‘ I shall . . . state, as precisely as I can, what I understand from the decided cases to be the principles on which the courts of law act in construing instruments in writing; and a statute is an instrument in writing. In all cases the object is to see what is the intention expressed by the words used. But, from the imperfection of language, it is impossible to know what that intention is without inquiring farther, and seeing what the circumstances were with reference to which the words were used, and what was the object, appearing from those circumstances, which the person using them had in view; for the meaning of words varies according to the circumstances with respect to which they were used.’
“ References in this Act to quotation on a stock exchange in the United Kingdom or a recognised stock exchange in the United Kingdom shall be construed as reference to listing in the Official List of The Stock Exchange. ” 170. Mr Firth made the point that where Parliament wished to refer to the Official List it did so. In similar vein Mr Firth also referred to various other amendments introduced by Schedule 38 FA 1996. He gave as an example section 735 ICTA 1988 where a reference to “listed in the Stock Exchange Daily Official List” was replaced by “listed in the Official List of the Stock Exchange”. 171. Mr Firth submitted that the amendments in 1996 did not materially affect the position of AIM shares. He submitted that AIM shares were from the inception of AIM in 1995 both listed in SEDOL and quoted on SEDOL. He described HMRC’s arguments to the contrary as impermissible statutory amendment rather than statutory construction. 172. Mr Gibbon acknowledged that many amendments in Schedule 38 substituted the word “listed” for the word “quoted”
“ Admission to AIM should not be taken as implying that there will be a liquid market for the Ordinary Shares. It may be more difficult for an investor to realise an investment in the Company than in a company whose shares are quoted on the Official List . ” 180. It is the case that HMRC have interpreted section 272(3) and its predecessor as excluding reference to shares on the USM and AIM. That interpretation goes back to 1980 when the USM was first established and the Inland Revenue issued a statement of practice to that effect (SP 18/80). The interpretation continued after AIM was established in 1995. I accept that HMRC’s view of the law in itself is irrelevant to the proper construction of section 272(3), but there was no material before me to suggest that HMRC’s view has ever been challenged. 181. Mr Gibbon described the Appellant’s approach to this issue as “literalist” and as having a “prima facie logic”
“ References in this Act to quotation on a stock exchange in the United Kingdom or a recognised stock exchange in the United Kingdom shall be construed as references to listing in the Official List of The Stock Exchange. ” 188. This section was repealed by Schedule 41 FA 1996. In the light of that repeal, the Appellant’s argument is essentially that AIM is part of the London Stock Exchange and therefore the Company’s shares are quoted on a recognised stock exchange. Mr Firth submitted that if HMRC are right that the ordinary meaning of the words “quoted on a recognised stock exchange” in the context of UK shares meant listed in the Official List then there would have been no need for section 288(4) in the first place. 189. It is clear that when AIM was introduced in June 1995 it was not a recognised stock exchange for the purposes of section 273(2). It was expressly excluded from that definition by section 288(4) because on any view the shares of AIM companies were not listed in the Official List. 190. Mr Gibbon put forward an explanation for the repeal of section 288(4). He submitted that in light of the stock exchange changes in 1996 the draftsman may have been concerned that leaving this provision in place could cause confusion. It is not really clear to me how that confusion might have arisen, but again I accept Mr Gibbon’s further submission that there is no indication that Parliament was intending what would have been a fundamental change. 191. Mr Gibbon also submitted that it has never been suggested since 1996 that AIM shares are quoted on a recognised stock exchange, and Mr Firth did not challenge that submission. The terminology of the market relied on by Mr Gibbon was that shares were admitted to dealing on AIM. They were not properly described as listed on AIM and they were not properly described as quoted on AIM. Hence shares admitted to dealing on AIM were not quoted on a recognised stock exchange. I accept Mr Gibbon’s submission, which is supported by the distinction in section 587B(9) ICTA. For the purposes of gift relief a qualifying investment is defined as any “shares or securities which are listed or dealt in on a recognised stock exchange …”
