The Joint Expert is the New Norm in Litigation

How to choose the right expert and what to expect during the judicial process

If you are involved in a financial dispute, chances are you will need not only a lawyer, but also a financial expert. Even if you are a financially-savvy individual or entrepreneur, the court often requires an outside expert to be retained to provide an independent, objective report on the value of shares or the quantum of damages. Instead of each party hiring a separate expert and having a “battle of the experts” at court, several jurisdictions across the country are now requiring the parties to retain a joint expert in most cases. The intent is to expedite the process and reduce the overall costs to the parties and to the judicial system. So how do you go about choosing an expert and what can you expect throughout the judicial process?

Choosing the right expert

First and foremost, the expert should be independent of the parties; that is, he or she should not have any ongoing business or personal relationships with any of the parties involved. This means that the company’s auditor or accountant, for example, should probably not be the chosen expert. Even though the auditor has considerable knowledge of the business, he or she may not be perceived as independent because of the ongoing business relationship with the company, which may create the perception of a bias favouring one party’s position.

In the context of a dispute, it may be difficult to agree on anything, let alone the selection of one expert for both parties. The process generally involves lawyers reaching out to a number of experts and requesting that they submit their CVs and relevant experience. In practice, lawyers often suggest two or three possible candidates. The parties and their counsel would request a proposal for professional services including an estimate of professional fees. Your selection criteria should primarily consider the expert’s qualifications and relevant experience. Depending on the nature of the litigation, you may require a Chartered Business Valuator (“CBV”), a designation granted by the only Canadian business valuation professional organization, or a forensic accountant if the situation calls for an investigation into a possible fraud or misappropriation of funds. In addition to the professional designations of the proposed experts, you should inquire about their number of years of experience, examples of relevant similar engagements that they have performed in the past and their experience in testifying in court as an expert witness.

What to expect during the judicial process

The joint expert should prepare an engagement letter to be signed by both parties and sometimes their respective legal counsel, stating that the expert recognizes his or her duties and responsibilities to all parties involved. The professional fees are generally agreed to be split equally between the clients. Once everybody has agreed on the terms and conditions of the engagement, the expert begins the information-gathering process.

One of the most important issues in a joint expert retainer is the management of correspondence between the expert and the parties. It is generally best to communicate with all parties at the same time so that there is no ambiguity or perception that one party is being favoured over another. Therefore, written correspondence is generally sent to all parties simultaneously and in-person communications or conference calls are organized to include representatives of all parties. The expert must be mindful to seek out and obtain information from all sides and to be available in equal measures to ensure that everybody feels they obtained a fair treatment from the expert.

A list of information required is generally circulated to all parties and their lawyers, and responses can be initially gathered in the form of supporting documents from the parties. It is also often necessary to hold discussions regarding qualitative issues such as risks, opportunities and threats to identify “value drivers” that may have an impact on the expert’s analysis. Some aspects of valuation and damage quantification are based on hard numbers and empirical data, while others are based on the expert’s judgment and estimates, based on experience and informed analysis.

The expert may choose to prepare a draft report for the parties’ review and comments. If the issues and calculations are complex, parties will sometimes retain their own “shadow” expert to help them understand the joint expert’s report in order to provide appropriate feedback. Depending on the nature and extent of the comments received on the draft report, the joint expert may address them by integrating additional points within the report or may provide responses in a separate letter. It remains within the expert’s discretion as to how the comments will be addressed and whether the conclusions in the report will change. Once the report is final, it is filed with the court while awaiting trial. It is our experience that once the quantum of a dispute has been determined, the parties are more likely to arrive at a settlement.

The final stage, if the matter does not settle, is trial, where the joint expert may be called upon to provide expert witness testimony in court. The expert can be cross-examined by both parties’ legal counsel, who may have “shadow” experts to assist them in formulating questions regarding complex technical issues. The judge may also address questions to the expert to obtain a better understanding of the estimates and assumptions underlying the opinions and conclusions expressed in the expert report. Ultimately, the expert’s responsibility is to assist the court in the judicial process by applying his or her knowledge and experience and explaining technical concepts in layman’s terms so that the judge can come to an informed decision.

Catherine Tremblay, B.Com., DPA, CPA, CA, EEE, ASA, CFF, is a Partner at MNP in its Montréal office and is the firm's Leader of Business Valuations & Litigation Support for the Québec-Ontario region. She is active in providing financial litigation support services including business valuation and economic damage quantification in shareholder disputes and commercial litigation.