Some expert shopping!
Some expert shopping!
This case concerned the approval of a company scheme of arrangement in company called Pivot. An accountant, Mr W provided an independent expert report to determine if the scheme was fair and reasonable to members. Mr W sought to prepare a valuation as part of his report.
A meeting between the expert and management to discuss the context of report, especially in the context of a possible takeover of Pivot and with a view to defending this takeover by way of the scheme. Certain valuation methods were discussed at the meeting.
A draft valuation was prepared by Mr W with a valuation of $12.50 per share, although Mr W had not yet been formally engaged.
A meeting was then held and the possible price of $50 per share was discussed. The draft was amended by the board of Pivot to suggest a new price of $50. This price was adopted by W in a later report.
There was a suggestion of “shopping for a suitable expert by having exploratory discussions”, a point seemingly accepted by Mr W in cross examination.
The court was concerned that pressure exerted by or on behalf of Pivot did significantly affect what was in the report. The court found that the report did not express an opinion genuinely held in discussing that question but was the result of an exercise carried out for the purpose of arriving at a desired result.
Criticism was also made of the engagement of an expert before the proposal upon which the expert was to comment was properly formulated.
The court was very critical about the meeting discussing share valuations, particularly in the context of later valuations of the company in the reports. Care should have been taken to avoid any communication which may undermine, or appear to undermine, the independence of the expert. Further, intervention by or on behalf of Pivot, prevented its members from having the benefit of the independent exercise of judgment of the expert engaged.
This was sufficient reason to refuse to approve the scheme.
Experts should be aware of the risks in consulting with clients and advisors regarding methods and preliminary conclusions prior to any formal engagement. This is so as to avoid the risk of, or perception of “expert shopping”. In turn, it is essential that the proper, written methods of expert instruction and engagement are followed, via the correct procedures (such as via the relevant legal team).
Experts should also remember that draft reports and other working documents (and instructions) are generally discoverable. As such, it is likely that any improper or unusual activity will get found out and may well in turn lead to attacks on the expert’s credibility and independence, as well as some very awkward cross examination.
To see how we can potentially assist in the training of expert witnesses, including training on expert witness duties, please contact us.