“ On issue, the Ordinary Shares will not be treated as either “listed” or “quoted” securities for tax purposes. Provided that the Company remains one which does not have any of its shares quoted on a recognised stock exchange (which for these purposes does not include AIM) … the Ordinary Shares should continue to be treated as unquoted securities … ” 193. Further, the Appellant’s own expert evidence proceeded on what may be described as the conventional basis that for AIM shares the information available is the public information supplemented by section 273. 194. Mr Gibbon indicated during the hearing that he wished in effect to reserve the right to make further submissions on this issue in relation to other aspects of the tax code where reliefs were given for shares which were not quoted on a recognised stock exchange. In the event it has not been necessary for me to receive any further submissions. 195. The absence of any controversy over a long period of time as to whether AIM shares fall within section 272(3) and 273(2) suggests that there has been a well-established and common understanding that AIM shares are not “quoted” either in SEDOL or on a recognised stock exchange. I am also satisfied that the interpretation I have given to sections 272(3) and 273(2) is consistent with the dicta of Widgery LJ in re Lynall at p153H in relation to valuation, in that case for estate duty purposes: “ The intention underlying section 7(5) is to produce a fair basis of valuation between the Crown and the subject. ” 196. It is accepted that the market for AIM shares may be illiquid, and FTG is clearly a case in point. The price at which the small volumes of shares were traded on28 July 2004 cannot, without more, be viewed as a reliable proxy for the open market value of those shares. Special Circumstances 197. In light of my decision that the FTG shares are not quoted in SEDOL the question of whether the price quoted in SEDOL is not a proper measure of market value in consequence of special circumstances does not arise. I shall therefore set out my conclusions only briefly. 198. The meaning of “special circumstances” in this context was considered by the House of Lords in Crabtree v Hinchcliffe[1972] AC 707 . In that case the taxpayer was arguing for special circumstances because he considered that the shares were worth more than the quoted price. Lord Reid stated at 731B as follows: “ Now I must turn to the interpretation of section 44 (3). As might be expected it takes the Stock Exchange quotation as reflecting market value in all normal cases. Stock Exchange prices are more liable than most open market prices to large and rapid fluctuations. But the taxpayer must take the risk of that unless there are "special circumstances." "Special" must mean unusual or uncommon - perhaps the nearest word to it in this context is "abnormal." I see no reason to exclude any kind of abnormality. "Rigging the market" was discussed in argument. This exception of cases where there are special circumstances must be intended to provide that a fair value is to be taken where they exist: generally a fair value could only be reached by inquiring what the market value would have been if the special circumstances had not existed. I think that that is what the section is contemplating when it says that in consequence of special circumstances the Stock Exchange quotation is not by itself a proper measure of market value. If it is not then some other measure must be found. ” 199. The Respondents submitted that the arrangements were designed in large measure to facilitate the tax advantages to be derived from gifting shares to charity. The design included ensuring that there was a very significant uplift in the value of the shares between the price paid for the Subscription Shares and the flotation price. It was not suggested that there was any manipulation of the price on flotation, but that unusual lock-in arrangements were necessary to ensure that investors were not “out like rabbits” on flotation. Further, that the two stage subscription arrangement involving the Subscription Shares with a commitment to purchase the Placing Shares was also unusual. 200. I have made findings of fact in relation to the significance of gift relief on the flotation of FTG. In particular, I am not satisfied that the flotation as a whole was structured in order to obtain the tax advantages of gift relief. The evidence leads me to a conclusion that the transaction was not structured with the intention of giving an opportunity for gift relief to retail investors. The availability of gift relief was simply an incident of a successful flotation. It is inherent in the Respondents’ submission that the evidence of at least Mr Hughes and Mr Currie as to why they structured the transaction as they did was untrue. In my judgment the evidence does not justify such a finding. 