A “group proceeding” legal action against the auditor, directors and trustee of a failed non-bank lender was settled for $64m, subject to approval by the Court. The Court of Appeal approved the overall settlement and asked the Victorian Supreme Court to review the legal costs as well as the amount of commission claimed by a litigation funder.
What presumably began as a routine approval process uncovered matters which gave rise to very serious concerns about the conduct of the solicitor and the barristers (“the Lawyers”), the litigation funder, and the Legal Costs Expert engaged to express an opinion on the reasonableness of the legal fees.
The Bolitho v Banksia Securities Ltd (No 18)  VSC 666 judgement is long, and the facts are complex. Others will focus on the duties owed by the Lawyers, but as someone undertaking expert witness work, I am very interested on the issues that resulted in an expert witness being ordered to pay compensation!
The Expert Witness
The Legal Costs Expert witness had issued four reports expressing the opinion that the claimed legal costs “were fair and reasonable,” before issuing a fifth report in which he withdrew those opinions and claimed that he had been misled.
The Court agreed that the Legal Costs Expert had been misled by “grossly improper” and dishonest conduct by which false evidence was “manufactured” to support the barristers’ fee claims, but it made swingeing criticisms of the expert nonetheless:
- Inadequate disclosure of previous engagements – The Legal Costs Expert did not appropriately disclose previous engagements involving the barristers, which were relevant to an assessment of his independence, and he did not draw the Court’s attention to his limited experience in large commercial litigation, and specifically, group proceedings.
- Breach of duty to assist the court impartially – The Legal Costs Expert did not undertake a proper independent objective assessment of the facts he was asked to assume, and he failed to seek further evidence or information when he should have done so. His claim that he had complied with the Expert Code of Conduct in this regard, when he had not, misled the Court.
- Failure to apply specialised knowledge – His reports did not demonstrate the application of any expertise or specialised knowledge. He adopted a “formulaic approach” and did not satisfy himself that the time claimed was both actually spent and reasonably spent – as demonstrated by his failure to identify duplicated work and charges.
- Failure to promptly respond to new information – Despite becoming aware of material new information the Legal Costs Expert did nothing to correct the misleading statements in the reports that he had prepared until “the eve of the trial” when he issued a fifth report that recanted his earlier opinions. Even then, the fifth report did not “confront the reality that [the expert] had, by his third report, misled the court.”
The Court held that the Legal Costs Expert had breached his duties to the Court and that those breaches “materially contributed” to the loss suffered by investors. Together with the other parties, the Legal Costs Expert was ordered to pay compensation of $11.7m and to also pay costs on an indemnity basis.