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A library of key cases relevant to accounting expert witnesses, with links to the judgments on the British and Irish Legal Information Institute (Bailii) website and related articles held by the ICAEW Library and Information Service.
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Developed by the ICAEW Library & Information Service on behalf of the Forensic & Expert Witness Community committee.

The ICAEW Library and Information Service can also supply ICAEW members and ACA students with the case transcript and related commentary. Additionally a number of the articles and books in the Library collection highlight relevant cases.

Audit negligence

Moore Stephens (a firm) & Moore Stephens LLP vs Stone & Rolls Limited (in liquidation)
[2009] UKHL 39
An appeal from 2008 EWCA Civ 644 and [2007] EWHC 1826
Stone & Rolls (S&R) alleged that during the years 1996, 1997 and 1998, their auditing company Moore Stephens conducted their duties as auditors negligently. S&R claimed for USD 173.6 million in damages arising from a credit fraud committed against banks by S&R's owner, a Mr Stojevic. They argued that Moore Stephens ought to have detected the fraud.

The following related articles are available on request from the ICAEW Library and Information Service team:

  • House of Lords upholds Moore Stephens audit negligence strike-out 
    Audit and Beyond, No.143, October 2009, page 5
    The authors report that as one of its last decisions before it morphs into the Supreme Court, the House of Lords recently denied Stone & Rolls' appeal against the Court of Appeal's decision to strike out its $174 million audit negligence claim on illegality grounds. They provide details of the case, look at the findings and weigh up the implications.
  • Stone & Rolls: a step forward? 
    International Accountant, No.49, October/November 2009, pages 28-29
    Asks how far will the Stone & Rolls decision change the responsibility of auditors in fraud cases. The authors cover the facts of the case, including references to Zvonko Stojevic and Moore Stephens; the result; analysis of the auditor's duty, including citation of Caparo Industries Plc v. Dickman; and the minority view.

Caparo Industries plc v Dickman and others
[1990] UKHL2

The following related articles are available on request from the ICAEW Library and Information Service team:

  • Caparo revised 
    Corporate Financier, September 2000, pages 9-10
    The author assesses the likely outcome of the consultation on company law reform and auditor liability. He considers the perceived limitations of the decision in the Caparo case and who should be able to rely on audited accounts. 
  • Is Caparo still good law? 
    Accountancy, April 2000, page 149
    As every auditor knows, Caparo is the key case on auditor's liability. But is that still what the courts think? The author investigates some recent cases including BCCI (Overseas) v Price Waterhouse (No2) [1998]; Electra Private Equity Partners v KPMG [1999] Lloyd's Rep PN670; and Andrew v Kounnis Freeman [1999] 2 BCLC 641.

Galoo Limited and others vs Bright Grahame Murray and others
[1993] EWCA Civ 3

Balance sheet insolvency

BNY Corporate Services Ltd v Eurosail
[2011] EWCA Civ 227
An appeal and a cross-appeal from a decision of the Chancellor of the High Court given on 30 July 2010 – [2010] EWHC 2005 (Ch)

The following related articles are available on request from the ICAEW Library and Information Service team:

  • Upsetting the balance 
    New Law Journal, 8 February 2013, pages 135-137
    Since the Court of Appeal's decision was handed down in the Eurosail case, lawyers representing liquidators of failed trading companies have encountered difficulty pursuing antecedent claims against the former directors (delinquent directors). 
  • Eurosail and balance sheet insolvency, are we any clearer? 
    Corporate Rescue and Insolvency, August 2013, pp.83-86.
    The Supreme Court has interpreted the balance sheet test contained in Insolvency Act 1986 s.123(2) as requiring the court to be satisfied, on the balance of probabilities, that a company has insufficient assets to be able to meet all its liabilities, including prospective and contingent liabilities. Contrary to the interpretation of the Court of Appeal, it does not require the company to have reached the point of no return. The case is fact sensitive and should not be regarded as an exact test; there remains doubt as to how prospective liabilities should be taken into account for the purpose of the balance sheet test.

Costs

Altomart Limited v Salford Estates (No. 2) Ltd (Rev 1) [2014] EWCA Civ 1408
An application for an extension of time in which to file a respondent's notice under CPR 52.5(2)(b) - the application was granted. The court gave guidance on the approach to be adopted to applications of this kind in the light of the court's decision in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537.

Andrew Mitchell MP vs News Group Newspapers Limited [2013] EWCA Civ 1537
An appeal from two decisions made by Master McCloud regarding cost budgeting and relief. The claimant failed to file their costs budget within the prescribed time period, leading to the Master ordering the claimant's costs budget to be taken as limited to court fees. The claimant applied for relief from sanctions, which was refused on the grounds of the recently introduced rules for costs budgeting in civil litigation requiring strict compliance. The appeal was dismissed.

See related article:

Caliendo & Anor v Mishcon De Reya (A Firm) & Anor [2014] EWHC 3414 (Ch)
An application for relief from sanctions imposed under the CPR rule 44.3B. Judgment made to allow the application and give the relief sought.

Denton and others v TH White Ltd and another; Decadent Vapours Ltd v Bevan and others; Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906
Appeals concerning relief from sanctions pursuant to CPR r 3.9 - all three appeals were allowed. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

Digicel (St Lucia) Ltd & Others vs Cable & Wireless PLC & Others 
[2011] EWCA Civ 606
An appeal from [2010] EWHC 774 (Ch)

Excalibur Ventures LLC v Texas Keystone Inc & Ors (Rev 2) [2014] EWHC 3436 (Comm)
Excalibur had brought earlier proceedings - see [2013] EWHC 2767 (Comm) - concerning an alleged lost opportunity to develop oil reserves in Kurdistan against the first defendant (Texas) and companies in the Gulf group (the Gulf defendants). The commercial Court dismissed this claim and held that Excalibur was responsible for costs on an indemnity basis. As Excalibur's claim had been financed by a number of parties, the proceedings in EWHC 3436 concerned how the costs payable should be divided between the costs defendants.

Walker Construction (UK) Ltd v Quayside Homes Ltd & Or [2014] EWCA Civ 93
The Court of Appeal reversed a costs decision in an exaggerated claim.

See related article:

Currency of claim

Barings Plc (in liquidation) and another vs Coopers & Lybrand (a firm) and others and Barings Futures (Singapore) PTE Ltf (in liquidation) and Mattar and 36 others
[2003] EWHC 2371 (Ch)
A further judgment in proceedings consequent on the collapse of the Barings Group in February 1995. A follow on from the judgment of Mr Justice Evans-Lombe in [2003] EWHC 1319 (Ch).

