19 June 2019
19 June 2019
This guide covers what expert determination is and the considerations to be borne in mind when drafting an expert determination clause.
Expert determination is a form of alternative dispute resolution whereby the parties to a contract ask an independent expert to give a binding decision on a dispute. If the clause is drafted properly and it is used in the right circumstances expert determination can provide you with a quicker, cheaper and effective means of settling a dispute.
The main advantage of expert determination is that is allows parties to a technical dispute to go "straight to the horse's mouth": why involve judges or arbitrators if they are going to turn to an expert for the answer? In practice, therefore, the types of dispute that are referred to expert determination involve single issues and technical rather than legal questions. Classic examples include:
Expert determination clauses operate wholly on a contractual basis. The parties can choose who they want to deal with the relevant issue which can be a significant advantage where the dispute requires knowledge of complicated technical issues. The exact confines of the expert's authority can be delineated by agreement between the parties without interference from the courts.
In contrast to arbitration expert determination is not backed up by statute. Whilst this may make the process quicker and more efficient, the downside is that, as the expert's remit is entirely dependent on the contract granting him authority, he has no residual powers beyond those expressly granted by the contracting parties. So, for example, an expert cannot summon a third party witness even if that witness has information crucial to settling the dispute at hand.
Whereas proceedings before a court take place in the public domain, parties to an expert determination can maintain the privacy of their contractual relationship. Settling a dispute privately may increase the viability of an ongoing commercial relationship between the disputing parties.
If the parties agree to be bound by the expert's decision it is very difficult to challenge it; there is no appeal route as in the court system and fewer grounds of appeal than in arbitration. This greater certainty in the finality of the outcome, and the advantages in terms of cost and speed, is one of the most attractive features of expert determination. Paradoxically, it is also one of the greatest pitfalls: if the expert gets it wrong, the parties may be stuck with the decision.1
However, although generally a mistake is not a ground for challenging a decision it may be challenged if the expert has materially departed from his instructions i.e. not performed the task his contract required him to perform. One such example would be where the expert was asked to value one property but in fact valued another. Other grounds for challenge include fraud and partiality.2
An expert's decision becomes, in effect, another term of the contract and the winning party can only enforce it by commencing fresh proceedings for breach of the contractual agreement to be bound by the decision. In contrast, court judgments and arbitral awards are enforceable as of right.
Because an expert's remit is entirely dependent on contractual provisions there are no rules of procedure and process to fall back on. The clause, or as is more common, the terms of reference, will need to make provision for the procedural rules that are to apply. Usually the parties will make their own submissions to the expert by way of documents only. As the expert is acting as expert he is normally given powers to act inquisitorially.
Unlike a judge or arbitrator an expert has no statutory immunity. If the expert has been negligent in coming to that decision the disappointed party may have an action against him for breach of contract. Consequently, no expert will agree to a wide-ranging instruction, but only to an instruction that has a limited scope and is within their expertise.
Expert determination is a useful method of dispute resolution if used in the right circumstances. Think carefully before you refer some or all of your disputes to the decision of an expert and ensure that it is the correct forum for those disputes. Once the parties have agreed to refer a particular dispute to expert determination the relevant courts may hold you to your agreement and refuse jurisdiction to hear that dispute. In addition, depending on the relevant jurisdiction, damages may be awarded for a loss incurred by a failure to comply with the terms of an expert determination clause. The courts of England and Wales have previously held parties to their agreement to refer disputes to an expert and have awarded damages comprising of costs wasted in the proceedings brought in breach of the relevant clause.3
Many of the pitfalls associated with expert determination can be avoided by careful, bespoke drafting. Of all dispute resolution clauses an expert determination clause requires the most care and tailoring to the specific circumstances.
Where an expert determination clause is used it is important that the clause expressly states that the expert is to act as expert in order to avoid confusion with other methods of dispute resolution such as arbitration.
An expert, unlike a judge, should possess expertise and technical knowledge relevant to the dispute. It is not advisable to name a specific individual to be the expert as that depends on the individual being willing, available and able to give a decision at the time a dispute arises. Typically, the clause will (i) specify the field of expertise from which the expert is to be chosen, (ii) provide that the parties will try to agree on the identity of the expert at the time the dispute arises and (iii) failing such agreement, provide for appointment by an appropriate professional institution. Ensure that the institution exists and is willing to appoint an expert. If not, the courts are not able to assist in appointing one. A table of appointing authorities is provided at the end of this guide.
It is important to expressly state that the expert's decision is to be final but you should also consider on what grounds you want to be able to challenge a decision of the expert. As mentioned above, unless the contract expressly provides otherwise, the expert's decision can generally only be challenged on an allegation of fraud, partiality or material departure from instructions. The mere fact that the expert has made a mistake is not a ground for challenging his or her decision. As such, it is common practice for parties to agree that an expert's decision is binding except in the case of "manifest error". Such an error would occur where the expert has made a plain and obvious error or an obvious oversight or mistake.
Unlike litigation or arbitration, where the procedures are governed by rules of court, institutional rules or statute, the procedure for expert determination will be entirely dependent on the parties' agreement. If there is no procedure set out in the clause one will need to be established at the time the dispute arises. This is dangerous as, once there is a dispute, agreement between the parties is more difficult to achieve. Consequently, if one party is obstructive, the process can become relatively slow and expensive. The expert’s powers of compulsion are limited. Providing for the procedure in the clause or in the expert's terms of reference attached to the contract will avoid this. The other alternative is to agree that the expert can set the procedure but that leaves the parties with no control over the timetable.
