Expert Determination

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 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.

When is it used?

The main advantage of expert determination is that it 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 typically involve single issues and technical rather than legal questions. Classic examples include:

• in a long-term contract where experts are required to give an opinion on technical issues likely to arise, such as assessing whether industrial plant machinery has met the acceptance criteria laid down by the parties, or measuring whether goods supplied meet the contractual specifications; and
• where the contract provides for the value of the assets to be determined at some later date, such as a share purchase agreement where there are completion accounts, in the case of a rent review under a lease or in the case of a pension transfer.

Key characteristics

"Creature of contract"

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.

No legislative background

In contrast to arbitration, there is no statutory framework for expert determination. While this may make the process quicker and more efficient, the downside is that, as the expert's remit is entirely dependent on the contract and/or terms of reference granting them authority, they have 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.

Privacy

Whereas proceedings before a court take place in the public domain, parties to an expert determination can maintain the privacy of their contractual relationship, similar to arbitration.

Finality

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 there are 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 parties choose the wrong expert or the expert gets it wrong, the parties may be stuck with the decision.

However, although a mistake is not generally a ground for challenging an expert's decision, a decision may be challenged if the expert has materially departed from their instructions, i.e. not performed the task the contract required them 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 bias.¹

Enforceability

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.

Procedure

Because an expert's remit is entirely dependent on contractual provisions and the terms of reference, there are no rules of procedure and process to fall back on in the general law. 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 they are normally given powers to act inquisitorially.

No statutory immunity

Unlike a judge or arbitrator, an expert has no statutory immunity. If the expert has been negligent in coming to their decision, the disappointed party may have an action against them 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.

A note of caution

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 expert determination 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.² You may therefore wish to consider including a provision for a notice of dissatisfaction (and onward referral of the dispute to the courts or arbitration) where disputes are likely to be complex or of high value.

Drafting considerations

Many of the pitfalls associated with expert determination can be avoided by careful, bespoke drafting, either in the contract or the terms of reference. Of all dispute resolution clauses, an expert determination clause requires the most care and tailoring to the specific circumstances. 

Act as expert

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).

Appointment of the expert

An expert, unlike a judge or arbitrator, 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 (and also being an appropriate person to decide the dispute that 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 (current at the date of publication).

Finality and grounds for challenge

You will need to consider whether you want the expert's decision to be final and binding, or whether it should be subject to a notice of dissatisfaction and onward referral to the courts or to arbitration. This will depend on the scope, complexity and potential value of disputes to be referred to expert determination.

If the expert's decision is to be final and binding, then it is important to expressly state this in the clause. You should also consider on what grounds (if any) 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 their 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. Note that the error must have affected the result in order to enable a party to set aside the determination.³

Procedure

Unlike litigation or arbitration, where the procedures are governed by rules of court, institutional rules or statute, the procedure for an 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 can be dangerous as, once there is a dispute, agreement between the parties can be 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 will help to 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. Institutions such as the ICC also offer administration services for expert determinations, which may be helpful in such situations.

It is important to set out clearly what the expert is required to do and the powers that they have in order to accomplish that task. If not already set out in the clause or in a separate agreement between the parties, it is sensible to set this out in the expert's terms of reference. Important points to address include:

• a definition of the matters to be determined by the expert (such as an agreed form of words in respect of the questions to be answered),
• a requirement that the expert makes their decision based on all the evidence before them,
• whether the expert is restricted to deciding between the parties' positions or is able to come to their own conclusions, 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 their decision, including whether or not it will be accompanied by reasons.

You may wish to include a timetable for the making of submissions in your clause, depending on the scope and complexity of potential disputes that are to be referred to expert determination. 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 is a realistic one and not so optimistic that you suffer substantial disadvantage procedurally through having agreed an extremely tight timetable, as this could prejudice your ability to ensure that your case is fully put to the expert.

Costs

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). 

Confidentiality

You may also want to include in the expert determination clause a provision relating to confidentiality, particularly if the contract does not include a general confidentiality clause.

Specimen clause

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. 

Definition

"Expert" means a person appointed in accordance with clause [ ] to resolve [A MATTER UNDER THE AGREEMENT].

1. EXPERT 

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 on the appointment of an independent Expert and shall agree with the Expert the terms of their appointment.

1.3 If the parties are unable to agree on an Expert or the terms of their appointment 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 their appointment].

1.4 The Expert is required to prepare a written decision [including reasons] 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) [the parties may agree OR either party may apply to [NAME OF BODY ENTITLED TO MAKE NOMINATION] to discharge the Expert; and

(b) [the parties OR a party] may proceed to appoint a replacement Expert in accordance with this clause [1], which shall apply to the replacement Expert as if they were the first Expert to be 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 their reasonable discretion, determine such other procedures to assist with the conduct of the determination as they consider just or appropriate [, including (to the extent they consider necessary) instructing professional advisers to assist them in reaching their 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 and/or things as the other party may reasonably require 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, their jurisdiction to determine the matters and issues referred to them and/or their terms of reference]. The Expert may award interest as part of their decision. The Expert’s written decision on the matters referred to them shall be final and binding on the parties in the absence of manifest error or fraud.

1.11 [In determining [THE MATTER UNDER THE AGREEMENT], the Expert shall take into account [SPECIFY ANY MATTERS WHICH THE EXPERT IS TO TAKE INTO ACCOUNT].]

1.12 [Each party shall bear its own costs in relation to the reference to the Expert OR The Expert may direct that any legal costs and expenses incurred by a party in respect of the determination shall be paid by another party to the determination on the general principle that costs should follow the event, except where it appears to the Expert that, in the circumstances, this is not appropriate in relation to the whole or part of such costs]. The Expert's fees and any costs properly incurred by them in arriving at their 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].

1.13 All matters concerning the process and result of the determination by the Expert shall be kept confidential among the parties and the Expert.

1.14 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 their determination.

1.15 [The Expert [and Nominating Body] shall have no liability to the parties for any act or omission in relation to this appointment; save in the case of bad faith.]

Appointing authorities

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.