Case No: A3/2001/1789
Neutral Citation Number [2002] EWCA Civ 644
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Neuberger)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Monday 13 May 2002
Before :

LORD JUSTICE WARD
LORD JUSTICE CHADWICK
and 
LADY JUSTICE ARDEN

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Between :

	JORDAN	Appellant	
	- and -		
	ONE 2 ONE PERSONAL COMMUNICATIONS LTD	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Mr Charles Purle QC and Mr J Wardell (instructed by DLA, London) for the Appellant
Mr Michael Briggs QC and Mr D Drake (instructed by Messrs Bird & Bird, London) for the Respondents

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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Chadwick  : 
1.	This is an appeal against an order made on 24 July 2001 by Mr Justice Neuberger in proceedings arising out of the sale by the appellant, Mr Simon Jordan, and others to the respondent, One 2 One Personal Communications Limited, of the whole issued share capital of The Pocket Phone Shop Limited (“the company”). Permission to appeal was granted by the judge.
2.	The sale of the shares in the company was upon terms set out in a share acquisition agreement dated 20 June 2000. Clause 5 of the agreement provided for the adjustment of the consideration payable for the shares if the Net Asset Value (as defined in the agreement) was less, by £100,000 or more, than the warranted amount (£2.4 million). The amount of the Net Asset Value was to be determined under a procedure set out in clause 5; and was to be confirmed in a statement (the “Net Asset Statement”) agreed between and issued jointly by two firms of accountants. In a joint statement issued by the two firms on 20 December 2000 the Net Asset Value was stated to be “negative £4,580,181”. 
3.	The principal issue between Mr Jordan and One 2 One is whether that figure is binding upon the sellers. That turns, for the purposes of this appeal, on whether, in the events which happened, Mr Jordan was entitled to have recourse to a dispute resolution procedure, leading to final determination by an independent accountant. The judge held that he was not so entitled. 
The underlying facts
4.	The company, as its name suggests, carried on the business of selling mobile telephones through retail outlets. The business had been started by Mr Jordan and one of his co-share-holders, Mr Andrew Briggs, in 1994. The company had been very successful. By the beginning of the year 2000 it operated some 160 stores and had an annual turnover in excess of £50 million. Mr Jordan and Mr Briggs each held 5,000 shares in the company. The holders of the other 526 issued shares were three of their co-directors. Mr Jordan was managing director of the company; and he took the leading role on behalf of the sellers in the negotiation of the sale of the company to One 2 One. One 2 One is a leading network operator in the field of mobile telecommunications.
5.	The sale price was agreed at £73.25 million. £6.75 million was to be paid in cash on completion; £3 million was to be paid to a retention account in the joint names of solicitors; £63.1 million was to be satisfied by the issue of loan notes to Mr Jordan and Mr Briggs; and the balance (£400,000) was to be treated as satisfied by a payment of that amount by One 2 One to the company in respect of handset stock items purchased by Mr Jordan from the company. The aggregate sale price of £73.25 million is defined in the agreement of 20 June 2000 as the “Initial Price”.
6.	Completion of the share purchase took place upon execution of the share acquisition agreement. Mr Jordan and his co-directors were replaced as directors of the company, with immediate effect, by appointees of One 2 One. Draft completion accounts were prepared on behalf of the company by accountants, PricewaterhouseCoopers, instructed by One 2 One. There were, at that stage, no audited statutory accounts in respect of the company’s most recent accounting period; that is to say, for the year to 31 May 2000. Copies of draft completion accounts were sent to Glazers, the company’s auditors, and to Mr Jordan, on 15 September 2000. The draft accounts were not acceptable to Mr Jordan; and he did not agree them. Nevertheless, on 8 December 2000, Glazers notified One 2 One that they had “audited the completion accounts prepared by the company and confirm that they have been prepared from the statutory accounts in accordance with [the share acquisition agreement]”. One 2 One – and, it must be assumed, Glazers and PricewaterhouseCoopers - took the view, or were advised, that determination of the Net Asset Value could and should proceed notwithstanding Mr Jordan’s refusal to agree the draft completion accounts. On 15 December 2000 One 2 One notified Mr Jordan that it accepted the draft completion accounts for the purposes of the agreement; and, in the light of that formal acceptance, Glazers and PricewaterhouseCoopers issued the joint statement (“the Net Asset Statement”) to which I have already referred. On the basis of that statement One 2 One seeks payment from Mr Jordan of £6,980,181.  
The share acquisition agreement
7.	The agreement of 20 June 2000 is made between the five individual shareholders (defined as the “Sellers”) and One 2 One (the “Buyer”). It is replete with other defined terms. Mr Jordan and Mr Briggs are referred to respectively as “Jordan” and “Briggs”; and the other three shareholders, together, as the “Minority Sellers”. The “Company’s Auditors” are Glazers.  The “Buyer’s Accountants” are PricewaterhouseCoopers. The “Company” means the company, The Pocket Phone Shop Limited; “Group Companies” means the company and its wholly owned subsidiary, TDB Services Limited, a dormant company with no assets; and “Group Company” means either of them. 
