England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR JUSTICE PARK)

		Royal Courts of Justice Strand London WC2
		23 July 1999

MR JUSTICE GAGE:

1. This is an appeal from the decision of Park J given on 9 September 1998. On that date Park J dismissed a motion by the Appellant, Regent Holdings Incorporated (hereafter Regent), which sought certain relief in respect of an expert valuation carried out by Anthony Margo FRICS made on 11 August 1998. The respondent to this appeal is Sir David Alliance (hereafter Sir David). The dispute between the parties centres on the purchase by Sir David of a property, Mermaid House, 43A Acacia Road, St John's Wood, London, NW8, which was owned by Regent. By an agreement dated 20 February 1998 Regent agreed to sell Mermaid House to Sir David. The agreement provided that the purchase price was to be determined by taking the average of two valuations made by a valuer instructed by Regent and valuer instructed by Sir David. The clause dealing with that part of the agreement is clause 17. The valuers were to be appointed within a short space of time and completion was to take place two working days after determination of the price pursuant to clause 17.
2. Originally, Regent appointed Conrad Ritblat to act on its behalf and Sir David appointed Allsop & Co. Conrad Ritblat valued the property at £11,000,000 and Allsop & Co at £10,000,000. For reasons into which it is unnecessary to go Conrad Ritblat's valuation was abandoned and in April 1998 the agreement was varied to permit Regent to appoint Jackson-Stops & Staff in its place. The variation agreement is dated 23 April 1998. It provided that the price should be the average of the valuation prepared by Jackson-Stops & Staff and the valuation already prepared by Allsop & Co. It also contained the following express term (17(iii)):

"the two valuations referred to in sub-clause 17(i) above shall be accepted by both parties as final and binding"

No such term was included in the original agreement of February 1998.

3. The two valuations referred to were the valuations by Jackson-Stops & Staff and Allsop. Unfortunately, after appointment, Jackson-Stops & Staff refused to act for Regent. Again, it is unnecessary to go into the reasons for its refusal to act. The result was that Sir David issued a writ against Regent seeking an inquiry into what was the Open Market Value of Mermaid House and specific performance of the contract for sale. A speedy trial was ordered and came on before Park J starting on 29 July 1998. On 31 July 1998 the action was compromised on terms agreed between the parties and incorporated in a consent order made by the judge. Since part of the argument has centred on the effect of the variation of the contract of sale and the terms of the order it is necessary to refer to that order in a little detail. The order starts by reciting undertakings given by both parties through counsel. Those undertakings were, in general terms, not to communicate directly or indirectly with any valuer instructed to carry out a valuation in accordance with the terms of the order. The order itself provided:

"1. Anthony Margo FRCIS of Messrs Cardales, 1 Lumley Street, London, W1Y 1TW shall be jointly instructed by the plaintiff and the defendant through their solicitors to provide an independent expert valuation on an open market value basis (as defined in the RICS Appraisal and Valuation manual 1995, as amended) of the property known as 43a Acacia Road (."

4. Paragraph 2 of the order provided for the instruction of two replacement valuers in the event of Mr Margo being unable or unwilling to accept instructions.
5. Paragraph 6 provided that all communications with Mr Margo should take place through the parties' solicitors acting jointly for that purpose.
6. Paragraph 7 provided:

"7. The parties are to be at liberty to apply for any further directions relating to the instructions to the Expert Valuer and generally."

7. Paragraph 8 provided as follows:

"8. The price for the Property payable pursuant to clause 17 of the contract dated 20^th February 1998 made between the Plaintiff and the Defendant for the sale and purchase of the Property ("the Original Contract"), as varied by the contract dated 23^rd April 1998 ("the Variation Contract") shall be the average of the valuation to be prepared by the Expert Valuer and the valuation of Messrs Allsop & Co dated 25^th March 1998."

8. As a result Mr Margo was instructed. He prepared the valuation dated 11 August 1998, to which I have referred. I shall return to the terms of the valuation later in this judgment. For present purposes it is only necessary to refer to paragraph 18.00 headed Valuation. Paragraph 18.01 reads:

"18.01 It would be apparent from the calculations I have carried out in respect of 56 Avenue Road and Ionic Villa, Regents Park that using the method of adjusting comparables to value Mermaid House produces a figure in the region of £11,000,000 (Eleven Million Pounds).

