Minority report - the restriction of single joint expert reports in the family courts

Posted: 05/07/2016

In brief

• Recent case law suggests that there is a trend towards the family courts taking a more stringent view of the definition of what is “necessary” when considering whether expert evidence should be admissible.
• In cases that do not meet the “necessary” threshold, family lawyers should consider an in-house approach, with the appropriate input from experts. 

Three years on from the restriction of expert evidence in family proceedings, recent case law suggests that the family court is taking a more stringent view of what is deemed to be “necessary” when considering the test of the admissibility of expert evidence. Given that the purpose of the amendment to Part 25 of the Family Procedure Rules 2010 (FPR) was to reduce the number of experts giving evidence in family proceedings, this is perhaps unsurprising. However, will this time and cost saving approach prove to be a false economy?

“Necessary” – what it says on the tin?

Historically, for many family lawyers, it was standard procedure to instruct an expert to provide evidence on matters such as pensions and the value of property and business interests in complex cases, and the family court was content to except such evidence as long as it was “reasonably required”. However, since January 2013, expert evidence in family proceedings is restricted to evidence deemed “necessary” to resolve the proceedings (FPR 25.4(3)) and the family courts have an active duty to restrict expert evidence in those cases that do not meet the “necessary” threshold.

In Re H-L (A Child) [2013] EWCA Civ 655, Sir James Munby concluded that “necessary” means “necessary” in the ordinary sense of the word. Reiterating the meaning given to the word in Re P (Placement Orders. Parental Consent) [2008] EWCA Civ 535, it “has a meaning lying somewhere between ‘indispensable’ on the one hand and ‘useful’, ‘reasonable’ or ‘desirable’ on the other hand”, having the connotation of the imperative, what is demanded rather than what is merely optional or reasonable or desirable”.

In the case of Cooper-Hohn v Hohn [2014] EWCA Civ 896, Coleridge J had, in the first instance, refused the wife’s application for permission to adduce expert evidence as to the value of management entities through which the husband had received an income stream for managing a hedge fund worth $1.15 billion. On appeal, Ryder LJ agreed with this approach commenting that “it is a fallacy that every asset must be valued in every case”. This suggests that, even when assets are potentially worth huge amounts, high net worth cases will not automatically pass the “necessary” threshold.

Proportionality

Following on from Cooper-Hohn, the recent case of Aziz v Aziz [2016] EWHC 973 (Fam), highlights the increasingly stringent approach taken by the family court when faced with applications for single joint experts. In this case the wife sought a direction for valuations in relation to a number of properties: (1) for land purchased in July 2013 for £951,000; (2) for a property purchased in 2013 for around £15 million; and (3) for a group of properties referred to as the Leicester Square group of properties (value undisclosed in the judgment).

While Mr Justice Moor accepted that the latter was “significant”, given that there was a valuation of the group in 2011 and an updated valuation dated March 2015, he was quite clear that there was no need to value any of the properties in the group at that stage. The wife would, by her own counsel’s submission, “get what the value of those properties happens to be”.

It was also considered to be disproportionate to obtain a valuation for the second property purchased in 2013, even though Mr Justice Moor accepted that there may have been movement in the market since the date of purchase. Some family lawyers may find this surprising, given that parties are required in their financial disclosure in Form E to provide valuations obtained within the last six months.

Interestingly, a valuation of the land purchased in July 2013 was also considered to be disproportionate even though it was accepted that there were potential planning permission issues. The reasoning behind this appears to be the modest purchase price of the land in the context of the case. Nevertheless, the fact that the land could presumably be greatly diminished in value without the required planning permission (or indeed, rendered worthless) could potentially cause difficulties in the future. Presumably, if the assets in this matter had not been so vast, expert evidence on this point may have been considered to be proportionate.

Alternatives to single joint experts

In addition to the request for property valuations, the wife in Aziz v Aziz had also requested that an order be made for a single joint expert to rework an asset schedule prepared by her counsel on the basis that the Financial Dispute Resolution (FDR) appointment would be ineffective without it. Mr Justice Moor did have some difficulty reaching a conclusion on this point but found that the absence of such a report would not prevent the wife from negotiating.

