DERIVATIVE CASES

IN the US the recent filing of cases by Gibson Greeting Cards and Procter & Gamble against Bankers Trust, for damages suffered from derivative products, implies that derivative instrument cases require expert testimony.

However, my experience of derivative instrument litigation is that technical issues that arise in these cases are not impenetrable. As in other kinds of civil cases, it is fundamental considerations that need attention.

The most important things to remember when using an expert are that you must know what he has done, and he must know what your client has done. If you fail to address these areas properly, the results can be disastrous.

In a large derivatives case that I did a few years ago, several experts were called by the opposition to testify on various aspects of the case. One was a distinguished professor of statistics from a world-famous university. He clocked up so many fees as an expert witness that in one year he exceeded the number of hours which his university contract permitted him to spend on external work and was required to refund his salary.

This made his testimony about the care with which he had analysed the numbers in my client's case far less compelling. It also reflected on his lust for expert witness fees, as opposed to academic excellence.

In another derivatives case, the issue involved was whether contracts for the sale of certain commodities were entitled to favourable tax treatment under UK law.

Apparently opposition counsel had not made the tax expert aware of exactly what the contract said. Nor had they asked this expert, who advised many prominent corporations on tax law, to think about implication of the use of that generic term.

It is not enough that experts understand the area of their expertise. They must also realise the implications of their knowledge in relation to the facts of the case.

Edward Swan is a derivatives expert at McKenna & Co.