The need for expert evidence whether by way of a single expert instructed by one party or other, two experts instructed by each party or a single joint expert (SJE) on behalf of both parties in ancillary relief applications is one which causes considerable anxiety among practitioners. It need not.
(Prior to and within Ancillary Relief Proceedings)
N. Moss
3 Dr Johnson Buildings
EXPERT WITNESSES
(Prior to and within Ancillary Relief Proceedings)
1. The need for expert evidence whether by way of a single expert instructed by one party or other, two experts instructed by each party or a single joint expert (SJE) on behalf of both parties in ancillary relief applications is one which causes considerable anxiety among practitioners. It need not.
2. The first issue to consider is whether an expert is needed. The most common areas where this issue arises is in the valuation of property (usually the former matrimonial home but not necessarily so) and businesses. The Pre Application Protocol outlines the steps which the parties should take to seek and provide information from and to each other prior to the commencement of any ancillary relief application .
3. Take account of paragraph 3.8 which states inter alia:
"Expert valuation evidence is only necessary where the parties cannot agree or do not know the value of some significant asset. The cost of a valuation should be proportionate to the sums in dispute."
4. Obviously there is no rule or scale which one can refer to in order to ascertain as to whether a particular asset is 'significant' and/or the costs 'proportional'. It will depend upon the circumstances of the case and in particular to both the proportionate value of the asset in question and the cost of obtaining the valuation in relation to the value of the total assets.
5. The Pre Application Protocol sets out the steps which ought to be followed by practitioners prior to the issue of proceedings. Wherever possible valuations should be obtained from a SJE instructed by both parties. With this in mind the party wishing to instruct an expert should first give the other party a list of names of one or more experts in the relevant speciality whom he considers are suitable to instruct. Within 14 days the other party may indicate an objection to one or more of the named experts and, if so, should supply the names of one or more experts whom he considers suitable .
6. Where the identity of the expert is agreed, the parties should agree the terms of a joint letter of instructions . Where no agreement is reached as to the identity of the expert, each party should think carefully before instructing his own expert because of the costs implications. Disagreements about disclosure such as the use and identity of an expert may be better managed by the court within the context of an application for ancillary relief .
7. Whether a joint report is commissioned or the parties have chosen to instruct separate experts, it is important that the expert is prepared to answer reasonable questions raised by either party .
8. When experts' reports are commissioned pre-application, it should be made clear to the expert that they may in due course be reporting to the court and that they should therefore consider themselves bound by the guidance as to expert witnesses in Pt 35 of the Civil Procedure Rules 1998 . 'CPR 35' applies in its entirety to all ancillary relief proceedings save for rules 35.5(2), 35(8)(4) and 35(15).
9. Where the parties propose to instruct a joint expert, there is a duty on both parties to disclose whether they have already consulted that expert about the assets in issue .
10. If the parties agree to instruct separate experts the parties should be encouraged to agree in advance that the reports will be disclosed .
11. In the event that the parties have been unable to settle the matter and ancillary relief proceedings have been issued then the parties must comply with the provisions of Pt 35 of the Civil Procedure Rules 1998, the Family Proceedings Rules (as amended) 1991 and follow the guidelines in the President's Practice Direction (Ancillary Relief Procedure) (2000) 1 FLR 997. Para 4.1 of the President's Direction states:-
"The introduction of expert evidence in proceedings is likely to increase costs substantially and consequently the court will use its powers to restrict the unnecessary use of experts. Accordingly, where expert evidence is sought to be relied upon, parties should if possible agree upon a single expert whom they can jointly instruct. Where parties are unable to agree upon the expert to be instructed, the court will consider using its powers under Pt 35 of the Civil Procedure Rules 1998, to direct that evidence be given by one expert only. In such cases parties must be in a position at the first appointment or when the matter comes to be considered by the court to provide the court with a list of suitable experts or to make submissions as to the method by which the expert is to be selected."
12. It is clear that if expert evidence is required the appointment of an SJE is encouraged. However it is equally clear that this course of action is not mandatory although one ought to be aware of possible implications for such a decision.
13. Throughout the proceedings one must measure the actions taken against the 'Overriding Objective' as set out in FPR 2.51B. That is dealing with the case 'justly'. This includes, so far as is practicable, saving expense , proportionality and dealing with the case expeditiously and fairly .
14. The Best Practice Guide for Instructing a Single Joint Expert sets out the detailed guidelines for practitioners and experts to follow when instructions are given to a SJE in ancillary relief applications. It is equally applicable prior to the issue of an application. In the normal course of events compliance will go a long way in ensuring that there are no adverse costs orders for failing to comply with the requisite rules and guidelines.
15. An expert instructed by one party separately will not usually be appointed later as a SJE . If the parties agree to appoint a SJE then prior to sending instructions they should ensure that there is no conflict of interest , that the matter is within their area of expertise , that the expert can operate within the required timetable , the expert is available to attend court on the relevant dates , the periods when the expert is not available , his fee structure and, if applicable, whether he is prepared to accept instructions on a publicly funded basis .
