WHAT IS MEANT BY AN "INDEPENDENT" EXPERT? CASES ON EXPERTS THIS WEEK III

November 6, 2016 · by · in Appeals, Civil evidence, Expert evidence, Experts, Uncategorized

In Hopkinson -v- Hickton [2016] EWCA Civ 1057 the Court of Appeal considered what was meant by an “independent” expert.

KEY POINTS

  • The fact that a valuer, appointed to value a property by the parties under the terms of a Tomlin Order,  had another involvement with the property in question did not mean that the valuer was not “independent”.
  • The test to be applied was the “tribunal test” – would the fair minded observer conclude that there was a real possibility of bias.
  • In the current case there was no possibility that the valuer’s involvement with a related valuation could have impugned his independence at the time he was appointed.
  • There was no argument that the valuation itself had been “contaminated” by the valuer’s subsequent knowledge.
  • The applicant remained bound by the terms of the valuation.

THE CASE

An unfair prejudice petition had been compromised on terms that an a suitably qualified independent valuer value the land that was the company’s sole asset. A valuer was appointed and duly reported.

When the valuer reported he stated that he had carried out other valuations of the property.

The applicant, therefore, sought to set aside the appointment of the valuer.

THE JUDGMENT
  1. It might be thought strange that Mr Hopkinson should be able to challenge the appointment of Mr Clarke as an independent valuer when no criticism is made of the way in which he in fact conducted the valuation. But, as Mr Mold submitted, his client contracted for an independent valuation of the Clay Cross land to be carried out by an independent valuer and he is entitled to both. A material departure from the contract will vitiate the determination regardless of its effect on the ultimate result of the process: see Veba Oil Supply & Trading GmbH v Petrotrade [2001] EWCA Civ 1832; [2002] 1 All ER 703. The appointment of an expert valuer who was not independent would, I think, constitute a material departure from the contract even if it resulted in an independent valuation of the land.
  2. Mr Clarke’s independence is challenged on the basis of the 2013 valuation of the Clay Cross land which JLL provided to St Modwen. It is said that he had a vested interest in reaching a 2010 valuation figure which was consistent with the 2013 valuation in order to save him and his firm the embarrassment of reaching a conclusion which conflicted with the 2013 valuation. He would have been bound to inform St Modwen had this occurred so that his own and his firm’s reputations were at stake. This created the inevitable perception that he was likely to follow the 2013 valuation as opposed to much earlier valuations of the land by other firms which had placed a value on it of up to £22m.
  3. Mr Mold, on behalf of Mr Hopkinson, submits that the judge was right to conclude that Mr Clarke’s status as an independent valuer as at the date of his appointment fell to be judged by the application of what he called the tribunal test; that is the test of apparent bias approved by the House of Lords in Porter v Magill [2001] UKHL 67 and Helow v Home Secretary [2008] UKHL 62. But the judge went wrong, he says, by then taking into account Mr Clarke’s evidence about how he carried out the valuation and why he was not influenced by his involvement in the 2013 valuation.
  4. For the respondents, Mr Khangure QC sought to support the judge’s conclusion that Mr Clarke was independent on a number of different grounds. His first point which he raised without much enthusiasm was that paragraph 2(d)(i) required the valuer to be independent not at the date of his appointment but at the date of the valuation. He submitted that what the schedule mandated was that the land should be valued by a suitably qualified independent valuer and this condition was satisfied if the valuation was in fact carried out independently even if the valuer as appointed was not independent within the meaning of the schedule.
  5. I am not persuaded by this. I think it is clear from paragraph 2(d)(i) read in conjunction with paragraph 2(d)(iv) that the valuer must be independent when appointed. An independent valuer once appointed may still, due to some supervening event, not carry out the valuation independently in which case there would be a breach of both paragraph 2(d)(i) and 2(c). But the requirement that he should both be independent and act independently is not the same, although both conditions must be complied with. The schedule entitles the parties to have the services of an independent valuer and the requirement of independence is on my construction of the schedule a condition of appointment.