8.	Clause 5.1 of the agreement contains a warranty by Mr Jordan (but not by the other Sellers) that the Net Asset Value shall be not less than £2.4 million (defined as the “Minimum Net Asset Value”). Clause 5.7 provides that if the Net Asset Value shall amount to less than the Minimum Net Asset Value by £100,000 or more “the Initial Price shall be reduced by the amount of the shortfall”. “Shortfall” is defined as “the shortfall in the Net Asset Value calculated in accordance with clause 5.7”. The Shortfall is to be satisfied by a payment out of the retention account in the joint names of solicitors (the “Retention Account”) into which part (£3 million) of the sale price was to be paid on completion. The operation of the Retention Account was governed by a “Cash Escrow Agreement”, also dated 20 June 2000, to which Mr Jordan, One 2 One and their respective solicitors, Kemp & Co and Beveridge Milton, were party.
9.	 “Net Asset Value” means:
“the aggregate net asset value total assets less total liabilities (sic) of the Group Companies as shown in the balance sheet forming part of the Completion Accounts with adjustments made to eliminate Allowable Adjustments.”
 “Completion Accounts” means:
“the audited statutory accounts balance sheet and profit and loss account of each Group Company in respect of the year ended on the Accounts Date adjusted to ensure compliance with the Agreed Accounting Principles.”
In the circumstances that the only “Group Company” other than the company was TDB Services Limited – and that TDB Services was a dormant company with no assets – it has been common ground that “Completion Accounts” may be taken to mean the audited statutory accounts of the company to 31 May 2000, adjusted to ensure compliance with “Agreed Accounting Principles”. 
10.	“Agreed Accounting Principles” is a defined term. It means “accounting principles consistent with those as detailed in Schedule 8, Part 1”. Schedule 8 to the agreement of 20 June 2000 contains three parts. Part 1 (Agreed Accounting Principles) sets out, under nine paragraphs, principles and conventions which are to be applied in the preparation of the company’s accounts. It stipulates, at paragraph 1.1, that the accounts are to be prepared under the historic cost convention in accordance with generally accepted accounting principles in the United Kingdom (other than where specifically over-ridden by the accounting principles described in the following paragraphs). By way of examples, the following paragraphs specify (at paragraph 1.3) the basis upon which tangible fixed assets are to be depreciated, (at paragraph 1.4) the treatment of assets acquired, and commitments assumed, under hire purchase contracts and finance leases, and (at paragraph 1.7) the basis upon which stock is to be valued. It has not been suggested that there is anything in Part 1 of schedule 8 to the agreement which is inconsistent with the accounting principles and historic cost accounting rules set out in sections A and B in Part II of schedule 4 to the Companies Act 1985 – which prescribes the form and content of statutory accounts for the purposes of that Act. In particular, it is pertinent to note that paragraph 11 in section A requires that accounting principles shall be applied consistently within the same accounts from one financial year to the next. The parties must be taken, therefore, to have expected and intended that the statutory accounts for the year ended 31 May 2000 – and, save where the Agreed Accounting Principles in Part 1 of schedule 8 to the agreement specifically required otherwise, the Completion Accounts derived from those statutory accounts – would be prepared on the same basis as the audited statutory accounts for the previous year.
11.	Part 2 of schedule 8 to the agreement sets out the “Allowable Adjustments” which are to be made in the course of deriving the Net Asset Value from the balance sheet forming part of the Completion Accounts. Part 3 of schedule 8 (Provisions to be made in the Completion Accounts) is relevant in connection with clause 5.2 of the agreement, to which I now turn.
12.	Clause 5.2 of the agreement is in these terms:
“Jordan shall procure and the Minority Sellers shall, so far as they are able by the exercise of their rights and powers as shareholders and employees, procure, and Briggs shall not take any action to prevent, as soon as practicable after Completion and in any event within 60 days of the Completion Date, that the Completion Accounts are prepared by the Company in accordance with the Agreed Accounting Principles and audited by the Company’s Auditors, the cost of such audit being borne by Jordan where the costs incurred are in excess of the costs accrued by the Company for the audit of the statutory accounts for the year ended on the Accounts Date. Jordan agrees with the Buyer that the items set out in part 3 of Schedule 8 shall be fully provided for in the Completion Accounts. Jordan shall and the Minority Sellers shall, so far as they are able by the exercise of their rights and powers as shareholders and employees, deliver a draft of the Completion Accounts to the Buyer and the Buyer’s Accountants within 60 days of the Completion Date. The Company’s Auditors shall undertake a full audit of the Stock accompanied by a representative or representatives of the Buyer and/or the Buyer’s Accountants within five (5) business days after Completion. If Jordan and the Minority Sellers fail to procure the preparation of Completion Accounts in accordance with this clause 5.2, the Buyer may procure the same at Jordan’s expense.”
