Not every high-value commercial dispute needs to end up before a judge. Where a disagreement turns on a technical, accounting or valuation issue, expert determination can provide a more focused way of reaching an outcome.
The process is not new, but it continues to play an important role in complex commercial agreements. It is particularly useful where specialist knowledge is more important than extensive legal argument and where the parties want to resolve a defined issue without committing to lengthy court proceedings.
That role can be seen in current Queensland contracting. As an example, Powerlink – Queensland’s electricity transmission network – includes a detailed dispute resolution procedure in their Load Connection and Access Agreement template, under which certain unresolved disputes can progress from senior management to an independent expert. The agreement also addresses the expert’s qualifications, appointment, procedural rules and the circumstances in which a determination will be binding.
What Is Expert Determination?
Expert determination is a form of Alternative Dispute Resolution in which an independent expert is appointed to decide a particular issue between the parties.
Unlike a mediator, the expert does not simply assist the parties to negotiate an agreement. They reach a determination themselves. The expert might be an accountant asked to resolve a completion accounts dispute, a valuer determining the value of an asset or an engineer considering a technical issue arising from a major project.
Whether the decision is binding, and the extent to which it can later be challenged, will usually depend on the wording of the relevant contract or expert determination agreement.
Where Expert Determination Works Best
Expert determination tends to work best where a dispute can be reduced to a clearly defined question requiring specialist expertise.
Valuation disputes are a common example. If parties disagree over the value of shares, property or another asset, referring the issue to an experienced valuer may provide a more direct route than asking a court to consider competing expert evidence.
Speed Does Not Mean Simplicity
One of the main attractions of expert determination is the potential to obtain an answer more quickly than through traditional litigation.
That should not be confused with an informal process or one that requires little preparation. The sums involved can be substantial, and an expert’s decision may be final and binding. The parties still need to understand the precise question being referred, identify the relevant evidence and prepare their position carefully.
The Contract Can Make or Break the Process
Much of the effectiveness of expert determination is decided before a dispute ever occurs.
The clause needs to make clear which disputes can be referred, how the expert will be appointed and what qualifications or experience that person should have. It should also address how the process will operate and whether the determination is intended to be final and binding.
A recent NSW case illustrates why the scope of these clauses matters. In The Owners – Strata Plan No. 100777 v Ausbao (286 Sussex St) Pty Ltd, the NSW Court of Appeal considered an application for leave to appeal a decision refusing to stay court proceedings in favour of expert determination. The dispute centred in part on whether the matter fell within the scope of the expert determination provisions contained in a Strata Management Statement. The Court ultimately refused leave to appeal. Wording such as disputes “arising from” an agreement and disputes “about the interpretation or application” of an agreement can have different consequences.
If the scope of the clause is unclear, the parties may find themselves litigating over whether expert determination applies before the substantive issue can even be resolved. This can defeat much of the efficiency the process was intended to provide.
When Expert Determination Can Go Wrong
Expert determination will not suit every commercial disagreement.
Some disputes involve allegations of misleading conduct, fraud or breaches of legal duties that require findings extending well beyond a narrow technical question. Multi-party disputes can also create difficulties where not everyone involved is bound by the same dispute resolution provision.
The parties also need to understand the degree of finality they are agreeing to. Where a contract states that an expert determination is final and binding, an unsuccessful party may have limited scope to reopen the merits simply because it disagrees with the outcome.
Drafting Deserves Attention Before There Is a Dispute
Dispute resolution provisions can receive surprisingly little attention during contract negotiations.
Price, performance obligations, timeframes and risk allocation understandably tend to dominate negotiations. The dispute clause may only become important months or years later, when the parties already disagree. By then, its weaknesses can be difficult to fix.
Before agreeing to expert determination, businesses should consider the kinds of disputes most likely to arise under the contract. A process suited to a valuation question may not work equally well for a wider dispute involving contractual interpretation or alleged misconduct. The aim should be to match the process to the likely problem rather than adopt a standard clause without considering how it will operate in practice.
A Focused Tool for the Right Dispute
Expert determination can be highly effective when the dispute is suited to it and may provide a faster route to an outcome than conventional litigation. However, its effectiveness still depends on the contract. The drafting determines what can be referred, who can decide it, how the procedure works and how final the determination will be.
If your business is considering an expert determination clause or is involved in a dispute that may be suitable for expert determination, early advice can help clarify the available options and protect your position.
Contact us to discuss the most practical and commercially focused way forward.
