Complex commercial disputes: Client data

In commercial damages cases, we as experts find ourselves relying on information provided by our clients that many times incorporates management’s own assumptions and assertions. This information can include items such as financial projections, business plans and growth plans.

Special consideration needs to be given to certain information if the expert intends to rely on that as a foundation for the damage calculation and that information contains significant assumptions and assertions made by management:

  • Experts need to use a critical eye and understand how this type of information was put together and understand what assumptions the client used in preparing the information
  • Challenges to an expert’s opinion can be made on the basis that the expert hasn’t developed a sufficient understanding or performed the requisite analysis to understand the information
  • The expert is putting his or her opinion at risk by merely adopting or parroting the client’s assertions, with respect to things such as growth rates or sales projections. Absent any level of independent analysis, the expert could be faced with the question, "what expert analysis is being brought to the table?"

Based on a review of case law, the Courts have weighed a number of factors when evaluating the admissibility of expert testimony that is premised either in whole or in part on client supplied data, including:

  • The source of the client-supplied information
  • The expertise of the individuals who developed and supplied the client-supplied information
  • The circumstances and motivating factors under which the information was developed and used by the parties – in other words, was it prepared in the ordinary course of business, or was it prepared specifically for litigation?
  • The level of testing and analysis performed by the expert to evaluate the information

Irrespective of whether the Courts have accepted or rejected an expert’s opinion, the key takeaway from the case law is that experts are in a better position if they can point to their own independent analysis to establish the reasonableness of client-supplied information. From a practical standpoint, testing and analysis that can help support an expert’s reliance on client-supplied information include, among others:

  • Assessing projected revenues and growth relative to past results, industry and economic conditions and forecasts, and other client-specific factors that can impact results
  • Establishing whether sufficient demand exists, whether there is an established/identifiable customer base, and whether the plaintiff has the necessary capacity to achieve the expected revenue
  • Analyzing whether sufficient cash flow exists to support the projected revenues, whether through operations or financing

There is no formula prescribed by the Courts to ensure that an expert’s opinion will be allowed when relying on client-supplied information such as projections. However, if the expert understands how the information was put together, what key assumptions were used and has performed some level of independent analysis to establish the reasonableness of that information, the expert will be in a better position to defend his or her opinion at trial.

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