Using expert determination as a means of dispute resolution: key considerations

The traditional method of judicially resolving disputes is renowned for being a lengthy and often costly process. Consequently, expert determination is becoming an increasingly popular choice for parties wishing to resolve a commercial dispute as it avoids the added time and expense of litigation.

Expert determination is a process whereby parties appoint an independent expert in a particular field to resolve a specific issue. Expert determination is often chosen where the expert's knowledge and experience are of particular use. For example, it is most commonly used in matters concerning valuation. This can range from shareholder agreements, where provision may be made for valuation of shares, to being adopted in rent review provisions to determine open market rental value. It is also useful in disputes of a technical nature which may involve deciding whether a particular product or software meets the specification parties have contractually provided for.

Why Use Expert determination?

Referring a matter to an expert can have some commercial advantages over involving the courts.

Speed - Litigation can sometimes be a long, drawn out, expensive and very public dispute resolution process. Using expert determination, parties can agree an express timescale in which an expert must reach a decision under the terms of the contract. From a commercial perspective, this provides certainty and prevents companies having to put any ventures on hold for long periods of time whilst they await a court decision.

Informality- In the absence of any judicial procedure, the process is relatively informal. There is very little required by way of disclosure and no examination of witnesses or pleadings is required as would be the case in an arbitration or court proceedings.

Autonomy – It is the parties who determine the remit and extent of the expert's instructions by way of contractual provision. This affords the parties flexibility as well as confidentiality, enabling them to preserve reputation and keep the details of any economic disputes private.

Challenging an Expert Determination

One of the most fundamental advantages to expert determination is that it is open to those involved to agree that any decision made by the expert will be binding upon the parties. Therefore, this eliminates the potential expense and delays involved with challenging a decision through an appeals process. The notion of finality lends itself to economic and commercial certainty for those at the centre of the dispute. However, expert determination is a creation of a purely contractual nature. Unlike arbitration, there is no default statutory framework which underpins the use of expert determination. So, what happens if one party does in fact wish to challenge the expert's decision?

A decision by an expert is often deemed to be binding because parties have made express contractual provision for this to be the case. The scope for challenge in expert determination is therefore, perceived to be relatively limited. Nevertheless, whilst they are deemed restrictive, grounds of challenge do exist. These include where there has been fraud or collusion, where the expert has materially departed from his instructions for example, by valuing the wrong type of share, or where there has been bias on the part of the expert towards one of the parties.

When will a court intervene?

In Jones v Sherwood Computer Services plc [1992] 1 W.L.R 277 it was held that the court can intervene if an expert makes a mistake in a such a way that they can be deemed to have materially departed from their original instructions, such as if they had valued shares in the wrong company. However, the court will not overturn the decision of an expert if they have answered the right question but seem to have subjectively reached the wrong conclusion. It is this approach which often leads parties to adapt their contractual provisions to widen the scope for challenging an expert's decision. Often parties will agree to leave open the possibility of challenging an expert in instances where the expert can be shown to have made a significant error.

In this regard a clause may provide that an expert's decision is to be binding upon the parties "in the absence of manifest error". In the recent case of Flowgroup plc (in liquidation) v Co-operative Energy Ltd [2021] EWHC 344, the High Court in England asserted the general principle that a manifest error can only be challenged in a "tightly subscribed" set of circumstances. The Court stated that "the reason for this is that where parties have agreed to subject their dispute to an expert determination, that is what they are entitled to. A manifest error exception allows recourse to the Court but in necessarily confined circumstances." The Court adopted a previous test which was established in the case of Veba Oil Supply & Trading GmbH v Petrotrade Inc [2001] EWCA Civ 1832. The test from Veba Oil set a relatively high threshold to prove a case of manifest error. Simon Brown LJ stated that manifest errors should "be confined to oversights and blunders so obvious and so obviously capable of affecting the determination as to admit of no difference of opinion".

On one hand, expert determination is an attractive means of dispute resolution, affording all the commercial benefits associated with speed, finality and certainty. However, the grounds for challenge are restrictive and often involve judicial tests with high thresholds to overcome. Parties should carefully consider the benefit of certainty that comes with making an expert’s decision final and binding against the possibility that in the event of a dispute they will have limited recourse in the courts.

It is this delicate balance which requires parties to carefully plan the drafting of their contractual provisions as, ultimately, it is their own contractual terms which will determine the options available to them should a dispute a rise.