16. The parties must also agree the division of costs of the SJE and, if applicable, have obtained prior authority for public funding .
17. In the event that the parties have failed to agree on the appointment of an SJE prior to the First Appointment then they should obtain the relevant confirmations as required by para 4(1) of the Best Practice Guide in respect of all experts they intend to put before the court for the purpose of an application pursuant to CPR 35.7(3)(a) .
18. Where the court directs a report by an SJE the order should adopt the instructions already given or make such amendments as the court thinks fit . It should identify the SJE , specify the task to be undertaken by the SJE and that the instructions are to be contained in a joint letter of instruction . It should specify the time limit for the letter of instruction , the date the report must be produced , provide for the date by which any written questions may be put to the SJE and the date by which they must be answered . The order may also provide for the fees of the SJE as appropriate .
19. The joint instruction must also reflect the principle of proportionality and include basic information, any assumptions made, the principle issues in dispute, the specific questions to be asked and arrangements for attendance at the business premises or accountant's office . It should also include paragraphs 1.1 to 1.6 of the Practice Direction to CPR 35 (form and contents of experts' reports) along with a copy of this guide . It should also contain a copy of the relevant parts of this order accompanied by any documents which are relevant and necessary for the production of the report .
20. Any supplementary instructions that a party wishes to give must only be done with due regard to the principle of proportionality and the impact upon the court timetable .
21. All communications by the SJE must be addressed to both parties and the SJE should keep both parties informed of any material steps that he has taken .
22. Any meeting between the SJE should only be with both parties and/or their advisors and the SJE should not attend any meeting which is not with both parties .
23. The SJE's report should be served simultaneously on both parties . If the SJE considers that the proportionality principle cannot be complied with then he must give notice to the SJE identifying the difficulty . If the difficulty cannot be resolved by the parties and the SJE then directions should be sought from the court pursuant to CPR 35.14 .
24. If the conflict cannot be resolved then the SJE may resign the joint appointment. In this event the SJE must serve a concise statement on both parties and the court setting out his reasons for this course of action .
25. There is a duty to restrict expert evidence to that which is reasonably required . The question is how is this approach interpreted when it comes to the valuation of companies or businesses in the post White era? Prior to White the approach of the court had been to limit the requirement of a valuation. "Detailed valuations of the [one man] business is an almost wholly irrelevant consideration...The proper approach of the court should be to take the wife's reasonable requirements and balance those against the husband's ability to pay. This involves a general consideration of his sources of income and capital and, in particular, his liquidity." Further Booth J in Evans v Evans :
"While it may be necessary to obtain a broad assessment of the value of a shareholding in a private company it is inappropriate to undertake an expensive and meaningless exercise to achieve a precise valuation of a private company which will not be sold."
26. Shortly after White had been reported guidance came from Coleridge J as to the approach that the courts would adopt when it came to the business. In N v N (Financial Provision. Sale of Company) he states:-
"There is no doubt that had this case been heard before the White decision last year, the court would have strained to prevent a disruption of the husband's business and professional activities except to the minimum extent necessary to meet the wife's needs. However I think it must now be taken that those old taboos against selling the goose that lays the golden egg have largely been laid to rest; some would say not before time. Nowadays the goose may well have to go to market for sale, but if it necessary to sell her it is essential that her condition be such that her egg laying abilities are damaged as little as possible in the process. Otherwise there is a danger that the full value of the goose will not be achieved and the underlying basis of any order will turn out to be flawed."
27. It follows, in my opinion, that the guideline of CPR 35(1) has been expanded because the court is more willing to consider a sale of the income producing asset then its correct value needs to be ascertained. Accordingly this suggests that a professional valuation is 'reasonably required' in far greater circumstances than previously considered.
28. The expert has a duty to the court which overrides any obligation which he has to his instructing solicitor or client. Per Booth J in Evans v Evans :-
"All professional witnesses should be careful to avoid a partisan approach and should maintain proper professional standards."
29. No party may call an expert witness or put in evidence his report without the court's permission . The expert's report should be in writing unless the court directs otherwise .
30. A party may put to an expert instructed by the other party or an SJE appointed by the court pursuant to CPR 35.7 written questions about his report . These questions may be put only once and must be put within 28 days of service of the report and must be in order to clarify the report unless the court gives permission or the other party agrees . The expert's answers are treated as part of the report . If a party has put questions to the expert in accordance with the rules but the expert fails to answer then the court may order that the expert's evidence may not be relied upon or that the instructing party may not recover the associated costs from any other party .
31. The expert's report must state the substance of material instructions, whether written or oral, on the basis of which the report was written .
