Scottish Legal News
The Inner House of the Court of Session has refused a reclaiming motion by the former shareholders in a car dealership challenging a court order declaring that an expert determination was binding on the parties to the share purchase agreement.
The reclaimers, Colin and David Grassick and Jane Haig, were the defenders in an action raised by Easter Motor Company Ltd seeking the relevant declarator and a payment of over £150,000. The defenders argued that the expert’s determination was unenforceable because he had failed to comply with his instructions and sought an ope exceptionis reduction of his determination.
The appeal was heard by the Lord President, Lord Carloway, sitting with Lord Woolman and Lord Pentland. Dean of Faculty, Roddy Dunlop QC, appeared for the respondents and Simpson QC and R Mitchell, solicitor advocate, for the appellants.
The parties had entered into a share purchase agreement in August 2017 for the sale of the entire issued share capital of Grassick’s Garage Ltd, a BMW and Mini dealership in Perth. A formula for calculating the ordinary share consideration was devised based on four elements, including the “Actual Net Asset Value”, to be ascertained via the balance sheet of the company at close of business on 30 June 2017.
Having been unable to agree on certain aspects of the accounts, the parties activate a dispute resolution procedure in their contract whereby the matter was referred for expert determination. The defenders and reclaimers were not willing to accept the determination of the appointed price adjustment expert, a Mr Rowand of Henderson Loggie, in particular relating to his treatment of VAT in the valuation of used vehicle stock.
Following proof, the commercial judge granted decree in favour of the pursuers but rejected a challenge by the pursuers to the competency of the defenders’ ope exceptionis argument. It was held that none of the errors relied upon by the defenders could be considered manifest and their main argument was based on nothing more than the opinion of their skilled witness that the SPA ought to have been construed differently.
On appeal to the Inner House, it was submitted for the defenders that the expert had exceeded the scope of his jurisdiction and materially departed from his instructions in that he had made decisions concerning VAT that he was not entitled to make. The commercial judge had erred in holding that there was support for the expert’s approach in the evidence of the pursuers’ expert witness.
The pursuers submitted that all the alleged errors relied on by the defenders were errors of mixed fact and law. As such, they could not provide a basis for challenging the price adjustment expert’s determination, and the fact that the defenders disagreed with it was not sufficient for the making of a valid challenge.
Degree of respect
Delivering the opinion of the court, Lord Pentland began: “The parties agreed to accept the expert’s decision on any matter referred to him except where the decision was vitiated by fraud or was manifestly wrong . The law attaches a strong degree of respect to the parties’ agreement as to the finality of their chosen dispute resolution procedure.”
He continued: “It is clear that Mr Rowand understood perfectly well what he had been instructed to decide: whether VAT should be deducted from the values of the qualifying cars. Moreover, the questions referred to the expert were plainly ones of mixed fact and law, involving consideration of practice in the motor trade. In these circumstances, the court has no jurisdiction to interfere with the expert’s conclusions on either of the issues referred to him for determination.”
Addressing the submissions on ope exceptionis, Lord Pentland added: “We agree with the commercial judge that there was no need for the challenge to the validity of the determination to be brought by way of separate proceedings for judicial review. Whether to exercise the power to reduce ope exceptionis remains ultimately a matter for judicial discretion.”
However, he went on to say: “We differ, however, from the commercial judge on the technical and procedural question of whether it is competent for the court to give effect to a defence brought ope exceptionis by granting decree of reduction. We are satisfied that where the court proposes to uphold a challenge to the validity of a document ope exceptionis the correct way to achieve that outcome is to grant decree reducing the document.”
Lord Pentland concluded: “There is no remedy known to our law of setting aside or refusing to enforce a document. Accordingly, contrary to the view of the commercial judge, it would have been open to him, in the event that he was persuaded that grounds for reduction of the price adjustment expert’s decision had been established, to have granted decree reducing the expert’s determination.”
© Scottish Legal News Ltd 2021