• by Christina Hinds
Originally published in the OFLM 2023-11 edition
This article will set out the factors that the court considers when qualifying an expert witness in the context of business valuations. When recommending business valuators to clients, or advising on a client’s valuator of choice, it is important to keep these factors in mind. In the recent Superior Court of Justice decision of Ierullo v. Ierullo et al (2023 ONSC 5390), the court declined to qualify the Respondent’s proposed witness.
In Ierullo, both parties retained valuators to provide an opinion on the value of the Respondent’s business as of the date or marriage and the valuation date. A voir dire was held before Justice Jarvis with respect to the qualifications of the Respondent’s proposed expert witness. After setting out the threshold requirements for expert evidence admissibility, Justice Jarvis ultimately declined to qualify the expert witness proposed by the Respondent.
The threshold requirements for expert evidence admissibility are set out in R. v. Mohan (1994 CanLII 80 (SCC)) and are: (a) relevance; (b) necessity; (c) absence of an exclusionary Rule; and (d) a properly qualified expert. It was the last requirement – a properly qualified expert – that was at issue in Ierullo. (at para. 3)
The Mohan factors have since evolved to a two-step analysis as set out in White Burgess Langille Inman v. Abbott and Haliburton Co. (2015 SCC 23). At step one, the court must apply the Mohan factors. At step two, the court must exercise its discretion and balance the risks and benefits of admitting the evidence – the “gatekeeping” stage. (at para. 3)
A Properly Qualified Expert
In considering the last requirement of the Mohan factors, Justice Jarvis reviewed the testimony of the Respondent’s proposed expert witness, which included the following: (at para. 8)
- He graduated from a university in the United States with a business related bachelor of arts degree and worked in the banking industry after graduating.
- He later obtained a Certified Financial Analyst designation (“CFA”) and a few years later joined a leading US investments advisory firm.
- He had taken various Canadian securities/investment courses.
- The proceeding was the first time he had been retained to undertake a valuation for litigation purposes and as an expert in a business valuation for family law purposes.
- In the same year that he delivered his valuation reports, he began studying for his CBV accreditation. He wrote the exam the following year but did not pass. He re-wrote the exam days before trial and was awaiting his results.
- In July 2023 (a few months before trial), he was accredited as a Certified Valuation Analyst and Financial Modelling and Valuation Analyst in the United States.
- He had never been qualified as a witness in any court proceeding.
Justice Jarvis also noted that there was no evidence that he had received mentorship in the area of family law business valuations. (at para. 9)
Justice Jarvis considered Laderoute v. Heffernan (2019 ONSC 914) wherein Justice Summers declined to qualify a proposed expert witness. Justice Jarvis noted the similarities between Laderoute and the present case. In Laderoute, the proposed expert witness was a CPA (not a CBV) and had not prepared any prior valuations for family law purposes. (at para. 10)
In declining to qualify the proposed expert witness, Justice Summers stated that: “In my view, business valuation is a highly specialized area of the accounting profession. It is a pursuit that is often described as being an art as well as a science.” Justice Summers also noted that there was a personal relationship between the party and the proposed witness.
In Denman v. Radovanovic (2022 ONSC 4401), Justice Ferguson declined to qualify the proposed expert witness in part because the witness had a personal relationship with the party that had not been disclosed in any of the reports.
Justice Jarvis noted that the Respondent’s proposed expert witness had not disclosed his personal relationship with the Respondent in any of his reports or in his Acknowledgement of Expert’s Duty.
As Justice Kurz pointed out in R.L. v. M.F. (2023 ONSC 2885) with reference to Family Law Rule 20.1(2), any litigation or court appointed expert has a duty to provide the court with “evidence that is fair, objective and non-partisan". Kurz J. also provided an important quote from the White Burgess SCC decision:
The expert's opinion must be impartial in the sense that it reflects an objective assessment of the questions at hand. It must be independent in the sense that it is the product of the expert's independent judgment, uninfluenced by who has retained him or her or the outcome of the litigation. It must be unbiased in the sense that it does not unfairly favour one party's position over another. The acid test is whether the expert's opinion would not change regardless of which party retained him or her. (emphasis added)
As counsel, we also play an important role when we use an expert witness to assist the trier of fact. In Signalta Resources Limited v. Canadian Natural Resources Limited (2023 ABKB 108 at para. 48), Justice Sidnell of the Alberta Court of King’s Bench provided a helpful summary for counsel when using expert witnesses:
Counsel have an obligation to ensure that:
(a) the expert's opinion and report comply with the evidentiary and procedural rules;
(b) the expert is impartial, independent and there is an absence of bias in the expert's opinion;
(c) the expert's opinion is relevant, clear, comprehensible, and accessible;
(d) the expert's opinion is devoid of jargon and unexplained scientific terms and concepts;
(e) the expert's report is written from the perspective of the trier(s) of fact being the reader;
(f) the expert evidence sets out the expert's opinion in a manner that makes sense to a lay person;
(g) the expert clearly identifies the facts or assumptions upon which the opinion is based;
(h) the expert does not fail to consider material facts that may be contrary to the expert's opinion;
(i) there is a transparent explanation for the expert's analysis, reasoning, and conclusions in the written report and oral testimony;
(j) the expert's testimony does not go beyond the scope of the expert's expertise; and
(k) the expert understands that, if the expert's opinion changes after the preparation of a report, the expert has an obligation to disclose that change of opinion…
Even when counsel agree on each other’s expert witnesses, the court still retains the right to assess their admissibility. This occurred in Khaira v. Ghumman (2022 ONSC 7165) where Justice Sanfilippo assessed the admissibility of the opinion evidence of Darren Miles and Matthew Krofchick (both Chartered Business Valuators) in accordance with the two-stage test in R. v. Abbey (2017 ONCA 640).
In Ierullo, Justice Jarvis declined to qualify the Respondent’s proposed expert witness, noting his lack of credentials, no prior experience in business valuations for family law experience and lack of mentorship in the area, and his undisclosed personal relationship with the Respondent:
“Bottom-line, [the Respondent] proposes to have qualified as an expert an unsuccessful CBV candidate with no litigation support experience and who possess virtually none of the qualifications (i.e., CA, CPA) or experience commonly expected of a business valuation expert and with whom she has had a four to five year social relationship. A court must have confidence in a proposed expert’s qualifications and objectivity. This court does not have that confidence in Mr. Martin. He is not qualified to provide expert opinion evidence about the value of Ierullo’s business interests.” (at para. 16)
As business valuations are common in family law matters, it is important that family lawyers recommend valuators that have sufficient experience and credentials. Family lawyers must remember the following:
- If any personal relationship exists between the proposed witness and your client, disclose it in advance.
- While a CBV designation is not required, the proposed expert’s prior training, experience, and credentials should be relevant to business valuations for the purpose of family law litigation.
- Without prior experience in family law litigation, experts may be expected to have sufficient guidance or mentorship in this specialized area.