18.02 Having considered this figure in the light of my experience and the prices which have been achieved for the very high value properties in Regents Park I am satisfied that this figure is a realistic one.

18.03 I accordingly confirm that in my opinion the Open Market Value of Mermaid House as at the 28 April 1998 between a willing vendor and willing purchaser was £11,000,000 (Eleven Million Pounds) with the benefit of the existing lease with vacant possession."

9. It will be apparent from that extract that, in reaching his valuation, Mr Margo referred to comparable properties. The valuation mentions and specifically deals with two comparables. They are: 56 Avenue Road, St John's Wood which had been recently sold for £3,350,000; and Ionic Villa, Regents Park sold in July 1991 for £7,000,000. In the valuation Mr Margo sets out adjustments which he made to the sale price of each of those two properties in order to compare them with Mermaid House. In essence, Regent's case is that when making adjustments to the price for Ionic Villa Mr Margo made an arithmetical error in his calculations of the adjusted price. Accordingly, it was contended before the judge, and now before us, that the error was such that the court should in the circumstances intervene and direct that Mr Margo re-consider his valuation. Regent's motion in September 1998 sought relief in terms that would permit representations to be made to Mr Margo and direct him to re-consider his valuation. As, I have already said, the judge refused the relief and dismissed the motion.
10. Mr Geoffrey Vos QC, on behalf of Regent, submits that the grounds of appeal raise six issues. They are:

1. Did Mr Margo make a manifest arithmetical error on the face of his valuation ? It is his submission that such a manifest error is demonstrated in paragraph 16.06.

2. Was the mistake material or potentially material to Mr Margo's valuation of Mermaid House ? It is his submission that the mistake in the calculation of the adjusted sale price for Ionic Villa was material because it was one of the two comparables used by Mr Margo in assessing the valuation of Mermaid House.

3. As a matter of contract, was Mr Margo's valuation final and binding on the parties? His submission is that on a proper construction of the agreement for sale, the agreed variation and the agreement underlying the consent order the valuation was not final and binding.

4. If the valuation was not final and binding as a matter of contract, did the judge have a discretion to order Mr Margo to reconsider it pursuant to paragraph 7 of the Order date 31 July 1998 ? He submits that the judge did have such a discretion.

5 and 6. If the valuation was final and binding on the parties as a mater of contract can the court intervene and take steps to correct any injustice to either party ? His submission is that by one of three alternative routes the court can take steps to correct the valuation.

11. The first issue is the central issue in the appeal. The judge made the following findings on this point:

"I would be very slow to interfere with his valuation on the basis that I considered it to be manifestly wrong. I am in no position to say that it is certainly correct, but equally, I do not accept that the valuation which he has made (or perhaps putting it more accurately, the manner in which he has established an adjusted comparable figure for Ionic Villa) is clearly in error."

12. Mr Vos QC concedes that if he fails to persuade this court, as Regent failed to persuade the judge, that the valuation contained a manifest error, he cannot succeed. Mr Jules Sher QC, on behalf of Sir David, concedes that if Regent can show that the mathematical error is so obvious, such as 2+2 = 5 or a 0 being missed from a figure of £11,000,000, the court would not be troubled by this dispute. The submissions on this issue, although embellished by references to other parts of the valuation, depend upon the construction of paragraph 16.06. For myself, I derive no real assistance from other passages in the valuation. It is Mr Vos QC's submission that paragraph 16.06 sets out a formula for calculating the adjusted sale price for Ionic Villa. In order to understand his submission it is necessary to refer in a little detail to the mathematics. In paragraph 16.05 Mr Margo records that Ionic Villa was sold for £7,000,000 in July 1991. It was sold on a 99 year lease. He records that in order to compare it with Mermaid House adjustments must be made to take into account differences between it and Mermaid House. In paragraph 16.06 Mr Margo sets out the adjustments which he applied to compare Ionic Villa with Mermaid House. It reads:

"The adjustments which I would apply to compare it with Mermaid House are as follows. Adjustment for date of sale add 70%, adjustment for less privacy add 20%, adjustment for smaller size add 40%, adjustment for lower specification add 10%, adjustment for longer lease deduct 15% and adjustment for more prestigious location deduct 20%."

