#20 Lessons from the Courtroom – Reliance on Assumptions

Whenever you ask a lawyer a question, the answer is (almost) always ‘it depends’. And they are right – it does depend!

Therefore, it goes without saying that an Experts conclusion can ‘depend’ on the set of facts or assumptions before them.

In six separate judgments (that I have come across – they may be more) since June 2021, the Court has dismissed an Expert Accountants report based on underlying assumptions of the Expert that were found to be unproven or inadmissible by the Court or inadequately explained by the Expert.

Let's explore the two types of assumptions typically encountered by an Expert:

• ‘instructed assumptions', being those the Expert is asked to assume as fact by the instructing party (lawyers, barristers, etc.), which are found to be not proven before the Court; and
• assumptions made by the Expert which are not supported by evidence and/or an insufficient explanation is provided by the Expert.

Firstly, ‘instructed assumptions’.

Assumptions of this kind are commonplace in commercial matters and are often necessary in order to provide the Expert with a basis to form their opinion. In these circumstances, the onus is on the instructing party to provide the basis, supporting evidence or otherwise of the assumption.

However, what is the responsibility of the Expert in regards to instructed assumptions? Blind faith? Critical analysis?

APES 215 Forensic Accounting Services, the professional standard in which all forensic accounting engagements must be complied with, provides the following guidance:

The Report of an Expert Witness

5.6 Subject to any legal requirements or restrictions, a Member providing an Expert Witness Service shall clearly communicate in any Report:

…..

(j) the significant assumptions upon which the opinions or Other Evidence are based and the following matters in respect of each significant assumption:

• (i) whether the Member was instructed to make the assumption or whether the Member chose to make the assumption; and
• (ii) if the Member chose to make the assumption, then the reason why the Member made that choice;

(k) if the Member considers that an opinion or Other Evidence may be misleading because a significant assumption is likely to mislead, then a statement to that effect and an explanation of why the assumption is likely to mislead;

Therefore, at a minimum, an accounting expert must state the assumptions they were instructed to make. The Expert also does have an obligation to communicate any assumption they consider to be misleading and reasons as to why – but I can safely say I have never written (or read) an expert report with such a comment. 

Why? Because what self-respecting lawyer would submit an Expert report as evidence supporting their clients' position that has a statement saying an instructed assumption may be misleading! Most issues regarding 'misleading' (or potentially misleading) assumptions are usually thrashed out by the Expert and instructing party prior to the instructed assumption(s) being issued to the Expert.

Next, let's explore the assumptions made by the Expert.

Assumptions made by the Expert usually stem from an assessment made during the course of the engagement.

As stated above, APES 215 requires the Expert to detail their significant assumptions and to clearly communicate the reasons why the Expert has made such an assumption.

What is the Court telling us?

Well, (not surprisingly) the Court is telling us that if an Expert is substantially reliant on assumptions, be that instructed or made by their own volition, that are found to be unproven or inadmissible by the Court, the Experts report (or parts of the report) is likely to be dismissed.

So as an Expert, what can you do?

• Ensure any instructed assumptions are road-tested to ensure their credibility
• Adequately explain the reasoning behind any assumptions the Expert makes by their own volition
• Provide scenario analysis or commentary on potential modifications to the key assumptions (intrusted or otherwise)
• Make reasonable concessions in the witness box when cross-examined about the assumptions underpinning your report

The Court’s willingness to dismiss an Expert report (in part or in full) serves as a stark reminder to ensure we are careful in the assumptions made when preparing our conclusions.

For more information on the services the Forensic consulting team at Grant Thornton Australia provide to family and commercial lawyers, please contact myself or your local contact.