March 2007

Law-Now

Expert determination: can the courts intervene?

• Parties who had previously been wary of an expert determination on the basis of its arbitrary and uncertain nature can now have confidence that a decision should at least be reasoned (albeit briefly);
• An expert determination may not be as final as the parties had imagined and may still be subject to court intervention;
• The decision also serves as a reminder for parties to ensure clear terms of reference are drawn up when appointing an umpire in an expert determination. In this case, the court’s decision may have been different if the terms of reference had not included a clause requiring the umpire to give reasons for his decision.

Background

The parties entered into an agreement whereby the claimant agreed to reinsure the defendant’s unit linked and non-profit making business. The umpire was appointed pursuant to the agreement, to determine the precise balance of premium payable between the parties to the agreement, which was a matter in dispute. Terms of reference were agreed: he would act as an expert, not an arbitrator; his decision would be binding on the parties save for manifest error and he would include with the decision, reasons for the decision.

The umpire gave his determination in September 2006. The claimants were not satisfied with the decision and issued a claim form seeking a declaration that the determination was not binding on the grounds that i) the expert had departed significantly from the agreed terms of reference by failing to provide adequate reasons for his decision and ii) the decision contained a manifest error.

Decision

Mr Justice Cresswell said it was necessary to construe the relevant provisions of the reinsurance agreement and the terms of reference to see as a matter of contract i) what the parties agreed to remit to the expert for determination ii) what the expert was appointed to do and iii) whether the expert has done what he was appointed to do.

The judge found that the reasons given by the umpire for arriving at his decision were inadequate in the circumstances for the following reasons:

• The umpire’s conclusions failed to address the “four basic areas of concern” raised by the claimants in a prior directions hearing. These were “principal important controversial issues” (as per Lord Brown in South Bucks DC v Porter [2004] UKHL 33 at para 36) and it was for the umpire to explain his conclusions on such issues.
• The umpire failed to indicate the extent to which he had checked the relevant underlying figures, if such figures were not agreed.

Cresswell J declined to make a declaration that the expert determination was not binding. He referred to section 70(4) Arbitration Act 1996 which allows the court to order the tribunal to state the reasons in detail where it appears that the award does not contain sufficient detail to enable the matter to be properly considered. In Cresswell’s view it would be anomalous if an expert’s failure to give sufficient reasons caused the determination not to be binding, when this is not the position in relation to arbitration awards. Instead, he adjourned the hearing and directed the umpire to state his (further) reasons in relation to the four basic areas of concern. The hearing would be restored as soon as the reasons were available.

Further reading: Halifax Life Limited v The Equitable Life Assurance Society [2007] EWHC 503