Commercial disputes aren’t always concerned with legal issues. Many arise because of a disagreement over specialist technical matters. Expert determination is a method of alternative dispute resolution (ADR) that engages non-legal specialists in relevant sectors to determine unresolved issues.
In this guide we’ll discuss:
- What is expert determination?
- The types of dispute expert determination is suitable for
- Drafting and using an expert determination clause in your contract
- The procedure
- Appointing an expert
- Advantages and disadvantages of expert determination
- Expert determination vs. arbitration
- Expert determination costs
- Is expert determination final and/or binding?
What is expert determination?
Expert determination is a form of ADR designed to find faster, cheaper solutions to commercial disputes. When there is little or no disagreement on the facts of the case or the applicable law, expert determination has proved one of the cheapest ways to settle commercial disputes. And because it is carried out in private, businesses needn’t fear adverse publicity or the release of any market sensitive data.
With a less strict set of rules than arbitration and litigation, expert determination is used widely in all kinds of business disagreements – particularly when the contested issues are more of a technical rather than legal or factual nature. So, for example an expert company auditor might be appointed as an expert to determine the value of a business for sale when there is a disagreement between buyer and seller over the value of that business. The process has advantages and disadvantages that we discuss below.
A further point to note about expert determination is that the expert’s decision is usually binding on the parties. It’s therefore crucial, when entering a commercial contract, to consider carefully whether you wish to include a provision relating to expert determination or not. In recent years challenges to the appointment of an expert have increased. Partly this is due to imprecise contract drafting. It’s important therefore to obtain specialist advice if you are unsure about were or not you wish to include provisions relating to expert determination and ADR more generally.
The types of dispute expert determination is suitable for
Expert determination doesn’t lend itself well to disputes of a strictly legal nature. Or to business disputes that revolve around significant factual disagreements. The procedure is however commonly used when either of the following is required to resolve a disagreement:
- A market appraisal or valuation – of, for example, a commercial lease, commercial or agricultural land or a business entity
- A technical or professional opinion on a specific matter – for example an engineer’s opinion may be sought on compliance with specific requirements in a construction contract
Drafting and using an expert determination clause in your contract
We mentioned above that it’s important to get expert legal advice on inclusion of an expert determination clause in your contract. Make sure you are satisfied that this method is appropriate to deal with certain types of dispute under the contract. If a dispute arises you should be aware that courts will hold parties to an expert determination clause. They may refuse to hear any dispute under the contract and insist it us determined by the expert.
Since there are no statutory rules about expert determination unlike, say, arbitration, the way that an expert will determine areas of disagreement depends entirely on the contractual terms. If the contract is poorly drafted there is a greater chance that the expert’s appointment will be challenged. Challenges such as this can lead only to unwanted delay and additional cost.
Things to consider when your solicitor is drafting an expert determination clause include:
- Have you referred to the expert as an ‘expert’? It may seem obvious but if you don’t explicitly use the term the contract may be interpreted as referring to an adjudicator or some other form of arbitrator and different rules will apply.
- Ensuring that you include provisions on how you and the other side will agree on whom to appoint as an expert. If you are unable to agree an appointment it’s usual to provide that an external body can decide on the appointment.
- Will the expert’s decision be final? How can it be challenged?
- Confidentiality. It’s usual to specify that the expert determination be carried out in private.
- What will the rules of procedure be? It’s up to you and the other side to agree on how the expert determination will work in practice. It’s a good idea to at least outline procedures in the contract so that you are not faced with developing a procedure from scratch when you are in dispute with the other party.
- The scope of the expert’s work. This means identifying as far as possible the issues to be determined by the expert and being clear on any limitations you wish to impose on the expert’s jurisdiction. It is often useful to draw up – separately from the contract – an expert’s terms of reference so that his or her powers are clearly stated.
- Apportioning of costs. You may wish to agree that each side pays its own costs or specify that the expert can decide who is responsible for the costs of the determination.
Unlike other forms of dispute resolution (chiefly arbitration and litigation,) there are no statutory rules governing an expert determination procedure. As we have pointed out this is why careful attention should be paid when drafting an expert determination clause in your contract. The way the expert determination proceeds if you end up in dispute will be determined only by the contractual terms. If the contract is silent on procedure you and the other party will be forced to agree terms – at a time when commercial relations may be strained because of the contract dispute. When deciding on procedure you should consider:
- Setting out a clear timetable for deciding issues
- Whether or not there should be an oral hearing
- Should each side make written submissions?
- What form submissions to the expert should take. For example how detailed should they be and should the other side have a right of reply?
- If the expert is required to provide detailed reasoning alongside the decision
Procedure for expert determination is often set out in a terms of reference document to be read in conjunction with the contract.
Appointing an expert
The whole basis of expert determination is flexibility and empowering the parties to a contract to decide the terms of the process of resolving a dispute. This extends to appointing the expert. While it’s open to the parties to appoint anyone they wish, there’s little point in appointing as an expert an individual without the required technical expertise and specific insights into the area of dispute.
A comprehensive mechanism for appointing an expert should be included in any contractual provision relating to expert determination. Ideally the parties will agree between themselves the identity of an expert who is independent and who possesses the appropriate expertise necessary to make the determination required.
