Expert determinations – perhaps the quickest, most sensible and most cost effective process for resolving disputes?

 If you are involved in a commercial dispute, wouldn’t it be good to have a practical and cost effective alternative to the common forms of lengthy and cost-heavy dispute resolution processes like litigation and arbitration?

For anyone involved as a party to a dispute of a largely technical nature, perhaps relating to the performance of an agreed contract, or the financial outcome of a business arrangement, it’s a rhetorical question. You know there’s an answer.

One practical alternative lies in expert determination, a form of alternative dispute resolution (ADR) where the parties involved appoint an independent third party, usually a technical expert in the relevant subject matter, to resolve the dispute, and they contractually agree to be bound by the expert’s decision. As described by the Lord Chief Justice, Lord Thomas, in 2011, expert determination is “a very different alternative form of dispute resolution.”

Expert determinations are relatively informal and provide greater flexibility than arbitrations, for example. Expert determinations lend themselves particularly to cases where there may not be much between the parties as far as liability or the facts at large go, but where there are significant and complex areas of contention over technical matters, such as building defects, or the profits of a joint venture.

Such a process has several advantages compared to court litigation or arbitration: it is far cheaper; it is much quicker than conventional dispute resolution, and it avoids the relationship damage and other collateral damage which often occurs in protracted court or arbitral proceedings. Parties agree relatively simple and light procedural steps; timeframes are compact; there is little by way of disclosure and other paperwork; there are generally no pleadings, only submissions limited to the specific points in dispute; no detailed investigation of documents, and no cross-examination of witnesses. Often there is no oral evidence and no hearings at all.  Such a process of course does not suit all disputes but on the basis that most contentious situations are driven by parties’ separate desires to reach incompatible results, it is often surprising how many situations can be resolved in this way.

Determinations are therefore far removed from conventional court or arbitration proceedings. Not least, the parties end up sharing the undoubtable lower costs of the expert and normally bear their own costs.

In terms of practical application, expert determination is well suited to disputes involving technical issues – limited in scope even if complex in the details. Appropriate disputes where it can be applied include those relating to accounting matters, profit shares, business valuations, professional negligence and the performance of contracts. It can apply to technical issues across a wide range of sectors: everything from commodity supply contracts, construction and engineering disputes to insurance wording disputes, sale of goods disputes, pension rights transfers, rent reviews, and share valuations.

A determination arises either as the result of triggering a provision in the governing contract between the parties to resolve any dispute in this way, or by an ad hoc agreement to use it to resolve a dispute as an alternative to litigation. Either way, the procedure is then predetermined by reference to the terms of the precedent contract agreed between the parties at the outset, often with a specific expert determination clause outlining the expert’s terms of reference, powers and duties in the event of a dispute arising.

The detailed and precise terms of reference will inevitably be down to the expert to decide, communicated commonly through a set of simple but comprehensive directions covering: the timetable; the scope and order of any submissions; how documents are dealt with; whether or not there should be an oral hearing; how the expert will deliver his decision, and whether or not it will be accompanied by reasons.

Like all ADR processes, expert determination is entirely confidential and so particularly well-suited to disputes relating to the contractual, financial and other technicalities of business dealings.

So who can be an expert? Any suitably qualified person agreed by the parties: usually someone who has specific, extensive knowledge in the technical subject matter. Experts should have no prior relationship with either party so that their decisions are objective and impartial. Most often, expert determiners are accountants, architects, bankers, engineers, insurers, loss adjusters, surveyors, lawyers or retired judges. Sometimes a technical expert and a lawyer are appointed together. But they are not to be confused with expert witnesses: while they share the requirement to act independently and impartially, expert determination is wholly different from expert evidence. Expert witnesses assist a tribunal; the expert in a determination is the tribunal and makes the decision.

Once appointed, an independent expert has the power to ask questions of both parties and to make independent investigations. He is not required to refer back to the parties. After evaluating the circumstances and the facts, the decision made is binding unless otherwise specifically agreed in the contract or at the outset of the tribunal.  The relevant contract clause will generally say that the decision is final, binding and not subject to appeal, and this will be effective in the absence of manifest error, bias or fraud.

A criticism often leveled at the expert determination process is his limited legal or other understanding. He is only a technician. A common way to defuse such an accusation lies in the very practical power of the expert to take advice from whomever he feels suitable. This may be from counsel on a point of law, from another expert on a discrete technical point, or from someone who can assist of a point of fact. While there will be no cross examination of such persons, they can be of very material assistance to the expert in answering the specific questions he has and which he feels need to be answered in reaching an appropriate decision.

As mentioned above there are very limited (and uncommon) grounds upon which parties can challenge an expert determination and an expert’s determination can usually be enforced through court proceedings.

But can the determination be challenged even when none manifest error or fraud?  The Court remains the final arbiter, particularly on matters of jurisdiction and efficacy of the determination. The limited law on the subject suggests each case to turn on its own specific facts. The authorities are that, in general, if the contract provides for the expert to determine every question of law and fact, and if there is no exception for error, then the parties have to abide by his decision even if a mistake is made. An exception arises if the expert erroneously determines a question of law or makes a material departure from the instructions given: this has been defined by the courts as one of the very few grounds upon which a party can challenge the decision made in an expert determination.

The most recent leading case on the subject is the Court of Appeal judgment delivered in Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826 (Barclays v Nylon). This focused on the jurisdiction of an expert, especially one not legally qualified. The Barclays v Nylon case highlights the difficulty faced by the courts in relation to the extent to which experts have the ability to interpret the contract under which they are appointed to reach their determination, and whether they have departed from their instructions in a material respect when doing so.

The Court of Appeal found that the court can intervene if it is in the interests of justice and convenience. The Court also suggested that, once an expert’s jurisdiction is established, there may be scope for a court to intervene if it is clear that the expert has made a mistake of law and gone outside his decision-making authority.

The Barclays v Nylon case established that:

  • The court is the final decision-maker. Where there is a dispute relating to an expert’s jurisdiction, the court is always the final decision-maker, irrespective of whether a clause in a contract purports to confer jurisdiction on the expert that is final and binding.
  • There is no presumption as to jurisdiction of an expert. The broad approach to jurisdiction that applies in arbitration, which presumes that the parties are likely to have intended any dispute arising out of their relationship to be decided by the same body, does not apply to expert determination.

So if the decision of an expert determination is not automatically binding and the court can interfere, as suggested by Lord Neuberger in the Nylon case, where does this leave the effectiveness of the process? The essential point is to set the ground rules carefully so that the expert does not depart from his instructions or apply his expertise to the wrong subject-matter. That is when referral to a court is most likely. It may therefore be wise always to include the words “save for the case of manifest error” within the expert determination clause of the contract.

Nevertheless, this remains only a limited basis to challenge a determination which is mutually agreed by both parties. At the end of the day, the most effective course of action is to choose an expert who has both the relevant expertise and experience, and ideally, prior knowledge of the process so that he knows what he is doing and what is the purpose of his appointment; and does not go beyond the scope of his remit or reach erroneous decisions.

In the final analysis, expert determination has been used effectively for many years as a way to resolve a large number of technical disputes. The process is being used increasingly frequently, and very few decisions go on to be challenged in the courts.

But, for best results, it pays to choose your expert wisely.

Jeffrey Davidson, Managing Director, Honeycomb Forensic Accounting (www.honeycombpsg.com/)


 

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