Former company shareholder loses challenge against accountant’s determination that shares had no value

About this case:

• Citation:
  [2022] CSOH 73
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Lake

David Maguire, a former shareholder of 5PM Ltd, challenged the decision of Stewart MacDonald CA to ascribe zero value to his shares in the company on the grounds that he had departed from the terms of the agreement under which he was to give a valuation. He sought declarator of the fact that there was such a departure from instructions and reduction of the valuation. Three other shareholders of the company were listed as interested parties to the case.

The petition was heard by Lord Lake in the Outer House of the Court of Session. M Upton, advocate, appeared for the petitioner and P Reid, advocate, for the respondent. Submissions were also made on behalf of an interested party to the case by R McIlvride KC.

Sight of audited accounts

Following differences between the petitioner and other shareholders, it was agreed that his shares in the company would be cancelled, and a payment made to him for the value of those shares. That value was, per agreement contained in letters dated to November 2017, to be determined by an independent chartered accountant nominated by the parties or, failing that, the President of the Institute of Chartered Accountants of Scotland.

As the parties could not agree on a nomination, the respondent was nominated by the President of ICAS. At first the petitioner refused to sign a letter of appointment and was eventually ordained to do so following a commercial action in the Court of Session. On 14 February 2022 Mr MacDonald issued a decision concluding that the petitioner’s shares had no value.

The petitioner contended that the respondent departed from his instructions in terms of the agreement in that he valued the shares without having sight of audited accounts of the company and in the absence of information he had requested from the third interested party on 28 September 2021. It was not disputed that the respondent did not have sight of either audited accounts or the material he called for in an email dated 28 September 2021 when he made his valuation.

It was submitted for the petitioner that it was implicit that the respondent would have regard to the information he had requested when making his decision, otherwise there was no point in him having sought it. For the respondent it was submitted that the instruction was simply to value the petitioner’s shares, and there had been no departure from those instructions.

Concerned with the process

Lord Lake, delivering his opinion, first observed: “In considering the instructions to the respondent it is necessary to distinguish the obligation placed on him from the obligations he might impose on the parties in order to enable him to fulfil his duties. The passage which the petitioner relies on appears under a heading ‘Information Request’ and is preceded by a narration that ICAS had provided the respondent with the Articles of Association of the Company and that the parties had already provided some other materials.”

He continued: “Read together, this is a clear indication that the passage relied on by the petitioner is concerned with the process of carrying out the respondent’s work and, in particular, what information he may seek, rather than a definition of what that work is to be.”

Examining the scope of the respondent’s instructions further, he said: “In the earlier action, the issue of the scope of the respondent’s instructions was not being determined. I do not find the decision to be of great assistance in resolving that issue. The decision of the Commercial Judge is, however, consistent with my view in that it proceeds on the basis that determination of what information is required and issuing of requests for it would take place after the date of the Letter of Engagement.”

He went on to say: “This is inconsistent with the contention for the petitioner that it was determined at that stage that documents such as audited accounts must be considered before the valuation is produced. In view of the above, it is apparent that the petitioner has not pleaded facts from which it could be concluded that the respondent departed from his instructions to prepare a valuation. In this situation, the arguments made for the petitioner that any departure from the instructions is sufficient to vitiate the determination do not arise.”

For these reasons, Lord Lake dismissed the petition.