201. I have found that the lock-in arrangements were unusual and were not in accordance with market practice at the time. I am satisfied that those arrangements at least contributed to a very illiquid market in the shares of FTG in which effectively only 1.2% of the shares were available to trade. In my view that is sufficient to amount to special circumstances. I must then consider as a matter of causation whether in consequence of that the price quoted in SEDOL would not in itself be a proper measure of market value. The price quoted on SEDOL for FTG shares on28 July 2004 was derived from the dealings on that date. The circumstances in which those transactions took place and the volume of those dealings leads me to conclude that they do not give a proper measure of market value. In a more liquid market the dealings would have been a proper measure of market value. The unusual lock-in provisions contributed to the absence of liquidity. It is therefore a consequence of the lock-in that the price quoted is not a proper measure of market value. Valuation Principles and the Valuation Evidence 202. Section 272(1) defines market value for present purposes as the price which Mr Netley’s shares might reasonably be expected to fetch on a sale in the open market. For that purpose section 273(3) requires it to be assumed that in the open market any prospective purchaser has available the information which a prudent prospective purchaser might reasonably require if he were purchasing the shares from a willing vendor, by private treaty and at arm’s length. 203. The following principles of valuation are not controversial: (1) The sale is hypothetical. It is assumed that the relevant property is sold on the relevant day (see Duke of Buccleuch v IRC[1967] AC 506 at 543 per Lord Guest). (2) The hypothetical vendor is anonymous and a willing vendor, in other words prepared to sell provided a fair price is obtained (see IRC v Clay[1914] 3 KB 466 at 473, 478). (3) It is assumed that the relevant property has been exposed for sale with such marketing as would have been reasonable ( Duke of Buccleuch v IRC at 525B per Lord Reid). (4) All potential purchasers have an equal opportunity to make an offer ( re Lynall[1972] AC 680 at 699B per Lord Morris). (5) The hypothetical purchaser is a reasonably prudent purchaser who has informed himself as to all relevant facts such as the history of the business, its present position and its future prospects (see Findlay ’s Trustees v CIR (1938) ATC 437 at 440). 204. The matters of valuation principle which are in dispute in the present appeal concern: (1) The information available to the hypothetical prudent purchaser. (2) The significance of experts taking different views as to the market value of the shares. (3) The extent to which a subsequent comparable transaction can be taken into account. 205. I deal with items (2) and (3) below in the course of considering the expert evidence. At this stage I focus on the approach to be taken to the information available to the prudent purchaser. In re Lynall , the House of Lords identified that a sale in the open market would not involve release of any confidential information to prospective purchasers. The confidential information in that case included the fact that a flotation of part of the company’s capital was being considered. It was not to be taken into account in ascertaining the market value of the shares. A sale in the open market was contrasted with a sale by private treaty, where such confidential information might be available. 206. The House of Lords also identified that the most a reasonable director might do would be to disclose confidential information that could not possibly prejudice the interests of the company. Having said that, Viscount Dilhorne at least did not treat as confidential information accounts of the company already prepared and awaiting presentation to the shareholders. 207. The Court of Appeal in re Lynall had held that it should be assumed that the prudent purchaser would make all reasonable enquiries and that he would receive true and factual answers to reasonable enquiries. Hence, information as to the flotation would have been available. The test was by reference to what a reasonable board of directors would disclose, and not what the particular board of directors would have disclosed. 208. It was the House of Lords decision in re Lynall which led to the introduction of what is now section 273, for shares which are not quoted on a recognised stock exchange. Section 273(3) provides that the prudent purchaser is to be assumed as having available all information which he might reasonably require from the vendor if the sale were a sale by private treaty. 