Goldstein v Levy Gee (a Firm), Court of Appeal - Chancery Division, July 01, 2003, [2003] EWHC 1574 (Ch),[2007] Lloyd's Rep PN 18

Resolution Date:July 01, 2003
Issuing Organization:Chancery Division
Actores:Goldstein v Levy Gee (a Firm)

Case No: HC 02 C00884

Neutral Citation No [2003] EWHC 1574 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 1st July 2003

Before :


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Between :

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Mr. Ian Gatt QC & Mr. Philip Rubens(instructed by Finers Stephens Innocent) for the Claimant

Mr. Robert Howe (instructed by Simmons & Simmons) for the Defendant

Hearing dates : 9th,10th,11th,12th,13th June 2003

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Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


Mr. Justice Lewison

Mr Justice Lewison:


In 1971 Mr David Goldstein and Mr Dudley Leigh set up in business as estate agents. In the following year they began to invest and deal in property on their own account, using various companies for that purpose. In 1974 they incorporated Marchday Group plc as a commercial investment and investment company. On 1 August 1988 Mr Goldstein ceased to be a director of the company, although he remained employed by it. Until 23 August 1993 Mr Goldstein, Mr Leigh and their respective families were equal shareholders in the company. On that day either Mr Leigh or Marchday itself acquired some of Mr Goldstein's and his family's shares. This left Mr Goldstein with 60,000 shares owned by him personally, and 50,000 shares owned by the trustees of his children's trust. Mr Goldstein's personal holding amounted to some 26 per cent of the company's share capital and the trustees' shareholding amounted to a further 21 per cent, making about 47 per cent in all.

In July 1994 Mr Leigh told Mr Goldstein that he wanted to restructure the company's share capital. The proposal was to create a new class of share, and to issue shares of that class to the company's directors, in order to give them an incentive to achieve capital growth. The directors at that time were Mr Leigh himself, Mr Kleiner, Mrs Quinn, Mr Orchard and Mr Smith. Mr Goldstein objected to the proposal and it was ultimately dropped.

In November 1994 Mr Leigh came up with a new proposal. This was to grant options to the directors to buy shares in the company. The rationale for the proposal was the same, namely to incentivise the directors. Mr Goldstein again objected. His objection was based on his perception that the grant of share options would confer excessive and disproportionate benefits on the directors. If exercised, the issue of new shares would also dilute his (and the trustees of his children's) shareholdings in the company. Despite Mr Goldstein's objections, the proposal to grant the share options was carried, by a relatively narrow majority, at an extraordinary general meeting of the company on 18 January 1995. In February 1995 the bulk of the options were granted at an exercise price of £47.46 per share.

Mr Goldstein responded by presenting a petition under section 459 of the Companies Act 1985 seeking, amongst other things, the setting aside of the options.

On 19 June 1997 the company terminated Mr Goldstein's employment with effect from 19 September 1997, on the ground that he was redundant. Although Mr Goldstein claimed that he was unfairly dismissed, an Employment Tribunal rejected his claim on 24 April 1998.

On 4 September 1997 Mr David Epstein, a partner in Levy Gee, prepared a valuation of the entire share capital of the company. No one could remember why that valuation was commissioned. The valuation was based on the company's audited accounts for the year ended 30 September 1996, with certain adjustments to take account of events subsequent to the balance sheet date. The basis of valuation that Mr Epstein adopted was the net asset value of the company. In calculating the value of the company's assets, Mr Epstein took as his starting point the value of the properties as shown in the accounts. He then made adjustments to take account of increases in value of three of the properties. The properties were valued at the aggregate of their individual values. Mr Epstein then considered whether shares in a property company traded at a discount to net assets. He concluded that they did, and considered that a discount of 20 per cent was appropriate. He then considered the significance of the fact that the company's shares were not listed on a stock exchange. He commented that an unlisted company put up for sale as a complete entity is usually more difficult to sell due to greater uncertainties relating to such companies. He concluded that a further discount of 12.5 per cent was appropriate. This gave him a value per share of £44.23.

