Flowgroup Plc v Co-Operative Energy Ltd

[2021] EWHC 344 (Comm)

The claim here arose out of an Acquisition Agreement. By clause 3 of the Agreement, the purchase price was subject to a working capital adjustment, to be determined in accordance with detailed provisions contained in Schedule 9. The parties were unable to agree on the amount of the working capital adjustment and the matter was referred to expert determination. Paragraph 4.13 of Part A of Schedule 9 provided that the Expert’s written decision on the matters referred to them would be final and binding in the absence of manifest error. The issue for Adrian Beltrami QC was whether there was such manifest error in the Report.

The Seller said that a “manifest error” was one which: (a) is obvious or easily demonstrable without extensive investigation; (b) does not, however, require the error to be demonstrated immediately and conclusively; and (c) may permit recourse to extrinsic evidence. It was a visibility test, in the sense that the error must be capable of being “demonstrated from the face of the record”. It would not matter how complex the question was, an error would be manifest if it could be shown when set against the correct answer.

The Buyer took a more extreme view referring to “oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion”. A manifest error must be more than just a wrong answer; it must be a “howler”. The Judge referred to the textbook, Lewison, The Interpretation of Contracts, at paragraph 14.45: “The expression ‘manifest error’ refers to ‘oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion’.”

Here, the engagement of the Expert was a broad one and included the mandate to determine issues of contractual interpretation, insofar as they were necessary to resolve the matters in dispute. The dispute was ultimately one of accounting. It was not the role of the court to second-guess the exercise by the Expert of their accounting judgement, unless it was very clear that the judgement was infected by a material mistake. Here, after review, the Judge was of the view that not only was the Expert not plainly wrong, they were plainly right.

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