  6. The next issue is what is meant by “independent”. Mr Khangure submitted that it means independent of the parties and not independent of the land. A previous involvement with the subject matter of the valuation would not therefore disqualify the valuer unless it created some connection with one of the parties or at least an interest in the outcome of the valuation. A previous professional involvement with the valuation of the land did not therefore mean that Mr Clarke was not independent unless it gave rise to one or more of the circumstances just mentioned.
  7. Again I think that this is too narrow a construction of the schedule. Although the types of case which Mr Khangure referred to are obviously all ones where the expert valuer could not be said to be independent, there is no obvious reason to restrict the meaning of the word to such circumstances. The requirement that the valuer be independent is one that he should be capable of carrying out the expert valuation without there being any real risk of his approaching his task with a closed mind or a particular objective. The circumstances in which this might arise are not necessarily limited to the categories mentioned by Mr Khangure and I can see no reason why the parties should be taken to have adopted such a restricted definition.
  8. In Kemp v Rose (1858) 1 Giff 258 the court set aside the determination by an architect of the value of some additional works under a building contract when the architect had, unbeknown to the builder, previously assured the clients that the total cost of the works would not exceed a particular sum. Sir John Stuart V-C said (at page 265):
“A perfectly even and unbiassed mind is essential to the validity of every judicial proceeding.
Therefore, where it turns out that, unknown to one or both of the persons who submit to be bound by the decision of another, there was some circumstance in the situation of him to whom the decision was intrusted which tended to produce a bias in his mind, the existence of that circumstance will justify the interference of this Court.
Whether in fact the circumstance had any operation in the mind of the arbitrator must, for the most part, be incapable of evidence, and may remain unknown to every human being, perhaps even unknown to himself. It is enough that such a circumstance did exist.”
  1. Re Benfield Greig Group plc [2001] EWCA Civ 397 concerned the valuation put on some shares by the company’s auditors in relation to a transfer under pre-emption rights in the articles of association. The auditors’ valuation was £2.10 per share which conflicted with a value of £4.00 per share on a similar transfer two years earlier. It transpired that the auditors had since the transfers at £4.00 given valuations of the company’s shares at £1.50 to the Inland Revenue having been asked by the company to provide a low valuation for tax purposes. This court held that the auditors were not in the circumstances independent because in their dealings with the Inland Revenue the auditors had had to distinguish and downplay the transfer at £4.00 per share and were therefore unlikely to depart from the position they took with the Revenue. Aldous LJ at [37] said:
“The scenario that I have outlined is supported in the pleading by reference to documents that have been disclosed in the Pricewaterhouse action. It does in my view provide a reasonable argument that the petitioners have been unfairly prejudiced. First by appointing Pricewaterhouse as valuers when they were not “independent”. By that I mean that they could not reasonably approach the task of valuer without restrictions imposed by the advice that they had given in very different circumstances. In particular advice for the purposes of persuading the Inland Revenue to disregard the placements at £4.00 and to accept the low value at which they had been arrived. Second, they had also acted as adviser to Benfield upon another, but similar matter that was in dispute between Benfield and the petitioners. In so doing it is arguable that they had compromised their ability to be an independent valuer. Whether that can be categorised as a failure to act in good faith or a failure of an obligation to appoint an independent valuer or some other failure is in my view irrelevant.”
  1. In his skeleton argument Mr Khangure was minded to accept, subject to some reservations, that the judge was right to apply the test of apparent bias in determining whether the valuer was independent at the date of his appointment. But in the course of his submissions these reservations matured into support for an alternative test which is whether the expert, when appointed, was actually biased or partial. There is no respondent’s notice or cross-appeal on this point but we indicated to Mr Khangure and Mr Mold that we would hear argument on the point and decide when handing down our judgments whether to give leave for the point to be raised as part of the appeal. I would allow Mr Khangure to rely on this argument.
