Often, in legal proceedings involving business disputes in Toronto and across Ontario, key issues arise, such as financial loss or the value of a business – figures that can differ and be inherently arrived at differently, depending on the company valuation service that prepared the report. As a result, court proceedings may call two financial experts to present different expert opinions, testifying on the value of the business in question, or the financial losses suffered by one of the parties.
Contentions and debates arise when the differences in opinion are significant, leading to one or both of the testimonies being ignored, losing credibility, and causing confusion among the parties, including the Court. The litigants can also find themselves unable to negotiate a settlement, since their decisions are informed by vastly differing business valuations.
Despite being informed by the same set of facts, financial expert witnesses, such as Chartered Business Valuators can arrive at different opinions – but how does this occur? And given the situation, how can each party’s counsel and the valuation experts they work with encourage informed settlements, while reducing allegations of bias and advocacy?
Why Business Valuations and Resulting Expert Opinions Differ
Company valuations can vary significantly due to four aspects that inform these expert opinions:
- Facts of the case – in some cases, one expert providing litigation support in business valuation disputes could be given access to, or consider a different set of facts and evidence than the expert hired by opposing counsel;
- Assumptions – following access to the facts of the case, one expert may make assumptions that differ from that of their counterpart, particularly where facts are unavailable, unclear, or contradictory;
- Methodology – each expert, depending on their training and practice, can use different methodologies in arriving at a business valuation or damages assessment, resulting in differing conclusions; and
- Professional judgement – each expert’s professional experience can factor into the business valuation or damages assessment they arrive at, which gives rise to differences of opinion in subjective aspects of calculations.
Issues of Control in Differing Valuations: What’s Within & Outside an Expert’s Control?
Given the above factors that cause differences in resulting business valuations, the issue of control is in question – which factors can be mitigated and controlled by the expert in providing litigation support, and which of these are outside their purview?
Difference in Facts and Evidence Relied on
Outside the expert’s control is information symmetry, since one party’s financial experts can be given access to information that is not available to the other. As a result, a business valuator has to rely on the information put forth by their client, particularly on matters outside of their own expertise.
On the other hand, the expert can control their reliance on certain documents to arrive at a conclusion. Also, two experts can undertake different levels of independent research to support their valuations.
Differences in Assumptions Made
Differences in assumptions made and relied on to arrive at a business valuation are outside the expert’s control when these are presented to them by counsel. These can vary from the assumptions that the opposing counsel provides to their own expert witness.
However, assumptions made by the expert to fill the gaps in data, without instructions from their counsel, are within their control. Differences arise due to each experts’ experience, professional opinions, and scope of review.
Differences in Methodology
Different approaches to business valuation or damage quantification can result in differing valuations, but some of these are outside an expert’s control. This includes instances wherein the selected methodology provided by counsel is a matter of law.
However, the resulting differences are within the expert’s control if they elected to use different approaches, one or both experts failed to correctly apply a chosen approach, or one or both experts made calculation errors in their analysis.
Differences in Matters of Judgement
Finally, experts can arrive at different business valuation conclusions due to judgment calls made throughout the course of preparing the report. These are within the expert’s control, since each expert has different opinions on subjective elements in their findings, have different interpretations of professional standards, and have different experiences and fields of expertise.
Mitigating Differences in Business Valuation Reports
Financial experts can help bridge the differences in company valuations they present to both their client and the Court, simply by explaining their reasons for differences in expert opinion. Cost-effective and efficient approaches now also adopted by courts include Concurrent Evidence, Jointly Appointed Experts, Expert Conferences, and Joint Expert Statements.
These aim to eliminate differences in expert testimonies arising from litigants, each hiring valuation experts for litigation support purposes. Each of these approaches allow experts the opportunity to arrive at a mutually agreed opinion and present the differences in their conclusions in a manner that enables informed decisions to be made, both by the parties involved and the court, without causing confusion and further disagreement over the conclusions.