13. At paragraph 16.09 Mr Margo sets out that having applied the adjustments, the value of Ionic Villa in April 1998 would be £10,920,000.
14. Mr Vos QC submits that in paragraph 16.06 Mr Margo describes the way the deductions are to be made. Applying that description, the resultant figure does not come to £10,920,000. During the hearing, some debate surrounded the correct description of such an error (if it be an error). For my part, I do not think that it is material to decide whether the correct description is a mathematical error or an error of description. Hereafter, I propose to refer to it as a mathematical error. In their skeleton argument Regent's counsel set out two bases for calculating the adjustment to the price described by paragraph 16.06. Basis A takes a base figure of £7,000,000 and calculates each adjustment separately as a percentage of that base figure. Having calculated individually the separate percentage additions of £7,000,000 and then added them to the figure of £7,000,000, the result is a total of £16,800,000. The percentage deductions can then be made individually on the base figure of £7,000,000 and deducted from the total of £16,800,000. The result is £14,350,000.
15. Basis B calculates both the additions and deductions sequentially on the aggregated figures starting with the base figure of £7,000,000. This involves taking 70% of £7,000,000, namely £4,900,000, and adding it to the base figure of £7,000,000. The next percentage addition is made on the aggregate total of £4,900,000 and £7,000,000, namely £11,900,000. The additions, so calculated, total £21,991,200. The percentage deductions are made in the same way resulting in a final total of £14,954,016. Accordingly, Mr Vos QC submits that there is a clear error on the face of the valuation because neither on Basis A nor on Basis B do the calculations result in a total of £10,920,000.
16. During the course of argument, when pressed to say whether paragraph 16.06 was a description of Basis A or Basis B, Mr Vos QC said that he thought it was a description of B. He accepted that it was possible to calculate the adjustments in such a way as to achieve £10,920,000. Clearly that is so. In order to achieve that figure it is necessary to aggregate the percentage additions calculated individually on a base figure of £7,000,000 and then deduct the deduction percentages calculated sequentially starting with the total figure of £16,800,000. Mr Vos QC submits that this calculation is illogical since it calculates the percentage deductions by a different method from the percentage additions. More importantly, he submits that that calculation is not the one described in paragraph 16.06.
17. Mr Sher QC submits that there is no manifest error shown by paragraph 16.06. He submits that a valuer, when adjusting a comparable, may make his adjustments in a number of different ways. He may add or deduct a fixed sum. He may add or deduct percentages of a fixed sum. He may make percentage additions sequentially or make individual percentage deductions or additions on a base figure. He submits that examples of the different way in which adjustments can be made are to be found in the adjustments made by Mr Margo in respect of the other comparable, 56 Avenue Road. He further submits that a valuer may "mix and match" the methods by which adjustments are made. It is his submission that paragraph 16.06 is silent as to the method adopted by Mr Margo. In the circumstances, he submits that no mathematical error is shown.
18. In support of his submissions, Mr Sher referred to Healds Foods Ltd v Hyde Dairies Ltd & Others (unreported decision of Potter J and Court of Appeal). That case concerned, among other things, a dispute about calculation by an independent accountant of net profits between two material dates. The accountant was instructed to calculate the net profits after taking into account tax. It was contended that the accountant's determination of net profits contained a manifest error in that it appeared from the headings, method and arithmetic set out in the determination that he had not applied his mind to the question of taxation. In a judgment approved by the Court of Appeal, Potter J set aside a sub-poena directed to the accountant to give evidence at the trial and held that no manifest error had been demonstrated. In the course of his judgment, Potter J said:

"In this case I am left in a position that I consider that the error alleged by the defendants may or may not have been made, but it is certainly not manifest that it was made; therefore the defendants fail upon that aspect of the case"