13.	The need for the preparation of Completion Accounts is obvious. The agreement provides for the Net Asset Value – and so the Shortfall (if any) payable out of the Retention Account towards satisfaction of the reduction to the Initial Price which clause 5.7 requires – to be derived from the balance sheet which is to form part of the Completion Accounts. Further, the company, with the assistance of its auditors, is the obvious source of the Completion Accounts. The Completion Accounts are derived from the company’s statutory accounts. They must comply with the accounting principles in part 1 of schedule 8; and they must contain provision for the items set out in part 3 of that schedule. But the starting point is the statutory accounts; and preparation of the statutory accounts is the responsibility of the directors of the company – see section 226(1) and (in the case of group accounts) section 227(1) of the Companies Act 1985.  
14.	What is much less obvious - at least to me – is why the obligation to procure the preparation of the Completion Accounts, and the obligation to deliver a draft of the Completion Accounts to One 2 One and its accountants, is placed upon Mr Jordan and (to a qualified extent) upon the Minority Sellers. 
15.	The explanation, I think, is that it must have been in the mind of the draftsman of  the provisions which became clause 5.2 that Mr Jordan would remain in management control of the company during the period within which the task of producing audited statutory accounts and draft Completion Accounts would be undertaken. On the basis of that premise, the procedure for which clause 5.2 provides – and the obligations which that clause imposes on Mr Jordan and the Minority Sellers - are readily comprehensible. But that procedure and those obligations are not apt in the event - which could readily have been foreseen and which, in fact, occurred – that there was a change in the composition of the board of directors immediately following the execution of the agreement on 20 June 2000.
16.	The possibility that the composition of the board of directors – and management control - might change immediately following the execution of the agreement is inherent in the terms of the agreement. “Completion Date” means the date when Completion takes place. “Completion” means 9.00pm on the day of completion of the sale and purchase of the Shares in accordance with clauses 6 to 8 of the agreement. Clause 6.1 provides that Completion shall take place on 16 June 2000 or at any other date agreed between the parties.  Clause 7.1 sets out the documents which are to be delivered by the Sellers to the Buyer on Completion. Those documents include stock transfer forms (clause 7.1.1) and share certificates (clause 7.1.2) in respect of the Shares and resignation letters from the directors and certain named employees (clause 7.1.7). The resignations are to take effect “one month after Completion or at such earlier date as the Buyer may in its absolute discretion determine”. So, in the circumstances that the agreement was executed on 20 June 2000, completion could be expected to take place forthwith (unless the parties agreed otherwise – which they did not); and there was nothing to prevent the Buyer from advancing the date upon which there was effective change of control to the date of the agreement. 
17.	In the event that there was a change of directors and management control immediately following execution of the share acquisition agreement, it could be expected that the task of producing audited statutory accounts and Completion Accounts (in so far as not already completed at the date of the agreement)  would be undertaken by the new management of the company. Mr Jordan and the Minority Sellers would no longer be in a position to procure that the Completion Accounts – or the audited statutory accounts from which the Completion Accounts were to be derived – were prepared by the Company or audited by the Company’s Auditors, as clause 5.2 requires. As I have said, the obligation to prepare statutory accounts is an obligation imposed on the directors of the company. Once Mr Jordan and his co-directors had been replaced – upon their letters of  resignation taking immediate effect - the task of producing statutory accounts was, necessarily, taken out of their hands. And, without audited statutory accounts, Mr Jordan and the Minority Sellers could not produce the Completion Accounts or even draft Completion Accounts. Nor were they in a position to “deliver a draft of the Completion Accounts to the Buyer and the Buyer’s Accountants within 60 days of the Completion Date”, as clause 5.2 also requires. 
18.	The necessary conclusion, as it seems to me, is that the parties must be taken to have intended that, in the event (which happened) that completion took place on the execution of the agreement and a new board of directors took office immediately thereafter, the obligations imposed on Mr Jordan and the Minority Sellers by clause 5.2 of the agreement - to procure that Completion Accounts be prepared by the Company and to deliver a draft of those accounts to the Buyer and the Buyer’s Accountant within 60 days of the Completion date – would fall away. In those circumstances, the Buyer – in whose interest it was to have Completion Accounts prepared in the context of the provisions for adjustment of the consideration by reference to a shortfall in net asset value and whose appointees would be the new directors  -  was to be responsible for procuring that that be done. The cost of an audit of the Completion Accounts – in so far as “the costs incurred are in excess of the costs accrued by the Company for the audit of the statutory accounts for the year ended on the Accounts date” -  was to be borne by Mr Jordan. But that was a matter for which provision was to be made in the Completion Accounts – see paragraph 1.3 in part 3 of schedule 8 to the agreement.   
19.	It is necessary, therefore, to approach the further provisions in clause 5 – and, in particular, the provisions in clauses 5.3 to 5.6 – on the basis that the parties must have appreciated that, in a case where a new board of directors took office immediately upon execution of the agreement, Mr Jordan and the Minority Sellers would have no part in the preparation of draft completion accounts by the company; that draft completion accounts would not be delivered by Mr Jordan and the Minority Sellers; and that, if there were to be Completion Accounts, they would be prepared by the company acting under the direction of the Buyer. It must have been intended that, in such a case, it would be the responsibility of the Buyer to procure the preparation and audit of Completion Accounts if it wished to rely upon the price adjustment provisions in clause 5. 