The contract should also specify what happens when the parties don’t agree on an expert. Usually a professional body, such as the Law Society or the Centre for Effective Dispute Resolution (CEDR) will be named in the contract as the body to consult in this situation. The organisation’s role will be to nominate an appropriate expert. The parties must then engage in the process of agreeing the expert’s terms of engagement. Because the process cannot begin until the expert’s terms have been agreed, it is open to one party to refuse to co-operate in agreeing these terms thereby delaying the process and ensuring that the dispute is prolonged. To avoid this it’s possible to include an obligation in the contract that both sides must co-operate in agreeing an expert’s terms of appointment.
Advantages and disadvantages of expert determination
We have already mentioned some of the advantages and also the limitations of expert determination as a form of ADR. We’ve set them out in some more detail in the table below.
|There are no statutory rules. The process is therefore entirely flexible and the parties can set their own terms in the expert determination clauses of the contract.||Unlike other ADR methods, because the process is not underpinned by statute, the powers of the expert are restricted by what it says in the contract or terms of reference.|
|Usually results in a cheaper and faster way of resolving complex issues.||Unsuitable for resolution of disputes where there are large areas of disagreement over factual matters or there is a significant dispute over the correct interpretation of the law.|
|Freedom to choose the expert means parties can appoint someone with precise knowledge and understanding of the area of dispute.||Limited rights of appeal. If the expert makes an error the parties may have no choice but to acquiesce in a decision that’s fundamentally flawed. There are ways to challenge the decision in very specific circumstances (see Is expert determination final and/or binding? below.)|
|It’s confidential. Not only does this protect commercially sensitive information it can help maintain good commercial relationships.||Despite the limitations on appeal, challenges to an expert’s decision are on the increase. And these challenges bring additional cost and added uncertainty. To reduce the risk of challenge careful drafting of the relevant clause is crucial.|
|If the expert performs the determination negligently the parties may sue. Remember – you can’t sue a judge who makes mistakes and there are only very limited ways to take legal action against an arbitrator if you are unhappy with a decision.||Enforcement of an expert’s determination against a losing party unhappy with the result requires further legal action.|
|The decision of the expert is usually binding so the process offers finality.|
Perhaps the main reason why businesses choose expert determination over arbitration or other forms of dispute resolution is that it enables them to cut out a whole layer of process. If a dispute is technically complex it is inevitable that experts will be called to give evidence at trial or arbitration. Expert determination gets the expert opinion the court looks for, but it does so in a much quicker and cost-effective way. The value of this to commercial entities embroiled in a technical dispute can’t be underestimated.
Expert determination vs. arbitration
Expert determination and arbitration are two widely used forms of ADR. There are key differences that make each process more appropriate in particular circumstances. Here are the principal differences:
- Applicable rules
The law around arbitration is more detailed and settled. This offers those who embark on arbitration legal clarity. Expert determination, as we have pointed out, has no basis in statute. While this offers great flexibility it also means the parties – and the expert – have few legal rules to fall back on when there is a problem with procedure or the expert needs to take some measure not anticipated in the contract.
- Legal clarity
Arbitration law is much more settled than the law around expert determination. When a dispute arises over the way a determination is being handled, related litigation may arise. And because of the lack of statutory rules and legal decisions such litigation can take a long time to run its course. This can increase the time and money spent on expert determination considerably.
- Expertise of decision-maker
Parties embarking on expert determination can appoint someone with the precise expertise they need. Arbitrators are likely to be highly trained legally but may not have the specialist knowledge necessary to resolve the dispute, having to rely instead on expert witnesses.
Less formal and faster, determinations are usually cheaper to run than arbitration.
Expert determination costs
There is no statutory framework underpinning the expert determination process. This means the issue of costs – and who bears what – is largely a matter for the parties themselves. It’s one of the key considerations when drafting the expert determination clause of the contract or the expert’s terms of reference.
Although this route is generally much cheaper than other forms of dispute resolution, parties are liable not just for their own legal fees but also the fees of the expert. In complex matters where the expert is backed up by a team of support staff these costs can be considerable.
Often both sides agree to pay their own costs and to divide the costs of the expert between themselves. It is however open to them to insert a provision to the effect that the losing side pays the other side’s costs.
Is expert determination final and/or binding?
One of the reasons businesses choose this process as a method of resolving disputes is because it offers finality. Generally speaking the decision of the expert is binding on the parties. The courts too tend to treat expert determinations as binding. They’ve recently demonstrated a marked reluctance to interfere with decisions made by someone who, after all, was appointed solely because of their expertise in a highly technical area.
There are nevertheless ways to challenge the expert. These include:
- Where the expert has been unfair to one of the parties, for example by giving one side more time to prepare their case or because of some other procedural unfairness
- When the expert makes a mistake which amounts to a ‘manifest error’ (a plain and obvious error)
If collusion or fraud on the expert’s part can be established
- When the expert goes beyond the terms of reference agreed by the parties in reaching the determination
And at the same time, given the flexible nature of the process, the parties may make provision for challenges to the expert’s determination in certain circumstances. These grounds must be clearly laid out in the expert determination clause of the contract.