Evidence of pre-contractual negotiations

Chartbrook Limited (Respondents) v Persimmon Homes Limited and others (Appellants) and another (Respondent) [2009] UKHL 38 An appeal from [2008] EWCA Civ 183

See related publication:

Expert witness evidence

Cases impacting the role of expert witnesses:

Change of expert

Allen Tod Architecture Ltd v Capita [2016] EWHC 2171 (TCC)
In this case the defendant applied for disclosure of the claimant's report from its first expert, after the claimant became unsatisfied with the expert's ability to express his views clearly and requested to be allowed to instruct a new expert. The court granted permission to change experts but only subject to the condition that the claimant disclosed the original expert's draft report and other documents which recorded his views. In the later case Vilca v Xstrata Limited [2017], listed below, the court decided that as the change of expert was due to ill-health the original expert's report did not need to be disclosed.

The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related article:

Clarke v Barclays Bank plc and Lamberts Surveyors Limited
[2014] EWHC 505 (Ch)
The claimant had brought a claim against the defendant bank, alleging that it had sold his mortgaged property at a gross undervalue. The claimant sought expert evidence but the valuation expert shortly decided to retire and withdraw from the case. The claimant took over 6 months to advise the courts or defendants that his original expert had withdrawn. He was refused permission to rely upon a report from a new expert as this was a serious abuse of the court’s process.

Vilca v Xstrata Limited [2017] EWHC 1582 (QB)
The claimants are 22 Peruvian nationals claiming damages for personal injuries alleged to have been sustained during a protest at the Tintaya copper mine in May 2012. Having prepared a report, Professor Revoredo (an expert acting for the defendants) then withdrew before the trial due to ill-health. The defendants requested extra time to enable them to instruct a new expert; the claimants submitted that the court should require the disclosure of the report previously prepared by Professor Revoredo as a condition of being able to call a new expert. The court ruled that the substitution of a new expert due to the Professor's ill-health did not count as the disreputable practice of 'expert shopping' and therefore her report did not need to be disclosed.

The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related article:

X And Y (Delay: Professional Conduct of Expert)  
[2019] EWHC B9 (Fam)
Dr Ward had agreed to undertake medical examinations, review of medical records and prepare a report for the court relating to X and Y, two children with complex needs. Following severe domestic pressures, she was unable to keep to the timescales she had committed to. The Judge agreed that it would be appropriate for Dr Ward's instructions to be terminated and an alternative expert appointed. They commented that Dr Ward's behaviour had not met the standards expected of an expert witness. 

See related article:

  • Re X and Y
    ICAEW Valuation Community newsletter June 2021 article on how this case relates to the obligations of an expert witness. 

Expert independence and conflicts of interest

BDW Trading Ltd v Integral Geotechnique (Wales) Ltd [2018] EWHC 1915 (TCC)
An unsuccessful claim brought by the national housebuilding firm BDW (part of the Barratt Group) against the defendant firm of consulting engineers over advice given on asbestos risk. An issue arose in the evidence of Dr David Tonks, who accepted that he had sent the first draft of the experts' joint statement to IGL's solicitors for their comments. 

See related articles:

  • The expert in court
    A Valuation community September 2019 newsletter article by Andrew Strickland, which considers the transgression made by the expert in sending a draft to his instructing solicitors.

EXP v Dr Charles Simon Barker [2017] EWCA Civ 63
The Court of Appeal dismissed an appeal from an expert witness whose impartiality in a clinical negligence case had been judged to be undermined, confirming the importance of disclosing any personal connections which could affect the expert's independence.

See related article:

Gardiner & Theobald LLP v Jackson [2018] UKUT 253 (LC)
A case concerned with whether an expert witness (a surveyor) was acting on a conditional fee arrangement, and if success-related fees are compatible with the expert witness's obligation to act independently.

See related article:

The Governors and Company of the Bank of Ireland and another v Watts Group Plc [2017] EWHC 1667 (TCC)
The High Court ruled that an expert quantity surveyor was not a properly independent witness, partly because he had too close a relationship with the Bank, which was his principal client. The expert, Mr Vosser, also appeared unclear on the difference between acting as the Bank's advocate in a situation such as a mediation and his duties to the court when giving expert evidence. Other faults included not keeping within the boundaries of allegations and straying into commenting on other failings that were not pleaded issues. Appropriate economy in litigation should be practiced - in this case, Mr Vosser had charged more than £24,000 to appraise services that Watts Group had charged at £1,500. 

See related article:

Hopkinson v Hickton
[2016] EWCA Civ 1057
In this case the expert valuer had some prior involvement with the land that was the subject of their evidence. The expert had carried out an independent valuation of land, but as they had done a prior valuation three years previously, this created an issue regarding whether they were truly an 'independent' valuer or had a vested interest in reaching a conclusion consistent with their earlier valuation figure. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related article:

Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2018] EWHC 1577 (TCC)
Several expert witnesses gave evidence in this case, including forensic accountants. The evidence of ICI’s expert witnesses drew criticism for factual inaccuracy, inconsistency and lack of independence. The experts on both sides were also criticised for a lack of cooperation between them in the preparation of the Joint Statement by the quantum experts.

See related article:

Technomed Ltd v Bluecrest Health Screening Ltd [2017] EWHC 2142 (Ch)
In this case concerning alleged copyright infringement, a specialist physician witness failed to declare a conflict of interest: he was a director of a company involved in commercial discussions with one of the parties to the litigation. The judge held that he could not be considered an independent witness.

See related article:

  • Conflict of interest and expert witness
    Dr John Sorabji summarises lessons for expert witnesses from this case. This article first appeared in the Expert Witness Institute Member Newsletter, Winter 2017 edition.

Expert's judgement questioned

Homepace Ltd v Sita South East Ltd [2008] EWCA Civ 1
An appeal to decide whether a certificate issued by an expert under a lease was valid and binding. Judgment made that the certificate was not binding between the parties as the expert did not proceed on the correct basis when making his determination.

See related article:

Mark Simon Reynolds (as liquidator of CSB 123 Limited) v Caroline Stanbury
[2021] EWHC 2506 (Ch)
The expert valuation evidence given by the expert appearing for the Applicant was criticised by the Judge, who considered that his report "did not stand up to close scrutiny", he "had no persuasive answer to a number of key questions" and at points in his oral testimony "failed to comply with his overriding duty to assist the court". In contrast, the expert appearing for the Respondent received praise for staying within the bounds of his report and research under cross-examination. 

Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 EGLR 148 
In this case an expert surveyor was appointed to determine the open market rent, on the assumption that the premises are “vacant but fit for immediate occupation and use”. The landlord was dissatisfied with the surveyor's determination and sought to have it declared a nullity in court. The judge considered that the expert had carried out his instructions and his decision was final and binding. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

R (Squier) v GMC [2015] EWHC 299 (Admin)
Dr Squier was subject to disciplinary proceedings before a GMC panel concerning allegations that her fitness to practice was impaired. It was alleged that she had deliberately misled the court in six cases of "shaken baby syndrome", in which she had given evidence as an expert consultant paediatric neuropathologist.