20.	Clause 5.3 of the share acquisition agreement is in these terms: 
“The Buyer shall notify Jordan and the Minority Sellers and the Company’s Auditors within 30 days of receipt of the draft accounts whether or not they accept the draft accounts for the purposes of this Agreement. Jordan and the Minority Sellers undertake forthwith upon request to give access to all relevant information and documents, including the relevant audit papers, to enable the Buyer’s Accountants to complete their review of the draft accounts delivered in accordance with clause 5.2. Any notice of non acceptance shall be accompanied by a statement by the Buyer’s Accountants setting out the reasons for such non-acceptance and specifying the adjustments which, in their opinion, should be made to the draft accounts.”
The procedure for which clause 5.3 provides is readily comprehensible in a case where Mr Jordan remained in management control of the company – and the board of directors remained as it was before the agreement - during the period within which the task of producing audited statutory accounts and Completion Accounts would be undertaken. In such a case clause 5.3 provides for the Buyer’s Accountants to have the opportunity to review the draft Completion Accounts; for the Buyer to have the opportunity (with the advice of the Buyer’s Accountants) to decide whether to accept the draft Completion Accounts; and, if the Buyer does not accept those draft accounts, for the reasons for non-acceptance to be stated and for the adjustments for which the Buyer contends to be specified. But, in such a case, Mr Jordan would have procured the preparation of draft Completion Accounts; and he would have delivered those draft accounts to the Buyer and to the Buyer’s Accountants. The premise which underlies the procedure following delivery of the draft Completion Accounts is that, in such a case, Mr Jordan and the Minority Sellers will be content to accept – or should be required to accept – the draft completion accounts which he or they have delivered. 
21.	In a case where there had been no change in the board of directors that unexpressed premise is inherent in, and justified by, the circumstances in which the Completion Accounts would be prepared. First, the Completion Accounts were to be derived from audited statutory accounts for which Mr Jordan and his co-directors would be responsible, as directors; and, second, the adjustments required to the audited statutory accounts to ensure compliance with the Agreed Accounting Principles and the necessary provision for the items set out in part 3 of schedule 8 – in so far as they involved matters of judgment – would (in the first instance) reflect their judgment, as the persons in control of the company by which the Completion Accounts were to be prepared.  
22.	It is much more difficult to see why, and (if so) how, the procedure under clause 5.3 was intended to apply in a case where there had been a change in the composition of the board of directors immediately following the execution of the agreement. As I have said, the premise which underlies that clause is that Mr Jordan and the Minority Sellers are content to accept – or should be required to accept - the draft completion accounts which he or they have delivered to the Buyer and the Buyer’s Accountants. The premise assumes that Mr Jordan and the Minority Sellers have been responsible for the preparation of those accounts by the company. There is no basis for that premise in a case where the accounts have been prepared by the company under the direction of the Buyer or its appointees. Further, it is difficult to conceive of circumstances in which the Buyer would wish to give a notice of non acceptance in respect of accounts prepared under its direction or under the direction of its appointees. 
23.	In my view it must be accepted that the procedure for which clause 5.3 provides was not intended to apply - and does not apply - in a case where, immediately following execution of the share acquisition agreement, the directors of the company are replaced by appointees of the Buyer. The provisions of that clause cannot be applied without distortion of the language used in a case where draft completion accounts have not been “delivered in accordance with clause 5.2”. The obligation on Jordan and the Minority Sellers to give, forthwith upon request, “access to all relevant information and documents, including the relevant audit papers” is an obligation which (as must have been appreciated) they would be no position to perform once there had been a change of management control. And there would be no need for those provisions in order to protect the position of the Buyer in a case where the Buyer had appointed its nominees to the board of the company. 
24.	Clause 5.4 of the agreement contains the obligation which requires the parties to procure the issue of a Net Asset Statement. The clause is in these terms
“Forthwith upon completion of the review of the draft accounts delivered in accordance with clause 5.2 or upon any dispute, difference or question having been resolved in relation to the draft accounts without the requirement to refer the same to the Independent Accountant in accordance with clause 5.5 or upon any dispute, difference or question having been determined in accordance with clause 5.6, the parties shall procure that the Company’s Auditors and the Buyer’ Accountants shall jointly agree and issue a statement (“Net Asset Statement”) within 7 days confirming the Net Asset Value.”

