David Cavender Q.C. acted for Mr.Chilukuri on appeal against a finding that he was liable for damages for breach of contract in the sum of US$6m for his failure, in breach of the terms of an escrow deed, to transfer to a nominee, his 26% shareholding in SRM Exploration PVT Ltd (“SRM”) – which was provided by him as security in relation to a US$81m investment by RP Explorer Master Fund.
The award of damages of US$6m was based on a valuation of the main asset of SRM which was a 51% interest in a joint venture company which held certain rights to mine bitumen in the Democratic Republic of Congo, and was carried out on a “discounted cash flow” or “DCF” basis. Such a valuation seeks to attribute present value to an assumed future cash flow arising from a business asset.
In rejecting the suitability of such an approach to the assessment of damages in this case in the sum of US$6m which ignored business sense, and awarding nominal damages instead, Briggs LJ held that: “...I find myself quite unable to imagine any reasonably prudent and well advised prospective purchaser paying anything for this 26% shareholding...............no person would have touched these shares with a barge pole.” (para.54).
Lewison LJ agreeing, held that any assessment of damages must take the facts as they actually are as at the date of valuation and, that it,”..is critical that any departure from reality must either be compelled by the hypothesis, or at least based on solid evidence rather than assumption or speculation.....” (para.59).