Expert Evidence in Financial Disputes

The role of the expert witness goes back as far as the middle of the 16th century, when the courts in England and Wales first allowed experts to give ‘opinion’ evidence. In 1553, in the case of Buckley v Rice Thomas (1554) I Plowden 118, 124; 75 ER 182, Mr Justice Saunders said, “If matters arise in our law which concern other sciences or faculties we commonly apply for the aid of that science or faculty, which it concerns, which is an honourable and commendable thing in our law. For thereby it appears we don’t despise all other sciences but our own, but we approve of them and encourage them, as things worthy of commendation.”

The use of expert evidence in an essentially adversarial system of justice led to the use of expert witnesses, not as a source of independent, objective and unbiased evidence to assist the court, but as hired guns to assist the parties to win their cases. In a speech to the American Bar Association in Las Vegas on 12 February 1984, Chief Justice Warren Burger of the US Supreme Court said, “Trials by the adversarial contest must in time go the way of the ancient trial by battle and blood.”

A few years later, the length and consequent cost of civil trials in England was called into question by Lord Woolf, Master of the Rolls (as he was then) in his seminal report ‘Access to Justice’, which led to the enactment of the Civil Procedure Rules 1998 (the CPR). The CPR codified the then Byzantine nature of practice and procedure in civil litigation. Similar reforms have recently been applied to the criminal justice system.

The CPR has placed control of civil proceedings firmly under the control of the courts and expert witnesses, who owe a primary duty to the court, and are expected to give independent, objective and unbiased evidence and then only within the field(s) in which they can demonstrate expertise (see box below). In this context, the test of ‘independence’ is that the expert would express the same opinion if given the same instructions by an opposing party.

The Expert Witness in Financial Disputes

For a variety of reasons, financial institutions become involved in civil litigation, both as claimants and defendants. Cases of any significance will be subject to case management procedures under which the court will issue directions concerning the preparation of the parties for trial. These can include directions as to when the expert witnesses should be instructed and when their reports should be disclosed to the other party.

Almost invariably the court will order the expert witnesses to meet to discuss their respective reports and to produce a statement setting out the matters on which they agree and those on which they disagree, giving reasons for their disagreement. The contents of any such statement cannot be referred to at trial without the agreement of all the parties to the dispute. The advent of experts’ meetings has helped clarify and reduce the number of issues that are considered at trial and in consequence the length and cost of trials has been curtailed. Successful use of expert witnesses depends on many factors.

Early recognition of the real issues and provision to the expert of accurate and detailed instructions. In larger or particularly complicated cases, this might not be possible at the outset and it may be necessary for the expert to be instructed to produce a report where the important issues are identified and considered in brief. Such a report allows the party to subsequently instruct the expert to explore only those issues that the lawyers deem relevant, thus saving both time and cost.

Early involvement of the expert in the case. This is advisable as it allows the expert to explore and report on the issues within a reasonable timeframe. Late instructions, however, lead to work being carried out under high pressure and can mean that the expert has to use assistants of a higher level of seniority than would otherwise be necessary in order to meet deadlines while retaining control over the quality of the work done.

Instructing the right expert. Obvious as this might seem, in today’s post-CPR climate, some experts still accept instructions that have a bearing on matters outside their field of expertise. While the expert has a responsibility not to accept instructions where he does not possess the requisite knowledge and experience, so also does the instructing solicitor have a responsibility to ensure that the expert is appropriately qualified for the case. There is no reason why a solicitor seeking to instruct an expert (especially in a major case), should not seek to validate the expert’s CV or make enquiries of solicitors to whom the prospective expert has reported in the past and of counsel who have previously been engaged in other cases with him. The ‘right’ expert needs not only the qualities discussed above, but he must also be able to control what might be a large team of assistants and it is essential that while he is not per se a member of the litigation team (as his primary duty is to the court), nevertheless he must be able to interact with that team.

Recognising significant documents buried in the evidence. A competent forensic accountant or other financial expert must be able to digest large volumes of information (one case I recently worked on had 250,000 pages of financial documentation) while remaining alert for sight of the one document on which the case might turn – this is sometimes referred to in the accountancy profession as ‘the hidden memo’ and it might be anywhere in the case papers.

Although the CPR gives the courts power to order that the one expert, known as a single joint expert (SJE), shall report to both parties in a case, it is uncommon for a SJE to be appointed in major financially orientated cases.

The Expert Witness in Criminal Cases

While the bulk of the CPR has been published, Rule 33 which deals with expert evidence is not expected to be issued before late 2006. In practice, financial experts conduct themselves similarly in both civil and criminal cases. Those responsible for the criminal justice system in England and Wales have shown similar concern in relation to civil trials regarding the length and cost of criminal trials. The new rules referred to above, and an associated protocol that applies to cases of serious or heavy fraud, are expected to shorten the length of trials and restrict their cost.

Where there has been a significant investigation prior to criminal charges being brought against the accused, it may be appropriate for the work of the investigation team to be handed to an independent expert to act as expert witness. This removes any possibility of the defence attacking the prosecution expert on the grounds of perceived bias – not to do so provides potentially fertile cross-examination ground for the defence legal team.

The investigating team will be mindful of the need to preserve the integrity of the evidence they collect and the manner in which they collect it. It is not unknown for the investigators to arrive and find that management has already ‘grilled’ the suspect (showing disregard for his legal rights) and therefore storing up difficulties later on, should a prosecution be contemplated.

If the investigators are fortunate they will find that the company has in place and has followed a fraud response plan, designed to minimise the difficulties that can arise in the first 48 hours after fraud is suspected.

Case Study: Enron

Criminal prosecutions for fraud and similar offences often succeed or fail on the quality of the expert evidence and the expert in criminal cases requires all the qualities referred to above in relation to civil cases. A notable example is the recent trial in the US of Kenneth Lay and Jeffrey Skilling, in the matter of Enron Corporation which, in late 2001 found a US$700m ‘black hole’ in its accounts. Lay and Skilling pleaded that while they had been in control of the company, others had concealed the facts from them and therefore that they were ignorant of the irregular accounting practices which had caused Enron’s earnings to be significantly overstated.

The trial lasted 16 weeks and the jury heard from 56 witnesses, including accounting experts. Unlike the position in England and Wales, jurors in the US can talk about the case after it has been concluded and press reports indicate that the jury, while they initially found the defence case to be believable, could not square it with the sheer weight of detailed prosecution evidence (they took 27 boxes into the jury room when they deliberated).

Conclusion

While in the past perpetrators of what is often described a white collar crime have, if convicted, received relatively mild punishment, the authorities in England and Wales (and even more so in the US) are now treating fraud as what it is – a serious crime – and expert witnesses have an important part to play in both the prosecution and defence of such indictments.

¹In English law, a Practice Direction is a supplemental protocol to rules of civil and criminal procedure in the Courts. The Civil Procedure Rules 1998 contains a large number of Practice Directions which give practical advice on how to interpret the rules themselves. Also, individual Courts and judges may make their own Practice Directions, especially in specialist types of proceedings such as in the Patent Court.