  2. There is clear authority that an expert witness is not automatically disqualified from giving expert evidence by reason of some relationship with one of the parties or even an interest in the outcome of the proceedings. The weight to be given to the evidence or even its admissibility is a matter for the judge to assess having regard to the relevant circumstances: see R (Factortame Ltd) v Transport Secretary (No. 8) [2002] EWCA Civ 932; [2003] QB 381at [69]-[70]. In relation to an expert determination, different factors apply because the expert is performing a quasi-judicial function which requires the exercise of impartiality. But even in these cases the balance of authority indicates that a link such as a professional relationship with one of the parties will not be sufficient to impeach the valuation or other expert determination unless it can be shown that the expert was actually partial in making that determination: see Macro v Thompson [1997] 2 BCLC 36 at pages 64g-65h and the cases there cited.
  3. On the basis of these authorities Mr Mold accepts that he cannot challenge the status of Mr Clarke’s report as an independent valuation unless he can show that Mr Clarke was not impartial but was actually influenced by the 2013 valuation into producing a valuation that was consistent with it. As mentioned earlier, this is not alleged nor could it be given that neither of the parties nor the court has been given disclosure of the 2013 valuation.
  4. Mr Khangure submitted that the same test (actual partiality or bias) should be applied to determine whether Mr Clarke was independent at the date of his appointment. He referred us to a number of authorities concerning expert determinations in which issues arose about the allegedly partial way in which the expert had conducted the determination. In Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd [2004] EWHC 977 (Comm); [2004] 2 Lloyd’s Rep. 352 Cooke J held (following the decision of Robert Walker J in Macro v Thompson) that an expert determination could not be set aside except on proof of actual bias. But that was not a case where any criticism was made of the independence of the expert when appointed. The complaint was that he had acted unfairly by failing to give both parties a proper opportunity to make submissions.
  5. Similarly in Owen Pell Ltd v Bindi (London) Ltd [2008] EWHC 1420 (TCC); [2008] BLR 436 HH Judge Kirkham rejected a submission that the expert was obliged to follow the rules of natural justice or had been guilty of actual bias in that case. I have some reservations about certain of the judge’s observations about the law but for present purposes it is another case in which no issue arose about the appointment of the expert and it does not therefore really assist.
  6. The other decision referred to by Mr Khangure in this context is Re Bellfield Furnishings Ltd [2006] EWHC 183 (Ch); [2006] 2 BCLC 705. This is another case concerning the valuation of shares in a private company by the company’s auditors pursuant to pre-emption provisions in the articles of association. The real issue in the case was whether the minority shareholders affected by the operation of the pre-emption provisions were entitled to proceed with an unfair prejudice petition. The deputy judge held that it was not necessarily an abuse of process to proceed with the petition if the agreed valuer was not in the position to exercise independent judgment in carrying out the valuation. Again the case concerns the carrying out of the valuation and not the validity of the valuer’s appointment. It does not provide support for Mr Khangure’s submission that the appointment of an independent expert can only be challenged upon proof of actual bias.
  7. It seems to me that the question of what has to be shown in order to be able to challenge the appointment of an “independent” valuer is really determined by the construction of the word “independent” which I discussed earlier at [17]. Consistently with that, an expert valuer does not satisfy the requirement that he be independent if he has a connection with one of the parties, an interest in the outcome of the valuation or some other connection with the property which, objectively viewed, creates a real risk that he may act partially in carrying out the valuation. His independence is negated by the relevant factor regardless of whether in fact it would cause him to act partially. The stipulation that the expert be independent is intended to remove from the parties the risk of a lack of impartiality and professional objectivity.
  8. The test suggested by Mr Khangure would also be impossible to apply in most ordinary cases. It would involve either the direct examination of the expert in relation to how he or she was likely to carry out the determination or some other evidence which disclosed a present state of actual bias on the expert’s part. In relation to an exercise which has not yet taken place, this is likely to be a near impossible task. The difficulty of proving actual bias (which may often be unconscious) has been a strong reason for the development of an objective test of apparent bias as a sufficient basis for demanding the recusal of judges and other adjudicators prior to any actual hearing or determination and I can see no justification for applying a different rule in relation to experts.