See related article:

  • Knock-on effect of Expert outside expertise
    Barrister James Bowling considers the case of R (Squier) v GMC and highlights the lessons for experts.

Shafi v Rutherford [2014] EWCA Civ 1186
An appeal from an earlier judgment made on a dispute regarding a chartered accountant's expert determination of an amount to be paid for the sale of a share in a dental practice. The judge declared that the chartered accountant's determination was not valid and enforceable. The appellant appealed but the appeal was dismissed.

See related articles:

Shell UK v Enterprise Oil [1999] 2 Lloyd’s Rep 456
Dispute over whether the appointed expert had properly provided an equity redetermination for a North Sea oilfield. The expert was bound by the contract to use a particular specialist software program, Z-Map Plus, but had mistakenly at first used an alternative program. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

Siegel v Pummell [2015] EWHC 195 (QB)
Mr Siegel had been injured following a collision between his car and that of Mr Pummell. Mr Pummell had accepted liability for the collision, but disputed the quantum of damages claimed. Mr Siegel succeeded in the assessment of damages hearing, with criticisms made by the judge for the way in which the defendant's expert gave evidence.  

Van Oord UK Ltd v Allseas UK Ltd [2015] EWHC 3074 (TCC)
The claimants made three disruption and prolongation claims against the defendant arising out of the laying of a gas pipeline. Both parties called expert witnesses; the evidence given by OSR's expert was of such poor quality that the judge deemed it entirely worthless. OSR's claims were denied and AUK counterclaimed the monies paid to OSR on an interim basis in respect of these claims.

See related articles:

  • Trial by ordeal - the case of Van Oord UK Ltd and Another v Allseas UK Ltd
    An ICAEW Valuation Group article by consultant Andrew Strickland, who considers the role of witnesses in court by looking at the judge's excoriating comments in the case. The expert witness needs to undertake full and thorough preparation for the level of scrutiny which can be expected during cross-examination. 
  • An expert horror story
    Briefing note from Clifford Chance on the expert witness element of the case.

Expert mandate, scope and admissibility of evidence

Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826
Expert should not have ruled on points of law.

Bernhard Schulte GmbH v Nile Holdings Ltd [2004] 2 Lloyd’s Rep 352, [2004] EWHC 977 (Comm)
The defendant sellers argued that the expert had acted outside his mandate in ruling a downward adjustment of the purchase price which had been paid on delivery.

De Sena & Anor v Notaro & Ors
[2020] EWHC 1031 (Ch)
A case involving three types of expert accounting evidence, relating to property valuation, share valuation and aspects of accountants' liability to do with demerger transactions. The judge raised a question on the admissibility of the demerger transactions evidence, as they felt the accountants acting for the claimants and the defendants both had not acquired sufficient experience in carrying out demerger transactions in order to be able to claim expertise in the area. HHJ Paul Matthews commented "expertise is acquired by doing the thing in question, usually over many years". 

London Executive Aviation Limited v Royal Bank of Scotland Plc [2017] EWHC 1037 (Ch)
A swap mis-selling claim against the bank. The claimant, LEA, applied to have expert evidence admitted at the trial regarding the suitability of the products LEA were sold. RBS opposed expert evidence being given - partly on the grounds that the application of the relevant legal standards was very fact specific to the LEA as a customer, meaning expert evidence by a practitioner on what they would hypothetically have done in the same circumstances would be of limited value. It would also be difficult for an expert to prepare evidence in advance as they could not reliably anticipate what facts would be proven at trial. The Judge, Mr Justice Newey, agreed with the Bank and decided that the monetary cost of allowing the expert evidence (both in terms of experts' fees and the impact on trial length) would not be worth the limited usefulness of the evidence.

In two previous swaps mis-selling cases, Battrick v Royal Bank of Scotland [2013] EWHC 4848 (QB) and St Dominic's Ltd v Royal Bank of Scotland [2015] EWHC 3822 (QB), Judge Havelock-Allan gave permission for expert evidence, but observed that each case has to be approached on its own facts. However in Darby Properties Ltd v Lloyds Bank [2016] EWHC 2494 (Ch), Master Matthews took a similar approach to Justice Newey in supporting the Bank and decided that expert evidence was not reasonably required for the Court to determine the points in issue.

The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related article:

Kennedy v Cordia (Services) LLP 2016
[2016] UKSC 6
Ms Kennedy, a home carer, had fallen on an icy path during a home visit and sought damages against her employer, Cordia. During the case's first hearing Cordia were held liable, but Cordia then successfully appealed, with the Extra Division of the Court of Session holding that the evidence of the health and safety expert acting for Ms Kennedy was inadmissible as it was only his own personal opinion. In a further twist, Ms Kennedy subsequently appealed and the Supreme Court found that the expert did in fact have the necessary experience and qualification to state that anti-slip 'Yaktrax' attachments for Ms Kennedy's shoes would have reduced the risk of slipping. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related article:

UPL Europe v Agchemccess [2016]
After permission had been granted for the parties to rely on chemical expert evidence, the defendants failed to reply to written requests from the claimants to clarify the proposed scope of their expert evidence. Following application by the claimants to the courts, an order was made that the defendants should engage in discussions about expert evidence and try to agree upon the scope and methodology for producing expert evidence. The defendants involved were ordered to pay 85% of the claimants' costs of the application. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary. 

See related article:

  • Expert evidence - The need to engage
    HerbertSmithFreehills Construction e-bulletin article, looking at how the case of UPL Europe v Agchemccess [2016] illustrates the actions a court or tribunal may take when a party is not cooperating in the expert evidence review process.

    • ZVI Construction Co LLC v The University of Notre Dame
    [2016] EWHC 1924 (TCC)
    Proceedings were brought by the claimant (ZVI) to try to prevent the defendant (UND) from enforcing the decision of an expert. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

    See related articles:

    • Grouped together
      A short summary of the ZVI v UND case in Clifford Chance's September 2016 Contentious Commentary client briefing, explaining that it illustrates how a group company can by their conduct become subject to expert determination. Requires free pdf download. 
    • Navigating the minefield of expert determination
      Nigel Jones QC analyses why the ZVI v UND case highlights important issues arising from expert determination clauses. Article published in August 2016 on the Hardwicke law firm website.
    • ZVI Construction v The University of Notre Dame
      Fenwick Elliott August 2016 update setting out five principles on adjudication which are relevant to the case.

Hot tubbing

Swain v Swains Plc
[2015] EWHC 660 (Ch)
[2015] EWHC 1183 (Ch)
[2015] EWHC 2585 (Ch)

A case in which the expert share valuation was taken concurrently. This was the first such case after the formalisation of the process for giving evidence concurrently in 2013. 

See related articles:

Gallagher v Gallagher
[2022] EWHC 53
Case involving valuation of a construction company and the husband's property portfolio, with valuations from a forensic business accountant, tax accountant and two surveyors.