19. Mr Sher QC submits that in this case, similarly, it is not shown that an error has been made by Mr Margo for the simple reason that he has not fully described the figures from which he calculated the adjustments.
20. For my part, I conclude that Regent has not demonstrated that there is a manifest error shown on the face of the valuation. In my judgment, Mr Sher QC is right when he says that paragraph 16.06 does not fully set out the method by which Mr Margo calculated the percentage additions and deductions. Mr Vos QC concedes that if Mr Margo had chosen, as a matter of judgment, to adopt the method of calculating the adjustments in the way that achieved the final total of £10,920,000, that figure would not be capable of being challenged by Regent. He concedes that the exercise of judgment by an appointed valuer could not in the circumstances be interfered with by the court. It seems to me that paragraph 16.06 cannot be said to rule out the method of calculation which achieves the total of £10,920,000. I am not persuaded that the language of that paragraph is so clear that either Basis A or Basis B are the only methods of calculation described. In the circumstances, I agree with the judge that it is not demonstrated that there is a manifest error on the face of the document.
21. Having reached the above conclusion on Mr Vos' first issue, it is strictly not necessary to deal with the remaining issues. However, since both counsel have addressed extensive arguments to the court on all issues, I propose to set out briefly my conclusions on the other issues where it is appropriate to do so. On the second issue, Mr Vos QC submits that the assessment of the adjusted price for Ionic Villa was material or potentially material to the valuation of Mermaid House. I agree. Mr Margo only mentioned two comparables in his valuation. One of them was Ionic Villa. It is clear that he considered Ionic Villa less important than 56 Avenue Road, nevertheless, in paragraph 18.01 he states that he has paid attention to both of the comparables in arriving at his valuation. In my judgment, that is sufficient to show that the adjusted value of Ionic Villa was material to his valuation. Mr Sher QC did not urge on the court any contrary submissions.
22. The third issue concerns a question of whether or not Mr Margo's valuation was final and binding on the parties. Mr Vos QC, in submitting that it was not, relied on a construction of the various documents, namely the February agreement for sale, the April variation and the judge's Order of 31 July 1998. I have already referred to the material parts of the Order. Mr Vos QC submits that paragraph 8 of that order has the effect of deleting paragraph 17 (iii) of the variation agreement. Paragraph 17 (iii) inserted the express term that the valuations should be final and binding. Mr Vos QC submits that by deleting Jackson-Stops & Staff and substituting Mr Margo the effect was to delete the final and binding clause. In addition, he submits that the inclusion of the term in the order giving liberty to apply "and generally" makes it clear that it was not a final and binding agreement.
23. I do not accept these submissions. In my judgment, the whole history of the agreement, the variation and subsequent litigation shows that the court was determined to achieve an end to the litigation. In my opinion, the wording of paragraph 8 of the Order is sufficient, of itself, to ensure that the valuation by Mr Margo was final and binding. In addition, it seems to me that the order was only inconsistent with the variation agreement in that Mr Margo was substituted for Jackson-Stops & Staff. In other respects, the terms of the variation agreement stood. The judge held that the agreement underlying the Consent Order was final and binding and I agree.
24. The next issue only arises if Mr Margo's valuation was not final and binding on the parties. I have already expressed my view that it was and I see no need to express any view on this issue.
25. The final issue as I have summarised it earlier in this judgment combines two issues raised by Mr Vos QC. The most important part of these issues concern the question of whether the court can intervene where a valuation is final and binding on the parties but displays a manifest error. Mr Vos QC submits that there are three alternative routes by which the court can correct the obvious injustice that is caused by a manifest error. First, he submits that the court can and should imply a term into the contract that the parties would not be bound by a manifest arithmetical error. In the course of argument, to my mind, Mr Sher QC demonstrated the difficulty of formulating such an implied term in sufficiently restrictive form as to make it practical and effective. For my part, I am doubtful whether this is the correct approach. Secondly, Mr Vos QC submits that such an error could be said to demonstrate that the expert had not complied with his instructions. This was the route adopted by the Court of Appeal in Macro & Others v Thompson & Others 1996 BCC 707. The facts of that case are different but it may be that this represents the best solution. Thirdly, Mr Vos QC submits that an error of the kind described could be said to demonstrate that the expert had gone outside the limits of his decision making authority. Again this may provide the solution. In this case, as I have already said, Mr Sher QC concedes, that if the error was of the type to which I have previously referred, common sense dictates that the parties should not seek to uphold that error. In view of my conclusions on the first issue, there is no need for me to express any concluded view on this issue and I decline to do so. It seems to me that the matter is best left for decision in a case where it is necessary for the court to pronounce on the matter.

I would dismiss this appeal.

LORD JUSTICE ALDOUS: I agree.

LORD JUSTICE AULD: I also agree.

ORDER: Appeal dismissed with costs.