Expert experts head to head

Accountants feel unfairly slighted when their services as expert witnesses are rejected summarily by lawyers, simply because their firm acts as the client's auditor. The implied perception of bias is, they believe, insulting and unjustified. Are they right?

Objectivity and independence are the qualities of an expert, rigorously emphasised by the new Civil Procedure Rules which have been in force since 26 April. (It was, in fact, ever thus.) The expert's duty to the court, say the rules, “overrides any obligation to the person from whom he has received instructions or by whom he is paid”.

So, the rules acknowledge the reality that the expert will receive payment from one of the parties for the work he does and so they recognise and accept one detraction from absolute independence: the danger of tempering a judgment to avoid dissatisfaction of the paying party.

But the law presumably recognises also that professionals are not lightly “bought” and that their opinions are unlikely to be bent to favour the party paying. If the expert's opinion is adverse to the client's case, the client will be told the expert cannot help.

Accountants, like lawyers, have rules of conduct designed to ensure their objectivity. These contain provision for the accountant undertaking litigation support or expert witness work. Parallel rules provide for the preservation of audit independence in cases where other services are provided to the audit client: these can be found in the Guide to the Professional Ethics of the Institute of Chartered Accountants in England & Wales.

Under the court's rules an expert will also have to include in any report a statement that the expert understands his or her duty to the court and has complied with it; it must also state a belief in the truth of the facts stated and in the opinions expressed. The making of such a statement of truth without belief in its honesty would be contempt of court. Professionals are accustomed to abide by their professional rules and to respect the law of the land.

With this background, in the absence of real evidence of actual bias, why should not lawyers and the courts accept that the opinions given to them by experts are honestly held, without some innuendo of bias being imported from a pre-existing but unrelated client relationship? Lawyers assume that their professional colleagues comply with their professional rules and with the law. It seems only right that, all things being equal, they should do other professions the courtesy of the same assumption.

The cautious solicitor fears the sniping cross-examination of an accountant, hinting at bias because of a desire to maintain audit fees. But surely such cross-examination of a chartered accountant, suggesting, as it must, that evidence has been trimmed because of other financial interest, would amount to a suggestion of misconduct on the accountant's part, bearing in mind the conduct rules and rules of court to which the accountant is subject.

It has long been the rule of conduct of the Bar that a barrister must not suggest that a witness is guilty of misconduct unless such allegations go to a matter in issue and appear to be supported by reasonable grounds. Would not the barrister be at risk of a breach of this rule by suggesting bias, based simply upon the fact of audit work conducted by the expert's firm?

Equally, the experienced judges who hear cases involving expert accountancy evidence are unlikely to be impressed by suggestions of bias made without firm evidential foundation.

The perceived problem of instructing a member of a client's audit firm as an expert on the client's behalf is perhaps more imaginary than real. Care must be taken by all experts to use the professional and procedural rules to identify true risks to objectivity and, if there are such risks, to decline the assignment, but there seems to be no need to rule out the audit firm simply on the basis of “knee-jerk”.

Humphrey Creed is a partner in the litigation support unit of Horwath Clark Whitehill.

One of the major changes brought in under the new Civil Procedure Rules was the introduction of the “single joint expert”. The rules propose that this person be appointed jointly by the two parties or by the court if this proves problematic.

If a proposed expert is the auditor for one of the parties, it is difficult to imagine circumstances when the other side will agree to accept their appointment as a single joint expert, even though a good quality expert realises that his or her duty is to the court in litigation matters rather than to the appointing party.

If the parties cannot agree on a single joint expert then the Court has the power to appoint one. In view of the judiciary's aim to be fair to both parties in litigation, it would be illogical to appoint the auditor of one party to be the single joint expert.

There has been much written about Chinese walls recently as a result of Bolkiah v KPMG, but even if the expert has established these walls the other side will still not be convinced that the report will not favour the expert's client, who may provide them with large annual audit fees.

In certain specialised industries it may be the case that there are very few, or even only one expert. In this case, if the court seeks to obtain the best expert help available it may be unable to appoint as an expert somebody other than the auditor of one of the parties. The court would then have to assess the advantage of receiving the best expert advice available, against the apparent unfairness in appointing the auditor of one of the parties. It is to be hoped that fairness would prevail.

In cases where both parties in a dispute are able to call their own experts, should the auditor of one of the parties act as an expert witness?

Again, a good expert will realise that their duty is to the court rather than to the client, but the latter may have different expectations. These can put pressure on the expert, however subtly, to produce a report which favours the client's views or to express opinions beyond his expert knowledge.

One reason why the expectations of the client and the commercial pressure may influence an expert is their ongoing relationship which could involve future work. From a commercial point of view, an expert expects to be paid by the client for work carried out for a litigation matter. The client may not win the litigation, through no fault of the expert, and may therefore be reluctant to pay the expert's fees.

As well as the occasions when the auditor's client provides large fees for the potential expert's firm, there are other specific occasions when his or her appointment would be unsuitable. The expert's firm could potentially be involved in the litigation.

In a dispute with previous auditors when part of the claim constitutes rectification costs by the new auditors, a partner in that firm cannot be an independent expert in assessing whether the amount of these rectification costs is reasonable. A different firm of accountants needs to be appointed to assess these costs.

Similarly, if an action against a client involves accounting systems or other actions which were introduced with assistance from the auditor then the expert witness needs to assess the reliability of these systems. He cannot do this if he is a partner in the firm which may be held to be partly responsible for the installation and thus any defects therein.

Under the new Civil Procedure Rules, there appears to be no way that an expert should assist an audit client of his firm. In cases where two experts are appointed, an expert would have considerable difficulty in ensuring that his duty is to the court rather than his client. Justice must be seen to be done and the conflict of interest in acting for an audit client must deter any potential expert from acting.

Humphrey Creed is a partner in the litigation support unit of Horwath Clark Whitehill.