  9. For those reasons I consider that the judge was right to adopt the tribunal test in relation to his assessment of whether Mr Clarke, as at the date of his appointment, was independent. In the course of his submissions Mr Mold raised the issue of the non-disclosure of the 2013 St Modwen valuation prior to Mr Hopkinson’s decision to appoint Mr Clarke. This is not relied upon as a separate breach of the terms of the schedule which invalidates the subsequent appointment and therefore the valuation, but rather as a further indication that Mr Clarke was not independent. The fair-minded bystander who is to assess the likelihood of apparent bias would infer that Mr Clarke was likely to be biased towards affirming the conclusions in the 2013 valuation from the fact that Mr Clarke had chosen not to disclose its existence.
  10. I am not convinced that this is a relevant factor or that it in fact adds anything to Mr Hopkinson’s case. Mr Clarke has provided an explanation as to why the 2013 valuation was not disclosed in his C.V. which the judge has accepted. This is information which the fair-minded bystander would have available and would consider in deciding whether there was a real likelihood of bias. But the non-disclosure can make no difference to the outcome of the challenge to Mr Clarke’s appointment. If his involvement in the 2013 valuation is enough to disqualify him from being an independent valuer then its non-disclosure is irrelevant. If, on the other hand, his involvement is not sufficient to have that effect then in the light of the explanation which the judge accepted, its non-disclosure cannot alter that conclusion.
  11. I can turn therefore to the critical question of whether the carrying out of the 2013 valuation is sufficient to satisfy the test of apparent bias. In Porter v Magill the House of Lords adopted the formulation of the test set out by Lord Phillips of Worth Matravers MR in Re Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 700 at [85] as follows:
“When the Strasbourg jurisprudence is taken into account, we believe that a modest adjustment of the test in R v Gough is called for, which makes it plain that it is, in effect, no different from the test applied in most of the Commonwealth and in Scotland. The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased.”
  1. Lord Hope in Porter v Magill at [103] said:
“I respectfully suggest that your Lordships should now approve the modest adjustment of the test in R v Gough set out in that paragraph. It expresses in clear and simple language a test which is in harmony with the objective test which the Strasbourg court applies when it is considering whether the circumstances give rise to a reasonable apprehension of bias. It removes any possible conflict with the test which is now applied in most Commonwealth countries and in Scotland. I would however delete from it the reference to “a real danger”. Those words no longer serve a useful purpose here, and they are not used in the jurisprudence of the Strasbourg court. The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”
  1. This requires the court to determine the facts which the observer would know and take into account and then to determine whether the fair-minded and informed observer would conclude on those facts that a real possibility of bias existed. In Helow v Home Secretary Lord Hope provided some further guidance about the qualities of the fair-minded and informed observer:
“[2] The observer who is fair-minded is the sort of person who always reserves judgment on every point until she has seen and fully understood both sides of the argument. She is not unduly sensitive or suspicious, as Kirby J observed in Johnson v Johnson (2000) 201 CLR 488, 509, para 53. Her approach must not be confused with that of the person who has brought the complaint. The “real possibility” test ensures that there is this measure of detachment. The assumptions that the complainer makes are not to be attributed to the observer unless they can be justified objectively. But she is not complacent either. She knows that fairness requires that a judge must be, and must be seen to be, unbiased. She knows that judges, like anybody else, have their weaknesses. She will not shrink from the conclusion, if it can be justified objectively, that things that they have said or done or associations that they have formed may make it difficult for them to judge the case before them impartially.
[3] Then there is the attribute that the observer is “informed”. It makes the point that, before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant. She is the sort of person who takes the trouble to read the text of an article as well as the headlines. She is able to put whatever she has read or seen into its overall social, political or geographical context. She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judgment.”
