As we come to the end of 2012, the Forensic Foresight editorial team were keen to hear from the Deloitte Forensic Partner group to get their reflections on the year that was and their thoughts on the year ahead. We met with:
- Chris Noble, Deloitte Forensic Service Line Lead Partner, Brisbane
- Jen Exner, Deloitte Forensic Partner, Sydney
- Martin Langridge, Deloitte Forensic Partner, Perth.
Have you noticed any recurring themes in the types of engagements undertaken in 2012?
Martin: In Western Australia the resources sector is dominant, and as a result of the recent ‘correction’ in commodity prices, the major players have increased their focus on cost. This is manifesting itself in a number of ways, including:
- The deferring/curtailing of discretionary expenditure
- Re-negotiation of existing contracts and requests for rate reductions
- Rationalisation of the supply chain
- Increased scrutiny of contract expenditures, including increased activity in exercising ‘rights to audit’ clauses.
Jen: I’d echo Martin’s remarks regarding contract reviews. We’re also getting involved in more wills and estate matters off the back of the current transfer of unprecedented wealth in the economy from one generation to the next and disputes that inevitably arise. There is also increasingly more investigation work involved in the family law space requiring broader range forensic skills, in particular the application of sophisticated data analytics.
Chris: Many of the engagements I am seeing relate to the execution phase of major capital projects. Clients are increasingly interested in running the microscope over the nature and extent of project expenditure, particularly to understand root causes of blow outs, as the potential for ‘claw back’ monies can be significant. This investigative work is also often useful in assisting clients in the preparatory phase of subsequent litigation.
What cases have you been following? Why is the outcome important?
Jen: A case of particular interest for me was Land Enviro Corp Pty Ltd & Ors v HTT Huntley Heritage Pty Ltd & Ors  NSWSC 177 in which the Supreme Court rejected an expert accountant’s reports in support of a damages claim for $170 million because these were based upon other information that hadn’t been proved. While this ‘proof of assumption’ rule is well established, the case highlights the issue that an expert can’t add credence to instructed assumptions that are outside their own skill set.
Chris: Of particular interest to me are the ongoing investigations by the AFP into allegations of bribery and corruption. Not only will the result of these be important, but the concurrent updates by government to policy and guidance on compliance of anti-bribery legislation is of particular relevance to our clients as they implement and maintain their risk management frameworks.
What effects have the current market conditions had on your clients?
Chris: Many of our clients have stopped discretionary expenditure. Certain investment decisions and projects have been put off. However, the more sophisticated clients do not see governance, compliance and risk management as discretionary investments. In particular they are paying close attention to their overseas operations in view of the heightened regulatory requirements associated with bribery and corruption laws.
Martin: The tougher market conditions are having a significant impact on those in the mining services sector. In particular, there will be ‘winners’ and ‘losers’ depending on their ability to renegotiate contracts, shed fixed costs, restructure their cost bases and move from deliverers of capital projects to supporters of ongoing operational capacity.
Jen: The current market conditions, together with the timeframe involved in taking matters to Court, has encouraged litigating parties to seek to resolve disputes through mediations more frequently. This enables us, as experts, to have very technical discussions with the counterparty’s expert where necessary, explain issues and question the other expert directly. This is a very different environment to the courtroom, even when expert evidence is being given concurrently.
What advice do you have for potential litigants in today’s market?
Chris: Get on the front foot, don’t be complacent, do some preparatory work and consider the value of engaging expert advice early.
Jen: If the matter is worth litigating, invest in expert advice – even if it’s only to get a second (verbal) opinion on an expert’s report. I’ve seen several matters this year where an expert report filed in court appears to provide a very well-considered and temperate opinion, but one that is way off the mark because of unreasonable assumptions or lack of technical skill.
How do you see the market in 2013 and what impact could that have on litigation?
Jen: I think there will be a continuation of the themes of 2012, including more matters opting for alternative dispute resolution – expert determinations and mediations – and fewer matters going to trial.
Chris: The market has tightened up. Clients will be more motivated to recover losses associated with contract under-performance and post-acquisition disputes.
Martin: I agree with Chris’ comments regarding the increase in contract inspections and the possible flow on into litigation. In Western Australia, at least as projects come on stream and the capital expenditure boom peaks towards the end of 2013, the emphasis will shift from time-based milestones and deliverables (i.e. first ore, first gas) to cost considerations to drive profit and return on investment. Further, we could reasonably expect significant activity in the review and renegotiation of contracts and the testing of contract terms at a more granular level than might have been the case over the last few years.