Australia: Sold a lemon: using a partisan expert witness may cost you more than just their fees

Fulmer v Thompson [2017] QSC 119

Introduction

Expert witnesses have an obligation to act independently and objectively. This case provides an example of an expert witness who actively strategised with the defendants' solicitor to shape the defence of the case, which ultimately cost him his credibility.

There were also problems with the reliability and basis of the evidence provided by the expert, including that the accounting documents relied upon by the expert had not been separately accepted as evidence.

Background

The plaintiff, Peter Fulmer, an experienced car salesman, commenced working for Australian Motors, a used vehicle sales business, in 2003. Australian Motors was owned by the third defendant, Caysand No 24 Pty Ltd ('Caysand 24').

Mr Fulmer entered into an oral agreement in 2005 whereby he acquired an interest in Australian Motors for $550,000. It was agreed he would pay $150,000 in cash, and his interest would then crystallise once a profit target (the 'target sum') had been reached to cover the remaining $400,000. Mr Fulmer entered into a Heads of Agreement on 16 June 2008 to execute the agreement.

At a meeting on 20 January 2010, the owners of the business admitted the target sum had been met. They thereafter failed to honour their end of the bargain and issue him shares in Caysand 24. The defendants argued at trial that the target sum had not been met, contrary to their admission in 2010.

The expert evidence

Lack of independence and objectivity
Mr H, an accountant, was responsible for the provision of accounting services to Caysand 24 on an ongoing basis. Mr H was appointed as the expert accounting witness for Caysand 24 for the purposes of these proceedings. Mr Fulmer appointed Mr C as an expert accounting witness.

Justice Henry acknowledged that there "may be benefits and disadvantages in enlisting a professional person with pre-existing involvement as a witness to relevant matters in a case to testify as an expert witness in the case about more broad ranging matters." He then noted that "the most obvious disadvantage is the risk that a pre-existing professional allegiance to a party may compromise the degree of independence and objectivity with which the expert approaches the task, resulting in evidence so tainted by partisanship as to lack credibility and reliability."

It emerged at trial that Mr H had actively strategised with the defendants' solicitor, including on how to shape financial calculations to avoid liability. He also sought feedback about what approach to take to give the opinion desired by the defendants. An email from Mr H to the defendants' solicitor set out retrospective adjustments which reduced the reported profit of Caysand 24.

Justice Henry stated, "the defendants' use of an expert they knew would give them the 'evidence' they wanted presumably had the secondary benefit of saving money but it came at a different price for their case – a lack of credibility."

His Honour went on to say that "I stress there is no impropriety in the solicitors of a business liaising with the accountants of the business to ascertain whether there are reasonable prospects of defending a potential or actual claim ... Indeed, such a process may be well essential to informing a solicitor what instructions ought to be given to an expert accountant."

However, where an expert has been actively involved in shaping the case, Justice Henry adds they "will not have the starting advantage of credible objectivity ordinarily associated with professionals."

As Mr H was the accountant of the defendant when it admitted the target sum had been met on 20 January 2010, Mr H did not have the starting advantage of credibility.

Proof and reliability of information relied upon by Mr H
Justice Henry found there were several issues with the quality of the expert report prepared by Mr H, including that:

  • There was no narrative style discussion or analysis of the process undertaken.
  • The supporting source material was not clearly identified.
  • The report referred to various information and calculations provided by individuals who did not give evidence.
  • There was no evidence from Caysand 24 as to whether such information and calculations were the original source and whether the information was maintained in the normal course of business by Caysand 24.

Moreover, the financial statements appended to Mr H's report included compilation reports indicating the directors of Caysand 24 were responsible for the information. The compilation report indicated there had been no verification or validation procedures carried out by their accountant and that the financial statements should not be relied upon without audit or review. Justice Henry concluded that
"[Mr H's] report appeared to be founded on a mirage of hearsay figures unaccompanied by any meaningful attempt to identify and provide the relevant source documents of Caysand 24."

A significant issue regarding the credibility of the information relied upon by Mr H was that no one from Caysand 24 was called as a witness to prove the source documents, not even the financial controller who was responsible for monitoring financial information relevant to the Heads of Agreement.

Justice Henry stated "there might be cases where the source of data annexed to expert reports has not itself been proved or admitted but which may nonetheless be inferred to be admitted from the conduct of the case. Such an inference might, for example, arise from an apparently common ground treatment of documents in evidence on one basis as also admissible pursuant to s 92 Evidence Act 1977 (QLD)."
His Honour went on to say, "In any event the mere successful tender without objection of an expert report containing annexed documents cannot of itself possibly sustain the inference that the source of the data in those documents is thereby proved or admitted." Accordingly, Justice Henry formed the view that the annexures did not become evidence of the truth merely by their presence in an expert report and only served as evidence of the information the expert assumed to be fact.

In a joint expert report, the expert accounting witnesses agreed on the accuracy of the calculations, but not on the source data used in calculations, as Mr C had reservations about the reliability and correct selection of source data.

Justice Henry concluded that the financial statements and calculations prepared by the defendants of Caysand 24 were unreliable and gave them no weight as evidence. Justice Henry added, "the information they contain involved significant adjustments, explained by a partisan accountant, without proper proof of the source material from Caysand 24, in a case where it was long ago admitted by Caysand 24, when being aided by the same accountant, that the target sum was met."

Justice Henry dismissed the counterclaim and concluded that the target sum had been met by 20 January 2010 as Mr Fulmer claimed.

Significance

This case provides an interesting example of an expert witness who was actively involved in shaping the defence of the case. The paramount duty of an expert witness is to the court and they must not be an advocate for a party, as required by the Uniform Civil Procedures Rules 1999 – Reg 428 Requirements for report, paragraph 3(e). This is also a requirement of APES 215 Forensic Accounting Services, a professional standard that applies to all Chartered Accountants giving evidence.

It is also apparent from Justice Henry's judgment in this case that the source of information in documents annexed to an expert report should be capable of being proved during proceedings, and that annexures are not representations of the truth of the information they contain merely because of their presence in an expert's report.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions