Examining the admissibility of an expert witness business valuator

Introduction

Family law matters often involve complex financial issues, especially when the family has a business. In such cases, the expertise of business valuators becomes invaluable. Business valuators, with their specialized knowledge and experience, help navigate through the complexities of valuing businesses and provide the necessary expertise to ensure a just division of assets. However, a business valuation is no good if the expert/expert report is not accepted into evidence.

General rule on evidence

The Supreme Court of Canada in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23 explained that while all relevant evidence is generally admissible, there are many caveats including exceptions for opinion evidence. Witnesses should testify about the facts they observed, not the opinions they formed. However, an exception exists for expert opinion evidence on specialized matters where witnesses with expertise are allowed to provide their opinions. For example, a business valuator with proper expertise may give the court their opinion on the value of a business.

A note on biased experts

Since one litigant will hire their own expert, a question of bias is often raised. The Supreme Court of Canada in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23 held that an expert's lack of independence and impartiality affects the admissibility of their evidence, not just its weight. The court emphasized the duty of expert witnesses to be fair, objective, and non-partisan regardless of who hires them:

[45] Following what I take to be the dominant view in the Canadian cases, I would hold that an expert’s lack of independence and impartiality goes to the admissibility of the evidence in addition to being considered in relation to the weight to be given to the evidence if admitted. That approach seems to me to be more in line with the basic structure of our law relating to expert evidence and with the importance our jurisprudence has attached to the gatekeeping role of trial judges. Binnie J. summed up the Canadian approach well in J.-L.J.: “The admissibility of the expert evidence should be scrutinized at the time it is proffered, and not allowed too easy an entry on the basis that all of the frailties could go at the end of the day to weight rather than admissibility.”

[46] I have already described the duty owed by an expert witness to the court: the expert must be fair, objective and non-partisan. As I see it, the appropriate threshold for admissibility flows from this duty. I agree with Prof. (now Justice of the Ontario Court of Justice) Paciocco that “the common law has come to accept . . . that expert witnesses have a duty to assist the court that overrides their obligation to the party calling them. If a witness is unable or unwilling to fulfill that duty, they do not qualify to perform the role of an expert and should be excluded”...The expert witnesses must, therefore, be aware of this primary duty to the court and able and willing to carry it out.

Two-stage inquiry

Expert evidence is an exception to the rule prohibiting witnesses from giving their opinion about matters before the court. For the opinion of an expert to be admissible, it must meet a two-stage test (in addition to the procedural requirements). Just because an expert meets this test does not automatically indicate how much weight the expert’s evidence will have on the final decision.

Step 1 – Threshold Criteria

R. v. Mohan [1994] 2 SCR 9 established the first stage of the test. At the first step, the proponent of the evidence must establish the threshold requirements of admissibility - in other words, non-negotiables: 1. The evidence must be logically relevant; 2. It must be necessary to assist the judge by providing information that is outside his or her experience and knowledge; 3. The absence of a rule that would otherwise operate to exclude the evidence; and 4. The expert must be properly qualified to give opinion evidence.

Step 2 – Discretionary gatekeeping

The Supreme Court summarized in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23 the second part of the test. During the second discretionary gatekeeping step, and even when the threshold requirements are met, the judge evaluates the potential risks and benefits associated with admitting the evidence. This evaluation involves balancing factors such as reliability, effect, relevance, necessity, consumption of time, prejudice, and confusion. The judge must determine whether the potential benefits of admitting the expert evidence outweigh the risks and potential harm to the trial process. The court clarified in Laderoute v Heffernan, “[r]ather than admitting expert evidence and considering weaknesses only when deciding the weight to be given to it, the judge, as gatekeeper, is required to consider the frailties in the evidence at the second stage of the admissibility test. It is at this juncture, that the court must “weigh the strength or cogency of the evidence against its potential prejudice in the sense that it may be used by the trier of fact for an impermissible purpose, may create unfair prejudice against the opponent, or may confuse or mislead the trier of fact, thereby rendering the trial unfair, or result in an inefficient and costly trial….”

Expert not admitted in Laderoute v. Heffernan, 2019 ONSC 914

In the Ontario Superior Court case of Laderoute v Heffernan, the Applicant challenged the admissibility of the Respondent’s expert regarding a business valuation report. The expert failed at both the first and second stage. The court ruled that the Respondent’s expert evidence was inadmissible and therefore did not accept any evidence from him for the following reasons:

Lack of necessary qualifications: The court found the expert witness hired by the Respondent, did not possess the necessary expertise and qualifications to provide expert evidence on the value of the Respondent’s businesses. Although the expert had experience in corporate finance and business valuations, he did not hold the recognized professional designation of Chartered Business Valuator (CBV), which is typically expected in the field of business valuation.

Insufficient training and experience: The expert had completed a two-year program in corporate finance, which he believed provided him with the requisite knowledge and training in business valuations. However, he was unable to provide specific details about the extent of his training in the field or the number of hours dedicated to business valuations. Furthermore, he had never been qualified as an expert witness before and had no prior experience in valuing businesses for family law purposes.

Lack of affiliations and publications: The expert did not have any professional affiliations, presentations, or articles written in the field of business valuations. This absence of recognized involvement in the professional community raised doubts about his level of expertise and knowledge.

Limited scope and purpose of the report: The court found discrepancies in the expert’s report, suggesting that its primary purpose was to prepare annual cash flow statements and schedules of available income for support purposes rather than providing a comprehensive business valuation report. The report lacked explicit statements about its level, whether it was a comprehensive report, an estimate, or a calculation of value. It also failed to clearly state the valuation date.

Deficiencies in adherence to professional standards: The expert’s report did not fully comply with the Canadian Institute of Chartered Business Valuators Standard No. 110. It lacked a clear statement of the purpose for which it was prepared, a requirement of the standard. The report also lacked a date on the report itself, with the valuation date buried in the middle of the report. These deficiencies raised concerns about the relevance and reliability of the report.

Potential bias: The expert acknowledged that he considered the Respondent as a friend and held him in high regard. Although he claimed to maintain independence and objectivity in preparing the report, the court noted their current relationship and considered it as a factor in evaluating the evidence.

Failure to fulfill procedural requirements: The expert did not sign and attach the acknowledgement of expert's duty to his report, as required by the Family Law Rules. This failure to comply with procedural requirements further undermined the admissibility of his evidence.

Conclusion

The admissibility of expert evidence in family law cases involving a business valuation is crucial for a just resolution. The two-stage test established by the Supreme Court of Canada requires experts to meet threshold criteria and undergo discretionary gatekeeping (in addition to the procedural requirements). The case of Laderoute v. Heffernan exemplifies the importance of qualified experts with relevant experience and recognized designations. Deficiencies in the expert's report, such as scope and adherence to professional standards, raised concerns about reliability. Additionally, potential bias and failure to fulfill procedural requirements undermined the admissibility of the evidence. Upholding qualifications, standards, and objectivity in expert evidence ensures accurate business valuations and fairness in family law matters.