See related article:

  • Holding hands on the pavement?
    ICAEW Valuation Community, 2023
    Andrew Strickland reports on this divorce case, in which the redoubtable Justice Mostyn commented on business valuation and the evidence of the two valuation experts involved. Evidence was given using the 'hot tub' method, with both expert witnesses being allowed to politely interrupt each other.

Interest

Sempra Metals Limited vs Her Majesty's Commissioners of Inland Revenue and another
[2007] UKHL 34
On appeal from [2005] EWCA Civ 389

The following related articles are available on request from the ICAEW Library and Information Service team:

  • HMRC's EBTs settlement initiative 
    Tax Journal, 10 June 2011, pp.12-13
    Discusses HMRC's announcement that employers who have utilised Employee Benefit Trusts (EBTs) and similar arrangements are to be offered the opportunity to resolve outstanding enquiries without recourse to litigation. In making the decision, much will depend on the confidence of the taxpayer that HMR will not succeed before the courts, should they decide to run similar arguments to those which failed to convince in the case of Sempra Metals Ltd.
  • Sempra Metals Ltd- The EBT: A cat with 9 lives 
    Tax Journal, No.948. 15 September 2008. pp.7-10
    The author, a partner in the corporate tax group at Macfarlanes LLP, considers the decision in Sempra Metals Ltd v HMRC on the taxation of payments to and from employee benefit trusts. 

Litigation privilege

Rawlinson And Hunter Trustees SA & Ors v Akers & Anor [2014] EWCA Civ 136
An appeal from the earlier judgment 2013] EWHC 2297 (QB) that five reports should be disclosed by the Appellants, Mr Akers and Mr McDonald. The appeal was dismissed.

See related article:

RBS Rights Issue Litigation [2016] EWHC 3161 (Ch)
Complex and long-running proceedings regarding three issues arising in the context of RBS's claim for 'legal advice privilege' and 'lawyers' working papers privilege'. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related articles:

Serious Fraud Office (SFO) v Eurasian Natural Resources Corp. Ltd [2018] EWCA Civ 2006
Appeal raising important issues regarding the proper scope of legal professional privilege. The court felt itself bound by the Three Rivers (No 5) approach that legal privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. 

See related article:

Sotheby’s v Mark Weiss Ltd [2018] EWHC 3179 (Comm)
In this case the High Court found that Sotheby's correspondence with art experts was not subject to litigation privilege as it was prepared for two purposes - only one of which was for contemplated litigation, and it was not proved that the litigation purpose was dominant.

See related article:

Starbev GP Ltd v Interbrew Central European Holding BV [2013] EWHC 4038 (Comm)
Starbev successfully challenged the claim of the Defendant to withhold inspection of two categories of documents on the ground of litigation privilege.

See related articles:

Three Rivers Council & Ors v Bank of England [2002] EWHC 2730 (Comm)
Three Rivers District Council & Ors v. Bank of England [2004] UKHL 48
Important case which raised fundamental points concerning the scope of legal professional privilege. 

The following related articles are available on request from the ICAEW Library and Information Service team:

  • Legal professional privilege: part 1- underlying principles
    J-P.Douglas-Henry, Tax Journal, No.897, 6 August 2007, pages 12-14
    In the first instalment of a two-part article, the authors cover legal professional privilege, including in the context of 'Three Rivers.
  • Three Rivers : what do I need to know?
    A.Wadey, Forensic Group News, No.26, November 2005, pages 7-8
    Three Rivers was the case that ruffled the feathers of the legal profession between 2002 and 2004, but does it affect your dealings with lawyers and clients? On the whole, no. However, the House of Lords judgment that finally brought matters to a close last November hinted at a possible impact in the future. The authors look at the background to the case and discuss what is legal professional privilege?; documents created by employees - when is a client not a client?; and advice on "presentational issues".

Loss of profit

Ultraframe (UK) Ltd vs Eurocell Building Plastics Limited
[2004] 1785 EWHC (Ch)

Yukos Universal Limited (Isle of Man) vs The Russian Federation
[2014] PCA Case No.AA 227
An arbitration before a tribunal constituted in accordance with article 26 of the energy charter treaty and the 1976 Uncitral Arbitration rules. The claimants alleged that Russia had violated its obligations under the Energy Charter Treaty, leading to Yukos being declared bankrupt in 2006. The Russian Government was ordered to pay damages of approximately $50 billion, based on the tribunal's calculation of the claimants' damages.

See related articles:

K v S [2019] EWHC 2386 (Comm) (09 July 2019)

Forensic expert appointed to determine the cause of the collapse of K’s business and quantification of losses – report concluded that the defaults of S resulted wholly or in part in termination of the head project and quantified those losses to be KD459 million. The forensic report was subsequently excluded from proceedings as “the report advanced a new claim which was not pleaded or sufficiently pleaded and should not be allowed in evidence”.

Kate Hart, Partner, Roffe Swayne

Bilcon of Delaware et al v. Government of Canada, PCA Case No. 2009-04

Claimants were US investors in a Canadian subsidiary established to provide a reliable supply of aggregate to Claimants (“the Whites Point Project”). Claimants alleged that the Environmental Assessment undertaken by the Government of Canada was arbitrary, discriminatory and unfair. The Permanent Court of Arbitration found partially in favour of Claimants.

Claimants claimed damages of USD 443.4 million and were awarded USD 7.0 million. 

Claimants argued that the discounted cash flow approach (DCF) should be used to determine lost profits from the investment. Tribunal rejected the use of DCF on the basis that Claimants had failed to prove, to the standard applicable under international law, that the White Points Project would have obtained environmental approval; without a high degree of certainty as to regulatory approval, no damages based on the profitable operation of the quarry could be awarded.

The Tribunal also added that, even in the event of an approval, the long-term future profitability of the Whites Point Project was uncertain for multiple reasons and that they would have rejected the use of DCF to determine lost profits: 

“While uncertainty may in principle be reflected in DCF valuations, many tribunals have declined to resort to DCF valuations of future profits where the investment is not yet a going concern, which has not generated any historic cash flows. In the present case, the uncertainty affecting future income streams is particularly pronounced. Not only was the quarry not a going concern so that future cash flows, positive and negative, are difficult to predict; more significantly, the evidence before the Tribunal is such that the Tribunal cannot, with a sufficient degree of confidence, conclude that the Whites Point Project could have generated long-term profits….The Tribunal therefore concludes that, even if it had found (contrary to its determination above) that environmental approval for the Whites Point Project would have been a virtual certainty, it would nonetheless have declined to award the Investors lost profits/compensation valued in terms of future earnings.” (para 278-9)

Instead, the Tribunal chose to value the lost opportunity based on indicators of value. Its primary valuation approach was the amounts expended by the Investors, with the secondary approach being past transactions involving the site.

