Expert Determination

Extract from Philip Loots and Donald Charrett, The Application of Contracts in Infrastructure Projects (to be published)

The Process

Expert determination is a method of ADR in which an independent impartial Expert is engaged by the disputing parties to determine those disputed questions of fact and/or law in the reference defined by the parties. The Expert makes a determination on an assessment of party submissions and relevant evidence provided to him/her. An expert determination usually does not require that the parties be afforded procedural fairness. Accordingly, a hearing at which witnesses give evidence and are available to be cross-examined is not usually implemented.

There are two distinct types of expert determination. In a non-binding expert determination (also called expert appraisal), the parties appoint an Expert to provide an advisory opinion on the merits of the factual/legal issues included in the reference. Ideally, the parties have agreed on the identity of the Expert, and therefore have confidence in her/his skills and expertise to provide a relevant and useful opinion. Dependent on the skill of the Expert, and the persuasiveness of his/her reasons, the determination may be sufficiently convincing that both parties accept it and settle their dispute accordingly. As a minimum, even if both parties do not accept it in its entirety, the determination is likely to assist the parties in their further negotiations, by virtue of the fact that it consists of an independent impartial view of the issues, and reasons for the conclusions reached.

The other type of expert determination is binding expert determination, in which the parties agree prior to the reference that they will accept the Expert’s opinion as a binding, conclusive determination of the issues in the reference. Whilst in general the parties have freedom of contract to agree that the determination will be binding and conclusive, care must be taken to ensure that such an agreement cannot be construed to oust the jurisdiction of the courts.

The Resolution Institute appoints Experts and publishes Expert Determination Rules which can be used as appropriate procedural rules for the conduct of either binding or non-binding expert determination.

Example of contract clause for expert determination

As an example of the use of this method of ADR, the NSW Government General Conditions of Contract (Edition 2) provides for expert determination in the event that an issue is not resolved by Senior Executives within 28 days of its notification. Clause 71 covers appointment of the Expert, and provides that, subject to limited exceptions, the Expert’s determination is final and binding if it requires payment by a party of an amount less than a contractually specified sum. Schedule 5 defines the expert determination procedure, including the role of the Expert as follows:

4.1 The Expert:

.1 acts as an Expert and not as an arbitrator;

.2 must make its determination on the basis of the submissions of the parties, including documents and witness statements, and the Expert’s own expertise; and

.3 must issue a certificate in a form the Expert considers appropriate, stating the Expert’s determination and giving reasons, within 16 weeks, or as otherwise agreed by the parties, after the date of the letter of engagement of the Expert referred to in clause 71.3 of the GC21 General Conditions of Contract.

4.2 If a certificate issued by the Expert contains a clerical mistake, an error arising from an accidental slip or omission, a material miscalculation of figures, a mistake in the description of any person, matter or thing, or a defect of form, then the Expert must correct the certificate.

Enforceability

Expert determination is a creature of contract only and has no statutory basis (unlike arbitration):

Expert determination, on the other hand, is no more than a private contractual mechanism to which parties agree and which, as is dealt with above, does no more than create binding contractual obligations. It has no statutory backing as a process. It is not a process which resolves any dispute by the exercise of judicial, quasi-judicial, administrative, statutory or other power or jurisdiction. (Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd per Justice Hammerschlag)

A binding expert determination will be legally enforceable as a matter of contract if the Expert did what was required of him/her by the agreement for expert determination. In Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd Justice Hammerschlag noted:

As the authorities on the subject make clear, the parties will be bound if the Expert did what the Contract, on its proper construction, required him to do, irrespective of the result. Conversely, the Determination will not be binding if the Expert went outside the ambit of what the Contract required him to do: see, for example: Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314; Holt v Cox (1997) 23 ACSR 590; AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173; Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367.

In Shoalhaven City Council v Firedam Civil Engineering Pty Limited the Contractor sought to set aside an expert determination on the basis that the Expert had not complied with the expert determination procedure as he had not provided reasons as required by the Contract. In rejecting that submission, the Australian High Court noted:

The content of the requirement to give reasons must reflect the nature of the expert determination process, which is neither arbitral nor judicial. It must also be informed by the nature of the issues to be determined. Judicial observations in other cases about contractual requirements to give reasons in expert determinations or in arbitrations must be read according to their context. It may be accepted, as a general proposition, that a mistake in the reasons given for an expert determination does not necessarily deprive them of the character of reasons as required by the relevant contract nor deprive the determination of its binding force. There are mistakes which may have that effect and others that will not.

Advantages and disadvantages

The advantages of expert determination stem from the independence and skills of the Expert. A non-binding determination provides the parties with a “reality check” on their case and may dissuade them from proceeding to expensive litigation or arbitration, as well as providing a reasoned basis from which to negotiate a settlement. A binding determination resolves the defined issues in contention by means of an assessment of the relevant facts/law by an independent third-party neutral. The Expert can rely on her/his personal expertise on the issues in dispute (which can be an important factor in selection of the Expert) and is not confined to the evidence submitted by the parties. The time and cost of an expert determination are usually substantially less than for the more formal procedures of arbitration or litigation.

The major disadvantage of non-binding expert determination is that it may not conclude the dispute between the parties if they are unable to subsequently negotiate a settlement. In that situation, substantial costs are likely to be thrown away, and the time taken to reach ultimate resolution increased. Binding expert determination suffers from the disadvantage that there may be no avenue to appeal a determination that is plainly wrong because it is based on errors of fact (a disadvantage it shares with arbitration) or law. As an Expert normally acts inquisitorially and does not hear evidence, the determination may not be based on all the available evidence.

Expert determination is particularly suitable in disputes in which:

there are complex technical issues;
the questions of law are straightforward; and
both parties have confidence in the Expert’s skill and ability to determine the issues fairly and justly.