YOU SPEND A FORTUNE ON EXPERT WITNESSES AND THEN FIND OUT THAT THEY ARE NOT ADMISSIBLE OR THEIR EVIDENCE ISN’T “EXPERT” AT ALL

There are parts of the judgment of HHJ Paul Matthews (sitting as a High Court Judge) in Devon Commercial Property Ltd v Barnett & Anor [2019] EWHC 700 (Ch) that merit close consideration by anyone involved in litigation that (they think) requires expert evidence.  The evidence of two of the experts called by the parties was held to be inadmissible. The evidence of one of the remaining experts was held to be inadmissible to a large degree.  In particular note the judge’s surprise that the court gave permission to call two of the experts at all. The need for expert evidence should be assessed against the issues in the pleadings.  The “expert” nature of the evidence given by another witness was severely called into doubt.

“In the light of these matters, I do not think that I can place any reliance on [the expert’s] opinion evidence of valuation at all. It is based on a false premise, partly inadmissible, partly unsupported by appropriate reasoning, and in its conclusions frankly incredible.”

THE CASE

The claimants brought an action alleging negligence by the defendant when they acted as agents in the selling of a property which had been used for the manufacturing of cider. Both sides adduced expert evidence.

THE JUDGE’S COMMENTS ON THE EXPERT EVIDENCE IN RELATION TO THE DUTIES OF LAW OF PROPERTY ACT RECEIVERS

The judge’s view was that the evidence of experts called on the nature of the duty owed was not needed and inadmissible.

1. 1. In addition to the factual evidence to which I have already briefly referred, two kinds of expert evidence were adduced. One was evidence of value of the Property at the relevant time, put forward by valuation experts. I will come back to that. The other was evidence relating to the duties of Law of Property Act receivers. This, if admissible, would or might be relevant to the issues arising in this claim. I must therefore deal specifically at this stage with the question of the admissibility of that evidence.

General

1. 1. By its order of 27 March 2017, the court gave permission to the parties to adduce expert evidence in the field of

“corporate rescue and recovery, in particular in relation to receivers, to address the issue relating to the alleged breaches of duty of the defendants”.

1. 1. Two points arise. One is that the defendants were not appointed to act as “corporate rescue and recovery” agents, and in my judgment should not be judged by the standards of such agents. That would imply functions in relation to the finances of the claimant, either attempting to turn it round or to wind it up efficiently, as a company doctor or a company undertaker respectively. But the defendants were appointed to act as Law of Property Act receivers of the Property, and had no functions in relation to the claimant, or, for that matter, DCC2.

   2. The second point is that, with the benefit of hindsight, this form of order was not altogether a good idea. Permission to adduce expert opinion evidence should always be tied to specific issues between the parties which arise on the basis of the statements of case. In addition, consideration should be given to how far the opinion evidence sought could qualify as expert opinion evidence, and, by identifying potential witnesses, the court can also consider whether such witnesses are likely to possess the necessary expertise.

   3. In the present case, the parties put before the court reports from two insolvency practitioners who have acted on a number of occasions as LPA receivers. Ian Walker, a partner in the firm of Begbies Traynor, was instructed on behalf of the claimant, and Finbarr O’Connell, a partner in the firm of Smith and Williamson, was instructed on behalf of the defendant. As I have already said, in the event neither of them was tendered for cross-examination, the parties having agreed that I should simply read the reports. But there is a more fundamental issue, and that is the admissibility of the evidence which they sought to give.

   4. On day 6 of the trial (1 August 2018) I flagged up to the parties in open court the fact that I had concerns about this evidence. Counsel discussed the matter over the short adjournment, and after the adjournment told me that, in view of the shortness of time remaining, and having noted my concerns, they had agreed to submit the evidence of the expert witnesses on receivership in writing, without tendering the witnesses for cross-examination.

Admissibility

1. 1. I therefore consider the question of admissibility here, without the benefit of specific argument. In English law, evidence of opinion (as opposed to fact) is generally inadmissible. Expert evidence is a form of opinion evidence that is admissible under certain limited conditions. As it is put in s 3(1) of the Civil Evidence Act 1972,

“Subject to any rules of court made in pursuance of … this Act, where a person is called as a witness in any civil proceedings, his opinion on any relevant matter on which he is qualified to give expert evidence shall be admissible in evidence.”

1. 1. The first point therefore is that it can only be tendered by someone who is qualified as an expert. This is someone who

“satisfies the court that he has a sufficient familiarity with and knowledge of the expertise in question to render his opinion potentially of value in resolving any of”

the issues in the case. But not all expertise counts for this purpose. The “expertise in question” must be

“a recognised expertise governed by recognised standards and rules of conduct capable of influencing the court’s decision on any of the issues which it has to decide” (see Barings plc v Coopers & Lybrand [2001] PNLR 22, [45]; The RBS Rights Issue Litigation [2015] EWHC 3433 (Ch), [13]-[14]).

