his evaluation models were not detailed or comprehensive. Some of his evidence was described as “utter and total nonsense.”

The Judge was scathing in his criticism: “..[the expert’s] report was an unimpressive, results-driven piece of work. His attempts to defend it in oral testimony were entirely unpersuasive. In my judgement, very little weight can be placed on [the expert’s] written and oral expert evidence.”

The expert appointed on behalf of Ms Stanbury used Fair Market Value as the basis of value. The reason for this choice is not stated.

The Judge’s comments about the evidence of this expert were in the greatest contrast to the above criticisms. He presented as an entirely credible witness with a keen awareness of his oath and his duty to assist the Court. His report was described as being extremely thorough.

The expert for the liquidators did not address the personal nature of the goodwill in Ms Stanbury’s fashion styling business. He also failed to include any amount for the notional remuneration of Ms Stanbury.

The Judge referred to some earlier cases in respect of goodwill: firstly, an extensive quote from one of the seminal business valuation cases: Inland Revenue Commissioners v Muller and Co's Margarine [1901] AC 217:

'What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom…'

In the Scottish case of Reid v Reid 1938 SLT 415 it was recognised that goodwill in businesses such as surgeons, artists or advocates was likely to be personal to the individual.  This case then reached back further into history to the case of Drummond v Assessor for Leith (1886, 13 R 540), which made a similar point.

The written decision then considered a more recent case of Sofra Bakery Limited [2013] EWHC 1499; this is a case of considerable interest. The business was sold for a price including goodwill. The goodwill proceeds were paid to Mr Ucar, the Turkish baker, not the company. The Court held that the goodwill was personal to Mr Ucar and that he had granted the company an implied licence to use that goodwill (there had been no accounting for goodwill on the incorporation of the trade into the limited company).

The Judge decided that the goodwill generated by Ms Stanbury’s styling business were at all material times personal goodwill.

The Judge was evidently not enamoured of the conduct of the liquidators and their legal advisers in the litigation. He commented on closing: “It is most regrettable that [Ms Stanbury] and her family have been put through the stress of these proceedings.”