Expert scandals and guidance on avoiding them

Event details

  • Date: Monday 6 November 2017
  • Place: The Delaunay Brasserie
  • Address: 55 Aldwych London WC2B 4BB
  • Time: 8.00
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Expert scandals and our guidance on avoiding them

Summary:

a) The four traders convicted of LIBOR manipulation are appealing their sentences citing serious failings by the expert witness.

b) Increasing fragmentation of the expert witness market: sourcing experts from large accounting firms has been almost entirely replaced by the banking boutiques, bringing huge benefits along with some new risks;

Our advice on how to reduce the risk of expert issues:

c) Engage an advisor: Having independent oversight of the expert process in the form of an advisor is an essential resource. Banking is too complex and evolving a field to attempt to learn the issues on the fly in the midst of your other litigation work. An advisor should could cost as little as 10% of the project bill but can dramatically improve the quality of the report, help lawyers communicate on an even-footing with the expert, and overall help avoid the majority of the expert car-crashes.

d) Get the most out of your disclosure: It may be possible to identify the more obvious inconsistencies in your expert’s testimony with the information already in your possession. While both sides will have access to this material it is preferable that you recognise whether your expert has the wrong end of the stick before the other side does.

e) Billing: We advise requesting daily estimates from experts, weekly sub-billing for each project along with independent project management in order to manage its direction effectively. The savings made by this simple step may even fund the really useful work – such as advisors and disclosure support – which may have seemed out of budget at first instance.

f) We will discuss expert related issues in greater depth at a breakfast seminar on this issue later this month (Wednesday 20 September, 10 places). For more information on the event and to sign up please click here:

LIBOR EXPERT APPEAL

The expert in question (at the time an owner and director of expert witness boutique Turing Experts Ltd, according to Bloomberg) is faced with three complaints against his testimony. The first complaint is that he took full credit for a report on LIBOR while failing to disclose material contributions from other sources. The second complaint centres on his communications (text messages) made while on the stand. The final element of the accusations relate to the content of those communications, where he is said to admit being out of his depth, commenting that next time Turing should engage ‘a stir specialist’. The overall impression made is that he did not consider himself an expert on the matters at all.

These allegations of expert misconduct along with other similar examples makes recommending expert firms to clients a loaded step. The boutique banking expert firms which arose post-crisis (such as ours) provide a valuable and previously unavailable service in delivering the court current banking experts, typically with hands-on experience, for a specified and even niche sub-sector of banking. However, in turning to these new firms for expert witnesses lawyers leave behind the comforting reputation of the big accounting firms, to face a new breed of expert.

THE DEVELOPMENT OF THE EXPERT SPACE

As recently as 10 years ago law firms solely contracted major accounting firms for expert work. It was not uncommon for a near-retirement partner of the banking practice to provide professional expert services despite never having worked in banking. His or her experience working with major banking clients was at the time deemed sufficient for them to be considered an expert in banking.

The banking crisis and the subsequent proliferation of banking talent outside of the big institutions changed the expert arena. Individuals with no banking experience were becoming easily exposed in court, faced with the rigour and detail of a report provided by a seasoned banking practitioner. The accounting partner type of expert typically did not have the hands-on experience of the banker. Errors or contradictions in the former’s report were highlighted with ease by the other side.

While the shift towards real expertise has provided tangible benefits for clients and the court, the major accounting firms had some merits in their services. For example the alleged problematic performance of the expert in the LIBOR case would be hard to imagine from a partner of the big four.

Nevertheless, the now fragmented market place results in new risks for law firms requiring an ever-increasing level of diligence. Thankfully, there are best practices that can help minimise the risks associated with this rapidly evolving space.

THE USE OF ADVISORS

Banking is complicated, by the quantitative technicality, the numerous products and their iterations and by regulations. Wherever a case demands a rigorous grasp of multiple complex banking issues we recommend that lawyers take advantage of the proliferation of banking talent – by engaging an independent advisor to vet reports and experts.

The use of an advisor will provide a natural balance to the process, and also equip the legal team for the report received from the other side’s expert. While no approach can completely eliminate errors, a competent and objective advisor (ideally with litigation experience) will likely eliminate the overwhelming majority of problems. We believe this is a prudent resource in which to invest, given that the smallest of errors can undermine even the strongest case. The costs of an additional advisor should be a fraction of the cost of an expert, however, it can be money very well spent, given the disproportionately positive effect it has on the risks.

CROSS-CHECK THE EXPERT’S OPINION AGAINST THE DISCLOSURE

Banks have ballooned into enormous services organisations, generating millions of records of data daily. Large-scale banking litigation often results in millions of documents of disclosure. Whether you are representing a bank or facing a bank, identifying what’s in the bank’s disclosure can be very useful.

Law firms, accounting firms and other non-bank specialists, would approach disclosure Top-Down, i.e. working through every document to find the relevant evidence. By contrast, working with specialists Bottom-Up –  i.e. banking experts targeting areas they know will be rich in relevant disclosure, has the potential to reap rewards both from a cost and outcome perspective. Ideally, the law firm’s disclosure team would have access to a disclosure specialist, so that the Top-Down and Bottom-Up approaches are combined effectively.

For example in The Libyan Investment Authority v Goldman Sachs [2016] EWHC 2530 (Ch) – where our expert appeared on behalf of the LIA – one of the outcomes was that a top-tier bank’s audited P&L was disregarded by the judge in light of forensic analysis provided by a small team of seasoned bankers. Such a conclusion would have been unimaginable a decade ago, and wouldn’t have been possible without disclosure being tackled from several angles. It would have been equally useful for the bank’s legal advisors, as knowing in advance that the bank’s position on profits was vulnerable would no doubt have been helpful.

LITIGATION COSTS

Additional advisory services may not appear consistent with lower costs budgets, but in our experience they certainly can be. There really is no need to experience the “surprise” eight-figure bills presented at the end of a project from teams of three dozen consultants deployed by major accounting firms of yesteryear.

High-quality boutiques now provide firms with contemporary processes to control costs, like daily billing estimates and weekly sub-invoices. Further, we advise that law firms demand independent project management from their vendors, which would phase out conflicts between billing and performance by project managers of large cases.

The savings resulting from the transparency and internal project management can then be deployed on other useful resources to help develop the case as appropriate.

CONCLUSIONS

Law firms have always faced the risk of an ‘expert car-crash’. In contemporary banking litigation it is taken for granted that both sides will need a relevant, current expert. Whilst the quality of expert evidence is now vastly improved from a decade ago, law firms have now to grapple with other challenges.

The challenge for law firms going forward is to capture the benefits of the boutiques, while systematically and cautiously navigating this more fragmented market place.

BREAKFAST SEMINAR ON INSTRUCTING EXPERTS

For a more in-depth session about the current expert market and how to avoid a poor expert experience (including close study of public expert “car-crashes”) join us at our Breakfast Seminars. Our seminars consist of a one-hour work-shop, with breakfast and Q&A (8.00 – 9.30am)  at the Delaunay, at dates throughout the year.