Phil Hersey, Director, Berkeley Research Group (UK) Ltd

Misrepresentation and breach of contract

BSkyB Ltd & Another vs HP Enterprise Services UK Limited
[2010] EWHC 86 (TCC)
See also [2010] EWHC 862 (TCC) which deals with issues arising from the main judgment handed down on 26 January 2010.

Cardamon Ltd v MacAlister & Anor
[2019] EWHC 1200 (Comm)
A claim for damages arising out of claimed breaches of warranties contained in a share purchase agreement. A chartered accountant and forensic accountant both gave expert evidence on the value of Motorplus, an insurance provider. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

Dhir v Flutter Entertainment PLC
[2021] EWHC 1510 (QB)
The claimant (Amarjeet Dhir) sought to recover money he had advanced to Tony Parente, a gambling addict. One of the gambling businesses through which Mr Parente had lost money was Flutter Entertainment PLC. Forensic accountancy evidence was given by Guy Rolliston FCA and Noel Lindsay FCA, to assist with tracing where Mr Parente invested his money. No bank records or independent corroboration were available for the movements of Mr Parente's money, so it proved impossible for the experts to perform a sufficiently accurate tracing exercise. Judgement was made for the defendant. 

Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2018] EWHC 1577 (TCC)
ICI made allegations of defective work against MMT (a specialist engineering piping manufacturer), and instructed MMT to cease work. Each party in the quantum trial called both an expert accountant and a quantum expert who was a quantity surveyor. The experts considered the value of the work carried out by MMT and what damages MMT were entitled to cover as a result of ICI's repudiatory breach of contract.

See related article:

Lictor Anstalt v Mir Steel UK Ltd & Anor [2014] EWHC 3316 (Ch)
A case concerning a hot strip steel mill - whether its sale was in breach of agreement and the defendants liable for procuring breach or unlawful activity. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

MDW Holdings Ltd v Norvill, Norvill & Norvill
[2021] EWHC 1135 (Ch)
A breach of warranty and misrepresentation claim. The claimant, MDW, had purchased the entire share capital of G.D. Environmental Services Limited (GDE), a waste disposal company, from the three defendants. MDW subsequently alleged discovery that GDE had been regularly breaching environmental law and that consequently MDW had paid substantially more for the shares than they were worth, had the business been acting lawfully.

Expert evidence was given by two forensic accountants experienced in the valuation of businesses. Both experts analysed the difference between the objective market value of the business on the basis that the warranties were true (Warranty True) and the objective market value of the business with the alleged breaches (Warranty False). Seamus Gates, acting for MDW, used a multiple of Profit After Tax, plus Net Assets, whereas Geoff Mesher for the defendants used a EBITDA method of valuation. The EV/EBITDA approach was preferred by the court as the method more commonly used by professional business valuers.

Triumph v Primus EWHC 2216 (TCC) (13 August 2019)
The exercise the Court required the experts to carry out was to determine the discounted cash flow ("DCF") value of the Primus companies at the date of the SPA based on the properly adjusted long range plan ("LRP").

Breach of warranty claim, with judge ruling that there had been a breach of warranty. Forensic experts (Mr Fisher and Mr Dearer) appointed to calculate the loss being the purchase price paid less the price that would have been agreed but for the breach of warranty, subject to a contractual cap. The purchase price was arrived at using a DCF model ($76.5 million). The experts disagreed with the adjustments required to reflect the lower “Long Range Plan”. judge agreed with the adjustments put forward by Mr Fisher. Interest on damages awarded at 4.5%. 

Kate Hart, Partner, Roffe Swayne

Patent infringement

Hoechst Celanese Corporation vs BP Chemicals Limited
[1998] EWHC Patents 331
The claimaint sued BP Chemicals Ltd. for infringement of European Patent (UK) No. 0161874 for a process for making acetic acid by carbonylation of methanol. BP's primary defence was that they did not infringe. The patent was judged to be valid but the infringement claim failed.

Professional negligence

South Australia Asset Management Corporation Respondents vs York Montague Limited Appellants
[1996] UKHL 10

Quantum of claim

Marathon Asset Management LLP v Seddon and Bridgeman
[2017] EWHC 300 (Comm) CL 2013-000689
In this case the claimant adopted a 'jackpot damages' approach to computing the quantum of damages that should be paid. Two valuation experts were involved in assessing the value of some 40,000 Marathon documents copied onto USB drives by the defendant when he was a Marathon employee.

See related article:

Parabola Investments Ltd & Aria Investments Ltd vs Browallia Cal Ltd & Others
[2010] EWCA Civ 486
On appeal from [2009] EWHC 901

Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID ARB/12/1

In this case, the issue faced by the quantum experts was the valuation of the Reko Diq gold and copper mine in Pakistan. Claimant stated that it had invested more than $220 million by the time Pakistan’s government, in 2011, unexpectedly refused to grant the required mining lease. At this date, the mine had not commenced operations.

Claimant claimed damages of USD 8.5 billion and was awarded USD 4.1 billion.

Whether it is appropriate to use the DCF method to value a mine that is not operational

There was a question as to whether it was appropriate to use the discounted cash flow (DCF) method to value the mine in the absence of a track record of profitable operation. 

The tribunal took the view, based on a review of recent cases, that the question as to whether the DCF method can be applied to value a project which has not yet become operational depends on the circumstances of the individual case. The Tribunal addressed the question in two parts:

(i) whether, in the absence of Respondent’s breaches, the project would have become operational and would also have become profitable; and
(ii) whether, with reasonable confidence, the amount of these profits can be determined.

Conversely, if there are “fundamental uncertainties” as to the likelihood of the project having become operational or profitable, it could not apply the DCF method.

The Tribunal concluded that it could use the DCF method to value the mine.

Whether it is appropriate to use the “Modern DCF Method’

Neither Party presented a valuation using a traditional DCF approach as at the valuation date. Claimant’s expert presented a “Modern DCF” approach. The methodology comprised two elements:

(i) risk-adjusted cash flows, discounted at a risk free-rate. Claimant used forward prices to set expected, future prices, on the basis that the market prices already factored in risk; and
(ii) value in the form of ‘real options’. The traditional DCF approach is a static model. In practice, management has options or strategic flexibility. This flexibility has value. In the case of a mine, production can be increased or reduced in response to changes in market prices, geological conditions or production costs. This flexibility can be valued using financial option pricing models, although in practice it can be challenging estimating some of the model inputs.

One of Respondent’s experts took a different approach, instead focussing on a prior transaction for the mining asset in question, which had occurred five years before the valuation date. Claimant argued that Respondent’s expert acted based on an undisclosed restrictive instruction which contradicted his own views as to the normal approach used to value mining assets.

Specifically, Respondent’s expert testified that he was instructed “to determine the value based on the 2006 transaction” and was “not instructed to look at other potential avenues for valuing [the asset].” Respondent’s expert testified that in his experience, every transaction in the mining industry he had seen had been valued using a DCF approach and that comparable transactions were only used as a confirmation or for screening purposes. Claimant’s counsel argued that the approach from Respondent’s expert was “fundamentally unacceptable”; the expert did not exercise his own independent and professional judgment and did not disclose instruction in his reports.

