CL-2022-000025 - [2025] EWHC 2331 (Comm)

Fecha: 12-Sep-2025

Discussion

Discussion

234.

Reliance on the buybacks, as evidence of market value, by Mr Weaver and Mr Kerr was criticised by Mr Davies, as set out above, and by Mr Lemer in his closing submissions. The three particular criticisms were:

That Mr Weaver’s reliance on the IVS definition of market approach was not warranted. The definition stated that:

“The market approach should always take into account trading volume, trading frequency, range of observed prices, and proximity to the valuation date. The market approach should be applied and afforded significant weight under the following circumstances:
(a)
the subject asset has recently been sold in a transaction appropriate for consideration under the basis of value,
(b)
the subject asset or substantially similar assets are actively publicly traded, and/or
(c)
there are frequent and/or recent observable transactions in substantially similar assets.”

Mr Weaver had not relied on (c) being met, and accepted in his oral evidence that (b) was not met. It was said that he conceded, in cross-examination, that (a) was not met. However, although he recognised that the last sale had been some time previously (over a year ago), it did not appear to me that he had conceded that (a) was not engaged at all.

ii)

That, contrary to Mr Weaver’s suggestion, the buybacks were not evidence of liquidity in the market. The directors’ statement in their December 2024 report was merely one of expectation, and would not provide any buyer of PGC shares with certainty that they could sell PGC shares back to the company, still less at a price of NZ$0.29.

iii)

The buybacks involved a special purchaser, and the PGC shares had a special value to PGC, because PGC would have had special knowledge about and understanding of the business that others might not have had, such that the prices in the buybacks did not reflect a market value. Mr Davies, in his oral evidence, made the related point that the founder and/or main shareholder and/or managing director may have a view of the value of their company which is disconnected from the market, because “their life and soul is in that business” and that “the world is full of founders who believe the value of their business is worth something more than the market does.”

235.

Those criticisms were not entirely without foundation. Indeed, I have already pointed out the lack of liquidity for PGC shares, and as I have explained it seems to me to be the key reason why a damages remedy would not be an adequate one in this case. However, if what I have held above regarding specific performance is correct, then this issue is not reached. It would only be necessary for the shares to be valued for the purpose of an award of damages if I were wrong about specific performance being appropriate, which would seem likely to involve my having been wrong to regard the market in PGC shares as illiquid in the way I have previously described. That is particularly relevant to the second of the points identified above.

236.

As to the first point, whilst the last buy-back was not very recent, it was not suggested that the value of the PGC shares was likely to have substantially declined in the period since the last buy-back, and indeed the pattern of buy-backs and prices over the period 2020-2024 demonstrates a relatively stable and consistent value that was being attributed to PGC shares (at least by PGC and the sellers of those parcels of shares). In relation to the third point, there was no evidential support for the suggestion that the buyback prices incorporated an element of special value (being an amount that reflects particular attributes of an asset that are only of value to a special purchaser) in the PGC shares, or that PGC was otherwise prepared to pay above the market price. The general suggestion, for example, that someone in Mr Kerr’s position valued PGC shares higher than other market participants because “their life and soul is in that business” was little more than speculation on the facts of this case, where there was nothing to support the suggestion that Mr Kerr was other than a hard-nosed businessman with a focus on the ultimate bottom line.

237.

As a result, the buybacks do provide relevant evidence of market value of the PGC shares. They demonstrate a reasonably consistent level at which shareholders and PGC were willing to sell and buy the shares respectively.

238.

That is not to say that I should entirely ignore what was said by the experts based upon the costs approach using the summation method. However, both experts’ approaches, in relation to the valuing of the RCL assets, had their flaws.

239.

Mr Davies’ approach was based on identifying a P/BV ration based upon a basket of what were said to be listed companies similar to RCL. In response to some criticisms from Mr Weaver, he had adjusted that basket in his supplemental report. However, although he had removed two of the original companies and replaced them with others because those two had been identified as holding their assets on their balance sheets at fair value (rather than at the lower of cost or net realisable value, as PGC does), he accepted in his oral evidence that he had not investigated whether or the extent to which the companies in his basket, other than the two in question which he had removed, held their assets at fair value. Although Mr Weaver had only identified those two particular companies as raising this issue, one would have thought it was a point Mr Davies would have checked, given this was his valuation. Moreover, one of Mr Weaver’s criticisms of the approach was that it would require further detailed analysis of the financial statements of the companies in the basket which had not been done. A similar point was that Mr Weaver noted that eight of the companies in Mr Davies’s basket capitalised their finance costs, whereas RCL did not. Mr Davies sought to reverse that out of his calculations for four of the eight companies, but said he was not able to analyse the other four for this purpose. This supported Mr Weaver’s point that more work needed to be done in understanding the companies said to be comparable and their accounting practices.

240.

