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w w w . C A N A D I A N L a w y e r m a g . c o m A P R I L 2 0 1 7 43 larin adds. "Normally, the figures are available because a public company bought [the business being valuated]. So, you have to be big enough to be attractive to a public company." The question for the expert valuator is how was the sample selected? The lawyer should also find out how many com- panies were traded that the expert was not able to get data on, he says. Fair market value Fair market value — to be differentiated from fair value — refers to what the sales price would be "in a market of intelligent, think- ing people," says Pellarin. "You need to imagine the circumstances of a likely buyer for this company." For example, a large, publicly traded company will pay a higher tax rate (of 35 to 40 per cent), but a company being valu- ated for purchase may be small and enjoying a tax rate of 15 per cent. "If you think your company will attract a public company as a buyer, then the tax rate changes, and you need to evaluate the share value accordingly," says Pellarin. Peter Osborne, a partner in the litigation firm Lenczner Slaght Royce Smith Griffin LLP in Toronto, has a practice comprising roughly 80 per cent commercial and insolvency litigation, and he regularly retains and cross-examines business valuators. "One of the most basic things that can be overlooked is the def- inition of fair market value," Osborne says. "I'm sometimes surprised at how little context experts have." Growth rate and earnings A common mistake for valuators to make is to overestimate growth rate based on past growth, says Pellarin. "In the long run, businesses can only grow at the rate the economy grows at." The long-term growth rate can never exceed the growth rate of the economy, he says, and Canada's economy tends to grow at three per cent per annum; "so, if you see a growth rate in the valuation report of seven or eight per cent, then the valuation report is suspect." Likewise, says Pellarin, practitioners should ensure that real and not projected earnings are what are used in court. "In a courtroom today, 2017, you're asking what the value of a thing was in 2012." An aspect that valuators overlook too rap- idly, he says, is what the company actually earned as opposed to what it was projected to earn. Was it less than forecast? "A lot of times, the subsequent earnings were lower than the projections of the day." Scope of instructions and methodology When cross-examining valuators on the other side, "I start with the five basics," Osborne says. "What, when, why, where, how? IT'S MOST EFFECTIVE IF YOU CAN UNDERMINE THE EXPERT'S CREDIBILITY WHEN HE'S ON THE STAND, AND CALL INTO QUESTION HIS APPLICATION OF SCIENCE. JEFF PELLARIN, Pellarin Inc. Fresh Canadian legal news and analysis Get More Online CanadianLawyerMag.com ntitled-1 1 2017-03-10 9:47 AM What do your clients need? The means to move on. Guaranteed ™ . Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES ntitled-5 1 2016-10-25 3:42 PM

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