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Ancillary Relief - A Legal and Practical Overview

THE ROLE OF THE EXPERT WITNESS IN ANCILLARY RELIEF APPLICATIONS:
WHEN AND HOW TO USE THEM

Copyright Fiona Gibb June 2003-All rights reserved.

No part of this document may be copied or used without the written permission of the author.

INTRODUCTION

1.1 The impact of White, Lambert, Parra etc on the valuation of assets in ancillary relief proceedings. Has it led to an increase in use of experts?

1.2 Way in which experts can be used post-Woolf is now subject of tighter control ie pre-application protocol, application of CPR Part 35 to ancillary relief applications and Best Practice Guide.

1.3 Overriding objective - proportionality and saving costs, impact when considering use of expert witness. Three useful questions to bear in mind:-

What is the point?
Is it necessary?
Is it worth it?

1.4 Most commonly used experts in ancillary relief cases:- property valuers, forensic accountants and actuaries/pension advisers. In relation to each aim to provide practical considerations for practitioners to bear in mind when considering their use, and tips on considerations for different stages of proceedings.

2 PRE-APPLICATION USE OF EXPERTS

2.1 Importance of accurate values for purposes of negotiations balanced against incurring costs which may be disallowed

2.2 For property valuations marketing appraisal sufficient unless property is exceptional or unusual, in which case single joint expert.

2.3 Accountants and actuaries, be very wary about embarking on instruction. Refer to the protocol and Best Practice Guide.

3 USE OF EXPERTS WHEN APPLICATION ISSUED - PREPARATION OF FORM E

3.1 Property valuations

(a) Form E requires any valuation obtained in the last 6 months to be attached; if not client needs to give own estimate of the value. Most people have good idea of what their home is worth.

(b) Is the property on the market already? If so, no other valuation necessary.

3.2 Business valuations

(a) Form E requires client's estimate of the value of his/her interest in the business, with no requirement for a formal valuation. Attach copies of last two years' accounts.

(b) 'At A Glance' provides a very crude guide to the general value of shareholdings in private companies.

(c) If client is sole/major shareholder consider getting company's accountant to provide a valuation of the business (and estimated CGT calculation).

3.3 Pensions

(a) No expert evidence at this stage, simply obtaining correct information from pension provider.

(b) Send letter of authority, blank copy of page 10 of Form E and ask to complete. Stress urgency!

4 USE OF EXPERTS WHEN APPLICATION ISSUED - FIRST DIRECTIONS APPOINTMENT

4.1 Property valuations

(a) Clarify with other side before FDA whether valuation is agreed. But bear in mind likely timing of FDR in relation to date of valuations in Form E. Will the figure be out of date by FDR?

(b) If valuation not agreed/out of date suggest SJE to other side. If identity of SJE agreed before FDA, check that paragraph 4(1) of Best Practice Guide complied with.

(c) If identity of SJE not agreed before FDA, make sure that you have a list of experts to put before Court, and that have confirmations required by paragraph 4(1) in respect of each one. Prepare submissions as to why yours should be chosen.

(d) Give consideration as to whether market appraisal or proper valuation. Estate agents are free/cheap but not experts and no recourse by indemnity in event of negligent valuation. Cost of proper valuation will be much higher. Anecdotal evidence that market appraisal may well be sufficient for FDR, particularly in metropolitan areas where large stocks of similar housing. Formal valuation more likely for remote/unusual/valuable properties.

4.2 Valuations of private companies

(a) Remember Evans v Evans ?
"While it may be necessary to obtain a broad assessment of the value of a shareholding in a private company, it is inappropriate to undertake an expensive and meaningless exercise to achieve a precise valuation of a private company which will not be sold."

The authorities since White have demonstrated that new set of principles introduced, particularly in cases of substantial assets, such that Evans approach no longer necessarily correct. In N v N Coleridge J observed that 'old taboos against selling the goose that lays the golden egg have been laid to rest'. In Parra v Parra Thorpe LJ referred to there being "only two obvious solutions: either the business assets were sold to enable each to make a fresh start or the husband bought out the wife so that she could make a fresh start."

(b) Impact of current expectations that both parties expect to share more fully in accumulated assets of marriage will mean that issues of valuing business assets and realising that value becomes more important. Expect to see greater use of expert evidence, ie forensic accountants. Will be same whether H and W jointly own company as where one (typically H) is prime mover and other (normally W) involved on fringes of business.