32. The instructions referred to in CPR 35(10)(3) shall not be privileged against disclosure but the court will not, in relation to those instructions order disclosure of any specific document or permit any questioning in court other than by the party who instructed the expert "unless it is satisfied that there are reasonable grounds to consider the statement of instructions given under CPR 35(10)(3) to be inaccurate or incomplete" . Discovery therefore is limited. If the report contains a summary (but not the full instructions) which complies with CPR 35(10)(3) then the non instructing party is not entitled to their disclosure. If the summary does not comply with CPR 35(10)(3) then the court may order disclosure of any specific document and/or allow questioning concerning those instructions. The obvious question is how does the court know whether the summary contains the "substance of all material instructions whether written or oral"? Frequently the summaries are set out in the broadest terms.
33. At a recent hearing at the Principal Registry of the Family Division this issue was resolved by the judge requesting that he see the letter of instruction and then deciding whether the summary in the report accurately reflected the material instructions.
34. At first sight in the era of transparency one might be forgiven for concluding that this provision is an anachronism. However when viewed in the context of the court's clear leaning towards SJE's one cannot help but conclude that this provision is unlikely to be amended because it would guide parties away from the court's obvious preferred route. The simple point is that if a SJE was appointed in accordance with the Best Practice this provision would not be required.
35. A further issue which arises is what happens if one or other party do not like the contents of the SJE's report? In the subsequent negligence action arising from N v N (Valuation: Charge Back Order) , Thorpe L.J. said:
"Today the practice is still to delegate the valuation, but not the choice of valuer. Nowadays the court, having given the parties the opportunity to make representations, appoints a specific expert to determine value in default of agreement. As a matter of policy in the Family Division there is much to be said for according immunity from suit to the expert selected by the court to determine
value in default of agreement.
But the expert's determination cannot be absolute and above challenge. The order appointing him will contain an express or implied liberty to apply as to implementation. If either party subsequently conceives that the determination is vitiated by fraud, collusion, bias, mistake or professional negligence, then it must be open to that party to raise that assertion under the liberty to apply and then to seek to support it by evidence, always at risk as to cost. Absent a vitiating factor, the parties are bound by the determination and are not at liberty to open a debate by application to the court. If, as the husband here asserts, the determination is vitiated by professional negligence, the consequence is that one of the parties is as much advantaged as the other is disadvantaged. It follows as a matter of right principle that the party disadvantaged must apply within the proceedings where the disadvantage to one is mirrored by the advantage to the other. The effect of the application, if substantiated by evidence, will be to correct the negligent error thereby removing simultaneously the advantage from one and relieving the other of disadvantage. Were the party disadvantaged to immediately initiate an action in negligence against the valuer, there would be an obvious issue as to damages. If he properly applies first in the proceedings then, after correction of error, he will have suffered no residual damage."
36. Accordingly if the vitiating factors (fraud, collusion, bias, mistake or professional negligence) are present then permission to file a further report may be ordered. If the party simply does not like the SJE's conclusions he is nevertheless bound by those conclusions in normal circumstances.
37. A further point is what if the client does not want to spend money on a valuation? What if he regards the whole exercise as a waste of funds and only serves to increase the coffers of the lawyers? He does not have to join in the instruction but it may be that the court will give the other party permission to instruct their own expert. The first obvious implication is that the choice of the expert is completely out of his hands. It may well be someone who is frequently instructed by the other side's solicitors. Further, the declining party will not, in normal circumstances, be able to see the letter of instruction, be told the oral instructions or cross examine the expert on the content of his instructions. He will to all intents and purposes remain in the dark. He will be able to raise his own questions on the content of the report in accordance with CPR 35.6 (1) for clarification purposes only. He will also be able to cross examine the expert at court.
38. However there are serious costs implications. If, as is more usual than not, the expert stands by his conclusions the costs are likely to awarded against the declining party. Further there may be a costs order in any event to reflect the charge out rates of experts who attend court for the purposes of a cross examination. The attempt to limit the costs has in effect had the opposite effect.
39. Which valuation should the court follow? From 1st January 2008 the RICS introduced a new definition of value known as 'Fair value.' Whilst it is anticipated that the usual application will be in relation to shareholding in a business, the underlying concept is that it should reflect the specific advantages or disadvantages of ownership to the parties involved.
40. In FZ v SZ and another [2010] EWHC 1630 Mostyn J stated:-
"While acknowledging the merits of these arguments, which include my own in Marano, I have to say that simple rules are required to be applied in the vast generality of cases. This is because the family justice system depends on the majority of ancillary relief cases settling. There are enough vagaries attaching to the distributional stage of the exercise without introducing similar vagaries to the computational phase. It is hard enough for judges to advise at FDRs what the result should be without having to grapple with different measurements or concepts of value of the assets in question. If the adoption of present market value results in rough justice in some cases then that is a price worth paying in order to achieve predictability and consistency. My view is therefore that present
market value should be the usual measurement of value and that fair/hope/economic values should only be used in the exceptional case. I think that serious injustice would have to be demonstrated before departure from the usual rule was justified.
..............although I recognise, as did King J in Marano, the existence of hope value. Plainly all the investors are hoping for profits, perhaps significant profits, down the line, but beyond recognition of that I cannot go".
Norman Moss 11th October 2010
3 Dr Johnson Buildings
Temple
London