It is, I think, important to analyse the circumstances in which the obligation to procure the issue of a Net Asset Statement arises under clause 5.4. The obligation arises: (i) “Forthwith upon completion of the review of the draft accounts delivered in accordance with clause 5.2”, or (ii) “upon any dispute, difference or question having been resolved in relation to the draft accounts without the requirement to refer the same to the Independent Accountant in accordance with clause 5.5”, or (iii) “upon any dispute, difference or question having been determined [by the Independent Accountant] in accordance with clause 5.6”.

25.	Once again, the structure of that clause is readily comprehensible in a case where Mr Jordan and his co-directors remain the directors of the company during the period within which the task of producing audited statutory accounts and Completion Accounts is to be undertaken; that is to say, in a case where Mr Jordan and the Minority Sellers may be taken to be content with the draft accounts which he or they have delivered under clause 5.2. In such a case, the effect of the words “Forthwith upon completion of the review of the draft accounts delivered in accordance with clause 5.2”, is that, in the absence of any notice of non-acceptance given by the Buyer under clause 5.3, the parties shall procure that the Company’s Auditors and the Buyer’s Accountants shall agree and issue a Net Asset Statement. The clause goes on to accommodate the obvious possibility that, in such a case, the Buyer may give notice of non acceptance under clause 5.3. In such a case there will be a need to resolve or determine the questions raised by that notice. Clause 5.4 recognises the two means by which that need may be met: “upon any dispute, difference or question having been resolved in relation to the draft accounts . . in accordance with clause 5.5”, and “upon any dispute, difference or question having been determined in accordance with clause 5.6”. 