Respondent’s other expert commented on DCF analysis prepared by the mining company prior to the valuation date, but did not update the analysis to value the mine at the valuation date. In particular, Respondent’s expert did not update that DCF analysis to reflect price developments and contemporaneous expectations as of the valuation date.

The Tribunal did not accept Respondent’s expert evidence on the past transaction. They stated that it ignored the increased geologic certainty of the resource and decreased risk in the five year period between the date of the transaction and the valuation date. The increase in value was captured by Claimant’s Modern DCF but not by Respondent’s backward-looking, market-based approach.

The Tribunal accepted Claimant’s Modern DCF approach but adjusted the claimed amount to reflect risks regarding the feasibility of the project (USD 1.5 billion reduction) and to fully account for systematic and asymmetric risks not considered by Claimant (USD 2.6 billion reduction).

Phil Hersey, Director, Berkeley Research Group (UK) Ltd

Recoverability of employee/management time

Admiral Management Services vs Para-Protect Europe Limited & Others [2002] EWHC 233 (Ch)
Recoverability of employee time.

Aerospace Publishing Ltd & another vs Thames Water Utilities Ltd
[2007] EWCA Civ 3
An appeal on quantum following the earlier judgment [2005] EWHC 2987 (QB)
Water escaping from the defendant's water main caused partial loss and damage to the claimants' private archive. There was no dispute over liability as Thames Water were liable for the loss and damage under s 209 of the 1991 Act. However quantum had to be resolved, as the claimants wished to be reimbursed for the cost of replacing the archive, whereas Thames Water contended that this was unreasonable and the companies had no intention of replacing the archive. After an initial judgement in favour of the claimants in 2005, Thames Water appealed in 2007, but the original judgement was upheld.

Bridge UK.com Limited vs Abbey Pynford
[2007] EWHC 728 (TCC)
A claim by a commercial printing and mailing business as a result of needing to outsource printing work, following problems in the construction of a foundation for a new printing press on the part of the defendants, a specialist ground engineering company.

Standard Chartered Bank vs Pakistan National Shipping Corporation
[2002] UKHL 43

Tate & Lyle Industries Limited formerly Tate & Lyle Food and Distribution Limited (formerly Tate & Lyle Refineries Limited) and others (Appellants) v. Greater London Council and others (Respondents)
[1983]

Valuation

Matrimonial cases

E and L 
[2021] EWFC 60
In this case Mr Justice Mostyn considered it most appropriate to use hindsight to value a business in 2016, contrary to evidence given by two out of three experts (see in particular paras 51 onwards). 

Hart v Hart 
[2017] EWCA Civ 1306
Case involving a 19 year marriage with total assets of £9.4m, of which Karen Hart had been awarded approximately £3.5m. John Hart's businesses had pre-dated the marriage, so were treated as non-matrimonial property. The appeal concerned the approach which the court should take to non-matrimonial property when determining a financial remedy claim by application of the sharing principle.

See related article:

  • Valuing assets on divorce
    The Law Society Gazette, June 2019
    Andrew Newbury considers the varying approaches to valuing assets in divorce cases, with reference to a number of important cases including Hart v Hart. 

IX v IY
[2018] EWHC 3053 (Fam)
Following Jones v Jones [2011], this was another case in which the court considered the extent to which to take into account the 'latent potential' or 'spring-board' effect when valuing a company. The judge declined to order a single joint expert in the form of a forensic accountant to value the company. 

See related article:

  • Valuing assets on divorce
    The Law Society Gazette, June 2019
    Andrew Newbury considers the varying approaches to valuing assets in divorce cases, with reference to a number of important cases including IX v IY. 

Jones v Jones
[2011] EWCA Civ 41
A divorce case which rested on valuing the husband's North Sea supply business at the time of the marriage and then determining how much of the business sale proceeds should be divided between the husband and wife. A 'spring-board' approach was used to take into consideration the latent potential of the husband's pre-marital skills and knowledge. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related articles:

  • Springboards and Gymnastics
    ICAEW Valuation Community, 2019
    Andrew Strickland explains how the case laid to rest the idea that the high earning capacity of one of the parties to a marriage may itself be an asset to be treated as non-marital property.
  • Divorcing parties look to forensic accountants for help
    ICAEW Forensic & Expert Witness Community, 2017
    James Copson and Will MacFarlane consider recent trends in valuation issues on divorce, explaining the Court of Appeal's valuation method in Jones v Jones - this was the preferred approach until Mostyn's decision in the case of WM v HM [2017] EWHC 25. 

Martin v Martin 
[2018] EWCA Civ 2866 
A Court of Appeal decision addressing the approach the court should take to the valuation of shares in a private company. The main issue raised was whether the judge had been right to take the valuation of a private trading company as equivalent to cash wealth when dividing assets between a husband and wife. The valuation expert used an earnings basis methodology to value the company.

Robertson v Robertson
[2016] EWHC 613 (Fam)
The husband in this financial remedies case, Mr Robertson, was the founder of the online fashion company ASOS. His shares in ASOS had greatly increased in value during their marriage. The judge treated Mr Robertson's pre-existing shares as half his non-matrimonial property and half matrimonial property of both parties, to be shared evenly. 

See related article:

  • Robertson v Robertson [2016] EWHC 613
    ICAEW Valuation Community, 2019
    Andrew Strickland provides an overview of the case, which drew glowing comments from the judge on the thoroughness of the valuation expert's report.

Versteegh v Versteegh 
[2018] EWCA Civ 1050
An appeal case in relation to Camilla Verteegh's application for financial remedies against her husband Gerard. Though a total of £2m had been spent upon valuation experts, the judge had felt unable to make even a "conservative estimate" to the value of G.Verteegh's property business, so had put a 'Wells-sharing' order in place instead. This decision was endorsed on appeal. 

See related article:

  • Marital agreements - sharing, needs and foreign property regimes
    Jennifer Perrins, barrister at 1KBW, considers the case of Versteegh v Versteegh on the importance of legal advice in relation to a pre-marital agreement, whether a party has ‘a full appreciation of the implications’ and the appropriateness of making a ‘Wells order’ in this June 2018 article for LexisNexis.

XW v XH 
[2017] EWFC 76
In this case the court debated what allowance should be made for "passive growth" in the valuation of a non-matrimonial asset and whether the court should make any allowance for the “latent potential” or “springboard” effect within the company, which would not be reflected in a conventional valuation. the judge assessed that there was a "significant, though unquantifiable" latent potential in the company, which was not reflected in the conventional valuation that had been conducted.