(c) Be prepared to justify why valuation of business is necessary. Will still be occasions where cost of valuation not justified eg short marriage cases; or where size of business means cost would be out of proportion. Consider whether a more limited piece of work would be appropriate, such as advice on raising funds

(d) Give careful consideration as to whether SJE appropriate or whether want sole instruction. This likely to give rise to problems. Court will be in favour of SJE, but parties may have different views! Be prepared to make detailed submissions on why SJE not appropriate. eg Husband will not want expense, already has valuation from company's accountant; or wife may be alleging impropriety, so joint expert would find impossible to act for both. Big money cases very likely each side will want own experts.

(e) Forensic accountants:- which one to use. No need for use of any of major firms. Smaller provincial firms are perfectly acceptable, but obviously check that instruction would be within their range of expertise.

(f) Letter of instruction needs very careful thought. If Counsel involved seek their views. In many cases broad share valuation will suffice, but with a detailed study of fiscal and funding implications of raising capital. If company is asset-rich revaluation of balance sheet likely to be necessary, and it will be a costly exercise.

(g) Documents to be provided:- expert will say what he wants, but likely to include at least 3 years' accounts, Memorandum and Articles of Association, shareholders' agreements and internal documents such as business plans, forecasts, board minutes and cash-flow projections.

4.3 Sole Traders

(a) Much more difficult to justify obtaining any expert valuation, because of proportionality issue. May be able to justify having stock, premises and goodwill of trader valued with assistance of valuer experienced in particular trade. Also estimate of CGT payable on a disposal.

(b) If client alleging impropriety, discuss with client cost of exercise of pursuing such allegations. Make sure is clear letter of advice on file!

4.4 Partnerships

(a) Again more difficult to justify valuation, which may not be real issue. Again, may be able to justify having stock, premises and goodwill of partnership valued with assistance of valuer experienced in particular profession/trade. Also estimate of CGT payable on a disposal.

(b) Professional partnerships:- little point in valuing as main asset is partner's earning capacity. Obtain partnership agreement to examine clauses dealing with withdrawal of capital or sale of outgoing partner's share.

4.5 Actuaries/Pension Advisers

(a) CETV is conventional method of valuation, but not only one. Court has to have regard to CETV valuation, but may be persuaded to take other matters into account if supported by expert evidence.

(b) Particular instances where CETV may not represent fair value of pension rights include uniformed services (police, fire brigade, armed forces, prison service, and certain NHS employees). These employees suffer serious loss of benefits if leave service before NRD and CETV always calculated assuming member leaves early.

(c) Cases where pension fund represents significant asset, consider whether advisable to obtain evidence to demonstrate what pension share would mean in terms of future income. Differences between annuity rates for men and women may require expert evidence to demonstrate that wife would need larger than 50% share.

(d) May be appropriate to obtain advice as to benefits/disadvantages of earmarking as against sharing in particular case. Also client may need guidance re internal/external transfer.

(e) Again careful consideration as to whether SJE or sole expert. Similar difficulties as with forensic accountants. Be prepared to justify why sole expert necessary. Cost of obtaining report from some advisers quite limited, so Court may be more likely to be persuaded to grant leave.

(f) With SIPPs may need valuation evidence of property to ascertain current fund value.

5 POTENTIAL PROBLEMS

5.1 Difficulties in agreeing the joint letter of instruction

(a) Paragraph 6(d) of the Guidance provides that instructions to SJE should be in a jointly agreed letter. Practically this may be very difficult within time scale allowed by Court.

(b) This appears more restrictive than CPR practice. In Daniels v Walker Lord Woolf MR recognised that if such a letter cannot be agreed quickly, is more economical and time-efficient to send in separate instructions.

5.2 Challenging an unfavourable SJE opinion

(a) Paragraph 6(g) of the Guidance envisages parties being able to put written questions to SJE. CPR Pt 35 rule 6(2)(b) prescribes 28 days from receipt of report as period within which questions must be put.

(b) Lord Woolf MR in Daniels v Walker held that the fact the Court has directed joint instruction does not prevent one party from seeking another report from a different expert.

(c) If questions to the SJE do not resolve the difficulty, one or both parties may seek a direction as to calling further evidence. Court will be likely to consider on basis of proportionality to issues, amount of money involved, reason for needing another expert, effect of further expert on conduct of trial, delay which may follow, and overall justice to parties in context of litigation.

(d) If leave for further expert given, experts should meet to try to resolve issues in dispute. Oral evidence only as a last resort.

