The open market excludes no-one. The open market must be assumed
to include all possible purchasers who both wish to buy the shares
and have the necessary funds to do so. This includes not only
hypothetical purchasers but also, possibly, the institutions or
pension funds if the value of the holding is exceptionally large,
and actual members of the company, including directors.
The directors and actual members may be special purchasers
because they may have some special reason for paying more than
market value to acquire a particular holding (because it may
provide them with control for instance). Whether or not the
statutory open market is influenced by such purchasers is a
question of fact acknowledging as we must that all likely
purchasers are present.
In the Crossman case - the existence of a special purchaser
(a trust company) was acknowledged but the special price it was
prepared to offer was ignored because the evidence pointed to the
fact that the extra sum which could be obtained from trust
companies was not an element of the value in the open market but a
particular price beyond the ordinary market price that a trust
company would give for special reasons of its own.
Following the decision in Lynall, it appears that the open
market is influenced by the existence of a special purchaser only
where it can be clearly established by cogent evidence that at the
date of valuation, the special purchaser was in fact:
In re Lynall CA [1969] 3 WLR 984:
"...it would be very unsatisfactory if the amount of Estate Duty payable in cases such as this were to depend on evidence, which in the nature of the case cannot easily be challenged, given by persons who may be personally interested in the result. "
Cross L J at page 995
"In Crossman's case it was decided that the fact that a 'special' purchaser, namely a trust company, would have offered a special price must be ignored but this was because that particular purchaser had a reason special to him for so doing. So, here, a director who would give an enhanced price because he would thus obtain control of a company would be left out of account. But that is not to say that directors as such are to be ignored. All likely purchasers are deemed to be in the market."
Harman L J at page 990
Re Lynall HL [1971] 3 AER 914
"...it is said that the likely purchasers might have included a director of the company and he would have had the (special) information ex officio. But unless others also knew it, his possession of the information would not materially affect the market price which he or any other purchaser would have to pay. The situation differs from that in Commissioners of Inland Revenue v Clay (1914) 3 KB 466, at pages 471-2 where the special fact enhancing the price of the property was assumed to be a matter of local knowledge."
Pearson L J at page 928
In re Crossman HL [1937] AC 26
"The whole world was hypothetically there, making hypothetical bids. "
Lord Russell of Killowen at page 69
Valuers should seek advice at an early stage where it appears that the special purchaser argument is likely to be a major factor in the valuation exercise.
| Additional Guidance: SVM150000 |
