The claim arose from the de-merger of a family business, Notaro Holdings (“Notaro”) in 2011. Prior to the demerger, the First Claimant and the First Defendant were shareholders in Notaro (not majority shareholders). They were also siblings. In the demerger the First Claimant gave up her shares in exchange for some of Notaro’s assets being transferred to the Second Claimant (which was a company controlled by her). The Second Defendant was the company which, after the demerger would retain Notaro’s remaining assets. Things did not go as planned and it was alleged by the Claimants that the demerger was procured as a result of undue influence by the First Defendant and that it had acted in breach of fiduciary duty. Thrown into the mix were the accountants and solicitors, both of whom had been instructed by the Claimants in the demerger (the Third and Fourth Defendants respectively) and who, it was alleged breached their duty of care (and fiduciary duty) to the Claimants. Sums in excess of £7m were claimed. This was a messy claim, with multiple parties, including two different professionals and apparently sensitive family relationships.
Although the claim raised issues in relation to fiduciary duties and undue influence, the case is particularly interesting due to the detailed criticisms the Court made of the experts before it, the role of expert witnesses generally and the way in which those experts were instructed. As a result the case provides helpful guidance in relation to dealing with experts and the pitfalls that can befall not only the experts themselves, but the litigators instructing them.
Experts instructed in connection with court proceedings under CPR 35 are there primarily to assist the court by giving impartial evidence on their area of expertise. That duty overrides any obligation they have to the party instructing them. In Notaro the court had given permission for expert evidence in three areas: (1) property valuation (2) share valuation and (3) accountancy liability issues.
In giving judgment, the Court made some striking comments about the role of expert witnesses and issues arising out of the Claimants’ choice of expert and the manner in which they instructed those experts. We look at some of the highlights below.
- The property valuation expert had included as an appendix to his report an attendance note of a conference he attended with the Claimants and solicitors at the outset of the dispute – which included advice about the merits of the claim and the strategy to be deployed. As this was in evidence before the Court it allowed him to be cross examined on the meeting and whether as a result he had unconscious bias towards the party instructing him. The Court said (paragraph 18):“…somewhat unfortunately, [the expert] had originally been part of the team advising the first claimant, and, no doubt unconsciously, this may have affected his evidence. In addition, the solicitors’ letter of instruction to him was far from neutral in its presentation of the matter. This may also have affected his evidence. He certainly commented in his report on matters beyond his (otherwise undoubted) expertise”.
- The Court also looked closely at the accountancy liability expert evidence. The Claimants has used the same expert who had given evidence on the issue of share valuation. In contrast the Third Defendant had instructed a separate expert. During trial the Court raised concerns about the admissibility of the accountancy expert evidence, on both sides. This included whether they had sufficient relevant experience in relation to demergers to be experts in that field. The Court was not impressed with the evidence before it and found that while the experts may have had the opportunity to see one or more demerger transactions, or may have participated in them, it did not make them an expert in the area. It went on to say that “it is for the expert witness tendered to demonstrate the expertise, not for the court to assume it” (paragraph 156).
- As a consequence the Court found that neither accountancy expert had sufficient experience in carrying out demergers to be able to claim expertise in the area. The Court commented: “Those firms that provide expert witness services really ought to have learned by now that expertise is acquired by doing the thing in question, usually over many years, and that merely being an accountant (or anything else) for a long time does not mean you thereby become an expert in everything that accountants (or whatever it may be) commonly do.” (paragraph 157).
- The Court was not done yet and notwithstanding that it dismissed both parties’ expert evidence on accountancy liability, the Court felt compelled to comment further. It raised serious concerns about the questions that had been put to them by their instructing solicitors: “…I have to say that I have never before seen such an extraordinary set of questions put to a witness being asked to give expert evidence….I am astonished that these questions were asked at all, and almost as astonished that they were answered…” (paragraph 159).
The Court was extremely critical of both the experts and those instructing them and there are a number of points that law firms can take away from the case, failing which they (and their insurers) could be exposed to criticism and claims:
- Research fully before appointing the expert. The appointed expert needs to have the appropriate experience and relevant expertise in the area it professes to be an expert in and the issues it is being asked to comment on and can clearly evidence that expertise if required to do so by the Court.
- It should be kept in mind that the expert is required to detail the extent of the instructions given in the report itself (and append any written instructions). With that in mind, law firms need to be as neutral as possible when instructing experts. Clearly, the expert should not sit in on a meeting where liability and strategy is being discussed so as to avoid any suggestion of unconscious bias.
- Great care should be taken when formulating the questions being asked of the expert, so as to avoid asking for comment on questions of fact and law – those are for the Court to determine.
The claim against the First and Second Defendants failed. In relation to breach of fiduciary duty the Court found that the First Defendant did not owe fiduciary duties to the Claimants. The Third and Fourth Defendants – the solicitors and accountants - also successfully resisted the claim. None of the experts escaped criticism though, and the Court’s comments provide a useful reminder of the approach to be taken when instructing experts and considering the presentation of their evidence.