It is important to set out clearly and exactly what the expert is required to do and the powers that he has in order to accomplish that task. It may be preferable to set this out in the expert's terms of reference. Important points to be addressed include a definition of the matters to be determined by the expert, a requirement that the expert makes his decision based on all the evidence before him, and whether or not the expert has authority to decide issues of construction. Procedural issues that should be addressed include the nature of any submissions to be made to the expert, whether there should be an oral hearing and whether to permit oral testimony at that hearing, and the form in which the expert will deliver his decision, including whether or not it will be accompanied by reasons.
In some circumstances you may wish to include a timetable for the making of submissions. Typically, clauses provide for written submissions to be made within 28 days, comments on the other party's submissions to be made within a further 14 days and the expert's decision to be made within 90 days. Oral submissions may also be provided for. It is important that the timetable prescribed for the expert determination is a realistic one and not so optimistic that you suffer substantial disadvantage procedurally through having agreed an extremely tight timetable, the result of which prejudices your ability to ensure that your case is fully put to the expert.
Unless provided for in the clause or the expert's terms of reference the expert will have no power to make costs awards. Consider therefore whether you wish to give the expert a power to award costs against the losing party and to refer costs matters to an independent costs draftsman. Alternatively, the parties could agree to bear their own costs in the expert determination process (which will include the costs of the expert's time).
You may also want to include in the expert determination clause a provision relating to confidentiality. It should be borne in mind however that such a provision may be displaced by statutory or regulatory requirements. Alternatively, you may in fact wish to set precedent in the course of resolving the dispute – in such a scenario litigation will be preferable to expert determination.
This clause is provided by way of example only: expert determination clauses will always need to be tailored to suit the particular circumstances. The clause below is based on the specimen clause provided by Practical Law Company.
"Expert" means a person appointed in accordance with clause [ ] to resolve [A MATTER UNDER THE AGREEMENT].
1.1 An Expert is a person appointed in accordance with this clause to resolve [A MATTER UNDER THE AGREEMENT]
1.2 The parties shall agree the appointment of an independent Expert and shall agree with the Expert the terms of his appointment.
1.3 If the parties are unable to agree on an Expert within seven days of either party serving details of a suggested expert on the other, either party shall then be entitled to request [NAME OF BODY ENTITLED TO MAKE NOMINATION] to appoint an Expert [PROFESSIONAL QUALIFICATION] of repute with international experience in [TYPE OF MATTER] and for the [NAME OF BODY ENTITLED TO MAKE NOMINATION] to agree with the Expert the terms of his appointment.
1.4 The Expert is required to prepare a written decision and give notice (including a copy) of the decision to the parties within a maximum of three months of the matter being referred to the Expert.
1.5 If the Expert dies or becomes unwilling or incapable of acting, or does not deliver the decision within the time required by this clause then:
(a) either party may apply to [NAME OF BODY ENTITLED TO MAKE NOMINATION] to discharge the Expert and to appoint a replacement Expert with the required expertise; and
(b) this clause applies in relation to the new Expert as if he were the first Expert appointed.
1.6 All matters under this clause must be conducted, and the Expert's decision shall be written, in the English language.
1.7 The parties are entitled to make submissions to the Expert [including oral submissions] and will provide (or procure that others provide) the Expert with such assistance and documents as the Expert reasonably requires for the purpose of reaching a decision.
1.8 To the extent not provided for by this clause, the Expert may in his reasonable discretion determine such other procedures to assist with the conduct of the determination as he considers just or appropriate [including (to the extent he considers necessary) instructing professional advisers to assist him in reaching his determination].
1.9 Each party shall with reasonable promptness supply each other with all information and give each other access to all documentation and personnel as the other party reasonably requires to make a submission under this clause.
1.10 The Expert shall act as an expert and not as an arbitrator. The Expert shall determine [THE MATTER UNDER THE AGREEMENT] [which may include any issue involving the interpretation of any provision of this Agreement, his jurisdiction to determine the matters and issues referred to him or his terms of reference]. The Expert’s written decision on the matters referred to him shall be final and binding on the parties in the absence of manifest error or fraud.
1.11 Each party shall bear its own costs in relation to the reference to the Expert. The Expert's fees and any costs properly incurred by him in arriving at his determination (including any fees and costs of any advisers appointed by the Expert) shall be borne by the parties [equally or in such other proportions as the Expert shall direct].
1.12 All matters concerning the process and result of the determination by the Expert shall be kept confidential among the parties and the Expert.
1.13 Each party shall act reasonably and co-operate to give effect to the provisions of this clause and otherwise do nothing to hinder or prevent the Expert from reaching his determination.
The following is a list of appointing authorities which may be contacted to provide either general advice or to appoint an expert in the event that the parties are unable to agree on the choice of expert.
The Centre for the Effective Dispute Resolution -
The General Council of the Bar of England and Wales
The Law Society of England and Wales
The Royal Institute of Chartered Surveyors
The Academy of Experts
Royal Institute of British Architects
Institute and Faculty of Actuaries
The Chartered Institute of Arbitrators
The Chatered Institute of Management Accountants
Institute of Chartered Accountants in England and
The Institution of Chemical Engineers
Owen Pell Limited v Bindi (London) Limited (2008) QBD (TCC).
This is where the expert fails to treat the parties fairly by, for example, granting one party more time than the other to complete a procedural stage such as the delivery of written submissions (Hickman v Roberts  AC 229). The test for partiality requires actual bias, or a real danger of injustice resulting from the alleged bias and not just conflicts of interest or apparent lack of independence (Macro v Thompson (No.3)  2 B.C.L.C. 36; Bernhard Schulte v Nile Holdings  Lloyds's Rep 352).
Douglas Harper v Interchange Group Ltd  EWHC 1834 (Comm); Union Discount v Zoller  1 WLR 1517.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.