6 SUMMARY OF TIPS WHEN CONSIDERING INSTRUCTING EXPERTS

(a) Fairness in dividing assets as opposed to reasonable requirements approach will mean greater emphasis on having proper valuations for assets.

(b) Be cautious about instructing experts before application issued and in advance of FDA. Do not waste costs on non-joint instructed experts which are unlikely to be recoverable.

(c) Balance caution against danger of advising client on settlement without proper idea as to valuation of important assets. If no agreement as to value of assets pre-application, endeavour to agree appointment of SJE.

(d) If no agreement on SJE issue application:- not to be regarded as a hostile step but to bring in Court's case management powers.

(e) Make sure all expert information as set out in Best Practice Guidance is in place before FDA. The party who is best organised likely to have instruction of choice in default of agreement.

(f) Beware of informal discussions about case with expert prior to instruction. Any hint of prior instruction by one party will usually rule out appointment as SJE.

(g) Be prepared at FDA to justify why expert needed. Remember the 3 questions.

(h) Give careful consideration as to SJE or sole instructed expert. Be prepared at FDA to justify why you do not consider an SJE appropriate

(i) Build up a portfolio of experts as you come across them. Use expert directories and seek advice from other practitioners. Once SJE instructed likely to be stuck with his opinion, so make sure right person instructed at outset. Be prepared to justify your choice of expert at FDA.

(j) Letter of instruction for all experts needs careful attention.

(k) Endeavour to agree up to date values of all assets. Try to avoid calling experts to give oral evidence at all costs.

Appendix 1

CIVIL PROCEDURE RULES 1998
PART 35
EXPERTS AND ASSESSORS

35.1 Duty to restrict expert evidence

Expert evidence shall be restricted to that which is reasonably required to resolve the proceedings.

35.2 Interpretation

A reference to an "expert" in this Part is a reference to an expert who has been instructed to give or prepare evidence for the purpose of court proceedings.

35.3 Experts - overriding duty to the court

(1) It is the duty of an expert to help the court on the matters within his expertise.
(2) This duty overrides any obligation to the person from whom he has received instructions or by whom he is paid.

35.4 Court's power to restrict expert evidence

(1) No party may call an expert or put in evidence an expert's report without the court's permission.

(2) When a party applies for permission under this rule he must identify -

(a) the field in which he wishes to rely on expert evidence; and
(b) where practicable the expert in that field on whose evidence he wishes to rely.

(3) If permission is granted under this rule it shall be in relation only to the expert named or the field identified under paragraph (2).

(4) The court may limit the amount of the expert's fees and expenses that the party who wishes to rely on the expert may recover from any other party.

35.5 General requirement for expert evidence to be given in a written report

(1) Expert evidence is to be given in a written report unless the court directs otherwise.

35.6 Written questions to experts

(1) A party may put to -

(a) an expert instructed by another party; or
(b) a single joint expert appointed under rule

35.7 written questions about his report.

(2) Written questions under paragraph (1) -

(a) may be put once only;
(b) must be put within 28 days of service of the expert's report; and
(c) must be for the purpose only of clarification of the report; unless in any case,

(i) the court gives permission; or
(ii) the other party agrees.

(3) An expert's answers to questions put in accordance with paragraph (1) shall be treated as part of the expert's report.

(4) Where -

(a) a party has put a written question to an expert instructed by another party in accordance with this rule; and

(b) the expert does not answer that question,

the court may make one or both of the following orders in relation to the party who instructed the expert -

(i) that the party may not rely on the evidence of that expert; or
(ii) that the party may not recover the fees and expenses of that expert from any other party.

35.7 Court's power to direct that evidence is to be given by a single joint expert

(1) Where two or more parties wish to submit expert evidence on a particular issue, the court may direct that the evidence on that issue is to given by one expert only.

(2) The parties wishing to submit the expert evidence are called "the instructing parties".

(3) Where the instructing parties cannot agree who should be the expert, the court may

(a) select the expert from a list prepared or identified by the instructing parties; or

(b) direct that the expert be selected in such other manner as the court may direct.

35.8 Instructions to a single joint expert

(1) Where the court gives a direction under rule 35.7 for a single joint expert to be used, each instructing party may give instructions to the expert.

(2) When an instructing party gives instructions to the expert he must, at the same time, send a copy of the instructions to the other instructing parties.

(3) The court may give directions about -

(a) the payment of the expert's fees and expenses; and
(b) any inspection, examination or experiments which the expert wishes to carry out.

(4) The court may, before an expert is instructed -

(a) limit the amount that can be paid by way of fees and expenses to the expert; and
(b) ...