The share valuation

The termination of Mr Goldstein's employment triggered the provisions of Article 14 of the company's articles of association. Under Article 14 (d) (i) Mr Goldstein was deemed to have given the directors a transfer notice on 19 September 1997. The effect of the deeming provision was that under Article 14 (f) the company, the directors and the vendor were to try to agree ``the Prescribed Price''. If they did not do so, the company was to refer the determination of the Prescribed Price to ``the Valuers''.

``The Prescribed Price'' was defined as:

``the price certified ... by the Valuers acting as experts and not as arbitrators as being equal to the value of the shares offered valued without discount for minority holding as between a willing vendor and a willing purchaser as at the date of the Transfer Notice. The Valuers shall be entitled to engage surveyors to advise on the value of the Company.''

``The Valuers'' were defined as:

``the Company's Auditors from time to time''

At the relevant time the company's auditors were Levy Gee. In August 1997 Mr Leigh informed Mr Julian Synett, a partner in that firm, that he would almost certainly be required to carry out a valuation under the deemed transfer provisions of article 14. However, he was not formally instructed until 20 May 1998. Mr Synett was the audit partner at Levy Gee responsible for auditing Marchday's accounts and was also the responsible client partner.

Mr Synett said that he understood the general principles of valuing companies from his general experience. However, he had not undertaken specific valuations of shares in unlisted property companies before. He did not take any specific steps to acquaint himself with the principles or the procedure appropriate for such a valuation, although he did not think that his valuation was affected by that. Mr Synett was firm in his view that because he was instructed by the company, his client was the company and that his primary duty of care was also to the company.

In his letter to Mr Synett of 27 August 1997, Mr Leigh set out some assumptions on which he assumed the valuers would be asked to value. The second of them was:

``the properties are to be valued at the deemed transfer date for sale as an entire portfolio''

Mr Synett annotated that part of the letter: ``disposed in the ordinary course of business - which may be sep. [i.e. separate] or as a whole''. It seems therefore that Mr Synett's first reaction was to disagree with Mr Leigh's assumption that the properties were to be valued on the basis of a single transaction. Mr Synett said that he appreciated the difference between a valuation of an entire portfolio on the basis of a single transaction and a valuation on the basis of individual sales. It was put to him that the former would be likely to produce a lower value than the latter. He said that the converse might equally well be true, in that sale of a collection of properties might be worth more than the sum of their individual parts.

There followed correspondence between Mr Leigh and Mr Synett over the terms of the instructions to be given to property valuers in order to value the company's property assets.

Mr Synett did not keep any detailed notes or working papers. He accepted, in cross-examination, that this was regrettable. Indeed, he went so far as to accept that this was a lapse from acceptable professional conduct. However, no loss arises from this lapse, if lapse it was. But it undoubtedly made Mr Synett's ability to remember (as opposed to reconstruct) his thought processes more difficult.

Mr Synett's first draft of the instructions to the valuers was produced in late September 1997. It said that:

``The properties are to be valued individually on an ``open market'' basis in accordance with the current RICS Appraisal and Valuation Manual (The Red Book).''

Mr Synett sent a copy of this draft to Mr Leigh, at the latter's request. A manuscript note on the fax cover sheet (in Mr Synett's writing) reads ``include requirement to value as whole''. Mr Synett could not remember how that note came to be made. I infer that it was made during the course of or following a conversation between him and Mr Leigh. In his letter of 29 September 1997 Mr Synett refers to a meeting between himself and Mr Leigh which took place during the preceding week. The conversation could well have taken place at that meeting.

Following that meeting, Mr Synett revised the instructions to the valuers. This draft, the second, contained two instructions. The first was an instruction to value the properties ``individually on an open market basis''. The second was a requirement that, having arrived at individual values, the valuer should ``indicate what adjustment would be appropriate to the total valuation of the portfolio in order to reflect the sale of the portfolio as a single transaction.'' Mr Synett sent a copy of this draft to Mr Leigh. On receipt of the draft Mr Leigh commented:

``We seem to be agreed that the valuation has to be done on a portfolio basis.''

Mr Synett revised the instructions again. The third draft said:


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