Expert determination is used to resolve many types of disputes, particularly disputes of a specialist or technical nature. It is a binding process that can be a quick and effective means of determining such disputes, but only when it works. When it goes wrong, as with many other things, it can become costly and time consuming to sort out.
Last year I looked at two Court of Appeal judgments on expert determination:
- Shafi v Rutherford, where Floyd LJ held that the expert’s determination was invalid and unenforceable because the expert had misinterpreted his jurisdiction.
- Premier Telecom v Webb, where Moore-Bick LJ held that the expert’s determination was binding as the expert had not departed from his mandate.
The question of whether the expert did what he was appointed to do has recently been considered by the Court of Appeal, this time in Begum v Hossain.
Begum v Hossain
This case concerned an expert’s evaluation of a shareholding in an Indian restaurant and takeaway business, trading as Sunam Tandoori Ltd. The evaluation was carried out after Ms Begum and Ms Hossain (who jointly owned the business) fell out and agreed that Ms Hossain would buy Ms Begum’s shareholding. The parties’ settlement agreement provided that the expert would determine the price that would be paid and that it would be “final and binding” on them.
Once the evaluation was known, Ms Begum challenged it, arguing that the expert had departed from his instructions. She said that the expert had based his valuation on the profit and loss accounts of the business, but that he did not take into account the information in some “handwritten takings”, which were expressly referred to in the settlement agreement.
Her claim was dismissed at first instance, but Roth J (and others) in the Court of Appeal upheld the appeal. In doing so, the court considered in detail what the expert had done in carrying out the valuation exercise. The court also looked at a number of the authorities, highlighting that the approach is to consider what the parties agreed to remit to the expert and whether the expert departed from those instructions in a material respect. An expert’s determination is not binding if the expert has not done what he was appointed to do (that is, he has departed from his instructions), but it will be binding if the expert has simply made a mistake while carrying out his instructions.
What the court decided the expert did
The expert was required to reach a fair value of the shares, taking into account all the information in the company books and records. The handwritten takings were expressly declared to be part of those records.
The court said that objectively, the process of valuation must take into account not just that the handwritten takings existed, but also what they stated. The expert effectively put the handwritten takings aside and, in doing so, he had misinterpreted his mandate and had acted outside it. The court thought it was significant that the expert’s report made no express reference to the handwritten takings. He could not arrive at his valuation by considering the content of “simply some of [the records]”.
Expert must act within the mandate
The issues in this judgment are very similar to the cases I blogged about last year. Again the court has:
- Stressed the importance of the expert answering the questions raised in his instructions.
- Emphasised that, provided the expert answers the right questions, it will not matter if he has made a mistake in the process (in much the same way as adjudication).
- Reminded us that an expert’s determination is not final and binding under all circumstances.
Further, although it wasn’t a point the court made, the case also demonstrates the importance of ensuring the expert’s mandate is clear and is not wider than necessary. If you want an expert to decide something or not to consider something in particular, you should say so. As I’ve said before, when I’ve acted as expert determiner, I’ve assisted the parties’ solicitors with the wording of the matters I was being asked to determine.
While it doesn’t go to the substance of the case, I can’t help wondering if HMRC might be interested in the case. After all, it appears as if the handwritten takings were supplemental to the trading accounts used for VAT purposes. While I may be wrong, if that was the case, even if Ms Begum achieves a higher valuation with the next expert, that might be wiped out by the penalty imposed by the tax man!
Finally, I couldn’t end a blog about a curry house without at least one pun. I Googled curry house songs and was overwhelmed with the choice. Here’s a samosa:
- Poppadum Preach, Madonna.
- Korma Chameleon, Culture Club.
- Bhaji Trousers, Madness.
- Dansak Queen, Abba.
- Tikka Chance On Me, Abba.
- You Can’t Curry Love, Diana Ross and the Supremes.
- Brothers in Naans, Dire Straits.
- Sag Aloo, Black Lace.
- Raita Here, Raita Now, Fatboy Slim.