(5) Unless the court otherwise directs, the instructing parties are jointly and severally liable for the payment of the expert's fees and expenses.

35.9 Power of court to direct a party to provide information
Where a party has access to information which is not reasonably available to the other party, the court may direct the party who has access to the information to

(a) prepare and file a document recording the information; and
(b) serve a copy of that document on the other party.

35.10 Contents of report

(1) An expert's report must comply with the requirements set out in the relevant practice direction.

(2) At the end of an expert's report there must be a statement that -

(a) the expert understands his duty to the court; and
(b) he has complied with that duty.

(3) The expert's report must state the substance of all material instructions, whether written or oral, on the basis of which the report was written.

(4) The instructions referred to in paragraph (3) shall not be privileged against disclosure but the court will not, in relation to those instructions -

(a) order disclosure of any specific document; or

(b) permit any questioning in court, other than by the party who instructed the expert,
unless it is satisfied that there are reasonable grounds to consider the statement of instructions given under paragraph (3) to be inaccurate or incomplete.

35.11 Use by one party of expert's report disclosed by another

Where a party has disclosed an expert's report, any party may use that expert's report as evidence at the trial.

35.12 Discussions between experts

(1) The court may, at any stage, direct a discussion between experts for the purpose of requiring the experts to -

(a) identify and discuss the expert issues in the proceedings; and

(b) where possible, reach an agreed opinion on those issues.

(2) The court may specify the issues which the experts must discuss.

(3) The court may direct that following a discussion between the experts they must prepare a statement for the court showing -

(a) those issues on which they agree; and

(b) those issues on which they disagree and a summary of their reasons for disagreeing.

(4) The content of the discussion between the experts shall not be referred to at the trial unless the parties agree.

(5) Where experts reach agreement on an issue during their discussions, the agreement shall not bind the parties unless the parties expressly agree to be bound by the agreement.

35.13 Consequence of failure to disclose expert's report

A party who fails to disclose an expert's report may not use the report at the trial or call the expert to give evidence orally unless the court gives permission.

35.14 Expert's right to ask court for directions

(1) An expert may file a written request for directions to assist him in carrying out his function as an expert.

(2) An expert must, unless the court orders otherwise, provide a copy of any proposed request for directions under paragraph (1) -

(a) to the party instructing him, at least 7 days before he files the request; and

(b) to all other parties, at least 4 days before he files it.

(3) The court, when it gives directions, may also direct that a party be served with a copy of the directions.

Appendix 2

PRE-APPLICATION PROTOCOL

Experts

3.8. Expert valuation evidence is only necessary where the parties cannot agree or do not know the value of some significant asset. The cost of a valuation should be proportionate to the sums in dispute. Wherever possible, valuations of properties, shares, etc should be obtained from a single valuer instructed by both parties. To that end, a party wishing to instruct an expert (the first party) should first give the other party a list of the names of one or more experts in the relevant speciality whom he considers are suitable to instruct. Within 14 days the other party may indicate an objection to one or more of the named experts and, if so, should supply the names of one or more experts whom he considers suitable.

3.9. Where the identity of the expert is agreed, the parties should agree the terms of a joint letter of instructions.

3.10. Where no agreement is reached as to the identity of the expert, each party should think carefully before instructing his own expert because of the costs implications. Disagreements about disclosure such as the use and identity of an expert may be better managed by the court within the context of an application for ancillary relief.

3.11. Whether a joint report is commissioned or the parties have chosen to instruct separate experts, it is important that the expert is prepared to answer reasonable questions raised by either party.

3.12. When experts' reports are commissioned pre-application, it should be made clear to the expert that they may in due course be reporting to the court and that they should therefore consider themselves bound by the guidance as to expert witnesses in Part 35 of the Civil Procedure Rules 1998.

3.13. Where the parties propose to instruct a joint expert, there is a duty on both parties to disclose whether they have already consulted that expert about the assets in issue.

3.14. If the parties agree to instruct separate experts the parties should be encouraged to agree in advance that the reports will be disclosed.

