Monday, 9 August 2021

By John Temple-Cole and Madison Maurer



Independence and objectivity are imperative to the role of an expert witness. Without adhering to those principles, the credibility of the expert, and the weight given to their opinions, is at stake.

This case provides a salutary reminder that the obligation to maintain independence and objectivity extends not only to the expert themselves, but to those assisting the expert in preparing reports.

Background

The case concerned a claim arising from the termination of Mr Yelland, a principal director of entities within the Plus Architecture Group, and the subsequent divestment of shares held in the Group.

Mr Yelland was one of three principal directors of the Plus Architecture Group, which included Plus Architecture Pty Ltd, Plus Architecture Sydney Pty Ltd and Plus Architecture Brisbane Pty Ltd (collectively, ‘the Principal Plus Entities’). The plaintiff, Yelland Security Pty Ltd (‘YSPL’), an entity owned by Mr Yelland, held shares in the Principal Plus Entities and was a unitholder of the Plus International Unit Trust.

The principal directors, including Mr Yelland, had been in dispute about the future of the Plus Architecture Group. On 11 October 2017, the directors of the Principal Plus Entities served notice proposing that a meeting be held to terminate Mr Yelland’s employment. The following day, Mr Yelland served notice of his resignation as a director of the Principal Plus Entities. The directors’ meeting proceeded on 2 November 2017 and the proposed resolutions to terminate Mr Yelland’s employment were passed.  

As a result of Mr Yelland’s termination, YSPL was required to sell its shareholdings in each of the Principal Plus Entities at a 30% discount, pursuant to the terms of the relevant Shareholder Agreements.  

At trial, YSPL argued that as Mr Yelland had resigned prior to the meeting on 2 November 2017, he was entitled to receive the full value of YSPL’s shareholdings without the application of any discount. YSPL contended that both the termination of Mr Yelland, and subsequent divestment of its shares, was unfairly prejudicial and oppressive to YSPL for the purposes of s232 of the Corporations Act 2001 (Cth).  The need for an expert valuation thus arose.

The expert evidence

YSPL relied upon the evidence of Mr J, an accredited business valuation specialist and partner at a ‘big four’ accounting firm. Mr J was instructed to provide his opinion as to the value of the entire Plus Architecture Group and YSPL’s interests in the Principal Plus Entities. The defendants engaged an expert to value each entity of the Plus Architecture Group, and YSPL’s interest in them.

Rather than Mr J’s evidence and report being the focus of her Honour’s comments, it was the involvement of Mr J’s subordinate Mr W, a director, which fell under the spotlight. It became evident that Mr W had undertaken most of the work in preparation of Mr J’s report – an arrangement that Justice Nichols accepted as common practice among many professional services firms[1].  Critically, it later emerged at trial that Mr W had developed a personal relationship with Mr Yelland, after the two met during a game of golf. The relationship extended to the provision of a gift from Mr Yelland’s wife to Mr W’s partner. Prior to and following Mr J’s engagement as an expert witness in the proceedings, Mr W and Mr Yelland were in direct contact, and had met on four separate occasions to discuss matters relevant to YSPL’s claim. In one instance, Mr W disclosed to Mr Yelland the value he considered represented YSPL’s interest in the Principal Plus Entities (based on the then draft work product), including the amendments he had made which had the effect of increasing the value in favour of Mr Yelland.

When cross examined at trial, Mr J acknowledged that he was alarmed and disturbed by the dealings between Mr Yelland and Mr W in connection with the preparation of the report, which he had only very recently become aware of, and accepted the possibility that Mr W may have become an advocate for Mr Yelland. Further, whilst Mr J “accepted that direct communication between Yelland and [Mr W] was a cause of grave concern and should not have occurred”, her Honour found that some parts of Mr J’s evidence were “self-serving” and that “he then sought to justify the compromised position in which he found himself”. The position was not assisted by Mr J’s inability to recall details of the key meeting he had attended with Mr Yelland, and the limited time he had dedicated to reading the materials in his brief.

In considering the events leading up to the trail, Justice Nichols concluded that the:

“principal theme emerging from the circumstances set out above is that Yelland was personally involved in directly instructing [Mr J’s firm], including in relation to some matters of substance.”

Judgement

The duties and obligations of an expert are well understood by experienced lawyers.  However this understanding may not necessarily extend to the clients they represent, who at times may be unable to resist the temptation to directly instruct, or seek to influence, the expert. It is incumbent on the expert to ensure their team is cognisant of this potential conflict.  Further, whilst experts may traditionally rely on staff assisting them in the preparation of their reports, this does not excuse the expert from the obligation to ensure that those staff conduct themselves in a manner consistent with the principles of independence and objectivity.  Crossing that line is likely to jeopardise the evidentiary value of the expert’s opinion. Experts also need to ensure that adequate time has been dedicated to understanding the materials briefed, which ultimately provides the foundation for the expert’s opinions. Those opinions must be the expert’s own. As her Honour put it:

“Expert evidence upon which parties rely should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation. An expert should then provide independent assistance to the Court and should not assume the role of the advocate.”

“The expert witness code reinforces these principles and explicitly provides that an expert witness is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the witness, to assist the Court impartially on matters relevant to the area of expertise of the witness.”

 


[1] The authors would add here that whilst reliance on staff assisting is certainly not unusual, that practice is not universal, and in any event does not excuse the expert from their overriding responsibility for their opinions.