It was also the case that on Mr Davies’ valuation of the RCL assets, PGC would have managed to raise £153 million worth of secured long term debt against assets valued at £134 million. Mr Weaver said that would have been extraordinary. There was no real explanation for it. In addition, it is difficult to understand (in the absence of any evidence of special value) why PGC would have paid the price it did in the buybacks – consistently around NZ$0.25 and NZ$0.29 – if the shares were only worth NZ$0.06 (as Mr Davies valued them), and given the history of the buyback prices it is difficult to see a PGC shareholder being prepared to sell their shares for NZ$0.06.

241.

As for Mr Weaver’s valuation, based upon a derived debt to capital ratio of 50%, that was (as the results of his own exercise demonstrated) an unreliable way in which to value the RCL assets. The range of debt to capital ratios for the comparator companies was very wide (23.1% to 92.7%), itself suggesting that there are a variety of different factors that can affect a company’s debt to capital ratio (as Mr Weaver accepted in his oral evidence). From the information presented in Mr Weaver’s report, it was difficult to know which part of the range was likely to be more appropriate for PGC, and there appeared to be no particular reason why it should have been the average. The one metric that was tested in cross-examination was the interest rates paid on their debt by the comparator companies, which ranged between 3.4% and 8%, whereas the interest rates being paid by PGC on its debt were suggested to be around 13.75% to 14% (which, if anything, would point to PGC having a loan to value ratio at the higher end of the range, and thus resulting in a lower value of the RCL assets than taking an average at 50% suggested).

242.

It is also difficult to understand why, if on the basis of publicly available information, PGC shares are worth NZ$1.12, a large number of investors have been prepared over a period of years to sell their shares at NZ$0.29 or less in the buybacks.

243.

Standing back, each of the experts’ approaches to the cost approach/summation method have their flaws, as I have noted. Both were based on combinations of incomplete information and assumption. Each led to what it is fair to say was an extreme valuation, entirely at odds with the only transactions in PGC shares that have actually taken place. It seems to me that both are unreliable. The market approach, on the basis of the buybacks is also not without its difficulties, but it seems to me to be a more reliable guide to the value of the PGC shares, for the reasons I have given above (including bearing in mind that I would only be undertaking this valuation exercise if I had not reached the conclusions that I have done as to the liquidity of the market in PGC shares and the resulting appropriateness of the remedy of specific performance in this case).

244.

Mr Perelman accepted that, if the market approach based on the buyback prices was to be used, the value to be attributed would be NZ$0.29 per share. Mr Weaver suggested that this would only represent the minimum price, not itself the market value. However, there is no basis for that using the market approach. It seems to me that Mr Weaver employed that suggestion in order to leave room for his valuation of NZ$1.12, the basis for which I have rejected above. As a result, the value I would have found the PGC shares to have, if damages had been in issue, would have been NZ$0.29 per share.

245.

Before leaving valuation I should also record that, during the course of his oral closing submissions, Mr Kerr sought to put before the court a further report which he said ought to be taken into account. This was a report from Kroll, authored by Mr Weaver, dated 21 June 2025, entitled “Report Summarising Kroll’s Estimation of Fair Value for RCL Group Limited held by Torchlight Fund GP as of 31 March 2025”. It had not been disclosed, nor had it been referred to previously in the proceedings (including by Mr Weaver himself). It estimated an Enterprise Value of RCL based on an income approach using a Free Cash Flow to the Firm method, discounting the projected free cash flows to present value at a discount rate that was said to reflect the relative risk associated with the cash flows as well as the rates of return that security holders would reasonably expect to realise on similar investment opportunities. It calculated the enterprise value of RCL to be AUD 728 million. (Footnote: ¹²)

246.

Mr Kerr said that he was not seeking to rely on this as a further report from Mr Weaver as an expert in the proceedings, but as a report that valued RCL (which happened to have been produced by Mr Weaver at Kroll) and which came to a valuation which showed that Mr Weaver’s calculation of a 50% loan to debt ratio was entirely reasonable (if not conservative). Mr Perelman objected to reliance on this report, in particular given the stage at which it was produced. Having considered both what Mr Kerr said about this report, and its contents, not only would it not be fair to Mr Perelman for this to be relied upon, given the stage at which it was produced, but also it does not advance the points between the experts or otherwise:

There was no good reason why it could not have been disclosed to Mr Perelman and his team sooner, or at least the point for which it was sought to be relied upon at the trial advanced earlier than the point in time at which Mr Kerr sought to make his oral closing submissions.

The report was dated 12 June 2025, and Mr Kerr confirmed that Mr Naylor (who had been assisting him in person throughout the trial) would have received it on that date. It is difficult to think they would not have discussed it at all. Nonetheless, Mr Kerr said that he, Mr Kerr, had not seen it until Thursday (19th) or Friday (20th) June, but that did not explain why he had not sought to rely on it at least in his written closing (served on 24 June).