  1. There is an issue in the present case as to precisely what facts the informed observer would know and take into account in relation to Mr Clarke’s appointment as expert valuer. It is, I think, common ground that the observer would know the facts about Mr Clarke’s role in the 2013 valuation and the fact that the Clay Cross land was sold to St Modwen shortly before in July 2013 for £4m. I do not consider that the observer would take into account Mr Clarke’s statement in paragraph 1.05.02 of his report that the 2013 valuation was made in a different market, for a different purpose and under different circumstances because no consideration on those issues could take place absent the disclosure of the 2013 valuation which has not occurred.
  2. Perhaps more controversial is the extent to which the observer would be entitled to take into account the way in which Mr Clarke in fact carried out the expert valuation of the Clay Cross land. The judge seems to have given some weight to Mr Clarke’s statements in correspondence and in his evidence to the effect that the 2013 valuation had no bearing on his expert determination which he had approached with an entirely independent mind. Insofar as the judge took into account Mr Clarke’s assurances that he did act independently free of any influence exerted by the 2013 valuation then he was wrong to do so. As Lord Bingham of Cornhill CJ explained in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 at [19]:
“It is noteworthy that in Reg. v. Gough [1993] AC 646 evidence was received from the juror whose impartiality was in issue (see pp. 651G and 658D), and reliance was placed on that evidence (see p. 652F); both in the Court of Appeal and the House of Lords it was accepted that if the correct test was the real danger or possibility test the appeal could not succeed, since the allegedly disqualifying association had admittedly not been known to the juror at the time when the verdict had been returned, and therefore there was no possibility that it could have affected her decision: see pp. 652D, 660G and 670G. While a reviewing court may receive a written statement from any judge, lay justice or juror specifying what he or she knew at any relevant time, the court is not necessarily bound to accept such statement at its face value. Much will depend on the nature of the fact of which ignorance is asserted, the source of the statement, the effect of any corroborative or contradictory statement, the inherent probabilities and all the circumstances of the case in question. Often the court will have no hesitation in accepting the reliability of such a statement; occasionally, if rarely, it may doubt the reliability of the statement; sometimes, although inclined to accept the statement, it may recognise the possibility of doubt and the likelihood of public scepticism. All will turn on the facts of the particular case. There can, however, be no question of cross-examining or seeking disclosure from the judge. Nor will the reviewing court pay attention to any statement by the judge concerning the impact of any knowledge on his mind or his decision: the insidious nature of bias makes such a statement of little value, and it is for the reviewing court and not the judge whose impartiality is challenged to assess the risk that some illegitimate extraneous consideration may have influenced the decision.”
  1. Of more difficulty is the decision-maker’s evidence about how he actually went about his task. Mr Khangure submitted that the judge was entitled to consider Mr Clarke’s evidence about the relevance of the 2013 valuation to his expert determination and his statement that he did not take the valuation into account even as a cross-check. His actual conduct of the expert valuation must, he says, be material to whether he should be regarded as independent when appointed. Mr Mold says that none of these matters should be taken into account by the informed observer.
  2. The judge clearly did take some of these facts into account. At [23] in his judgment he says:
“Nor do I consider that it would be appropriate to order cross-examination, as suggested by Mr Cohen, because no foundation has been put forward to demonstrate that Mr Clarke in fact lacked independence. His evidence is very clear and I have no reason to doubt it. He did not take into account, not even as a cross-check, what his own valuation was in November 2013. He did have minimal regard to the actual sale price of £4 million but that was something he could not ignore because it was referred to in the submissions of the parties. It is clear, however, that he had very little regard to it. He says he referred to it as a sense check, standing back from the valuation he had independently reached. I have no doubt that this is what he must have done and have no reason for questioning his integrity or the accuracy of his explanation of his approach in that regard. “
  1. My reading of the authorities is that a statement by the judge or other adjudicator as to what they knew or did at the relevant time is generally admissible but the weight to be given to it will depend on the circumstances and the nature of the facts in question. In this particular case, the observer would, I think, attach some caution to Mr Clarke’s statement about having no regard to the 2013 valuation when carrying out his expert valuation. He must also consider the possibility of unconscious bias. The informed observer is also not himself a trained valuer and can make no informed assessment of the methodology used. But in this case his task is to assess the likelihood of bias on the part of Mr Clarke as at the date of appointment: that is before the receipt of the written submissions and at a time when, on the judge’s findings, Mr Clarke had not linked the subject matter of the expert valuation with the land he valued for St Modwen in 2013. The fair-minded and informed observer would also, I think, ask himself what were the chances of bias on the part of Mr Clarke if he had in fact made a link between the 2013 valuation and his new instructions sooner than he says that he did.
