Grim Determinations

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Andrew Butler explores a recent case which illustrates the limitations of expert determinations.

Expert determinations are an increasingly popular way of resolving property disputes. One of their attractions over arbitration is that they are thought to be less formal processes. In particular, experts are not required to observe the rules of natural justice (although they must treat the parties fairly); nor are they constrained by the technicalities of e.g. the Arbitration Act 1996 (“AA 96”). Nevertheless, as the recent case of Griffin v Wainwright graphically demonstrated, there are limits to the procedures that experts can adopt.

Griffin v Wainwright started life as a shareholder dispute. In June 2015, it was compromised on terms that the majority shareholder and director Mr Wainwright (W) would purchase the shareholdings of Mr Griffin (G) and others at a value to be fixed by an expert. A joint Letter of Instruction (LoI) was prepared.  Amongst other things, the LoI provided that:

  • the expert was to “prepare a written valuation of each of the minority shareholdings…A copy of the valuation should be sent simultaneously by email to both of us when it is completed”
  • “The valuation of each Minority Shareholding shall be at a discount against the full value of [the Company] to reflect the minority status of the Minority Shareholdings”
  • two freehold properties owned by the company “shall be professionally valued…by independent valuers chosen by you.”

An expert (E) was duly appointed, and selected a valuer to value the properties. In dealing with the valuer, W downplayed the marketability of one of the properties. He said that it could not get residential planning permission, was susceptible to flooding, and was uninsurable. The valuer valued the property at £1.65m, and E informed the parties of this.

In February 2016, E told the parties that the determination was complete and signed, and ready for collection on payment of her fees. G paid his share of the fees; W did not. In response to certain communications from G about the effect this failure would have on the date of the determination (from which other key dates flowed) she stated that the determination would take effect on the date of signing. When enquiries persisted she stated that “would not be entering into any discussion or further correspondence with either party”.

Subsequently, in March 2016, W put the property on the market. In contrast to the valuer’s value of £1.65m, he put it on at an asking price of £4.5m. G became aware of this and informed E. E did, contrary to her previous statement, entertain that communication, and there followed a number of further communications between E and G about how to deal with the disparity. W was not a party to those communications.

In May 2016, W had still not paid his share of E’s fee. Accordingly G, who was keen to secure the determination, paid W’s share for him (for which W later repaid him). On payment, E released her determination. The determination was dated 17.5.16, so clearly was not the one E had said was completed in February. It also made clear that E had taken into account the asking price of the property, although it did not say what effect this had had on the conclusion.

Shortly after release of the determination, the property sold for £4m – close to the asking price, and far in excess of the value placed on it by the valuer.

W challenged the determination on the grounds that:

i) E was functus officio in February 2017, when she announced that determination was signed and ready to be delivered, and so had no jurisdiction to sign another determination in May;

ii) E was bound to adopt the valuer’s valuation of the property, but had not done so;

iii) E had failed to apply a discount, as required by the LoI; and

iv) E had acted in a procedurally unfair fashion, by entering into communications with G without reference to him, after she had said she would not do so.

Point i) was a free-standing point which turned on the scope of E’s jurisdiction. Points ii) – iv) were all said to be ways in which E had departed from her instructions. Points ii) and iii) involved an allegation of departure from instructions in a substantive respect; point iv) involved an allegation of departure in a procedural respect.

The challenge came before Kelyn Bacon QC, sitting as a Deputy Judge of the Chancery Division. The Deputy Judge dismissed the challenge on grounds i) and iii), but upheld the challenge on grounds ii) and iv).

On the functus officio point (ground (i)), W cited certain authorities from the field of arbitration[1] where it had been held that an award was made when it was signed (this now being reflected in s.57 AA 96). The Deputy Judge distinguished those authorities, holding that it had been an important factor that the signatures in those cases had needed to be, and had been, witnessed – thus they represented a public declaration of the content of the award. She contrasted the instant case, where all that had happened was that a document purporting to be the determination had been signed, and its existence announced. She adopted the reasoning of HHJ Esyr Lewis in a case called LB Camden –v- McInerney (1986) 9 Con LR 99, in which it was held that the document in that case (a signed certificate in a construction contract) “only comes to life as a document which is legally enforceable…if [the architect] issues it as required by [the contract]”. She observed that the LoI required E not only to prepare a determination, but to send it to the parties. That being so, she held that E was not functus officio until she had sent it, and had a perfect right to revise her determination if she changed her mind before doing so.

In determining points ii) to iv), the Deputy Judge had to review the authorities on departures by experts from their instructions. The effect of these authorities, in summary, is that:

  • if an expert departs from his or her instructions in a matter of substance (by for example applying the wrong test, or adopting an erroneous method), then unless the departure is very minor, the determination will not binding (Jones v Sherwood Computer Services [1992] 1 WLR 277). It is not necessary, in these circumstances, to consider the effect on the result;
  • if an expert departs from his or her instructions in a matter of procedure, such as by failing to treat a party fairly, that is not fatal where it would make little or no difference to the result.  Various formulations of the precise test have been adopted: in Amec –v- Sec St Transport [2006] 1 WLR 2339 the Court of Appeal stated that such a failure would not be fatal where the outcome would “inevitably” be the same; in Worrall –v- Topp [2007] EWHC 1809, it was enough for Kitchen J that it was “overwhelmingly likely” to have been the same. In Ackerman –v- Ackerman [2011] EWHC 3428, Vos J summarised the authorities by stating that if the decision was inevitable, the departure would not be material, but if it was not, whether the determination was invalidated would depend on all the circumstances of the case. Permission to appeal against his decision on this point was given by the Court of Appeal, but the case settled before the appeal was heard.

Despite noting the tension in the authorities, the Deputy Judge considered that she did not need to resolve it. On point (ii), she held that, on the proper construction of the LoI, E had been bound to adopt the conclusion of the valuer, that it was clear that she had failed to do so, and that her failure to do so rendered the determination invalid. On point (iii), she held that there was no sufficient evidence of a failure to apply a minority discount; she therefore dismissed the challenge on that ground. On point (iv), she held that had W been given the opportunity to make submissions, those submissions “might well” have affected the expert’s decision.

Griffin v Wainwright is a useful overview of the grounds of possible challenge to, an expert determination, and a salutary reminder that, while its informality makes it an attractive way of resolving disputes, it remains important for the expert to adhere precisely to the terms of the contract, and to treat the parties with a basic level of fairness.

Andrew Butler was Counsel for Mr Griffin.

[1] Brooke –v- Mitchell (1840) 6 M&W 472; Hiscox –v- Outhwaite [1992] 1 WLR 562.