WM v HM
[2017] EWFC 25, [2017] EWCA Civ 41
A divorce case in which the judge approved a linear approach to historic valuation of a business. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related articles:

  • Divorcing parties look to forensic accountants for help
    ICAEW Forensic & Expert Witness Community, 2017
    James Copson and Will MacFarlane consider recent trends in valuation issues on divorce and, in particular, at Mr Justice Mostyn's recent decision in the case of WM v HM [2017] EWCA Civ 41. The ICAEW Library and Information Service can supply ICAEW members and ACA students with this article upon request.
  • Assessing the historic value of a business upon divorce: WM v HM [2017] EWFC 25
    Parklane Plowden Chambers article on the judgment, providing a detailed explanation of the approach taken to historical valuation of the husband's manufacturing business.

Share/company valuation

Cream Holdings Limited v Davenport [2011] EWCA Civ 1287
Problems in appointing a Third Party Accountant (TPA) expert appointed by the President of the ICAEW.

See related articles:

  • Share valuations, when one party fails to cooperate : Part 1
    Forensic Group News, November 2012, p.2-5
    Discusses Cream Holdings v Davenport. This case illustrates the problems which can arise if an outgoing shareholder adopts an obstructive approach to share valuation. The case concerned the sale of the shares by an outgoing director to the remaining shareholders; ascertaining the fair value of those shares; the appointment of a third-party accountant (TPA); and the letter of engagement issued by the TPA. The ICAEW Library and Information Service can supply ICAEW members and ACA students with this article upon request.
  • Share valuations, when one party fails to cooperate : Part 2
    Forensic Group News, November 2012, p.5-7
    The authors address points relating to the decision in Cream Holdings v Davenport which could cause difficulty in future cases. The lesson of this case is that it is very important to avoid drafting valuation provisions which contain ambiguities or other problems in the drafting. The ICAEW Library and Information Service can supply ICAEW members and ACA students with this article upon request.

Davies V Ford & Ors
[2021] EWHC 2550 (Ch)
Two forensic accountants gave evidence to the value of GBRK, a waste management company. Mr Hayward Crouch for the Defendants assessed the value as at 18th October 2011 as being £280,000 while Mr Hall for the Claimant valued the company at that date at £400,000. The Judge preferred an investment made by a party during October 2011 as contemporaneous evidence as to what a investor considered was the actual value of the company. 

Foulser & Foulser v HMRC
[2015] UKFTT 220 (TC)
Brian and Doreen Foulser made gifts of their shares in an unquoted food wholesale company, BG Foods, to companies held within insurance bonds. These gifts were subsequently judged to be disposals chargeable to CGT and the gains needed to be calculated in reference to the market value of the shares. The two share valuation experts acting for the opposing parties used different methodology and failed to reach an agreement on the market value of the company. The tribunal preferred the more tried and tested methodology of Mr Glover, the expert acting for HMRC, who used a sample of six companies in the food producers sector in order to estimate a price earnings (P/E) ratio and then took historic adjusted profits in estimating maintainable earnings. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

See related articles:

Global Energy Horizons Corporation v Gray
[2019] EWHC 1260 (Ch)
Valuation of a share interest in Petrosound, an oil and gas ultrasound technology company, with expert evidence given by an experienced forensic accountant. It was concluded that the value of the assets at the valuation date was nil. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.

Macro v Thompson [1997] BCLC 626
The plaintiffs issued a writ seeking to set aside the valuation and transfer of their shares on the grounds of a mistake having been made by the valuation expert. The expert had incorrectly valued the shares on the basis of another company's assets. The Library and Information Service can supply ICAEW members and ACA students with the case transcript and related commentary.
 
Nicholas Green v HMRC
[2014] UKFTT 396 TC
This case centres on Nicholas Green's 2007/2008 personal tax return, which included Gift Aid relief claims for £237,500 in shares donated to charity. The shares had cost Mr Green only £60,800 some three weeks earlier.

See ruling and related articles:

J Netley and HMRC TCO 5904 Appeal number TC/2011/0610
This 2017 Tribunal decision related to the value of shares for gift aid purposes and whether the quoted price was a proper measure of market value. The two valuation experts involved were both Chartered Accountants and experienced valuers.

See related article:

  • J Netley and HMRC 
    ICAEW Valuation Community, December 2018
    Andrew Strickland notes the similarities with the case of Nicholas Green v HMRC.

Premier Telecom Communications Group Ltd and another v. Webb
[2014] EWCA Civ 994
The claimants, a telecommunications firm, contested Grant Thornton's valuation of the defendant's shareholding.

Premier Telecommunications Group Ltd v Webb [2014] EWCA Civ 994
Grant Thornton were appointed to act as expert valuers of Mr Webb's shareholding. Premier Telecommunications Group sought to overturn Grant Thornton's valuation, contending that errors had been made in the valuation and the parties had intended that the court should decide all questions of law bearing on the valuation. Judgment made that the method of valuation used lay within the expertise of Grant Thornton and an expert has jurisdiction to decide on matters referred to them.

See related articles:

Burnden Holdings (UK) Ltd v Fielding & Anor [2019] EWHC 1566 (Ch) (19 June 2019)

“Each side presented expert accountancy evidence relevant to the requirements of the Interim Accounts, the solvency of BHUK and the valuation of Vital.” 

Dispute regarding a transaction by Burnden Holdings (UK) Limited (“BHUK”)’s subsidiary Vital Energi Utilities Ltd (“Vital”) was demerged from the Group (involving a distribution of the entire shareholding in Vital) on 12 October 2007.

Forensic experts appointed to calculate the value of Vital as at date of the distribution (October 2007). The experts (Mr Davidson and Ms Barker) both acknowledged the following four valuation approaches, agreeing that an earnings-based approach was appropriate for a trading, profitable business such as Vital. They therefore both rejected an asset-based approach.

1) SSE acquisition of 30% of Vital

SSE’s acquisition of 30% of Vital is contemporaneous with the date of the distribution. Mr Davidson therefore considered that a transaction of the company’s own share capital would ordinarily determine the value of the company. £6m was paid for 30% equating to £20m for 100%.

However, the experts disagreed as to whether SSE represented a “special purchaser” (if so, it could reflect an equitable value rather than market value). They also disagreed as to whether a discount should be applied to reflect minority holding or if a premium should be applied to reflect a strategic buyer (synergies). It was not known how SSE calculated the purchase price.

Mr Davidson provided a range of value to reflect 10% discount/premium I.e. £18m to £22m.
Ms Barker dismissed the valuation entirely.

2) DCF

Experts agreed that DCF was an appropriate method. Mr Davidson used two sources for the cash flow data; P&L and cash flow forecasts for 2006-2010 and actual results for 2008-2017. Ms Barker rejected the 2006-2010 cash flow forecasts on the basis that these were not prepared in the ordinary course of business but rather to attract external funding and hence were likely to represent the best-case scenario. Ms Barker also rejected the use of Vital’s actual results on the basis that it was an impermissible use of hindsight.