1. 1. On the basis of the CVs attached to their reports, I am satisfied that Mr Walker and Mr O’Connell (who are the witnesses put forward in relation to Law of Property Act receiverships) amply possess expertise in accountancy in general and in insolvency procedures in particular. They also have some experience in Law of Property Act receiverships (Mr Walker more than Mr O’Connell). And of course there is no reason in principle why an accountant (or anyone else) cannot become an expert in such receiverships, so as to be able to give expert opinion evidence admissible in legal proceedings in relation to them.

   2. But on any view the defendants themselves have far more experience of acting as Law of Property Act receivers than have the witnesses. And, in particular, neither of the witnesses put forward appears to have any experience of a case (which is this case) where the receiver sold the property to an associate of the appointor. Given that much of the focus of the claimant’s case is on the question of conflict caused to the receivers in such a case, this is of considerable importance. The first defendant, on the other hand, has had several such cases. Accordingly, I am not satisfied, on the evidence before me, that either of the witnesses put forward possesses sufficient appropriate expertise in the field of Law of Property Act receiverships. In another case, of course, the evidence of experience may be different, and sufficient to justify a different conclusion.

   3. An expert can also give evidence of fact. For example, a forensic pathologist carrying out a post-mortem examination can give both factual evidence (of what he or she found on examination) and opinion evidence (the cause of death). But the expert cannot and does not usurp the function of the court in finding the facts. Thus the expert’s opinion is to be based on facts which are assumed (even if, in rare cases, the assumption is based on the witness’s own factual evidence): see JP Morgan v Springwell [2006] EWHC 2755 (Comm) [21].

   4. In any event, not all opinion evidence given by an expert is admissible. First of all, the expression of opinion of what the expert would have done in the same situation is inadmissible: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] 1 Ch 384, 402. Secondly, expert opinion evidence is generally admissible in civil proceedings only if it complies with the regime in CPR Part 35. (I say ‘generally’ because there are exceptions: Rogers v Hoyle [2015] QB 265, CA.) Rule 35.1 provides that

“Expert evidence shall be restricted to what is reasonably required to resolve the proceedings”.

1. What is “reasonably required to resolve the proceedings” was discussed by Warren J in British Airways plc v Spencer [2015] EWHC 2477 (Ch), [68]. The first question on each issue is whether it is necessary to have expert evidence in order for that issue to be resolved. If the issue simply cannot be resolved otherwise, it must be admitted. If the issue can be resolved without expert evidence, the next question is whether it would nevertheless be of assistance to the court in so resolving it. If so, the third question is whether, looking at the proceedings as a whole, expert evidence on that issue is “reasonably required” to resolve the proceedings. If evidence is not reasonably required to resolve any particular issue, it is hard to see that it could ever be reasonably required for resolving the proceedings.

2. This approach means that it is necessary to focus on the issues between the parties which have to be resolved by the court. This is in line with the idea that the court’s permission to adduce expert evidence should be tied to those specific issues. In the present case the starting point is paragraphs 37 and 38 of the particulars of claim, in which allegations are initially made against the defendants of the existence of duties owed by the defendants to the claimant and of breaches of those duties by the defendants….

1. 1. The issues raised in paragraph 37 of the particulars of claim and paragraph 28 of the defence are issues of law. They are for the court and not for the witnesses, however expert. The issues raised in paragraph 38 of the particulars of claim and paragraphs 29 and 30 of the defence are largely issues of fact which the expert witnesses are unable to help resolve, since such witnesses have no personal knowledge of the events giving rise to these proceedings, and are to assume the facts on which their opinions are based. In their joint statement dated 26 January 2018 the experts set out 14 issues, and then summarised their agreement and disagreement on those issues. The first four of these (including the scope of the duty of good faith under issue 2) are plainly matters of law for the court. Issues 5, 7 to 11 and 13 are matters of fact, and not for these witnesses. Issue 6 does not seem to me to be a matter of expertise at all, since it relates to property owners in general rather than LPA receivers in particular. Issue 14, dealing with the reasonableness of certain actions, is a matter of law for the court. On the other hand, issue 12, asking whether the defendant’s actions fell below the standard of care required of a reasonably competent LPA receiver in the circumstances of the case, is certainly a matter for an expert, assuming that there is a relevant expertise. But it is the only one.

   2. However, as to that one remaining issue, I have to say that I am, at present, doubtful that there exists an expertise in acting as an LPA receiver which can amount to

“a recognised expertise governed by recognised standards and rules of conduct capable of influencing the court’s decision on any of the issues which it has to decide” (referring to Barings plc v Coopers & Lybrand [2001] PNLR 22, [45].

