Gould v. Western Coal Corporation (2012 ONSC 5184) involved a motion to certify the action as a class proceeding under the Class Proceedings Act and to seek leave to commence an action for secondary market misrepresentation under Part XXIII.1 of the Securities Act. The plaintiff alleged that the defendants fabricated a financial crisis in order to artificially depress Western Coal Corporation's stock price allowing the defendants to enhance their shareholdings in the company at a low price. There were allegations of conspiracy, oppression and misrepresentation.
The plaintiff and defendants each retained experts to provide opinion evidence on various matters. The defendants raised issues about the plaintiff's evidence, including breaching the duties of an expert by "giving opinions on matters outside his expertise, by weighing evidence and making findings of fact and by engaging in argument and legal analysis." The court found that these objectives were "well-founded" and that the plaintiff's expert's independence was "called into question and justify substantially discounting his evidence to the point that I have no confidence in its reliability."
The concerns raised by the court are a reminder to experts that they must maintain their independence and objectivity, and only opine on matters within the scope of their expertise.
Financial experts are often retained to provide an expert report concerning financial matters (business valuation, financial loss, accounting matters and others). In providing an expert's report, a financial expert must be, and must be seen to be, independent and objective. This requirement is prescribed in certain professional standards (like those promulgated by the Canadian Institute of Chartered Business Valuators, for example) and the Ontario Rules of Civil Procedure regarding expert witnesses. Under the Rules of Civil Procedure, Rule 53.03 entitled "Expert Witnesses", an expert is required to acknowledge that it is his/her duty to provide evidence that is fair, objective and non-partisan and related only to matters that are within his/her area of expertise. A certificate is to be attached to the expert's report stating this acknowledgment.
The court in Gould v. Western Coal Corporation observed that the plaintiff's expert fell short on these duties. Here are some of the specific concerns raised in this case about the expert's evidence:
1. Providing opinions outside his proven qualifications and expertise;
2. Weighing of evidence and making findings of fact; and
3. Incorporating advocacy and argument in the expert report.
Scope of Expertise
The plaintiff's expert in this case was found to have experience and qualifications in matters of financial reporting and disclosure, generally accepted accounting principles, and accountants' negligence. In the expert reports prepared by the plaintiff's expert, the court found that he had provided his opinion on matters outside his proven expertise, including matters of corporate governance, securities law, and corporate financing practices.
The expert's report made a series of statements offering his opinion on a number of matters, but the expert had not proven that he had expertise, education or training on such matters. The court provided a number of examples of statements in the expert's report that strayed outside the scope of his expertise and concluded that "the willingness of an expert to step outside his or her area of proven expertise raises real questions about his or her independence and impartiality. It suggests that the witness may not be fully aware of, or faithful to, his or her responsibilities and necessarily causes the court to question the reliability of the evidence that is within the expert's knowledge."
Fact-Finding and Weighing of Evidence
The court found that the plaintiff's expert had purported to "weigh evidence, evaluate the credibility of witnesses and make findings of fact." There were a number of statements made in the expert's report that the court found to be based on speculation and generalizations, without an attempt to provide a factual basis for the conclusions.
Argument and Advocacy
The court also found that the language used in the report was considered pejorative and argumentative. When these statements were compared with the fact evidence, the court concluded that the evidence did not support this language, and concluded that the expert had an "inclination to find a boogie man under every bed. When light is actually shone on the subject, it disappears."
The decision of Strathy J. underscores the need for financial experts to provide reports that provide independent and objective opinion evidence that is within the scope of their expertise. The courts and professional standards for financial experts provide boundaries for this evidence and experts must be mindful to stay within these boundaries. Not doing so can result in a greatly diminished weight placed on their evidence by a court, or in this case, no reliance placed on the evidence at all.
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