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On 1 May 2020, the High Court handed down judgment in De Sena & Anor v Notaro & Ors  EWHC 1031 (Ch). Click here to read the judgment.
Ashfords LLP Successfully Defends Claim
Andrew Perkins and Liam Tolen from Ashfords’ Dispute Resolution Team along with Dov Ohrenstein of Radcliff Chambers, represented the First and Second Defendants in successfully defending a £7M+ claim for undue influence and breaches of fiduciary duties alleged in the context of a demerger of a family business which took place in 2011.
The Background: Undue Influence and Breach of Fiduciary Duty
His Honour Judge Paul Matthews provides an excellent commentary on the law relating to both undue influence and fiduciary duties potentially owed by directors to shareholders in the context of a family business. We will address those topics in a separate article.
In broad terms the claim arose out of a demerger of a property owning, family business which took place in 2011. The First Claimant, the elder sister of the First Defendant exited the business, receiving property worth several million and cash, in return for her shares via a demerger.
The claim against the First and Second Defendants was that the demerger, and therefore the acquisition of the First Claimant’s shares was procured by undue influence by the First Defendant, who, it was alleged also acted in breach of fiduciary duty towards her, and that the Second Defendant has been unjustly enriched at the expense of the Claimants (see paragraph 2 of the Judgment).
The Expert Evidence
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.
Permission for expert evidence was given in three fields, namely: (1) property valuation; (2) share valuation; and (3) accountancy liability issues (arising out of the Claimants’ claim against the Third Defendant being the firm of accountants which advised the Company on the demerger).
The Issues with the Expert Evidence
The property valuation expert instructed by the Claimants had included in his report an attendance note which detailed a conference he attended with the Claimants and their legal team at the outset of the dispute. The attendance note was therefore before the Court at trial. The note of that meeting detailed the advice which was given to the Claimants about the strength of their case and the strategy in pursuing the claim. The expert was therefore cross examined on his attendance at this meeting and the possibility it may have led to unconscious bias by the expert towards the Claimants; a position which he did not accept.
At paragraph 18 of the Judgment, the Court commented that:
“…somewhat unfortunately, [the property valuation expert instructed by the Claimants] 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.
This (amongst other factors) led to the Court preferring the evidence of the expert instructed by the Defendants on the issue of property valuation.
Further issues arose at trial between the Claimants and the Third Defendants in relation to the accountancy liability expert evidence. The Claimants appointed the same expert who gave evidence on the issue of share valuation. The Third Defendant instructed a separate expert. At an early stage of the trial, the Court raised reservations about the admissibility of the accountancy liability expert evidence.
Issues included whether the experts appointed had sufficient relevant expertise in relation to demergers to be experts in that field. Experts are, after all under a duty to the Court to help on matters within their expertise. The starting point is that the expert must be an expert in the relevant field. The Court considered the expert’s relevant expertise in the field of demerger transactions and determined that the expert’s CV:
“…simply does not demonstrate expertise in demerger transactions, even though I accept that he will have had the opportunity to see one or more such transactions, and may even have participated in them. But that does not make you an expert in demergers. And it is for the expert witness tendered to demonstrate the expertise, not for the court to assume it. (emphasis added).
The Court took the opportunity to set out a clear warning to expert witnesses (and those instructing them) at paragraph 157 of the Judgment which said:
“It is not the experience of giving ‘expert’ evidence in court that makes you an expert. 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 that you thereby become an expert in everything that accountants (or whatever it may be) commonly do”.
This was not the end of the matter. The Court then went on to consider the terms in which the Claimants’ expert had been instructed, particularly by reference to the questions which were posed to the expert in the written instructions. The Judgment sets out those questions which are not repeated here for the sake of brevity. The Court criticised the questions put to the expert on the basis that they sought to ask the expert to determine both matters of fact and matters of law rather than matters within the expert’s expertise. At paragraph 159, the Judgment states:
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… Question (ix) is one of the most egregious and naked usurpation of the functions of the court that I have ever seen… Question (x) is almost as egregious and objectionable. I am unable to regard the answers to any of these questions as admissible evidence in this case. I am astonished that these questions were asked at all, and almost as astonished that they were answered.
Those instructing experts should carefully consider the potential expert’s relevant expertise having specific regard to the issues in the case. They should, if necessary, ask the expert to demonstrate such expertise – as made clear in this judgment, it is for the expert witness tendered to demonstrate the expertise, not for the court (or instructing solicitors) to assume it. Very often expertise is established by the expert’s CV appended to the expert’s report. Generic CVs should be avoided in every case. A CV should always be tailored to ensure it demonstrates the expert’s expertise relevant to the issues upon which they are assisting the Court, making sure that expertise is front and centre.
Instructing solicitors should always have in mind that the expert’s report must state the substance of all material instructions, whether written or oral, on the basis of which the report was written which may well include annexing a copy of those instructions to the expert’s report. The temptation to put your best foot forward in those instructions should be carefully balanced against the need to ensure that the expert’s report carries weight. In general terms, the more neutrally the case is put to the expert, the greater weight their opinion is likely to carry with the Court. Equally the expert must provide a measured report. An expert asked to provide valuation evidence who then choses to comment on their view of the fairness of the transaction may undermine rather than strengthen the evidence given to the Court.
Careful consideration should be given to the questions posed both in regard to neutrality but more importantly ensuring the questions (and answers) are within the field of expert opinion and are not questions of fact and law to be determined by the Court.
An arm’s length, professional relationship between the expert and those instructing the expert is essential if you are to avoid potential arguments about unconscious bias.
If you would like more information about the issues discussed in this article, please contact Liam Tolen.