26.	The more difficult question – and the question on which, to my mind, this appeal turns – is whether, and if so how, the parties intended clause 5.4 should apply in a case in which clause 5.3 does not apply – that is to say, in a case where, because the board of directors of the company has been replaced by the Buyer’s appointees, there has been no delivery of draft completion accounts “in accordance with clause 5.2”. Before turning to that question it is convenient to consider the provisions of clause 5.5.

27.	Clause 5.5 is in these terms (so far as material in this context):
“If the Buyer notifies Jordan and the Minority Sellers pursuant to clause 5.3 that it does not accept the draft accounts delivered pursuant to clause 5.2 . . . the parties shall use all reasonable endeavours (in conjunction with the Buyer’s Accountants and the Company’s Auditors) to meet and discuss the objections of the Buyer and to reach agreement on the adjustments (if any) to be made to the draft accounts so that they are acceptable to the Buyer.”

In a case where, upon the execution of the share acquisition agreement, the directors of the company are replaced by appointees of the Buyer, the provisions in clause 5.5 (in so far as they have been set out above) can have no application. That is because, in a case where draft accounts are not delivered pursuant to clause 5.2, and where clause 5.3 does not apply, the circumstances in which clause 5.5 is made applicable by its terms – “If the Buyer notifies Jordan and the Minority Sellers pursuant to clause 5.3 that it does not accept the draft accounts delivered pursuant to clause 5.2” – cannot arise. 

28.	That conclusion does not, of itself, deprive clause 5.5 of all effect in such a case. The words which have been  omitted from the clause, as set out above, are:
 “. . . or the Sellers’ Auditors (sic) and the Buyer’s Accountants do not jointly agree and issue the Net Asset Statement within the 7 days referred to in clause 5.4 . . .” 

The possibility of disagreement between the Auditors and the Buyer’s Accountants is not unreal in a case where (i) draft completion accounts have been prepared by the company under the direction of the Buyer and (ii) Mr Jordan and One 2 One are not in agreement as to the content of those accounts. Clause 5.2 provides for the Completion Accounts to be audited by the Company’s Auditors. Although the reference in clause 5.5 to the “Seller’s Auditors” can be dismissed as a mistake – in that the context demands that the phrase be treated as though the reference was to the “Company’s Auditors” – the slip is not without significance. It may well have been in the parties’ contemplation that Glazers – who were to remain as the company’s auditors until completion of the statutory accounts and the Completion Accounts, and were then to resign with effect from Completion (see clause 7.1.17) -  would be concerned to protect the Sellers’ interests in circumstances in which PricewaterhouseCoopers (as the Buyer’s Accountants) would, throughout, be acting in the interests of One 2 One. But, in such a case, it is difficult to see how clause 5.5 can apply. The clause requires that, if there is disagreement between Glazers and PricewaterhouseCoopers in relation to the issue of the Net Asset Statement, the parties shall use all reasonable endeavours to meet and discuss the objections of the Buyer and to reach agreement on the adjustments to be made to the draft accounts so that they are acceptable to the Buyer. Although that exercise is to be carried out in conjunction with Glazers and PricewaterhouseCoopers, the clause does not provide, in terms, for the need to reach agreement on the adjustments to be made to draft completion accounts prepared by the company at the direction of the Buyer so that they are acceptable to Glazers as auditors. The better view, I think, is that clause 5.5 was not intended to apply at all in a case where draft accounts are not delivered pursuant to clause 5.2, and where clause 5.3 does not apply. 

29.	I return, therefore, to the question whether, and if so how, the parties intended clause 5.4 should apply in a case in which clause 5.3 does not apply. That clause 5.4 was intended to have some application in such a case is not, I think, open to any real doubt. It is clause 5.4 which requires the parties to procure the issue of a Net Asset Statement; and it is the Net Asset Statement which provides confirmation of the Net Asset Value and which leads to the identification of the Shortfall (if any). Without clause 5.4 there is no obligation on Mr Jordan and the other Sellers to join with the Buyer in taking steps to procure the issue of a Net Asset Statement. It may be, of course, that – in a case where there is no dispute between them - the parties would agree to join in procuring the issue of a Net Asset Statement. But, in a case where the parties are in dispute, absent an obligation on Mr Jordan and the other Sellers to join with the Buyer in giving instructions to Glazers and PricewaterhouseCoopers for the issue of a Net Asset Statement there is nothing in the share acquisition agreement which ensures that such a statement will be issued. In particular, there is nothing in the agreement which imposes any direct obligation on the two firms. Nor could there be. Neither Glazers nor PricewaterhouseCoopers are parties to the agreement. 

