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Expert witness evidence is often based upon assumptions
including, in certain cases, the opinions of other experts.
The "proof of assumption rule" provides that expert
evidence is not admissible unless the assumptions relied upon by
the expert are proved by admissible evidence. Failure to prove
assumptions, including the opinions of other experts, can be fatal
to expert evidence.
In Land Enviro Corp Pty Ltd & Ors v HTT Huntley Heritage
Pty Ltd & Ors [2012] NSWSC 177 (LEC) the court rejected
two reports from an expert accountant in support of a damages claim
for A$170 million because the reports were based upon opinions
contained in other reports, which had not been proved.
Key facts
The plaintiffs sought to rely on two reports from an expert
accountant as to the present value of future cash flows to be
earned from a future property development.
In performing his cash flow calculation, the expert assumed the
correctness of estimates of (i) the construction costs for the
project; and (ii) revenue to be derived from the project (the
estimates), contained in reports by planning and business
consultants respectively and prepared in support of planning
applications by the defendant developer.
The plaintiffs sought to prove the estimates by tendering the
consultants' reports. However, they failed to call the authors
of those reports as witnesses and led no evidence as to their
expertise (if any) in relation to the subject matter of the
estimates.
The court held that:
the estimates in the earlier reports were opinions, not
statements of fact, and must be properly proved as expert opinions
in accordance with sections 76 and 79 of the Evidence Act
1995
there was no evidence as to (i) the expertise of the authors of
the earlier reports; (ii) which individual(s) had made the
estimates; nor (iii) the basis upon which the opinions were
formed
the estimates were not admissible because it had not been
established that the opinions were properly formed by a person with
expertise in the relevant subject matter
as a consequence of the above, the expert accountant's
reports were inadmissible.
Significance
The decision is a timely reminder for lawyers in that they must
ensure that every material assumption relied upon by an expert
witness is independently proved by admissible evidence. In doing
this, lawyers will need to identify and manage those significant
assumptions which the expert witness has been instructed to make
during the course of their assignment, so that further evidence or
material can be commissioned, as necessary and on a timely
basis.
It is also necessary for lawyers to appreciate that an expert
witness cannot attest to the reliability of an opinion of an expert
in another field; they can only state that their own opinion is
subject to the veracity of the other expert's report. In
some professions, such as accounting, if an expert witness
considers that the adoption of a significant assumption is likely
to mislead, he/she is bound to make that disclosure in their
report.
For expert witnesses, the case reinforces the importance of
ensuring that he/she only makes assumptions that are necessary and
that any instructed assumptions can be, or are being, independently
established. In circumstances where an expert witness is relying on
the advice of a third party, it is prudent (if not required) to
disclose the name and qualifications of the third party and the
area in which the third party's report has been relied
upon.
Expert witnesses should also ensure that any significant
instructed assumptions are clearly set out in his/her report,
together with those assumptions that the expert has chosen to make
(and the reason/s for that choice). Where a significant assumption
is likely to mislead, further disclosures may be needed in the
report.
Ideally, expert witnesses and lawyers will work together to
ensure that any assumptions relied upon can be proved and that
supporting evidence is available to do so. An expert witness can
contribute to this process by highlighting to the lawyer what
assumptions (whether instructed or otherwise) are being relied upon
and the significance of each assumption to his/her concluded
opinions.
It is often useful to undertake a sensitivity analysis to
highlight how the expert's conclusions will change, if
there is a change in the key underlying assumptions. This can help
the lawyer understand the key factors that contribute to the
robustness of the expert's opinions and direct their
efforts in gathering additional evidence.
In the LEC case, the plaintiffs could have called the authors of
the estimates and led evidence to establish them as expert
witnesses or, alternatively, adduced evidence from suitable experts
such as a quantity surveyor and/or real estate agents as to the
estimated costs and revenue of the project.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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