Show Your Workings - Judicial Assessment of Experts' Reports
Useful judicial comment on expert reports can be found in the recent case of Consortium Commercial Developments Limited v ABB [2015] EWHC 2128 (TCC).
The case relates to a claim for dilapidations upon expiry of a 15 year lease of office premises. The tenant yielded up the property with various breaches of the covenants to repair, redecorate and reinstate.
The costs of remedying the Tenant's breaches were agreed between the parties. However, the tenant sought to argue that the landlord's claim was limited to a lesser sum, being the diminution in the value of the landlord's interest in the property caused by the disrepair. This defence is known as a 'Section 18 Defence', after the provision of the Landlord and Tenant Act 1927 from which the defence derives.
Each party instructed a Section 18 valuation expert to determine the diminution in value of the landlord's reversion caused by the disrepair. The experts reached different conclusions as to diminution. The difference between the respective valuations was £375,000.
The Judge reviewed the valuation reports prepared by each expert, concentrating on the methodology used.
The landlord's expert report came under criticism. The report failed to sufficiently link how the expert had formed his opinion from the available objective evidence (such as market comparables). Consequently, the Judge could not place much reliance on the report, stating:
'While I fully understand that valuation is more an art than a science, and an important element in valuation is the judgement made by an experienced and well-informed practitioner, the weakness in… approach is its excessive subjectivity. One would expect a valuer's subjective judgement to be informed and backed up by careful reasoning based on objective criteria... In my view the lack of objective reasoning vitiated the reliability of his subjective judgement.'
[Mr Andrew Bartlett QC at [26]]
Whilst the expert for the tenant was not himself without criticism, more weight was given to his opinion, due to his methodology and his demonstration of a clear reasoned link between his own assessment of the valuation and the supporting market evidence.
Although the case sets no real precedent, it is a useful reference when preparing or assessing an expert report. In particular, an expert's view should be informed by objective evidence and the link between evidence, methodology and conclusion must be demonstrated within the report.