1. 1. I express this doubt for a number of reasons. First, an LPA receiver is, when all is said and done, simply a specialised form of agent, acting on behalf of a mortgagor or mortgagee managing and selling or otherwise exploiting land and interests in land (and sometimes other assets) in order to satisfy debts secured on it or them. It is a management function, of the kind that is done day in, day out by many people, albeit more or less temporary, but usually carried out at a time of stress and pressure.

      1. Although the court could not normally decide that the conduct of a medical practitioner fell below the standard of care required of a reasonably competent practitioner without expert medical evidence, the court regularly decides that the conduct of motor car drivers falls (or does not fall) below the standard required of a reasonably competent driver, without any expert driving evidence at all. Whilst I am far from equating the actions of LPA receivers with those of motor vehicle drivers, I am clear that, in the ordinary run of cases at least, the court really does not need expert evidence to be able to tell when somebody manages or sells land or interests in land badly. As Dr Samuel Johnson is reported once to have said,

“You may scold a carpenter who has made you a bad table, though you cannot make a table.” (Boswell’s Life of Johnson, ed Abott, 1923, 90).

1. Even in more complex cases, the court does not receive expert opinion evidence from professional trustees or company directors in order to decide whether trustees or company director defendants had a conflict, or owed and breached duties to others. And, as I said to Mr Sims QC, on day 6, no-one, in a case about mortgagees’ duties in selling a property, calls expert evidence from a bank or other mortgagee as to such duties.

2. Second, there is no professional qualification required in order to be eligible for appointment as an LPA receiver. Thus, in the present case the defendants themselves are qualified surveyors. Surveyors are, it seems to me, the obvious candidates for this work, in a way that other professionals may not be. They deal with land and interests in land all the time, valuing it, managing it, seeking planning permission for it, letting and selling it. On the other hand, both of the witnesses who have prepared expert reports on LPA receivership are in fact qualified accountants and licensed insolvency practitioners. But LPA receivership need not, and often does not, involve any insolvency at all.

3. The disparity between the defendants’ professional qualifications and those of the experts is important for another reason. It is a strong thing to say of a professional person that his or her actions fell below the standard required of a reasonably competent professional. Normally one would expect to hear expert evidence from other professionals similarly qualified. So, for example, medical practitioners frequently give expert evidence about the standard expected for medical practitioners, accountants do so about accountants, architects do so about architects, and so on. But here accountants are giving purportedly expert opinion evidence to criticise or support the conduct of surveyors, albeit acting as LPA receivers. That leaves me unhappy. As I have said, these witnesses do have some experience in acting directly as LPA receivers, though much less than the defendants, but none at all of acting in a case where the property is sold to the appointor or its associate. I am unhappy at the thought of judging experienced LPA receivers who are surveyors by the opinions of less experienced accountants who are insolvency practitioners but also, amongst other things, sometimes act as LPA receivers.

4. Third, the Association of Property and Fixed Charge Receivers (also known as NARA, from its original name of Non-Administrative Receivers Association) is a voluntary organisation which does important work in raising standards, but registration is still voluntary rather than obligatory. There is no single professional organisation of which I am aware which compulsorily regulates LPA receivers, imposes common standards or subjects such receivers to disciplinary proceedings in appropriate cases. Of course, this may change in the future. All professional bodies began life as voluntary organisations.

5. This is tied to a further point. Although a number of professional bodies have together sponsored a voluntary examination for property receivers (the Registered Property Receivers Scheme examination), it is not compulsory. I accept that in practice banks and other lenders are likely to prefer to appoint those with some qualifications rather than none, but, as I have said, the position remains that a mortgagee may appoint anyone he or she likes, qualified or unqualified, to act as an LPA receiver. Of course, as with professional bodies coming into existence, going forward that may change too.

6. But I emphasise that I am simply expressing doubt. I do not need to decide the point in the present case. This is because I am satisfied that, even if there were such a recognised expertise, and even if it were possessed by the two witnesses put forward by the parties, it certainly would not be “necessary” for there to be such expert evidence in order to resolve the issues in this case, and neither would such expert evidence be “reasonably required” to resolve the proceedings. It might perhaps be of assistance to the court, or it might not, but in the context of the proceedings as a whole, it is not sufficiently so to be regarded as “reasonably required” within CPR Part 35, as understood in British Airways plc v Spencer [2015] EWHC 2477 (Ch), [68].

7. For all these reasons, in my judgment, the opinion evidence put forward in the reports of Mr Walker and Mr O’Connell is inadmissible, and I have therefore excluded it from consideration.

MORE EXPERT EVIDENCE FROM THE CLAIMANT THAT WAS NOT ADMISSIBLE

The judge was also critical of the expert evidence in relation to valuation.  The claimant called an expert, Mr Neason.

