Firms often agree to leave the valuation of a departing GP’s stake to an expert and not the courts as it is a relatively quick and inexpensive way to resolve any pricing dispute. But, a recent court case has said the decision cannot easily be challenged in the courts if the valuation comes as a nasty surprise to either side.
In Premier Telecom Communications Group Ltd and Ridge v Webb, a company and a leaving shareholder-director agreed that the leaver’s shares would be bought at fair value by the company and the remaining shareholder.
The parties appointed a firm of accountants to decide the fair value on the basis of an agreed set of instructions. But the buyers thought the expert had made mistakes and the valuation was far too high, so applied to the courts to have it set aside, according to a client memo from law firm CMS.
However, the court said an expert’s decision will always be binding – so the court will not be able to intervene even if the expert has made mistakes – so long as the expert acted within its mandate.
CMS’ memo suggests GPs pay closer attention when drafting the terms of such agreements as the broader the terms in the expert’s appointment the more discretion the expert is likely to have.
If there are items that are not to be left to the expert to determine, they should be clearly set out in the mandate and it may be appropriate for the mandate to provide that the expert must itself take specialist advice on specified aspects of the matter in reaching its decision, said the memo.