Role of expert witnesses in litigation and arbitration
March 2011 | TALKINGPOINT | LITIGATION & DISPUTE RESOLUTION
FW moderates a discussion about the role of expert witnesses in litigation and arbitration between John Reynard at BTG Global Risk Partners, Derek Malcolm at Grant Thornton and Chris Hine at RSM Tenon.
FW: Are you seeing expert witnesses used more frequently in litigation and arbitration proceedings?
Reynard: Traditionally, litigation tends to increase when times are hard – what might be left to pass when it merely deflects from money being made, can become altogether more important during a downturn. However, I wouldn’t say there’s an increase in frequency of expert instructions at the present time. The recession has meant that businesses have to be careful in setting their priorities, and there’s little appetite for full-scale litigation while funds are in short supply. This doesn’t mean that disputes aren’t happening; just that only limited early work is being done now, until the financing situation eases. When that happens, I’d expect the litigation momentum to pick up and the flow of instructions to experts to increase.
Hine: After a lull following an introduction of the Civil Procedure Rules in 1999 the level of expert witness appointments has remained reasonably consistent. There are certain areas, for example technology and construction cases, where accounting experts are used much less frequently than previously. This has resulted from specific legislation, and in this case, the effect of adjudication. The compressed timescale, and the need to focus on the key aspects of the case require a concentrated effort from the legal team, which allows limited use of experts. In other areas volumes of instructions have recovered, although single joint expert appointments are much more prevalent in certain areas, notably family cases.
Malcolm: I have noted an increase in the use of expert witnesses. However, in Canada, as a result of a number of issues that have arisen regarding the objectivity of some experts, the courts will be increasingly vigilant in allowing expert evidence in the future and could therefore reduce their frequency going forward. In the financial area, while we expect increased rigour to ensure expert independence and qualification, the complexities of business concerns leading to litigation, coupled with changing accounting standards, difficult loss quantification calculations and complex fraud schemes, the use of experts will continue.
FW: In your opinion, under what circumstances should parties consider bringing expert witnesses into the process? In what types of disputes are they most beneficial?
Hine: Expert witnesses are most appropriately used where the key areas of the case are those known to be covered by expert evidence. In relation to forensic accounting, it is those cases where the issue of quantum is most difficult to resolve and where the calculation of the amounts of damages may be very complex. This will typically be a large commercial case where there may be a loss of profit claim arising from, for example, the failure of the machine to perform at the level specified within the contract. An assessment has to be made of the profit that would have arisen had the contract been performed.
Malcolm: In relation to fraud, we have likely all read about the Ponzi schemes that contributed to the demise of our financial systems. Such schemes are extremely complex to unravel, and often difficult to separate from legitimate investments. Identifying and interpreting sufficient evidence that can meet even the lesser burden of proof in a civil action can be extremely difficult. Expert witnesses in such cases will be essential to ensure the evidence is correctly understood. Other types of fraud will also continue to require experts to notice and explain the fraud footprints in the windblown sand of corporate records. Outside of fraud, financial disputes that require complex quantification modelling or ‘what if’ calculations are those in which experts will be most beneficial. Such experts would be best used providing a critical assessment of the facts and assumptions underlying the loss as well as the quantification itself. An expert who only acts as a human calculator may be subject to criticism by the trier of fact if they have accepted without question the information provided to them.
Reynard: Commercial and shareholder disputes may centre on matters of law, in which case there’s little that an expert witness can bring to the party. It’s rare, though, for a dispute to turn only on a legal point, and quantum matters will always play some part. All litigation and arbitration will require some assessment of the financial consequences of action or inaction. Business performance is never certain, so this will involve making estimates of profits that might have happened, not just measurement of ones that have. Therefore, the value of the claim will rarely be straightforward – there can be many strands to the arguments, and complex matters of accounting measurement, practice and interpretation. The experts’ input will be invaluable in these areas.
FW: An independent perspective can be critical in any dispute. To what extent can experts help to analyse the strengths and weaknesses of a pending case?
Malcolm: Experts can be very helpful in this regard but care needs to be taken if such a ‘consulting expert’ is then also used to prepare an expert report. An expert in a consulting or advisory role may be able to take an advocacy position, for example advising the client on the most beneficial calculation methods, the pros and cons of different options and estimating preliminary high and low ranges of losses. Such advocacy should not, however, extend into preparing an expert report which needs to be impartial and balanced. In addition, in all cases I recommend engaging experts early in the process, because they can often help reduce the litigation costs by identifying relevant information that should be disclosed or analysed and avoid costly information fishing expeditions.
Hine: A good expert will always seek to add value to the case. This could involve analysing the nature of the claim and identifying those areas where it can be improved and those aspects which will be vulnerable to evidence provided by the other party. This may well allow the clients to be better informed which would assist both in the progression of the case, tactical issues such as the issuing of Part 36 offers and approach to settlement of the case generally. Expectation management is a key part of the legal advisers’ role which facilitates dispute resolution, and experts can play a pivotal role in this.