Mr Davidson used operating profit after tax in his DCF which was challenged for not having adjusted for depreciation, CAPEX and changes in working capital requirements. In cross-examination, Mr Davidson accepted this.

Ms Barker did not prepare a valuation using a DCF.

Furthermore, Ms Barker challenged the 14.1% discount rate adopted by Mr Davidson. Ms Barker challenged the following underlying components:

  • the risk-free rate of 2.5% (suggesting 4.99% more appropriate);
  • the market risk premium of 6% (suggesting 5% as used by KPMG was more appropriate);
  • additional risk premium of 3% applied to reflect that it was a private equity investment (suggesting that this was not common practice); and
  • the country risk premium of 3%.

The judge concluded that Mr Davidson’s DCF valuation was helpful but nevertheless there were “good reasons to apply a not insignificant discount to this figure”.

3) Third party valuation of Vital

Tenon’s corporate finance team prepared a valuation of Vital at the request of the Board of Directors based on information provided by the company. The lower end of the valuations prepared was based on a P/E ratio of 3 and the upper end using a P/E ratio of 5. Mr Davidson challenged the ratios quoting the PCPI which had a current multiple at the time of 14.8x, the Private Equity Price Index which was 17.6x and the FT non-financials price index which was 15.8x.

4) Earnings based (capitalised EBITDA)

The experts agreed on the appropriate EBITDA figure.

Mr Davidson applied a multiple of 18.3x based on P/E ratio of 21.9x for SSE.

Ms Barker used Deutsche Bank and Credit Suisse reports which presented P/E ratios of 14.1x and 16.8x respectively.

The comparability of SSE to Vital was challenged as Vital had no diversity, was smaller in terms of turnover by a factor of 1000 and had net assets of £1m. The judge dismissed Mr Davidson’s multiple on basis the electricity sector’s weighted average P/E was 7.0x.

The experts also disagreed with the size discount to apply on the basis that SSE is a public company. Ms Barker applied a 35% discount and Mr Davidson discounted SSE’s price by dividing the PCPI multiple by the multiple in the Private Equity Price Index.

The judge ruled that multiple should be between 12.0x and 14.0x.

Kate Hart, Partner, Roffe Swayne

UTB LLC v Sheffield United Ltd & Ors [2019] EWHC 2322 (Ch) (16 September 2019)

“I heard oral evidence from the two share valuation experts, Mr Nicholas Good FCA, a partner in KPMG LLP, who was called on behalf of SUL, and Mr Douglas Harmer ACA, a former KPMG employee and now a director of Oakwell Capital Ltd, who was called on behalf of the UTB parties.”

Two experts appointed to opine on valuation (evidence later dismissed as not relevant to the case):

  • Nicholas Good (Partner at KPMG)
  • Douglas Harmer (director of Oakwell Capital Ltd, previously worked at KPMG)

Sheffield United was valued in December 2017, March 2019 and later in June 2019 (after the club had secured promotion to the Premier League in April 2019).

NG values – £35-40m in 2017; £30-35m in March 2019; £88-104m in June 2019

DH values - £21-25m in 2017; £24-29m in March 2019; £100-120m in June 2019

The judge was more impressed with valuation of NG.

Regarding the risk that the club could be relegated within one of two seasons, the judge preferred an approach of applying a discount of 50% based on the historic evidence of the fortunes of newly-promoted Premier League clubs rather than based on bookmakers odds.

The judge concluded that value at June 2019 was £104m.

The judge concluded that one of UTB LLC’s subsidiaries was not a quasi-partnership as, in part, the directors/shareholders did not intend to conduct their business affairs on the basis of mutual confidence or mutual duties of fidelity, trust, openness and joint management.

Kate Hart, Partner, Roffe Swayne

VB Football Assets v Blackpool Football Club & Ors [2017] EWHC 2767 (Ch) (06 November 2017)

David Mitchell of BDO adopted a discounted cash flow approach which, while accurately performed, was concluded by the judge to be an inappropriate method for valuing a football club and failed to take account of the risks inherent in football – concluded on a value of £59.7 million.

Gerald Krasner of Begbies Traynor, based on the average value of a club in league 2 (c£3.5 million) and league 1 (c£5 million) and taking account of accumulated reserves – concluded on a value of £5.5 million. However, this approach placed relatively little weight on the club’s single season in the Premier League.

In summary, the approach that the judge adopted considered concealed dividend payments of £26.77 million plus the amount initially paid for the shares of £4.5 million (on the basis that this motivation to ‘invest’ in a football club the size of Blackpool FC isn’t to invest but rather to support the club). Thus, the judgment orders that the respondents buy back the claimant’s 20% stake in Blackpool FC for £31.27 million. Ultimately the valuations prepared by the experts were not used as a basis for concluding on the damages to be awarded.

Kate Hart, Partner, Roffe Swayne

Dinglis v Dinglis & Ors [2019] EWHC 1664 (Ch) (28 June 2019)

Unfair prejudice claim brought by Paul Dinglis (“Paul”), who held a 12% interest in Dinglis Properties Limited (“DPL”). The first and second respondents were Paul’s father, Andreas Dinglis (“Andreas”) and Master Holdings Group Ltd (“MHGL”). At all material times, Andreas exercised ultimate control over DPL through his majority interest whether directly or via his control of MHGL. It is noted that at various times shares were also held by Iris Dinglis (Andreas’ wife until their divorce in c2012 and Paul’s mother) and Cheryl (Andreas’ daughter and Paul’s sister).

In 1991 Andreas gifted shares to Paul, Iris and Cheryl, stating his motivation to be his intention to get his family involved in the business and one day pass over the business. In 1998 Paul was made a director of DPL.

It is relevant to the conclusions of the judge that it is apparent that, regardless of the ownership position, Andreas was behind the majority of the business decisions of the company (including during a period where Paul was the only director).

As such, Paul’s claim for unfair prejudice following his removal as a director in 2012 (brought as part of these proceedings), was unsuccessful on the basis that Andreas had a right as the majority shareholder to remove directors, a conclusion that the judge drew on the basis that DPL is not a quasi-partnership (on the basis of Andreas’ continued control – it is noted that just because a company is family owned does not mean that it is a quasi-partnership).

Throughout the period, there were many other companies (incorporated in the UK, Cyprus and elsewhere) which had varying interaction with DPL and different ownership structures, although these were in the main primarily owned by Andreas. 

The second part of the claim relates to some of these companies. The judge concluded that Andreas breached his fiduciary duty to DPL due to the unfair use of DPL’s funds (including the provision of funds to the Cypriot companies “the Maremonte Companies” which were at the point of provision insolvent). This gave rise to a successful claim for unfair prejudice by Paul.

The judge concluded that Paul’s shares be brought back, applying a minority discount. 

Kate Hart, Partner, Roffe Swayne

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