Appendix 3

BEST PRACTICE GUIDANCE FOR INSTRUCTING A SINGLE JOINT EXPERT [2003] 1 FLR 573

1. The President's Practice Direction of 25 May 2000 ([2000] 1 FLR 997), encouraged the appointment of a Single Joint Expert (SJE) as follows:

"The introduction of expert evidence in proceedings is likely to increase costs substantially and consequently the court will use its powers to restrict the unnecessary use of experts. Accordingly, where expert evidence is sought to be relied upon, parties should if possible agree upon a single joint expert whom they can jointly instruct. Where parties are unable to agree upon the expert to be instructed the court will consider using its powers under Part 35 of the Civil Procedure Rules 1998 to direct that evidence be given by one expert only. In such cases, parties must be in a position at the first appointment or when the matter comes to be considered by the court to provide the court with a list of suitable experts or make submissions as to the method by which the expert is to be selected."

2. This Best Practice Guide is intended to promote efficiency, effectiveness and economy in the management of ancillary relief cases and to assist practitioners and experts as to the procedure to be adopted when instructions are given jointly to experts in applications for ancillary relief. It is equally applicable prior to the issue of proceedings. Throughout, the principle of proportionality must be a primary consideration.

3. An expert instructed by one party separately will not usually be appointable later as an SJE. Parties should therefore consider the costs implications before appointing an expert for their own side, rather than suggesting the appointment of an SJE to the other party.

4. If parties agree to appoint an SJE, then before instructions are given, they should:

(1) obtain confirmation from the proposed expert:

(a) that there is no conflict of interest;
(b) that the matter is within the range of expertise of the expert;
(c) that the expert is available to provide the report within a specified timescale;
(d) of the expert's availability for attendance at any dates that are known to be relevant;
(e) of any periods when the expert will not be available;
(f) as to the expert's fee rate, basis of charging, other terms of business and best estimate of likely fee;
(g) if applicable, that the expert will accept instructions on a publicly funded basis, and
(h) have agreed in what proportion the SJE's fee is to be shared between them (at least in the first instance) and when it is to be paid;
(i) if applicable, have obtained agreement for public funding.

5. Where parties have not agreed on the appointment of an SJE before the relevant directions appointment, they should obtain the confirmations set out in 4(1) above, in respect of all experts they intend to put to the court for the purpose of CPR 1998, r 35.7(3)(a).

6. Where the court directs a report by an SJE, the order should:

(a) if the SJE has already been instructed, adopt the instructions already given or make such amendments to the instruction as the court thinks fit;
(b) identify the SJE;
(c) specify the task that the SJE is to perform;
(d) provide that the instructions are to be contained in a jointly agreed letter;
(e) specify the time within which the letter of instruction is to be sent;
(f) specify the date by which the report must be produced;
(g) provide for the date by which written questions may be put to the SJE and the date by which they must be answered;
(h) make any such provision as to the SJE's fees which the court thinks appropriate.

7. The joint instructions to the SJE should reflect the proportionality principle and include:

(a) basic relevant information;
(b) any assumptions to be made;
(c) the principal known issues;
(d) the specific questions to be answered;
(e) arrangements for attendance at a property, business or accountant's office or other place;
(f) a copy of paragraphs 1.1 to 1.6 of the Practice Direction to CPR Part 35 (form and contents of expert's reports) and a copy of this Guide;
(g) a copy of the relevant parts of the court order;
(h) documents necessary for the expert's consideration of the case, sufficient for the purpose, clearly legible, properly sorted, paginated and indexed.

8. Upon receiving the joint letter of instruction, or subsequently should it become necessary to do so, the SJE should raise with the solicitors any issues or questions which may arise, including proportionality, lack of clarity or completeness in the instructions and the possible effect on fees of complying with the instructions.

9. Should a party wish to give supplementary instructions to the SJE, full consideration must be given to proportionality and to the possible effect on the timetable. Supplementary instructions should not be given to the SJE unless the other party has agreed or the court has sanctioned them.

10. All communications by the SJE should be addressed to both parties and the SJE should keep the parties informed of all material steps taken, by, for example, copying all correspondence to each party.

11. Any meeting or conference attended by the SJE should be proportionate to the case and should normally be with both parties and/or their advisers. Unless both parties have agreed otherwise in writing, the SJE should not attend any meeting or conference that is not a joint one.

12. The report of the SJE should be served simultaneously on both parties.

13. Where the SJE considers that the proportionality principle cannot be complied with in preparing the report within the terms of reference, the SJE should give notice to the parties, identifying what is perceived to be the difficulty.

14. Where the difficulty cannot be resolved by the parties and the SJE, the SJE should file a written request to the court for directions pursuant to CPR 1998, r 35.14.

15. As a last resort, the SJE may resign the joint appointment. In this event, the SJE should serve a concise statement of the reasons on both parties. Where the court has ordered his joint appointment the SJE should also serve the court with the statement.