209. The effect of section 273(3) and the context in which it came to be enacted were considered by Dr Brice, Special Commissioner in Caton’s Administrators v Couch [1995] STC (SCD) 34 . She concluded as follows: “ …in my view, s 152(3) [now section 273(3)] is effective to provide that any information, including unpublished confidential information, and even information which might prejudice the interests of the company, is assumed to be available in the hypothetical sale if it would be reasonably required by a prudent prospective purchaser of the asset in question. It is therefore necessary to consider, in each case, what information a prudent prospective purchaser of the asset in question would reasonably require. In the context of s 152(3) I understand the word 'require' to mean 'demand as a condition of buying'; information is 'required' if the purchase would not proceed without it. ” 210. The question of what a prudent purchaser would reasonably require is essentially a value judgment, informed by the expert evidence. In Caton’s Administrators , Dr Brice also had regard to an observation in Dymond’s Capital Taxes . At page 51a Dr Brice stated as follows: “ Dymond , para 23.328 also says that where the holding is less than 25% it may be that the buyer will expect less information but this is a matter for expert evidence. The size of the company is important and a buyer investing£200,000 would obviously be entitled to know more than one investing£2,000 . Where the holding was small, say less than£50,000 and less than 5% of the capital, the buyer would not normally be expected to have more than the information which was published or which he could find out without questioning the directors. ” 211. I respectfully agree with the approach of Dr Brice. It is difficult to see why, in relation to a holding in an AIM company which is small both in terms of value and percentage, a reasonable board of directors would be concerned to reveal any information which was not otherwise public information. 212. I mention above Mr Firth’s submission that in relation to FTG, section 273(3) has no effect on the information available for the purposes of valuation. As I understand the submission, contained in Mr Firth’s skeleton argument, price sensitive information available to a purchaser in the open market would be the same as that available in a sale by way of private treaty because the law against insider dealing applied to AIM shares. Neither of the experts addressed this point and in the event Mr Firth did not pursue the point in his closing submissions. 213. Mr Hughes said that if he had been asked by a prospective investor he would have provided profit and cashflow forecasts relating to FTG, including the Working Capital Report which he regarded as a very conservative estimate of future prospects. It is clear from the authorities however that the test is objective. It is not what a particular director or board of directors would have done at the time. 214. In relation to valuation I had the benefit of expert evidence from Mr David Houghton on behalf of the Appellant and Mr Michael Weaver on behalf of the Respondents. Both are chartered accountants and experienced valuers. Mr Houghton considered the open market value of the shares on the basis that section 273(3) applied. Mr Weaver considered the open market value of the shares on three bases: public information, full information and prudent buyer information. Prudent buyer information was on the basis of public information supplemented by information to be assumed pursuant to section 273(3). For the reasons given above, I am satisfied that it is the latter which is the appropriate basis to value the Company’s shares in this appeal and I shall focus on the information which was available on that basis. 215. Both experts agreed that in considering what information was available, consideration had to be given to the size and influence of the holding, and to the cost of the investment. Mr Houghton accepted that the general view of valuers was that the information available in respect of small, uninfluential shareholdings with limited outlay is essentially public information. 216. The experts were agreed that the following company information would be available to the prudent purchaser: (1) The July Prospectus. (2) The February Prospectus. (3) The Acquisition Agreement and the share sale and option agreement in favour of Mr Fraser and Mr Ashcroft to purchase the shares of John and Naomi Frenkel and Arrow Nominees. (4) The financial results of FTL and FTSSL for the period1 January 2004 to28 July 2004 . 217. The first three items were publicly available at the valuation date. The last item is to some extent surprising because it would only be available under section 273(3). Mr Netley’s shareholding of 82,000 shares in FTG was modest. It was 0.18% of the Company’s issued share capital and had cost just£10,000 a few weeks prior to the valuation date. It is not clear to me why it would be reasonable for the purchaser of a relatively small tranche of shares by way of private treaty to require such information, and why a reasonable board of directors would provide it. However both experts have agreed it would be available and I shall proceed on that basis, notwithstanding Mr Firth’s submission to the contrary. 