Summary

An ex-company director was entitled to damages from a firm of auditors in circumstances where the auditors were shown to have negligently undervalued his shareholding in a company.

Facts

The claimant (M) claimed damages against the defendant firm of auditors (N) for losses occasioned by its negligent valuation of M's shareholding in a food distribution company (L). M had been a director of L. Whilst employed by L, M had purchased a number of ordinary shares at a cost of £250 per share. M later ceased to work for L and was required, pursuant to L's articles of association, to sell his ordinary shares back to the company at a value to be determined by N, L's auditors. N valued the shares as at the relevant date at £128 per share and they were sold to the remaining shareholders at that price. Subsequently, other entities that held shares in L managed to sell their interests for higher amounts. L's entire share capital was later purchased by another company at a cost in excess of £22 million. In the ensuing claim, N admitted liability on the basis that it had failed to take into consideration factors and events that might have affected its valuation including future probabilities and likelihoods. M submitted that the value ascribed by N to M's shares was far below the range of reasonable value that might have been attributed to those shares by a competent auditor.

Held

Had N taken into account those factors that it had admitted in negligence, there was no doubt that it would have ascribed a higher value to M's shares. On the facts, as they were at the relevant time, and having regard to such circumstances that should have been prescient in the mind of a competent auditor, the value of the shares ascribed by N was far below any reasonable sum one might have expected for those shares. Having regard to the expert evidence, the correct value of M's interests was £635 per share. N was liable to make good the deficit between £128 and £635 per share, Buckingham v Francis, Douglas & Thompson (1986) 2 All ER 738 QBD (Comm) applied.

Judgment for claimant