Expert determination – does ‘according to law’ mean free from legal error?
A common form of alternative dispute resolution is to have a dispute decided by an expert. The advantages of this method are that it is usually faster and less expensive than taking your dispute to court. Another advantage is you can appoint an expert with specialist knowledge of the industry that a judge may not have.
One important question regarding this process is how accurate the expert has to be in applying. The general consensus is that unless the expert has legal training, their determination may not be a truly accurate representation of the law. A recent case in the New South Wales Supreme Court does however provide guidance on this issue.
The case of Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576 concerned a challenge to an expert determination of a building contract dispute. A clause in the contract provided that before proceeding to court or arbitration:
(i) Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to an expert in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expert Determination Rules.
A dispute arose and was duly referred to an expert who found in favour of the builder. This determination was then challenged by the landowner on the basis that the expert had made an error of law when making their determination. The landowner argued that under Rule 5.1 of Arbitrators & Mediators Australia Expert Determination Rules, the expert was obliged to reach a decision free from legal error.
Hammerschlag J rejected this argument. His Honour found that in the context of the Expert Determination Rules “… the words ‘according to law’ mean in the manner which the law requires a person in the position of the Expert to go about the mandated task, so as to give it contractual efficacy; for example, honestly, without bias or collusion, and while not intoxicated”.
His Honour further commented that the landowners interpretation place an immense burden on experts and would be commercially inconvenient as “[i]ts acceptance would have the consequence that the Determination is, in effect, subject to appeal on any and every question of law determined or legal precept relied on by the Expert, which, if determined or seen differently, would lead to a different result”.
His Honour concluded by stating that the expert determination process is “… no more than a private contractual mechanism to which parties agree and which, as is dealt with above, does no more than create binding contractual obligations. It has no statutory backing as a process. It is not a process which resolves any dispute by the exercise of judicial, quasi-judicial, administrative, statutory or other power or jurisdiction.”
Ultimately, this decision highlights that the expert determination process is not judicial in nature and will therefore be unlikely to be held to the same standards as a Court or Tribunal. As the process is not deemed to be judicial, participants will generally not have any form of appeal from a determination unless this is provided for in their contract.