218. The experts disagreed as to what further information would be available. Mr Houghton considered that the following information would also be available: (1) The Baker Tilly Working Capital Report. (2) The Baker Tilly Long Form Report. (3) The agreement whereby WHI and the Company agreed that WHI would act as financial adviser and Nomad to the Company. (4) The brokership agreement between WHI and the Company. 219. In the event there was very little of significance in the Long Form Report which Mr Houghton relied upon, and no basis was put forward to support its availability to the prudent purchaser. Further, the experts agreed that the existence and generic form of the agreements between WHI and the Company would be information available to the prudent purchaser. 220. The Working Capital Report contained detailed forecasts of the Company’s future performance up to December 2006. It included forecasts of turnover, operating profit and cashflow based on assumptions in relation to increased business from the new Canada Life product, recruitment of two new consultants and from an increase in funds under management. 221. Mr Houghton considered that this information would be reasonably required by a prudent purchaser on the basis that the Company’s shares were “growth shares”
“ There will be cases where the size and cost of the investment may appear small but due to the nature of the investment any prudent purchaser would require further information and ‘demand as a condition of buying’. An example of such an investment would be where the value is wholly dependent on the company achieving a growth target and where there is some provision for an early exit. Such arrangements are commonly called ‘Growth Shares’. Clearly in such circumstances the growth prospects are intrinsic to the investment and no sale would proceed without access to additional information such as company forecasts. ” 222. Mr Houghton’s evidence was that any investor looking to acquire shares in an AIM company would assume growth because AIM is generally a market for smaller, growing companies. Investors would therefore reasonably require the provision of growth forecasts prior to making an investment decision. In cross examination he retreated from such a general principle and limited such an approach to the particular circumstances of particular companies, especially at or about the time of flotation on AIM. He maintained that the approach would apply to shares in FTG because it was “a very immature business” with a very small market share and the ability to grow into that market. As such, in his report he considered that it was a “growth share”. 223. Mr Houghton also relied on references in a book on valuation to support his view as to growth shares. An extract was produced just before the hearing commenced but it was notable that Mr Houghton seemed unfamiliar both with the author of the book and its title. Mr Gibbon’s researches established that it was The Dark Side of Valuation 2 nd ed by Aswath Damodaran . 224. It seemed from Mr Houghton’s evidence in cross examination that he was not relying on any specific definition of “growth share”, either by reference to the HMRC Share Valuation Manual or indeed any textbook definition. Rather he considered that each company had to be looked at by reference to its own particular circumstances. If the value of the shares depended upon growth then the prudent purchaser would require additional information as to the prospects of growth. 225. I am satisfied that the reference to growth shares in the Share Valuation Manual is to a particular type of share. Those are shares which obtain rights or are relieved of restrictions on the occurrence of some future event related to growth. The value of such shares is wholly or mainly defined by the occurrence of that event and therefore by the prospect of future growth. No-one would purchase such shares without having information about future growth prospects. 226. The July Prospectus said very little about the growth prospects of the Company. Mr Houghton’s approach was that investors would require information as to its growth prospects before investing. That begs the question, if true, as to why such information was not provided in the July Prospectus, and yet the retail investors were prepared to buy the shares. 227. Both experts took an approach that the default position is that information as to future prospects is not available. There was no support for Mr Houghton’s opinion that the shares of FTG were growth shares, either by reference to decided cases or to valuation practice. Mr Weaver was firmly of the view that FTG shares were not growth shares and that no information as to the future prospects of FTG would be available beyond that in the July Prospectus. 