EXPERT EVIDENCE: WHEN PART OF THE EVIDENCE IS “ABSURD” – THIS IS NO SMALL BEER
I am grateful to barrister Simon Mills for sending me a copy of the judgment of Judge Waksman QC (sitting as a judge of the High Court) in BHL -v- Leumi ABL Limited  EWHC 1871 (QB). Here I look at the judge’s comments on the defendant’s expert evidence. It highlights the need for an expert to independently assess the evidence and to have actual experience and expertise on the issue in dispute.
The action concerned expenses charged by the defendant when collecting invoices on Cobra beer. The claimant’s case was that the 15% surcharge charged was excessive. The experts addressed the issue of the costs expenses involved and was directly relevant to the issue of whether the 15% was as reasonable figure. (The judge held that the correct figure was 4% and the defendant had, therefore, overcharged).
THE JUDGE’S CONSIDERATION OF THE DEFENDANT’S EXPERT EVIDENCE
“The Expert Evidence
128. First, there is the evidence of Mr Lawler who has assumed that the Collection Staff would spend all their time on the first year with 2 of them staying on for the second year and one in the third year. For Mr Willis, it would be 80% of his time in the first year, 40% in the second and 20% in the third. For Mr Couzins it would be 40%, 20% then 10% and for Mr Hird it would be 20% 10% and 5%. Using the “opportunity cost” formula, this would then yield a total estimate of cost of £1.4m. See paragraphs 7.5.8 – 7.5.10 of his report. This is very considerably more than the actual costs, computed on the same basis, but Mr Lawler justifies it because there would have to be “an assumption that the collection would have taken place in-house and in respect of lower realisations and therefore a more complex review and reporting requirement”. I regard that suggestion is totally unrealistic. At best there was an initial uncertainty as to whether the Cobra credit controllers would come but it was always known that third-party collectors would come in for the more problematic debts
129. I consider that the figure of £1.4m is manifestly excessive.
130. First, it is unsupported by any evidence of previous collect-out experiences which Mr Lawler, as an expert, could and should have asked for from his client. Second, his starting point seems to have been his figures for Leumi’s actual collection costs which I have judged to be much too high anyway – see paragraphs 103–110 Third, he uses the opportunity cost model which is not straightforward for the reasons given above and would need the support of evidence showing that the result of the time spent by the Management and Collective Staff on this exercise would lead to the realistic prospect that other business would be lost as a result. Fourth, it fails to take account of the very significant recoveries made prior to 2 June and the fact that by then there was at least a prospect of the Cobra collectors coming over. Fifthly, it does not take account of the fact that the obvious course in any event if the uncertainty was as great as Leumi would have it, was to delay the decision for a few weeks at which point the prospect for a relatively fast and efficient recovery of most of the ledger was clearly then in prospect. Sixthly, Mr Lawler also added in as a factor, the possibility of fraud or “fresh-air invoicing” but in truth there never was any evidence of that at all and I consider that suggestion to be pure speculation.
131. In addition, I did not find Mr Lawler generally to be as reliable or impressive a witness as Mr Birch. Indeed, while he is a specialist forensic accountant, he accepted in evidence that he was not a debt collecting expert and could not give evidence as such on the collectability of ledgers
132. In addition, his evidence on a number of points was unsatisfactory and showed an unwillingness to concede anything.. For example, he pointed out that one of the risky or difficult factors going forward was the high proportion of old debts as at the end of May. But he did not actually say what that proportion was and did not put it in his report. He did not say either that many of the old debts had been paid in May without creating further indebtedness from Cobra since the new funding was now so limited. His only answer to this was to say that the “suppression of invoices” and the fact of Cobra’s impending administration would “trump” this point. While he said that he had taken into account in his deliberations the significant payments made in May, he did not say so in his report.
133. He then said that he simply accepted the views expressed in the witness statements from Leumi without any critical examination. And it was he who introduced the wholly speculative notion of fraud and fresh-air invoicing, referred to above.
134. The fact that SJB actually certified £5m. worth of valid invoices was put to him and he said that he did not know the extent of their work. But he did not seek to find out and simply said that this could not given much comfort to Leumi, post-administration. The following exchange is revealing (Day 7 pages 125-126):
“Q. We looked this morning at the £4.997 million verification as at 26 May. So given that all of that work had been done, this is another example of you ignoring May so that you can make a comment that’s untrue that Leumi wouldn’t know if there had been any fresh air invoicing or pre-invoicing until it tried to collect?
No, my Lord. I don’t know what SJB did or the extent of the work that they performed. Certainly what it didn’t do is give a massive amount of comfort to Leumi that these debts would be collectible post- administration. And I stand by the comments that I make in 5.6.1, 2 and 3. Leumi didn’t know if there would be any fresh air invoicing until it tried to collect the customer.
How do you know if there was comfort that was given by SJB or not to Leumi?
It’s a fair question. You are inviting me to put myself in the mind of Leumi. Let me say I think it’s reasonable for Leumi to assume that — yes, the work done by SJB was useful. It will have given them a degree of comfort. Does it trump the existing problems that I set out in these sections of the report, including suppression of invoices? And the answer is no.”
135.Mr Lawler accepted that he was postulating an “utter nightmare” scenario for the collect out which he said could go on for longer than 3 years and resulted in zero I have to say that I found that evidence to be absurd, not least in the light of the acceptance by Mr Willis that there could be £7m. of debt recovery in a short space of time. And there was no evidence whatsoever to suggest that the majority of the ledger was simply irrecoverable as at 2 June 2009. Mr Lawler sought to justify his position on the basis that there is “very little else I could go on”. That was not so; had he made proper enquiries of his client about previous collections and time spent and how it tended to assess the collect-out fees, the extent to which they knew they would use third parties etc he would have been in a much more informed position. But he did not do so.
- The dangers of relying on expert evidence