Dismissed company director who alleged accounting firm undervalued his sold-off shares has £500k action dismissed

About this case:

• Citation:
  [2025] CSOH 32
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

Mark Coulter raised the action against Anderson, Anderson & Brown LLP contending that they had undervalued his shares in a company that were sold off after his summary dismissal as director, seeking £506,800 in compensation. The defenders denied owing a duty of care to the pursuer and argued that the method of valuation used was not irrational in the circumstances.

The action was heard by Lord Braid in the Outer House of the Court of Session. Smith KC appeared for the pursuer and Manson, advocate, for the defenders.

Lack of precedent

In February 2018 the pursuer was summarily dismissed as a director of Coulter Property Ltd, of which he was also a shareholder. In terms of CPL’s Articles of Association, this triggered a mandatory sale of his shares to the remaining shareholders, with the defenders as CPL’s auditors appointed to value them. The defenders valued the pursuer’s shares at £74,949.

The pursuer’s position was that the company was valued on a net asset value basis as if it were to be broken up, when it ought to have been valued on an earnings basis. He maintained that the defenders were fed misleading information by the directors of CPL about the viability of the business following an ostensible, and allegedly invalid, termination of a Management and Services Agreement allowing CPL access to the Edinburgh Solicitors Property Centre.

For the pursuer it was argued that the defenders carried out the valuation exercise negligently and in collusion with CPL, contrary both to their instructions and to their professional obligations. They did not apply the assumptions that they were required to apply in expressing a view on valuation and were under a duty of care to the pursuer to carry their instructions into effect without breaching their professional obligations. He made reference to the ethical guidance issued by the Institute of Chartered Accountants in Scotland and argued that the NAV method of valuation was more appropriate for a company being broken up.

The defenders denied that they acted unethically or negligently or even owed a duty of care to the pursuer. Additionally, they relied on a limitation of liability clause in the letter of engagement issued by them to CPL which restricted the ceiling of their liability to £45,000. Counsel noted the lack of any established precedent in Scotland that a professional expert valuer engaged contractually by a company owed a duty of care to avoid economic loss being suffered by a third party.

Logical conclusion

In his decision, Lord Braid said of duty of care: “The pursuer has in my view pled sufficient facts from which, looked at objectively it could be found that the defenders, given their knowledge as to the purpose of the valuation, did accept responsibility towards him in producing a fair valuation of his shares, on the basis of which the court would be entitled to find that a duty of care existed.”

However, he added: “To succeed the pursuer must aver and prove that no accountant of ordinary competence, exercising reasonable skill and care, would have valued the shares on an NAV basis (and, by extension, that no such accountant would have formed the view that the MSA had been terminated).”

Assessing whether this part of the case was made out, Lord Braid said: “Although there are passages in the pursuer’s pleadings where he avers that no accountant would have acted as the defenders did, (one example being where he avers that no ‘such’ accountant would have continued to accept instructions in the circumstances faced by the defenders, although even that averment is unclear, since ‘such’ does not obviously refer back to any particular category of accountant), the pursuer singularly fails to make any averment that no ordinarily competent accountant would, having made enquiries, valued the company on an NAV basis.”

He went on to say: “That this is fatal to the pursuer’s case can be seen most clearly when one remembers that one branch, arguably the primary branch, of the pursuer’s case is that the defenders ought simply not to have acted at all, when (as he would have it) pressure was put on them by CPL to act in a certain way. Following that through to its logical conclusion, the pursuer would then require to aver and prove what would have happened if the defenders had declined to act further.”

Lord Braid concluded: “Even according the pursuer’s averments a due degree of latitude, recognising that this is a commercial action, I have concluded that the pursuer’s pleadings read fairly and as a whole are irrelevant and that the action as pled is bound to fail. For this reason, I will dismiss the action.”