228. In the circumstances I consider that the default position applies. FTG’s shares are to be valued on the basis of the information which the experts were agreed would be available to the prudent prospective purchaser. I do not accept Mr Houghton’s view that any additional information would be available. On that basis, Mr Houghton valued the shares at 42p per share as at28 July 2004 and Mr Weaver valued the shares at 6.6p. There is clearly a considerable divergence between the two valuations and I shall explore below the reasons for that divergence. 229. Mr Firth submitted that in ascertaining the open market value of FTG shares one was seeking to identify the highest price a purchaser would pay for the shares. In the case of two experts who take a different view as to the prospects and value of a company, unless one takes an unreasonable view it is the more optimistic view that will prevail. He described that as a logical conclusion from the fact that it is the highest bidder who gets the prize. 230. I do not consider that is the right approach to expert evidence on valuation. The experts are not saying what they would pay for the shares if they were a prospective purchaser. Their evidence is directed to what, in their reasoned opinion, the hypothetical prudent purchaser would pay based on the information available. The market value is a single price, ascertained through a process of valuation. Mr Firth’s approach seeks to place a burden on HMRC to satisfy the tribunal that the Appellant’s expert has been unreasonable. In my view there is no justification for such an approach. The ultimate question based on all the evidence, including that of both experts, is what the hypothetical prudent purchaser would pay in the open market. 231. Both expert reports contained certain errors and omissions. Where errors were identified I have discounted them for the purposes of this decision. Further, whilst I have had regard to the opinions expressed by Mr Weaver and Mr Houghton, it is the underlying evidence referred to in their evidence which is more significant. 232. Mr Houghton’s valuation took into account the following matters: (1) The admission price of 48p per share and WHI’s role as the Nomad on admission of the shares to AIM. He considered this was corroborated by dealings in the shares over the 12 months following admission at an average price of 42.6p per share. (2) A comparable transaction on admission to AIM on11 March 2005 of Brooks MacDonald plc, an asset management and private client advisory group. He used a multiple of earnings before interest and tax from the transaction to give a price for FTG of 31.5p per share, or 50.3p per share after various adjustments were made. (3) A discounted cashflow (“DCF”) exercise using the results for y/e31 December 2003 and forecasts from the Working Capital Report for 2004, 2005 and 2006. These were adjusted to give net cashflows for five years from1 July 2004 and making various assumptions as to the required rate of return gave a net present value of those cashflows. This was then adjusted to reflect a premium for the fact the shares were admitted to AIM, giving a value of 38.9p per share. (4) The issue of JBS Shares at a price of 17.5p per share. He considered this to be a sale of shares in FTL and FTSSL whilst in a distressed situation. The businesses had a combined balance sheet at31 December 2003 showing net liabilities of£471,000 and there were PAYE arrears of£325,000 , derived from the Long Form Report. The Working Capital Report showed that the business’ cash requirements would exceed their banking facilities in each month between June 2004 and October 2004. (5) The sale by Mr Frenkel of 16.6% of the shares in FTL and FTSSL for£600,000 , equating to 7.93p per share. He considered this reflected the fact that FTL and FTSSL were in a distressed situation. 233. Mr Houghton did not place any reliance in his report on the price indicated in the Acquisition Agreement. He accepted that it was an arm’s length transaction but considered that the business was close to insolvency at the time of the transaction. As a result the Vendors had a weak bargaining position. However he accepted that there was no evidence as to the Vendors’ other resources or the availability to the Vendors of other deals. 234. Mr Houghton considered that the most compelling evidence was the comparable transaction with and without adjustments, the DCF and the admission price. The average of these prices was 42.17p. He discounted this for the effect of a 2 year lock-in giving a value of 38.97p per share. Mr Firth conceded however that such a discount was not appropriate because the lock in was personal to Mr Netley and did not attach to the shares. 