Recent judgements again, turn the spotlight on the Court’s expectations of independent expert witnesses

23 September 2021 by Paul Croft

There have been a number of cases this year that turn the spotlight on expert evidence, including issues related to inherent bias[1], expertise and experience[2] and, the weighting given to, and admissibility of, expert evidence[3]. However, there are two cases in particular that stand out, because they go to the very heart of what we do as forensic accounting experts: objectivity, independence, and exercising due care and skill:

  • Yelland Security Pty Ltd v Plus Architecture International Pty Ltd[4] (Yelland), and
  • The “Dividend cases” component of the Dick Smith litigation[5] (Dick Smith).


While the circumstances of Yelland did not cause the plaintiff’s expert evidence to be set aside, the findings of the presiding judge, Justice Nichols, provide a stark reminder that opinions expressed on expert reports must be based on the facts assumed in the expert’s report. In this instance, the expert’s report contained opinions based on unstated assumptions, ultimately compromising the quality of the expert’s conclusions.

Mr J, a business valuation specialist and partner at one of the ‘Big 4’ accounting firms was engaged by the plaintiff to provide his opinion of the value of certain business interests. Mr J’s employee, Mr W, contributed considerably to Mr J’s report. During the trial, it emerged that during the period of Mr J’s engagement as independent expert, Mr W had developed a personal relationship with Mr Yelland (a director of the plaintiff) and, on four separate occasions, discussed with Mr Yelland matters relevant to the litigation. Mr J’s independence was compromised because, at some point, Mr W had become an advocate for the plaintiff.

It would be easy to conclude that this judgement is one about a situation that gives rise to a breach of an expert’s independence. To do so, however, would be to ignore the Court’s expectation that experts must be able to demonstrate that their opinions are their own, based on an independent reasoning process.

Firstly, the Court found that Mr J’s failure to be sufficiently across all briefing materials, and his relative lack of review and involvement in the matter (3.8 hours of a total 106.6 hours charged to the client) raised doubt as to what involvement he personally had in formulating the opinions expressed in his report and the robustness of his opinions. It seems reasonable to infer from the judgement that had Mr J adopted an independent reasoning process, he may have been alerted to, and mitigated the adverse impacts of, Mr W’s lack of independence on the expert opinions expressed.

And secondly, as experts, we rely on our clients to provide us with relevant explanations and materials to independently form our views and write our reports. In this instance, Mr Yelland persuaded Mr W to adopt an approach that was not only designed to produce a higher valuation but also inconsistent with the instructions provided to Mr J. This case highlights the inherent risks to our independence when the engaging party influences the course of the investigation, unrestrained by the expert’s objective assessment of the information provided or the engaging party’s motivations. As Justice Nichols wrote:

“…in connection with giving expert evidence it mattered not whether the opinion was ‘defendable in court’ but rather whether the opinion was his honest opinion made in compliance with the expert witness code.”

Which is a convenient and relevant segue into the “Dividend cases” in the Dick Smith litigation.

The “Dividend cases” in Dick Smith[6]

The Dick Smith judgement contains a number of adverse findings on the reliability of opinions expressed by the plaintiff’s expert. Those findings reinforce the Court’s expectations that experts will conduct an independent and objective assessment of information relied upon for the purpose of giving expert evidence.

Mr D, a forensic accounting partner at a ’Big 4’ accounting firm, relied on lay evidence prepared by Ms Howard, the former Dick Smith Transaction Processing Manager. That evidence comprised an analysis of the company’s deferred creditors, setting out the extent to which Dick Smith had been deferring certain creditor payments over a number of months. On the basis of that analysis, Mr D concluded that Dick Smith would not be able to pay its creditors without breaching the company’s debt facility limits once deferred creditors were considered.

In our first expert report, we identified a number of fundamental methodological flaws in Ms Howard’s deferred creditors analysis. While Mr D subsequently revised his analysis in his second expert report, he did so for only some, but not all of the errors in the deferred creditors analysis. It is not surprising therefore, that Justice Ball concluded:

“the value of this analysis is seriously undermined by the way in which Mr D seeks to identify overdue creditors.”

Mr D also restated the company’s reported month end creditors from a financial month end basis to a calendar month end basis, which, when combined with his flawed analysis of delayed creditors, artificially inflated month end trade creditor balances. The commercial or logical rationale underpinning Mr D’s decision to restate the month end trade creditor balances was brought into questions, with Justice Ball making the following determination about Mr D’s adopted approach, writing:

“In their written submissions, Mr Abboud and Mr Potts point to examples of invoices which would not have been paid late according to Mr D’s approach if he had adopted financial months rather than calendar months because the invoices were issued and paid in the same financial month. How significant this point is, is unclear, but it makes it difficult to rely on Mr D’s conclusions.”

Reflecting on the judgement, an objective observer might reasonably wonder whether Mr D’s conclusions were formed on the basis of his analyses, or whether the analyses were prepared to justify his conclusions. Either way, the judgement provokes interesting insight into the role that cognitive biases may play in clouding an expert’s independence.

The “Dividend cases” decision serves as strong reminder that the forensic accounting expert’s overarching duty is to the Court, not the parties instructing or engaging the expert. In circumstances where instructed assumptions push the boundaries of commercial sense or ignore generally accepted accounting principles, our duty to the Court requires that we make clear our reservations. That can be a tricky conversation to have with your client, but the risks of having your expert report excluded from evidence or attributed little weight, and any consequential reputational damage, make it a prudent discussion when required.

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[1] McNickle v Huntsman Chemical Company Australia Pty Ltd (Expert Evidence) [2021] FCA 370.

[2] Polsen v Harrison [2021] NSWCA 23 and H2O Exchange Pty Ltd v Innovation; Science Australia [2021] FCA 11.

[3] Re Earlturn Pty Ltd [2021] QSC 137.

[4] [2021] VSC 416.

[5] DSHE Holdings (Receivers & Managers Appointed)(In Liquidation) v Nicholas Abboud (No 3); National Australia Bank Limited v Nicholas Abboud [2021] NSWSC 673.

[6] BRI Ferrier prepared the expert reports for the defendants in the Dividend cases.