Monday, February 04, 2013

Critiquing an Expert Report: Step 8 – Consider the Contract

You have nearly completed your review of an expert’s report by conducting the following steps:
  1. Review author’s credentials and qualifications;
  2. Identify scope limitations;
  3. Assess underlying assumptions;
  4. Consider conclusion as opinion versus calculation;
  5. Identify damages approach;
  6. Identify damages period; and
  7. Ensure future damages appropriately discounted.
Step 8 to critiquing an expert report is relevant to legal disputes involving a breach of contract.  Such breach could include a breach of buyer/seller agreement, warranty agreement, franchise/distributorship agreement, construction contract, service agreement, lease agreement, non-compete agreement, insurance contract, etc. 
Step 8 involves asking the question "Did the expert consider and refer to the terms of the original contract in quantifying the damages?"  Ultimately this question is meant to help ascertain whether the assumptions underlying the damages conclusion are reasonable and consistent with the terms in the contract.  If the expert report relied upon assumptions that are inconsistent with the terms in the original contract, the conclusions could be inaccurate and unreliable.  Such key terms, which may be relevant for purposes of quantifying damages, could include: volumes, prices, costs, time period/duration, renewal period, termination clauses, etc.
It may seem obvious to suggest that an expert should refer to the actual contract in a breach of contract matter.  However, I was once retained by the defendant in a legal dispute (involving the alleged mismanagement of client funds by an investment advisor) to review the plaintiff’s expert report with respect to a claim for damages.  The plaintiff’s expert report did not consider or refer to the original client agreement with the investment advisor.  The expert report relied upon an assumption with respect to a suitable portfolio mix (e.g. risk-free, income, equity, etc.) based on instruction from counsel which was inconsistent with what the client stated and agreed to in the original contract.
Our responding report highlighted this as one of our concerns with the conclusions contained in the plaintiff’s expert report.  The case never did proceed to trial as the parties ended up settling the matter out of court for an amount less than the plaintiff expert’s assessment.
Taking the time to find out whether or not the assumptions underlying the expert’s conclusions are consistent with the original contract is a step that should not be avoided in order to conduct an effective review of that expert’s report.

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