30.	As I have said, the obligation to procure the issue of a Net Asset Statement arises under clause 5.4 if one of three conditions are satisfied: (i) completion of the review of the draft accounts delivered in accordance with clause 5.2, or (ii) resolution of any dispute in relation to the draft accounts in accordance with clause 5.5, or (iii) determination of any dispute by the Independent Accountant in accordance with clause 5.6. For the reasons which I have set out I take the view that neither the first nor the second of those conditions are apposite in a case in which there has been no delivery of draft completion accounts in accordance with clause 5.2; that is to say, in a case to which clause 5.3 does not apply. It follows that, if clause 5.4 is to have some application in a case where clause 5.3 does not apply – as I think it must – the parties must be taken to have intended that, in such a case, it would be condition (iii) that was satisfied. In the absence of agreement, the obligation on the parties to procure the issue of a Net Asset Statement was to arise when any dispute between them had been determined in accordance with clause 5.6. Clause 5.6 is in these terms (so far as material):
“Any dispute with respect to the Net Asset Value shall be referred for final determination to an Independent Accountant nominated jointly by the Sellers and the Buyer or failing a nomination at the request of either party by the President for the time being of the Institute of Chartered Accountants in England and Wales. . . .”

The issue on this appeal

31.	With that introduction, it is possible to identify the short question upon which I would decide this appeal. The question may, I think, fairly be posed in these terms: “Is the phrase ‘dispute, difference or question’ in clause 5.4 restricted to a dispute or question raised in a notice of non acceptance given by the Buyer under clause 5.3?” 

32.	The judge answered that question in the affirmative; with the consequence (as he held) that, in the absence of a  notice of non acceptance (because the Buyer accepted the draft accounts prepared under the direction of its appointees), the parties were obliged, under clause 5.4, to procure the issue of a Net Asset Statement and were bound by the contents of that statement.  There was no place, in a case where there had been no notice of non acceptance, for the determination of a dispute between the parties in relation to the draft completion accounts (as distinct from a dispute between the Company’s Auditors and the Buyer’s Accountants in relation to the Net Asset Statement) by an Independent Accountant under clause 5.6. The point is put, succinctly, at page 12F-H in the transcript of the judgment delivered on 24 July 2001:
“The words “Any dispute with respect to net asset value” [in clause 5.6] are very wide if read on their own, and, unless they have some implied limitation from their context, they would comprehend a dispute raised by Jordan. In my view, read in context, they are impliedly limited so as to encompass only a dispute which arises pursuant to a notice of non-acceptance from the Buyer under clause 5.3, or a failure to agree the Net Asset Statement as provided for at the end of Clause 5.4, which (in either case) is then not agreed pursuant to clause 5.5.”

33.	The judge went on to point out that:
“In clauses 5.3 to 5.5, the parties have agreed a procedure and a timetable whereby the Buyer can, indeed, must, raise all his disputes in relation to the completion accounts within a specified period,”

and that: 
“If Jordan’s . . . argument is correct there is no date by which he must raise a dispute, there is no provision preventing him raising disputes sequentially, and there is no provision requiring any issue he raises to be disposed of by agreement if possible.”

He observed that, if Mr Jordan could raise a dispute at any time, it was hard to see why the Buyer should not be entitled to raise disputes at any time as well:
“There is nothing in clauses 5.3 or 5.5 which expressly provides that the only way the Buyer can get to clause 5.6 is through the medium of those two sub-clauses. The answer, to my mind, is that the Buyer is not intended to have the right to raise a dispute in relation to the draft accounts other than through the gateway of clauses 5.3 and 5.5. If that is right, it tends to support the view that the opening words of clause 5.6 do not refer to any dispute which the parties choose to raise at any time, but to a dispute arising pursuant to the previous provisions of clause 5.”

