Dispute resolution clauses in contracts often include an expert determination mechanism to resolve some or all disputes that might arise. Typically, an expert determination clause provides for a 'final and binding' determination by an independent expert with specialist knowledge, skill and expertise in the subject matter of the dispute. Parties need to think about whether expert determination is the 'right' process for resolving their contractual disputes and if so, what is the most appropriate mechanism for resolving disputes which are likely to arise. It is not always clear that parties have effectively addressed what work the chosen expert determination mechanism should be doing.
This article identifies issues to consider when using expert determination and looks at the benefits and disadvantages of the expert determination process.
While expert determination may be an efficient and cost effective approach for resolving some contractual disputes, it may not be suitable for others.
A dispute may arise:
When negotiating the terms of an expert determination resolution clause or mechanism to be included in a dispute resolution clause parties should consider:
The main reason why parties choose to resolve their disputes or differences by expert determination seems to be the desire for a speedy, final and binding solution imposed through an informal process to avoid the complexities, delay and associated costs of disputes being determined by legal proceedings or arbitration.
Expert determination will not usually provide for court procedures such as pleadings, discovery, interrogatories, witness statements, interlocutory applications or hearings which can result in lengthy and costly litigation, nor do rules of evidence apply. The informality of the process means that expert determination can be an efficient and cost effective approach to dispute resolution.
It can take years to achieve finality of outcome using litigation or arbitration. Expedited arbitration may be quicker. Although, the nature of the arbitration process, which requires the arbitrator to act judicially and in some respects can be subject to the court's supervision, can result in longer and more expensive processes than expert determination. Disputes can be resolved through expert determination quickly, sometimes in a matter of weeks, although the resolution of more complex multi-issue disputes can be more protracted.
The expert determination process is not judicial in nature and not intended to be adversarial. It is conducive to parties maintaining a relationship and continuing to perform the contract. This may be particularly relevant in long term supply and service agreements.
Expert determination is a private process. Privacy and confidentiality may be important to parties who may not wish to have their differences publically ventilated through the courts.
Courts are reluctant to set aside an expert's determination (declared by contract to be final and binding) unless the error is clear and material. This would seem to be an acknowledgement by the courts of an intention to empower parties to agree a process for resolving their disputes whose purpose is to avoid legal challenges. While this means that an expert determination is likely to achieve finality more quickly than resolution through litigation or arbitration, it also means that a party dissatisfied with the determination will have limited scope to challenge an adverse outcome.
A significant disadvantage of expert determination is that the parties relinquish the full legal processes (and associated rights and safeguards) that would otherwise be available through litigation or arbitration.
Apart from fraud or collusion, the only basis for seeking to set aside an expert's determination is if the expert has not complied with the contractual terms which specify how the determination is to be carried out. It is not enough to point to a mistake in the reasoning process of the expert. If the expert has acted within the scope of the contract, the parties will be bound by the determination even if it is wrong.1
An expert is not required to act judicially and is not bound to determine issues based on the facts presented by the parties. The expert, usually appointed because of specialist knowledge, skill and expertise in the subject matter of the dispute, may determine issues based on general observations and experience. There is generally no requirement to apply the rules of natural justice but this will depend on the process agreed by the parties.
There would seem to be much greater scope for an expert to get it wrong. The issue may then be whether the error will deprive the determination of its binding effect.
The scope of disputes to be determined and the procedure to be adopted in the conduct of an expert determination are governed by the terms of the contract. Parties can (and should) discriminate between different types of disputes when negotiating the terms of the expert determination clause. However, often 'boilerplate' clauses are incorporated into contracts without proper consideration as to whether expert determination (or another process) is the most appropriate mechanism for resolving the disputes likely to arise. Sometimes parties will only realise they have committed to an unsatisfactory 'final and binding' process with an unacceptable level of risk attached when a dispute arises.
The current law regarding the enforceability of expert determination processes allows parties to make an initial assessment on whether expert determination is the right process for the resolution of any, all or only some of the likely disputes that may arise in connection with their contract. The reality is, however, that parties can only assess whether a dispute is suitable for resolution by expert determination when the particulars of the dispute are known. Parties should think carefully about relinquishing the rights (and safeguards) available through litigation or arbitration for all disputes when addressing the suitability of an expert determination process.
1 McHugh JA in Legal & General Life of Australia v A H Hudson Pty Ltd  1 NSWLR 314 at 335; Mason P in Holt v Cox (1997) 23 ACSR 590. See also Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305 & TX Australia Pty Ltd v Broadcast Australia Pty Ltd  NSWSC 4 on challenges to expert determinations.
2 The Heart Research Institute Limited & Anor v Psiron Limited  NSWSC 646
3 Triarno Pty Ltd v Triden Contractors Ltd unreported, July 22 1992 NSWSC
4 Savcor Pty Ltd v State of New South Wales  NSWSC 596
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