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“Most unsatisfactory” and of “grave concern”

May 2022

Background

This case was a shareholder dispute in the Victorian Supreme Court. It involved allegations that actions of directors and the resultant acquisition of a shareholding were unfair and oppressive. Expert witness evidence was called as to the valuation of the company, and hence any potential damages

Partners at two major accounting firms were called as expert witnesses to provide valuation evidence. The expert for the plaintiff was a Mr J.

Trial

Mr J’s credibility as an expert witness came under substantial attack on the basis of the limits of his instructions and what was submitted to be a serious lack of independence arising from the manner in which his report had been prepared1.

Large portions of Mr J’s expert report were written by another director at that same accounting firm (a Mr W), and Mr W was closely associated with the instructing client. Furthermore, there were irregularities in respect to the engagement of the expert by the client, mostly involving Mr W. The issues included:

• Direct communications and meetings between Mr W and the client in relation to the report, rather than through the solicitors.2
• Some of these communications included discussion of the calculation of a valuation more favourable to the client.3
• The expert witness engaged (Mr J) was not aware of these communications.4
• Passing of a gift from the client’s representative’s wife to Mr W’s wife.5

Mr J agreed in cross examination that had he realised what was happening at the time, it would have caused him ‘grave concern’6.

Limited time was spent by Mr J on the engagement, with the vast majority of time being spent by Mr W, with some assistance from other staff members. He also accepted his instructions at face value, even when these were not in fact accurate.

Mr J accepted in cross examination that Mr W may have become an advocate for the client, and in turn Mr W was relied on by Mr J as expert. Mr J also accepted that the way in which his report was prepared was “most unsatisfactory”7.

Held

Mr J’s expert evidence was found to be “defensive and self-justifying”. Mr J “paid little attention to the documents with which he was briefed. His evidence in relation to that issue did not engender confidence in the robustness of his opinion”8.

It is worth noting that Mr W was not called to give evidence at the trial, and his absence from the witness box was not explained as he was in Melbourne (where the trial was heard) and was available at the time.

The manner in which the report was prepared was “most unsatisfactory” and it was regrettable that those matters were not disclosed to the court before the expert was cross examined. The circumstances did not require the judge to entirely set the report aside, however the reasoning was to be very carefully scrutinised and assessed. This was then done by the court.9

 

Comment

This case serves as a reminder to expert witnesses who are principals of organisations and who have others within the organisation conduct work for them in relation to their expert engagement. Principals must review the work being undertaken by their staff, no matter how senior. They must also effectively engage in the content of the report and their role as expert witness.

It also highlights various requirements for expert witnesses in undertaking an engagement, such as the need for:

• Independence of not only the expert witness, but also their team;
• Proper methods of instruction through solicitors, rather than by other means such as directly from the client;
• Critical assessment of instructions;
• A thorough understanding of the materials provided to the team; and
• For the expert’s conclusions to be the expert’s own opinion.

To see how we can potentially assist in the training of expert witnesses and their teams please contact us.


1 At para 372.
2 At para 388.
3 At para 397.
4 At para 391.
5 At para 412.
6 At para 387.
7 At para 434.
8 At para 427.
9 At para 434.

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