Reynard: The key word here is independence. Whilst the parties to the dispute are essential to the factual background and impacts on the business, it’s not unusual for them to become emotionally involved in the proceedings. Equally, the advice of their incumbent accountants or tax advisers can be tainted by the importance to them of focusing always on doing their best to support their client. The independent expert, on the other hand, will be bound by a primary duty to the court, and must strive to retain that objectivity. Some of the most valuable input that the independent expert may have is in identifying and quantifying issues that the party does not want to hear, but which can be essential if costs are not to be wasted on lost causes.
FW: Is it fair to say that a properly qualified witness can have a defining influence on the outcome of litigation and arbitration?
Malcolm: A properly qualified expert can certainly influence the outcome; however, an unqualified expert could have more impact on the outcome, in a negative way. It must be understood that it is not the expert’s job to win the case for their client. That is counsel’s role. The expert’s job is to assist the court by clearly presenting their opinion evidence in the best way for a court to understand and provide a sound basis on which the court can make its decision after it evaluates all the facts and evidence in the case. A qualified, experienced expert can help the court in this regard and in doing so helps the client. An expert who forgets or neglects this role can find their opinion ignored or worse, viewed adversely, which results in negative consequences for both the expert and the client.
Reynard: Over the years, I’ve seen many cases where the legal differences between the parties’ stances have been the dominating factors right up to the final stages when, with court or arbitration looming, attention has turned to the bottom line – how much is this claim really worth? It’s surprising how often it turns out that the expert’s input can lead to a view where the strongest of most intractable legal points turn out to be the ones of least financial merit. Invariably in my experience, that input has the benefit of enabling the litigation team to separate the wood from the trees, and focus their energies – and cost – on those that provide the greatest benefit or least risk.
Hine: In those cases where an expert is addressing the key area of the dispute then their input can be fundamental to resolving the matter. A comprehensive and compelling expert’s report can transform the dynamics of proceedings. In one case a company was anticipating realising a modest sum in litigation arising from a breach of contract. However, devising an alternative method of quantifying loss resulted in a settlement substantially greater than the company’s expectations. Where the defendant is insured, the insurance company will set a reserve at an early stage. There have been cases where the receipt of the expert’s report has significantly influenced the insurer’s assessment of the likely outcome and has led to a substantial increase in the reserve.
FW: What are the pros and cons of court-appointed expert witnesses? Can contrary views between expert witnesses complicate the process?
Reynard: Through the Civil Procedure Rules in the UK, Lord Woolf sought to reduce the costs of litigation as a barrier to access to justice. A move towards court-appointed or single joint experts was one strand of those changes, aimed at avoiding having separate findings from two single-party experts, followed by rebuttal reports, etc. One of the key benefits of having a court-appointed expert must be that he will be addressing one agreed set of issues and reaching one set of findings, avoiding some of the difficulties of parties polarised in their views and instructions to their expert. The outcome can undoubtedly be far preferable to simultaneous exchange of single party expert reports that address widely differing ‘facts’ as their starting points, and require fresh submissions on issues new to one or other of them. Of course, whether warring parties can agree on a single expert can be an issue in itself.
Hine: Few expert witnesses are directly court appointed. More are appointed as single joint experts by both sets of solicitors. This can be of assistance, particularly if the area of expertise is not focal to the case, but it can also create difficult situations for the parties. On many occasions three experts have been instructed – the independent single joint expert, and party appointed advisers from each side. This obviously increases rather than reduces costs. Contrary views between party appointed experts can be narrowed by the use of discussions between experts and preparation of joint statements. If this procedure is properly undertaken it can be of considerable value to the court. In one recent matter the experts agreed the structure of a complex loss of profit spreadsheet model shortly before trial, so that it could be populated with data from either side. This removed a large amount of uncertainty as to the method of calculation of loss that would be determined.
Malcolm: While there has been movement to increase court appointed experts, we have not yet seen a lot in our specific field. It may appear that having one expert reporting to the court is the answer to a lot of problems; however, it can also create a number of new ones. First, paying for only one expert seems to make financial sense, but in some cases the plaintiff and defence will engage their own non testifying expert to help them understand the court appointed expert’s work, costing lots more. Second, the court appointed expert can find themselves like Daniel in the lion’s den, on their own, fighting off attacks from both sides. In extreme cases, the expert may have to retain their own legal counsel to protect their professional interests because the courts are unable or reluctant to get involved. Contrary views can complicate the process, but they are often necessary to shed light upon the issues.
FW: There has been some criticism that expert witnesses are simply ‘hired guns’. What is your reaction to such claims? Have there been any recent rule changes affecting the use of expert witnesses in court proceedings?