It was instead suggested that the wife conduct this exercise herself in-house by obtaining input from various experts. The revised asset schedule would then be provided to the husband for comment before being presented to the FDR judge. This would save a very significant sum of money while providing the wife with the comfort that the asset schedule had been approved by the relevant experts.

This approach is potentially the perfect half-way house, in that it provides some comfort to the parties that the figures they are using to negotiate with are correct while saving the cost of an expensive expert report. On the other hand, one could argue that, although this informal arrangement will save court time, the wife will have to bear the cost of producing the revised asset schedule in its entirety, rather than spitting the costs equally with the husband as would be the case with a single joint expert. If the husband then engages his own sole expert to verify the asset schedule, costs will be duplicated and the further time spent investigating each other’s expert evidence will inevitably result in delay.

One could also argue that what is cheap can sometimes prove to be expensive. In the pensions case of WS v WS [2015] EWHC 3941 (Fam), the parties had already agreed to an equal division of the non-pension assets, giving them each £6 million. The husband’s request for a pension report was, however, rejected and judgment was made to offset the value of the wife’s defined benefit pension scheme using a Duxbury formula.

This approach had been put forward by the wife in opposition to the methodology favoured by the husband who had argued that he should receive a lump sum payment of around £1 million, based on a cash equivalent value of the wife’s pension, or the cost of buying an annuity to achieve a similar inflation-proofed income. Instead, he received an offsetting payment of £425,000. The contrasting arguments made about the correct method to calculate the off-setting sum in this case illustrates the complexities of dealing with pensions that are different in nature. The introduction of pension freedoms (which allow for greater flexibility in the way certain pension benefits can be taken for those over age 55) have also made this area even more opaque. 

The judgment in WS v WS has also attracted some criticism from a number of pension experts. The primary reason for offsetting was to avoid taking the husband over the lifetime allowance, thus resulting in severe tax consequences. Both the husband’s defined contribution pension, which was valued at £960,696, and the wife’s defined benefit pension, valued at £3,064,154, had however already crystallised, a crucial point that was missed by those (non-pension experts) involved with the case. Pension experts have since been vocal in pointing out that the pensions had therefore already been tested against the lifetime allowance by HMRC, so it would have been entirely possible to use a pension sharing order to divide the available pension assets rather than relying on offsetting.

Notably, while widely regarded by family lawyers as the most appropriate formula for capitalisation, the use of Duxbury in this case has been met with disapproval by some pension experts who argue that the overly-optimistic investment return assumptions that underpin Duxbury put the husband at a stark disadvantage against the wife who retained her low-risk pension. Taking these comments into account, the husband must feel that there would have been a very different outcome to his case if his application for a single joint expert to report on pensions had not been refused.

Expert reports – real added value?

Although some may argue that the motivation underpinning the reluctance to allow expert evidence into proceedings is due to the increasing strain on the family court’s resources rather than because of effective case management, the value placed on expert opinion has been questioned in recent years. For example, the Family Justice Council’s report, ‘Evaluating Expert Witness Psychologic Reports: Exploring Quality’ in 2012, was highly critical of expert witnesses in the family courts, finding that two-thirds were ‘poor’ and one-fifth have no proper qualifications. Of course, the report deals only with one type of expert and reviewed 126 expert psychological reports submitted in family court proceedings in three courts located in the UK, covering both adult and child assessments.

The comments made by the author of the study, forensic psychologist Professor Jane Ireland, were so damning that she was subject to a disciplinary hearing by the Health and Care Professions Council. However, in June 2016 the panel dismissed the case against her. This suggests that her troubling findings about the standard of expert witnesses in cases involving psychological reports were indeed founded and may provide some support to the court’s restriction of the single joint expert in such cases.

The future   

Family lawyers face the difficult task of managing high net worth and complex matters effectively without the input of a single joint expert in an increasing number of cases. This is yet another example of how family lawyers must adapt to overcome the obstacles before them caused by the strain on resources in the family courts. Given that family lawyers cannot hold themselves out to be experts in such challenging areas as pensions and tax, those who wish to obtain an element of “certainty” for their clients in cases where the threshold for a single joint expert is not met may have to consider an in-house approach, like that suggested in Aziz v Aziz. Accordingly, in-house private wealth and tax planning advice combined with the appropriate level of input from external experts, as part of a collaborative effort between the parties, is one way forward. 

This article was published in New Law Journal on 22 June 2016.

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