235. In considering Mr Weaver’s evidence I shall focus on his valuation based on prudent buyer information. Mr Weaver’s approach to valuing the shares was based on identifying historic p/e ratios. In the absence of prospective forecasts he used historic profits after tax of£302,496 for y/e31 December 2003 for FTL and FTSSL as a proxy for maintainable earnings. Mr Weaver placed particular reliance on the following matters: (1) The Acquisition Agreement for 66.2% of FTL and FTSSL on28 July 2004 implied a share price of 8.5p per share and a p/e ratio for the Company’s shares of 11.2. This was based on the value of£2,248,250 attributed to that interest in the Acquisition Agreement for which 26,450,000 shares were issued, with maintainable earnings of approximately£200,000 , being 66.2% of£302,496 . (2) The benefit of the share sale agreement whereby the Company acquired 16.6% of FTL and FTSSL for£600,000 . Pro rata this suggests that a 100% interest would be worth£3,614,458 , equating to a p/e ratio of 11.9 for the whole business based on maintainable earnings of£302,496 . Mr Weaver and Mr Houghton went on to calculate a share price of 7.9p, dividing£3,614,458 by 45,599,614 shares. This assumes that FTG exercised its option over the remaining 17.2% of the shares in FTL and FTSSL and that there was no intrinsic value in the option, although those assumptions were not stated. (3) A p/e ratio of 13.0 by reference to comparable companies in the FTSE Actuaries Speciality and Other Finance Index as at28 July 2004 . (4) A p/e ratio of 14.0 by reference to the BDO Private Company Price Index for Q2 2004. (5) Mr Weaver did not consider the issue of the JBS Shares at 17.5p to be representative of the market value at that time because JBS’s investment decision could have been motivated by other strategic considerations. (6) The weighted average price paid by the retail investors for Subscription Shares and Placing Shares was 14.2p per share. In his reports Mr Weaver did not consider that this represented a good indication of market value as at28 July 2004 . As appears later, he changed his view as to the significance of this information. (7) The price at which shares were traded on AIM on28 July 2004 did not amount to significant evidence of market value on that date because such a small number were traded. 236. Mr Weaver accepted that a company with higher growth prospects than another company would tend to have a higher p/e ratio, other things being equal, and therefore a higher share price. 237. Taking those matters into account, together with the operating losses and profits in 2001-2003 and in the 7 months to28 July 2004 , Mr Weaver considered that an appropriate p/e ratio was 10.0. He applied that to the maintainable earnings of£302,496 giving a value of 6.6p per share. The existence of the loss for the 7 months to28 July 2004 was a significant factor in discounting the p/e ratio and the share price. Principal Areas of Disagreement between the Experts 238. Both experts produced supplementary reports following service of their initial reports. A number of areas of disagreement were identified. 239. Mr Houghton did not consider that the BDO PCP Index was a reliable comparator. It was based on private company transactions which could be distorted for various reasons. It also covered a large cross section of business sectors, types and sizes of businesses. At best he considered it might show a trend and indicate market sentiment. Similarly use of the FTSE Actuaries Speciality and Other Finance Index was not a reliable comparator because it did not reflect the growth potential of smaller companies. 240. Mr Weaver’s opinion was that in the absence of the Working Capital Report it is not possible to carry out a DCF exercise, although he did attempt one on the basis of full information. Mr Houghton accepted that without the Working Capital Report it was not possible to carry out a DCF. 241. Further, in Mr Weaver’s opinion it is not possible to take into account Brooks MacDonald plc as a comparable transaction because it was not announced until 7 months after the valuation date. He considered that Mr Houghton gave too much weight to the market deals in the Company’s shares on the valuation date and gave no or insufficient weight to the terms of the Acquisition Agreement, the results for the 7 months to28 July 2004 and p/e ratios derived from listed and private company indices. 242. The divergence in the opinions of Mr Houghton and Mr Weaver arises principally from differences as to: (1) the information available to the prospective purchaser; (2) the weight to be attached to the flotation price, given the involvement of WHI as Nomad; (3) the relevance of the comparable transaction in shares of Brooks MacDonald; (4) The weight to be attached to p/e ratios derived from the two indices relied on by Mr Weaver; and (5) the weight to be attached to the terms of the Acquisition Agreement. 243. I should add that neither expert regarded the purchase of the JBS shares as being a reliable indicator of market value, although for different reasons. Mr Houghton because FTL and FTSSL were in a distressed state at the time of the transaction and Mr Weaver because there may have been other strategic considerations for the transaction. 