Before agreeing to such a provision, the parties need to appreciate the nature of the dispute resolution procedure they are agreeing to, and in particular the limited rights of appeal against the expert's findings.
In three recent cases the courts have looked at several aspects of expert determination. In summary the findings are:
once agreed expert determination clauses are binding and the parties have no recourse to the courts
where the expert determination clause provides that the expert give reasons for a decision the court will order that they be given
where a defendant refused to take part in an expert determination the claimant may recover damages if it has to issue legal proceedings
In Douglas Harper v Interchange Group Ltd [2007] EWHC 1834 there has been a clear reiteration that the courts will enforce an expert determination provision in a contract and that a party will be prohibited from bringing court proceedings where the dispute falls within an expert determination provision and that provision is ignored.
The case concerned a claim brought by Mr Harper ("Harper") arising out of an asset sale agreement ("the Agreement") between Harper and Interchange Group Ltd ("Interchange") whereby Harper sold his computer software business to Interchange. The dispute related to the payment of ongoing commission to Harper in accordance with the terms of the Agreement.
The Agreement contained a comprehensive expert determination procedure. Aikens J found that the parties were contractually bound by this procedure, so Harper was barred from issuing court proceedings claiming commission due. He had not complied with the requirements set out in the expert determination provision.
In Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503 the court provided further confirmation that expert determination procedures are binding on the parties and whilst the court may intervene to resolve issues such as whether the expert should provide a reasoned decision or not, the actual decision of the expert will not be interfered with.
Halifax had agreed to reinsure Equitable Life's unit-linked and non-profit business. This required an assessment of an initial premium for the reinsurance which was referred to an expert to determine. Crucially the parties agreed that the expert would provide reasons for his decision. The expert made his determination, but failed to give reasons. Halifax challenged the decision claiming that it was non-binding on the ground of manifest error. Cresswell J said that "In litigation justice will not be done if it is not apparent to the parties why one has won and the other has lost." and he held that the appropriate course was to adjourn the hearing of Halifax's claim and to remit the matter back to the expert in order that he could state the reasons for his decision. This allowed Halifax the opportunity to understand the reasons for the decision and to decide whether to continue with its challenge.
Cresswell J referred by analogy to the provisions in the Arbitration Act 1996 (Section 70(4) which allows the court to order an arbitral tribunal to provide reasons or sufficient reasons for its decision) and was able to require the expert to give reasons either by way of remedy in respect of the provisions of the contract, under the court's inherent jurisdiction or under its case management powers in the Civil Procedure Rules.
Whilst the case is a reminder that the courts can still intervene in an expert determination, it appears that a hands off approach is favoured. Parties can take some comfort in the fact that they can now expect a properly reasoned decision (if they have agreed that reasons are to be given).
In Sunrock Aircraft Corporation V Scandinavian Airlines System Denmark-Norway-Sweden [2007] EWHC Civ 882 the Court of Appeal upheld the validity of an expert determination clause. It considered the measure of damages where a party had refused to participate in the expert determination, but the other party had asked the court to award damages rather than asking for a mandatory order for expert determination. In this case the Court of Appeal held that nominal damages was the correct measure of the claimant's loss.
These recent cases may be indicative of an increase in the number of parties agreeing such dispute resolution procedures in their contracts (whether out of a desire to minimise legal costs or implement a quicker dispute resolution procedure for what should be uncontroversial issues). They may also demonstrate that parties are not thinking through the suitability of such clauses for their likely disputes and fail to appreciate that once agreed the procedure is compulsory and the expert's findings may only be challenged on the narrowest of grounds. Courts will uphold these clauses. Careful consideration should therefore be given as to whether such a method of dispute resolution is desirable. Expert determination can result in cheaper, quicker dispute resolution, but there may be a cost.