1. 1. However, probably as a result of the designation of the Property as a Trade Related Property, Mr Neason’s approach to its valuation is to assess the level of special value by reference to how much it might have been worth to Aston Manor. This leads him to give an opinion about the strength of the cider market, something which (as I say) lies outside his expertise. For example, in paragraph 11.46 of his first report, he says

“There is sufficient published information relating to the growth of the cider market from 2010 onwards, details of some of which is attached at the Appendix 7, to suggest that there would have been demand from this sector of the market.”

Moreover, he has gathered information relevant to this question by himself, using the Internet. His conclusion, “to suggest that there would have been demand” (emphasis supplied) is in any event weak. But in my judgment, so far as Mr Neason’s opinion on the level of special value depends upon the strength of the cider market, in suggesting how much cider companies might be prepared to pay for premises such as the Property, it is simply inadmissible.

1. 1. In deciding what was the value of the Property, Mr Neason appears also to have taken into account the amount that he concludes Aston Manor “could have afforded to pay” (emphasis supplied). For example, in paragraph 11.31 of his report he says

“In my opinion it is therefore likely that, prior to the grant of the New Lease, Aston might reasonably have decided that they could afford to pay a sum based on a multiple of their operating profit in order to maintain the business, weighed against the cost and risk of having to find alternative premises.”

1. 1. Again, the conclusion is weak, in saying that Aston Manor “might reasonably have decided that they could afford to pay…” (emphasis supplied). But in any event, this also depends to some extent on the strength of the cider market, and therefore on stock market or industrial analysis. In addition, however, it involves another expertise, namely, the ability to analyse a company’s accounts, such as is found in forensic accountancy. For example, in paragraphs 11.27 and 11.28 of his report, he says

“11.27 Finally, I have also reviewed historic trading information for Aston obtained from Companies House which shows the following pattern …

11.28. I note from the published accounts of Aston that the profit in 2010 and 2011 was adversely affected by one off costs and if these items are excluded the actual performance and increase in EBITDA would have been somewhat greater. It is in any event clear that the trading business of Aston was growing organically in the period leading up to the purchase of the business of Devon Cider Company Ltd with a subsequent jump in turnover following the acquisition as would be expected with acquisition of the DCC business which itself had a turnover in excess of £20m per annum.”

But this too is outside Mr Neason’s expertise. To this extent his opinion is also inadmissible.

1. 1. Lastly, Mr Neason’s valuation of market rent including special purchaser value is based in particular upon the RICS Valuation Information Paper 2, which relates to

“the capital and rental valuation of restaurants bars public houses and nightclubs”.

But (as I have already pointed out) the Property is none of these.

1. 1. What is perhaps most surprising about Mr Neason’s evidence is that, using the methodology of what Aston Manor could have afforded to pay, he reaches the view (at 11.31) that

“There is no clear comparable evidence to support as to what that figure might be but I think it reasonable to conclude that it could have been in the range of £10–£15m.”

1. 1. To admit that there is no evidence, but nevertheless to assert that a reasonable figure “could have been in the region of X”, is just not the language of valuation. Instead, it looks to me like guesswork. Mr Neason then says that

“on the assumption that they were not actually aware of what other interest or offers there had been … I am of the opinion that Aston as a special purchaser would have been prepared to pay a figure in the range £7.5m-£10m prior to the grant of the New Lease.”

1. 1. No explanation or reasoning is given for the leap from what Aston Manor could afford to what it would be prepared to pay. Mr Neason then goes on to say that, after the new lease had been granted, Aston Manor were in a stronger position. Nevertheless, his opinion is that Aston Manor would still have been prepared to pay a premium to acquire the freehold. He concludes:

“on this basis I am of the opinion that, following grant of the new lease, they might have been prepared to pay a sum in the range £5 – £7m.”

Once again, no evidence or other reasoning is given for the amount or proportion of the reduction made to the earlier figure by reason of the existence of the new lease.

1. 1. Moreover, Mr Neason does not explain how Aston Manor could possibly have decided to spend even £5 million, let alone £7.5 million, on a property without planning permission (and no prospect of obtaining it in the short term) that no-one else was willing to buy for even £3 million at the relevant time, and which even in the exuberant days before the financial crunch of 2008 only commanded a top offer of £6 million from a housebuilder without any due diligence and assuming full residential planning permission (which as I say on the evidence would have been difficult to obtain).

   2. In the light of these matters, I do not think that I can place any reliance on Mr Neason’s opinion evidence of valuation at all. It is based on a false premise, partly inadmissible, partly unsupported by appropriate reasoning, and in its conclusions frankly incredible. But I also note that he agreed that at the time of sale the state of the general industrial and property development market was poor. And he also agreed that Aston Manor was unlikely to have agreed to a landlord’s break-clause. I also note that in his supplementary report he accepted that

“there would have been little appetite in the funding market for a speculative scheme at the [Property]”.