244. In relation to the available information, Mr Houghton proceeded on the basis that the Working Capital Report and the Long Form Report would be available. He did not take into account details of the Acquisition Agreement or the trading results for the 7 months to28 July 2004 . 245. I have found that the Working Capital Report was not information which would be deemed to be available to the prudent purchaser. It was therefore not possible to carry out any meaningful DCF. Mr Weaver criticised the basis on which Mr Houghton had carried out his DCF exercise and in turn was subject to criticism of his own approach in cross examination. In the light of my finding that it is not possible to carry out a meaningful DCF on the basis of the information assumed to be available I need not consider those criticisms further. 246. Mr Houghton stated in cross examination that if he could not do a DCF and could not use Brooks MacDonald as a comparator, then there was still the flotation price, supported by the involvement of WHI. It was only in the absence of any such evidence that it would be necessary to do some exercise based on p/e ratios derived from quoted companies or indices. 247. I have made findings of fact in relation to the role of a Nomad in valuations for the purpose of an admission to AIM. It is important to note that HMRC do not suggest that that there was anything in the way in which the various transactions proceeded that was in any way dishonest, or a breach of any market rules. I consider that whilst some weight is to be attached to the fact that WHI acted as Nomad on the flotation, less weight is to be given to it than that attributed by Mr Houghton. Mr Houghton also used as a cross-check the fact that there were trades on AIM in the period from28 July 2004 to April 2005 at prices between 40p and 48p. That information was not available at the date of valuation and in any event in my judgment it demonstrates a very thin market on which little reliance can be placed. 248. Mr Firth relied upon the actual trades recorded in FTG shares on28 July 2004 . He said that was direct evidence of the value of the shares and that it was not necessary for me to go any further by way of expert evidence. For the reasons I have set out in relation to special circumstances I am not satisfied that any weight can be given to those dealings. 249. The value proposed by Zeus and accepted by WHI as well as the directors of the Company was not subject to a robust valuation process. It is apparent that no exercise equivalent to that undertaken by Mr Houghton and Mr Weaver was undertaken at the time of the placing. In the light of all the evidence I have no reason to doubt that the valuation was sufficient for the purposes of admission to AIM, but it is not sufficient for purposes of this appeal. 250. Mr Houghton maintained that the terms of the Brooks Macdonald flotation was evidence that could be taken into account. He considered that as a business it was “incredibly closely aligned” to the Company and was evidence of “market sentiment” at the valuation date. He said that if it is not used, there is very little to fall back on by way of evidence to support a valuation. 251. Mr Weaver’s evidence was firmly that information as to the sale of Brooks MacDonald was not to be taken into account, either as a comparable or as an indicator of market sentiment at the valuation date. He indicated that various international valuation standards bodies regarded that as a generally accepted principle, although there was no equivalent in the UK at the moment. He regarded it as a matter of valuation practice. I accept that is the case in relation to comparables which seems to me to be a logical result. It was not information that was available at28 July 2004 . Mr Houghton could point to no guidance or valuation practice that would support his reliance on Brooks MacDonald. Indeed in re Holt[1953] 1 WLR 1488 Danckwerts J stated that “ it is necessary…firmly to reject the wisdom which might be provided by the knowledge of subsequent events ”. 252. In Buckingham v Francis[1986] 2 All ER 738 the court was concerned with valuing a company with high returns but little or no assets. It arrived at a valuation based on p/e ratios but speculated whether when businessmen are deciding on a price “ business acumen or hunch does not play a far larger part than the calculations of accountants”
“ The company must be valued in the light of facts that existed at [the valuation date]. (Little or nothing turns on the question whether facts which existed but were not then ascertained or ascertainable should be taken into account.) But regard may be had to later events for the purpose only of deciding what forecasts for the future could reasonably have been made on [the valuation date] ” 253. It may be that the last sentence was referring to matters such as “market sentiment”