News and Events from May 2015

News Archive May 2015

Hastie Stable member Michael Upton acted for the successful respondent in Maguire v. 5 PM Ltd

Share valuation, expert determination and rescission for expert’s material breach.

Hastie Stable member Michael Upton acted for the successful respondent in Maguire v. 5 PM Ltd.  Proceedings for relief for unfair prejudice had been settled by an agreement that majority shareholders would buy out the aggrieved minority at a valuation.  The two sides entered into a tripartite contract with a major accountancy firm for the latter to make a binding valuation.  The firm was obliged to issue a draft report for comment, and thereafter a final report.  In the event it issued a report which it stated was final, having failed to first issue a draft.  The minority shareholder held the firm to be in material breach and rescinded the tripartite contract.  The firm responded that the ‘final’ report should be treated as a draft, invited comment on it, and went on to purport to re-issue it as final.

The minority shareholder said that the second report was not binding because by then he had rescinded the firm’s contract.  In the Glasgow Commercial Court, Sheriff Deutsch agreed (2014 G.W.D. 28-557).

The majority shareholders appealed.  They argued that in valuations or expert determinations, where as here the valuer or expert materially departed from his instructions, then if his error had not involved unfairness to one party, as a general rule parties were obliged to allow him a second opportunity to conduct the procedure correctly, and issue a valid decision.  This could be seen as an example of a general right to remedy a breach of contract which an aggrieved party had to allow a contract-breaker, before he could treat a breach as material and rescind.

On 20 May 2015 the Sheriff Principal, Craig Scott, Q.C., refused the appeal, on the ground that the Sheriff’s conclusion that the valuers had materially departed from the contract had involved no error of law, and there was neither reason nor authority to hold that, that being so, the ordinary rules of breach of contract did not apply, namely that the innocent party could rescind, and so put an end to the valuers’ authority to issue a binding valuation.

Valuations and expert determinations take place in various legal contexts: company articles, court orders, building contracts, other bilateral contracts, and  -  as here  - tripartite contracts between the two parties to the issue and their jointly-appointed expert.  The law is fairly clear about when in all of these contexts an expert’s failure to follow instructions makes his decision invalid (Veba Oil Supply & Trading G.m.b.H. v. Petrotrade Inc., [2001] E.W.C.A. Civ. 1832),.  However, Maguire is only the second case (after Ackerman v. Ackerman [2011] E.W.H.C. 3428; [2012] E.W.C.A. Civ. 768) to consider the application of Veba to a tripartite expert-determination contract, and the question of whether an aggrieved party can rescind the expert’s appointment.  The judgment in Ackerman turned on the fact that it concerned a purely interim decision.  The importance of Maguire is that it is the first case about the application of the right of rescission in the face of an expert’s final deliverance, which is vitiated by a material departure from his instructions.