Summary

The judgment is available at: [2010] EWHC 812 (Ch) 

In 1978, the claimants established a group to undertake construction and property development projects. The group had an interest in 11 private finance initiative projects (PFI). In January 2006, the claimants sold their shares in the group to a subsidiary of Barclays Bank. The offer that the claimants accepted was informed by the valuation of the group, conducted in May 2005 by the defendant firm of accountants, who valued the group at £5,500 per share. To calculate that figure, the defendants applied a discount rate to predicted future cash flow. The shares in the group were sold by Barclays eleven months later at £40,475 per share. The claimants issued proceedings for breach of contract against the defendant, claiming the difference between £5,500 and £40,475 per share by way of damages.

They argued that had their interest been properly valued, they would have retained the shares, and been able to sell the shares eight months later for the higher price. The claimants further argued: (i) that a limitation clause contained in the letter of engagement between them and the defendant did not apply; (ii) that the incorrect discount rate to apply to discounted cash flow valuations of the PFI projects was used by the defendant; (iii) the correct approach to the valuation of the possible future refinancing of the PFI projects was not taken; and (iv) that there were conflicts of interests between the defendant and Barclays.

The claim would be allowed.

Where a valuation figure was attacked, the claimant had to show, not only that the valuer fell in some way below the standards to be expected of a reasonably competent professional, but also that the valuation fell outside the range within which a reasonably competent valuer could have valued the asset (see [134] of the judgment).

The terms of the engagement letter were agreed to be applicable mutatis mutandis to the valuation engagement, so that the limitation of liability clause contained in the engagement letter applied to it. In the circumstances, although the defendant took the correct approach to calculating the value of the shares, the discount rates applied by the defendant fell outside what was a reasonable range. The defendant's overall valuation for the shares fell short of the lowest figure in the range of reasonably competent valuations. Had the valuation of the shares been higher, there was a chance that Barclays would have increased its offer. There was no evidential basis for the allegation of a conflict of interest. (see [126], [175]-[176], [207] and [220] of the judgment).

In the circumstances, as a result of the defendant's breach of contract, the claimants would be entitled to recover £427,500 by way of damages for the loss of the chance that they would have obtained a higher price for the shares had they been able to use a higher valuation from the defendant (see [227] of the judgment).