  2. It seems to me that the fair-minded observer is likely to reject any blanket assertion that a prior valuation of the same property will necessarily impact on the subsequent valuation to the extent of encouraging the valuer to produce conformity between the two valuations regardless of the evidence produced in relation to the second valuation. Although not a valuer himself, the observer would consider that it was necessary to take into account the distance in point of time between the two valuation dates and any other intervening events which to an informed layman were likely to have impacted one way or another on the valuation exercise. In this case, a fact of some significance in that assessment was that the land had changed hands in the open market for £4m only three or so months before the 2013 valuation was carried out. The observer would, I think, assume that the 2013 valuation was either confirmatory of or in excess of this figure (if a forced sale by an administrator) and was therefore unlikely to have had significantly more impact on an expert valuation of the same property as of September 2010 than the July 2013 sale price. The observer would also, I think, start off from the position that an experienced valuer like Mr Clarke with a significant professional reputation was not likely to act other than professionally in carrying out the expert valuation so that, had some information in the submissions of the parties in fact caused him to doubt the accuracy of the 2013 valuation, he would have notified St Modwen accordingly rather than compromised his duties to Mr Hopkinson and the respondents.
  3. Taking these matters into account, my view is that the observer would not in this case have concluded that there was a real possibility of bias. The valuation dates were three years apart; and the 2013 sale price to St Modwen (which was relied on in the parties’ submissions) is likely to have been far more relevant to the expert valuation exercise than any subsequent 2013 valuation based upon it. But perhaps most important of all, the informed observer would have had regard to the fact that, at the date of his appointment, Mr Clarke had not yet linked the subject matter of the 2013 valuation with the land he was now being asked to value. Although the observer would scrutinise the evidence on this in the way that Lord Bingham indicated in the passage I have quoted, I see no grounds for inferring that he would have rejected it. In these circumstances, there was no basis for the observer to conclude that, as things stood at the date of his appointment, there was a real possibility of bias on the part of Mr Clarke. He had no reason to believe that the 2013 valuation was relevant. He had no reason to believe the 2013 valuation was relevant because, as the judge accepted, he had made no connection between the piece of land at Clay Cross that he was being asked to value and the substantial land bank belonging to St Modwen, the valuation of which he had supervised. There was therefore no possibility that the fact of the 2013 valuation could have impugned his independence at the time he was appointed. This case is therefore a long way factually from cases like Re Benfield Greig Group plc where the auditors could be shown to have consciously discounted the comparable transaction relied on by the petitioner and were likely to approach the current valuation on that basis.
  4. That is not to say that Mr Clarke’s involvement in the 2013 valuation of Clay Cross was not capable of being relevant to the question of whether (notwithstanding the fact that at the date of his appointment Mr Clarke was an independent valuer) the subsequent report produced by him was not an independent valuation. Mr Clarke’s limited involvement with the 2013 valuation could have been highly relevant in this context if, having subsequently made the connection between Clay Cross and St Modwen, Mr Clarke had been influenced by the 2013 valuation into producing a lower valuation than would otherwise have been the case.
  5. But in this case, as I have explained, it is not submitted that the valuation report itself had been contaminated by Mr Clarke’s subsequent knowledge of the connection and reliance was placed only on a submission that, at the date of the appointment, he was not independent. It therefore follows that clause 2(d)(i) having been satisfied and there being no challenge to the way in which it was carried out, the appellant is, in accordance with the terms of the Tomlin order, bound by the valuation provided by Mr Clarke.
  6. For these reasons, I consider that the judge reached the right conclusion in this case and I would dismiss the appeal.

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