But the actual date of the report was a bit of a red herring. Mr Kerr said that Kroll had produced reports along the same lines, valuing RCL on a similar basis, roughly annually for a few years. He confirmed when I asked him that the earlier reports could have demonstrated the same points as the 12 June 2025 report and that it was probably correct that he could, for example, have used the 2024 report to make the same points as he was making by reference to the June 2025 report, including when cross-examining Mr Davies. (In fact, the text of the June 2025 report suggested that the previous similar Kroll valuation report had given a value as at 30 June 2024 of a slightly higher value than that contained in the June 2025 report.)

ii)

Mr Kerr confirmed that the valuation in the 12 June 2025 report was based upon information which was not publicly available. Any attempt to rely on the valuation as expert evidence would therefore have been met with the response that the agreed basis for the instruction of the valuation experts was that the valuations should be done on the basis of publicly available information, and any attempt to put it to Mr Davies in cross-examination would have been met with a similar response, plus no doubt an observation that Mr Davies had not seen the underlying material on which the 12 June 2025 report was based.

iii)

Mr Weaver gave expert evidence of the valuation of RCL, and made no attempt to rely upon this report, of any of the previous similar Kroll reports, nor indeed did he suggest in his expert evidence that valuing RCL on a discounted cashflow basis was his preferred basis. That may or may not have been because of the agreement that the valuations should be carried out on the basis of publicly available information – as Mr Kerr had not advertised the point when Mr Weaver was giving evidence he was not asked about it. It seems to me to be inappropriate to tender an expert to value the shares who, in his evidence to the court, does so on one basis, and then after all the expert evidence has been given, to produce a further valuation report from the same expert, but done on a different basis (not mentioned in the expert evidence), and suggest that can be used to verify or support the evidence the expert gave.

iv)

The stage at which the report was produced gave no opportunity to Mr Davies, or Mr Perelman’s legal team, to investigate it in detail or to question its assumptions or methodology. Companies and shares are often valued in expert evidence in this court on the basis of a discounted cashflow methodology, and the various inputs and assumptions for those calculations are often subject to heated disagreement between valuation experts. There is no reason to believe that if Mr Weaver had tendered his valuation on such a basis, there would not have been disagreement on such matters from Mr Davies. The same could have been anticipated if Mr Kerr had disclosed, for example, the 2024 Kroll report saying it would be relied upon to support Mr Weaver’s expert evidence. In any event, Mr Davies would have been entitled to consider the inputs and assumptions, and the detail of the calculations, and to rebut them if he thought them incorrect. He had no such opportunity.

Conceivably further time could have been given for Mr Davies to look at this report, and provide a response to it. But in order for that to be done fairly, not only would time have been needed, but also disclosure of the material underling the 12 June 2025 Kroll report (and potentially witness evidence if there was a dispute about the factual underpinnings of it, e.g. the cash flow forecasts), and then depending on the degree of disagreement about it, there may have been a need for a further exchange of expert reports and, potentially, further cross-examination. In circumstances where this point (i.e. reliance on a DCF calculation) could have been flagged at a much earlier stage but was not (e.g. using one or more of the Kroll reports from previous years), where Mr Weaver in his expert evidence had never referred to it or relied on any such calculation, and where the calculation was contrary to the basis on which the parties and their experts had agreed that the valuation exercise for the trial would be carried out, that would have been unreasonable and disproportionate.

vi)

The June 2025 report that Mr Kerr sought to rely on was (according to the covering letter at the start of the report) primarily based upon information provided by Torchlight, which Kroll said they assumed had been reasonably prepared and reflected all currently available information, and Kroll went on to say they had assumed without independent verification the accuracy and completeness of all financial and other information that was made available to them by RCL’s management. The information was said (in a section entitled “Sources of Information”) to include investment memos and project updates prepared by Torchlight in support of RCL, monthly and annual financial data of RCL, cash flow projections prepared by RCL management and historical sales data of RCL. I was not told whether any of this information had been disclosed during the course of the proceedings, but there was no suggestion that it had been. Certainly this was not the information used as the basis for the expert evidence that was given at trial, and the information itself was not put into evidence at trial.

vii)

The key point that Mr Kerr sought to emphasise when making submissions about the relevance of the 12 June 2025 Kroll report was that it supported what Mr Weaver had said about loan to value ratio in relation to debt. He said that this report showed that RCL’s debt as a percentage of its value was around 30 to 35%. However, that all depended on what the value of RCL was – if it had been calculated to be lower than AUD 728 million in the report, that percentage would have been higher. So that was not a point that could be made from the report independent of the overall calculation of the enterprise value of RCL which, as I have said above, was not something that could be tested at trial (given the stage of the proceedings at which the point was made and the report produced to the court) and was a calculation of value made contrary to the parties’ and experts’ agreed basis upon which the calculation would be done (namely, on the basis of publicly available information).

247.

In the circumstances, I have not placed any weight on the Kroll report dated 12 June 2025 that was produced to the court during Mr Kerr’s oral closing submissions.