In Support of a Single Expert Regime

In Support of a Single Expert Regime

Valuation standards that apply when providing independent valuations of businesses or shares in private companies for relationship property proceedings

An Expert valuer’s duty to the family court

An accountant or other person qualified to provide valuation assistance which seeks to value one or both of the parties’ interest in a business or a company conducting a business for the purposes of settling relationship property, is acting as an expert.  An expert witness is required to comply with the Code of Conduct for Expert Witnesses (“the Code”).  The expert’s primary duties to the Court may be summarised, as follows:

  1. an overriding duty to assist the Court impartially on relevant matters within the expert’s area of expertise; and
  2. to not be an advocate for the party who engages the witness.

In this context, it is assumed that impartiality implies independence.  Further, if an expert is required by the Court to confer with another expert, the Code requires the expert to exercise independent and professional judgment.

Recently, I have observed an apparent increase in the number of valuation reports prepared by members of the New Zealand Institute of Chartered Accountants (“NZICA”) in relationship property matters that do not meet the criteria required of an independent report.

Very few matters actually get to trial as most are settled either by negotiation, in mediation or in a judicial settlement conference.  Therein lies one of the major problems in that the Family Court is seldom asked to rule on business valuation.  But that is not an excuse to lower the standards.  Once proceedings are before the Court, the expert is bound to comply with the Code and the Court is entitled to assume that appropriate standards applying to independent valuation assignments have been met.

Independent Business Valuation Engagements “AES-2”

AES-2 is an advisory engagement standard of NZICA.  It is mandatory for members of NZICA to comply with AES-2 when undertaking independent business or share valuations.  Unfortunately, AES-2 has its limitations.

AES-2 does not capture all valuation assignments undertaken by members of NZICA.  Of relevance, it does not apply to “indicative valuation engagements”. An indicative valuation engagement is defined under AES-2, where:

The valuation conclusion is based upon the consideration of limited information….with no requirement to assess the reasonableness of the information provided to the business valuer….”.

Frequently, I am asked to review valuation reports, prepared by members of NZICA for the purpose of assisting with the settlement of relationship property, which do not comply with AES-2.  It seems that some members of NZICA go out of their way to avoid compliance by asserting their opinion is indicative. In some instances they have been instructed to provide an indicative opinion. In my view, “indicative valuation opinions” have no place in Relationship Property proceedings.

What exactly is an “indicative valuation”.  It might be, for example, a “limited appraisal” (a procedure undertaken with a view to expressing an estimate) or nothing more than a “calculation” (a procedure undertaken to provide an approximate indication of value).

The purpose of the valuation will obviously bear directly on the scope of the work.  For example, a “calculation” would normally be of little use as expert evidence but might be useful in assisting a party to decide whether or not litigation is worthwhile.

I note it is possible for members of NZICA to comply with AES-2 even when some information is limited and I wonder why they choose to not do so.  In that regard, Paragraph 59 of AES-2 states:

“Where the member has been limited in the scope of review or where information provided to the member was incomplete, disclosure must be made of the limitation, the reasons given and, where possible, the potential impact on the business valuation conclusion.”

Members of NZICA in public practice are subjected to regular practice review.  But, it is only recently that NZICA have had reviewers with sufficient experience to undertake reviews of valuation assignments undertaken by its members.  Also, there exists no specific accreditation for members to undertake business and share valuation assignments in New Zealand.  The popular misconception is that anyone who is a member of NZICA is qualified to be an expert valuer.  However, it is not immediately apparent why an accountant should be qualified to value businesses or shares.  Business valuation requires particular skills which do not necessarily form part of an accountant’s training or practice.  On the other hand, there may also be experienced valuers who are not accountants.

Unfortunately, many accountants consider business valuation assignments to be “sexy”; a diversion from the normal hum-drum of compliance work.  In this regard, the comments of the somewhat “colourful” Lord Justice Harman are well known([1]):

“Accountants are the witch‑doctors of the modern world and willing to turn their hand to any kind of magic:”

NZICA has considered replacing AES-2 with a new standard based on the Australian standard APES 225, although, for the moment, this appears to be on hold.  Whereas AES-2 establishes a standard for “independent valuation reports”, APES 225 is a standard for all “valuation services” and therefore captures “indicative valuation” opinions.

In Australia, compliance with APES 225 is mandatory in situations where a member in public practice “is instructed to express a written opinion on value and may later give oral evidence at a court hearing”.

Use of the Single Expert

The problem has been addressed to some extent in Australia where the Family Courts have adopted a single expert regime.  This change has been in place since 2004 and appears to be working reasonably well.  While the Single Expert regime in Australia does not necessarily mandate who is qualified to be an “expert”, the change has resulted in the establishment of “informal” panels of approved experts.  In the UK, the principal professional body to which chartered accountants belong to in England and Wales (ICAEW) has recently introduced a new qualification which recognises valuation expertise.  As noted above, there is no such recognition in New Zealand.  Nor, in Australia, other than by the Courts and the legal profession itself.

It has been said that the change to the Rules in Australia arose primarily as a reaction to:

  • the costs and time associated with each party appointing their own Expert;
  • the tendency of that Expert to act as an advocate for that party;
  • the difficulties in seeking a resolution of the competing valuations; and
  • the difficulties confronted by the Court in accepting the evidence of one Valuer as against the other.

Sound Familiar?

The family law practitioner’s role

I doubt that we can expect any assistance from NZICA other than the possible adoption of a new standard aligned to APES 225 so it would seem that any formal change must come about as a result of directions from the Court or change in policy by Family Law practitioners.  The Family Court could direct that all valuation reports prepared for the purpose of settling relationship property comply with NZICA’s standard for “Independent Valuation Reports”, i.e. currently AES-2.  But it would seem that is already implied in the Code.

While cost is an overriding factor in relationship property matters, I do not see that instructing experts to provide indicative assessments necessarily results in cost savings.  In fact, there is a risk that an indicative assessment will build the expectation in the mind of one of the parties leading to real difficulties in settling and more cost being incurred.  Presently, the most effective way to save cost is to actively promote the use of a single expert through a joint appointment process.  Although that in itself has its own problems with more often than not both parties being unhappy with the outcome.

Family Law practitioners are the “gatekeepers” to the judicial process.  In that regard, they are the professionals in the best position to dictate the standards required of an expert providing business valuation opinion.


Hopefully, we are not too far away from the adoption of a single expert regime by the Family Court in New Zealand.  This will not only reduce costs but also lead to an improvement in valuation standards.

Finally, an expert who provides an indicative valuation opinion has, perhaps unwittingly, entered into a space where no standard exists.  While this may not in itself be a breach of the Code, at the very least, the Court is entitled to assume that standards expected of independent experts have been met.

([1])       CF John Mortimer when singing the praises of women:  “…hell would be….a black‑tie dinner of all male chartered accountants : Mortimer J “Where there’s a Will”