Introduction

The case of David Maguire v Stewart MacDonald ([2022] CSOH 73) before the Scottish Court of Session's Outer House addresses the extent to which an expert's decisions are bound by the instructions laid out in an engagement letter, particularly in the context of valuing company shares. The petitioner, David Maguire, sought judicial review of a valuation that concluded his shares in 5 PM Limited were worthless. The core issue revolved around whether the expert, Stewart MacDonald, had deviated materially from his instructions by conducting the valuation without accessing the company's audited accounts and other requested information.

Summary of the Judgment

In this judgment, Lord Lake examined whether the expert assigned to value David Maguire's shares had materially departed from his instructions as stipulated in the Letter of Engagement. The petitioner argued that the absence of audited accounts and other specific information in the valuation process constituted such a departure. However, the court concluded that the expert had not deviated from his primary instructions to value the shares. The provisions in the engagement letter regarding information requests were interpreted as procedural guidelines rather than binding instructions that limit the expert's valuation scope. Consequently, the court dismissed the petition, affirming the validity of the expert's valuation.

Analysis

Precedents Cited

The judgment referenced several key precedents to frame the legal context:

• Veba Oil Supply and Trading GmbH v Petrotrade Inc ('The Robin') [2002] CLC 405
• Re Maximus Securities Ltd [2016] EWCA Civ 1057
• Eastern Motor Co Ltd v Grassick [2022] SLT 139
• Jones v Sherwood Computer Services plc [1992] 1 WLR 277
• MacDonald Estates plc v National Car Parks Limited [2010] SC 250

Particularly, Jones v Sherwood Computer Services plc was pivotal in defining the boundaries of an expert's adherence to instructions. It established that unless there is fraud or a manifest error, parties are generally bound by an expert's decision even if mistakes are present. However, a material departure from instructions warrants a challenge, as highlighted by Dillon LJ in the aforementioned case.

Legal Reasoning

Lord Lake's legal reasoning focused on the interpretation of the engagement letter's language. The petitioner contended that terms like "I expect" imposed mandatory obligations on the expert to consider specific documents. However, the court interpreted these terms as indicative of future procedural steps rather than binding instructions. The primary instructions were identified under the "Scope of Work" section, which clearly mandated the valuation without restricting the expert to specific methodologies or information sources.

The court emphasized that the expert retained the discretion to select appropriate valuation methodologies and determine necessary information without being constrained by the ancillary provisions related to information requests. This interpretation aligns with the principle that experts must exercise professional judgment within the scope of their primary instructions.

Impact

This judgment clarifies the extent to which experts are bound by engagement letters in Scotland. It establishes that while engagement letters can outline procedural expectations, they do not rigidly constrain experts from exercising their professional judgment in valuation processes. This precedent ensures that experts retain the flexibility to determine necessary information and methodologies, provided they adhere to the core objectives of their engagement.

Future cases involving expert valuations will likely reference this judgment to delineate the boundaries of expert instructions, balancing between procedural guidelines and professional autonomy.

Complex Concepts Simplified

Judicial Review

Judicial review is a legal process where the courts examine the lawfulness of a decision or action made by a public body or an individual exercising public functions. In this case, David Maguire sought judicial review to challenge the validity of the expert's valuation of his shares.

Engagement Letter

An engagement letter is a formal agreement between a professional (like an accountant or a lawyer) and a client outlining the scope, terms, and expectations of the service to be provided. It serves as a reference point for the obligations and responsibilities of both parties.

Material Departure from Instructions

This legal term refers to a significant deviation from the explicit instructions given to a professional. If an expert substantially diverges from the agreed-upon instructions without valid reasoning, their decision can be challenged in court.

Conclusion

The decision in David Maguire v Stewart MacDonald [2022] CSOH 73 reinforces the principle that experts retain professional discretion within the scope of their primary instructions, even when engagement letters include procedural guidelines. The court's interpretation ensures that while parties can outline desired processes and information requests, such provisions do not inherently limit the expert's ability to utilize their judgment in conducting valuations. This judgment stands as a significant reference for future disputes involving expert valuations, balancing contractual expectations with professional autonomy.