Hine: Following the Civil Procedure Rules experts are much more aware of their duties to the court rather than the party that instructs them. It is therefore much less likely to be the case that there is criticism of experts as ‘hired guns’. Experienced experts recognise that their creditability is fundamental to their ability to undertake expert witness work and recognise the role that they have to play, and managing their clients understanding and expectations of their role in the proceedings. In addition the more frequent use of single joint experts reduces the opportunity for one party to unduly influence an expert. It should be noted, however, than if a single joint expert does produce a report advocating an extreme position it can be very difficult to change this.
Malcolm: In Canada, the primary duty of an expert witness is to the court but, while this has been recognised for many years, there have been instances of expert witnesses in a number of areas advocating, consciously and unconsciously, for their clients and therefore giving the appearance of hired guns. In our area of expertise, we are trained to be objective and impartial in preparing expert reports; however, there are some that still step over the boundaries. A recent judicial review, related to mistakes arising from erroneous medical expert testimony, identified serious issues in the use of expert witnesses which has resulted in a significant rethink about how and when experts are to be used. This has caused the codification of the expert’s obligation to the court into several provincial Rules of Civil Procedure including Ontario and British Columbia where every expert must now acknowledge this in writing.
Reynard: The introduction of the Civil Procedure Rules in 1999 brought major changes for experts. Before that, some experts were undoubtedly believed to be hired guns. This was particularly true of some medical experts in injury cases, but equally of some accountants. Whilst it can be seen as a benefit to lawyers that they act only for claimants or defendants, for experts this as a big weakness. Independence and objectivity are important, and it would be of no service for experts to be forced on the witness stand to admit that, no, we never act for claimants or defendants, as the case may be. Even before the CPR, we have always seen it as a benefit that we have acted on both sides of the fence, so that we know what responses to expect on important issues.
FW: Should expert witnesses have a part to play in settlement discussions? When is this appropriate?
Malcolm: They certainly can play a useful part in settlement discussions, but again they must be careful and balanced in their assistance, particularly where they may be called to testify. In addition to determining reasonable financial amounts we are also requested to help structure settlements to minimise tax consequences or to establish the best ‘value’ of the available alternatives. In some matters, it may be beneficial to separate the expert providing advice in settlement discussions, where advocacy and strategy can be discussed, from the testifying expert where knowledge of such strategy could be used against them under cross examination.
Hine: Expert witnesses, particularly accountants advising on quantum, can add value to settlement negotiations. In a recent mediation, quantum was the key aspect of the discussions. In this environment, presenting arguments in a number of different ways facilitated discussions and negotiations during the day. The matter successfully concluded at a figure above that which could be justified by strict legal analysis. It is rare for expert accountants to be involved in such discussions and it is generally applicable where the quantum of the dispute is the key matter to the resolved and legal complexities are less apparent.
Reynard: Our experts are focused on effective resolution of disputes, whether by mediation, arbitration or at court. This encompasses effective management and control of costs, as well as providing meaningful input at all stages of the process, from pre-issue advice through detailed fieldwork and reporting, through to expert witness appearance. Settlement discussions can be an efficient means of bringing the dispute to an end. Achieving that will involve resolution not just of the legal differences but also the financial disagreements between the parties. If opposing experts have already met and narrowed their differences, it may be that the parties and their lawyers have sufficient template to fine-tune any final calculations. Absent that, the live input of an expert assisting their team can be invaluable in understanding and quantifying the financial consequences of points agreed or compromises offered or received.
John Reynard is executive chairman of BTG Global Risk Partners. He has specialised in forensic accounting and investigation since 1986, both as a partner in a specialist forensic practice and latterly as managing director of Forensic Accounting at Tenon plc. He has produced independent expert reports in several hundred cases, mainly in commercial disputes, business valuations, personal injury and medical negligence cases. Mr Reynard can be contacted on +44 (0)161 837 1700 or by email: email@example.com.
Derek Malcolm is a partner at Grant Thornton LLP. He specialises in forensic and investigative accounting and has completed numerous criminal and civil law related assignments in Canada and internationally. Derek qualified as a chartered accountant in the UK and Canada and is designated as a specialist in Investigative & Forensic Accounting (CA-IFA). Mr Malcolm has provided expert testimony in Alberta’s Provincial Court and Court of Queen’s Bench, the Federal Court (of Canada) and before the Copyright Board of Canada. He can be contacted on +1 403 508 1374 or by email: firstname.lastname@example.org.
Chris Hine is national head of forensic accounting at RSM Tenon. He has specialised in forensic accounting for the last 17 years and has acted in many complex commercial cases including cases involving funds flowing through five off-shore jurisdictions. Mr Hine has undertaken a number of cases involving Premier League football clubs, including the losses suffered by Middlesbrough following the transfer of Christian Ziege to Liverpool. He can be contacted on +44 (0)161 200 6080 or by email: email@example.com.
© Financier Worldwide
BTG Global Risk Partners