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In the matter of Yan v Yangdo Pty Ltd [2024] NSWSC 1250, an Expert was appointed for the purposes of an Expert Determination under the Deed of Settlement and Release (“the Deed”) in the valuation of various corporate entities and trusts.
The Expert, of their own volition and before their determination became binding on the parties, advised that they had made an error in their report. The Expert issued a subsequent report (i.e. the second report), changing their mind on a substantive matter regarding Capital Gains Tax (“CGT”). This ‘error’ had ramifications for the parties to the order of $10 million. [1]
The Defendant gave notice that the second report contained a ‘manifest error’. The Plaintiff commenced these proceedings, seeking a declaration that the second report contained no such error, together with a declaration that the asset valuations as contained in that report were binding on the parties. [4]
The Court found that despite the Expert admitting the first report contained “an error” or was “incorrect”, it is not dispositive that the first report contained a “manifest error” within the meaning of the Deed. The Court considered that the overarching corporate documentation defined a ‘manifest error’ as a plain and obvious error in the valuation process, and this is not limited to ‘facile errors’ but may involve errors of some complexity. [130]
Ultimately, the Court stated that due to the complexity involved in the valuation engagement, the treatment of CGT in the first report was not a plain and obvious error, but one approach to the issue which, on reflection, the Expert considered was an ‘error’ or ‘incorrect’. The Court also commented on the fact that while the Expert changed their mind on an issue which was not straightforward, this does not mean that it amounted to a “manifest error” within the meaning of the Deed. For the same reasons, the treatment (or ‘correction’) of the issue in the second report was not a “manifest error” either. [132]
The finding of the NSWSC in this matter further enhances the ‘high bar’ required to meet the definition of a manifest error. Further, this provides a level of comfort for Experts involved in complex matters requiring an Expert Determination that the acknowledgment of an error will not automatically give rise to a ‘manifest error’.
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