34.	The judge concluded that the reference to “any dispute, difference or question” in what I have described as condition (iii) of clause 5.4 was restricted to disputes raised by a notice of non acceptance given by the Buyer under clause 5.3. At page 14E-F of the transcript he said this:
“The reference to “any dispute, difference or question” after the first “or” [in condition (ii)] plainly only relates to a dispute raised by the Buyer under clause 5.3 in the light of the reference to clause 5.5. This tends to suggest that the same wording, “any dispute, difference or question” after the second “or” [in condition (iii)] relating to clause 5.6 is similarly concerned with disputes raised by the Buyer pursuant to clause 5.3”.   

35.	For my part, I would not quarrel with the judge’s analysis in a case where draft completion accounts are delivered by Mr Jordan or the Minority Sellers under clause 5.2; that is to say, in a case where clause 5.3 applies. In such a case I would accept that clauses 5.4 and 5.6 must be read as part of a scheme which includes clauses 5.3 and 5.5; and that the four clauses, read together, do lead to the conclusion that the phrase “any dispute, difference or question” – in both places where that phrase appears in clause 5.4 – is intended to refer only to a dispute or question raised in a notice of non acceptance given by the Buyer under clause 5.3. But, as it seems to me, the judge fell into error in failing to appreciate that his reasoning did not support that conclusion in a case where the parties did not intend that clauses 5.3 or clause 5.5 should apply. 

36.	The necessary starting point is that it is inherent in the agreement that, if the Buyer so chooses, Mr Jordan and his co-directors may be replaced as directors immediately upon the execution of the agreement; and that, in that event, it must have been intended that the obligations imposed on Mr Jordan and the Minority Sellers by clause 5.2 would fall away. So the scheme for the adjustment of the Initial Price - by determination of Net Asset Value and the Shortfall - under the provisions in clause 5 must have been intended to apply in two distinct situations: (A) where the Buyer does not choose to replace Mr Jordan and his co–directors by its own appointees until after the draft completion accounts have been delivered in accordance with clause 5.2; and (B) where the Buyer does choose to appoint a new board of directors before draft completion accounts have been delivered. 

37.	In the first of those situations, clauses 5.3 and 5.5 apply: and clauses 5.4 and 5.6 must be read as part of a scheme which includes clauses 5.3 and 5.5. That leads to the conclusion which the judge reached. But, in the second of those situations, the parties must be taken to have intended that clauses 5.3 and 5.5 would not apply. Further, they must be taken to have intended that the only relevant condition in clause 5.4 would be that which I have described as condition (iii). So, in the second of those situations, the task is to construe the phrase “any dispute, difference or question” (where that phrase appears for the second time in clause 5.4) in conjunction with clause 5.6 and in the context that there is no reason for the parties to assume that the draft completion accounts would be acceptable to Mr Jordan or the Minority Sellers - in circumstances in which they had had no part in the preparation of those accounts. In a case where the parties intended that clauses 5.3 and 5.5 would not apply, it would be perverse to construe words in clause 5.4 as part of a scheme in which effect must be given to those clauses. They are irrelevant in such a case.   

38.	For the reasons that I have given earlier in this judgment I take the view that clause 5.4 was intended to have some application in a case where the parties intended that clauses 5.3 and 5.5 would not apply. So the task is to give meaning to the phrase “any dispute, difference or question” (where that phrase appears for the second time in clause 5.4) in a context in which the parties appreciated that the dispute or question would not have been raised by a notice of non acceptance. In that context it is plain that the phrase cannot bear the meaning “a dispute or question raised in a notice of non acceptance given by the Buyer under clause 5.3”. Nor, in my view, is there any reason to give the phrase any meaning which is more restricted than “any dispute, difference or question between the parties in relation to the draft completion accounts”. That is the natural meaning of the words in the context in which they appear. In a case where clauses 5.3 and 5.5 were not intended to apply, there is no basis for the limitation which the judge held must be implied. And a dispute between the parties in relation to the draft completion accounts is plainly within the description in clause 5.6: “Any dispute with respect to the Net Asset Value”.

39.	It follows that I would allow this appeal. I would hold that a Net Asset Value confirmed in a Net Asset Statement issued by Glazers and PricewaterhouseCoopers in disregard of Mr Jordan’s right to have the dispute which he had raised on the draft completion accounts determined by an Independent Accountant under clause 5.6 is not binding on the Sellers.  
 
Arden LJ:

40.	I agree.

Ward LJ:

41.	I also agree.

Order: Appeal allowed; counsel to lodge an agreed minute of order.
(Order does not form part of the approved judgment)