Chapter 18 Expert determination
As its name suggests, expert determination is a process where an independent expert decides a dispute between the parties. The parties agree beforehand whether or not they will be bound by the decisions of the expert (either finally, or until appeal). Expert determination provides an informal, speedy and effective way of resolving disputes, particularly disputes which are of a technical character.
Unlike arbitration, expert determination is not governed by legislation. The adoption of expert determination is a consensual process by which the parties agree in the contract between them, to take defined steps in resolving disputes.
Whilst dispute resolution processes that exclude or ‘oust’ the jurisdiction of the court are void, the court will generally seek to ensure that the parties comply with their contractual bargain.
Fletcher Construction Australia Ltd v MPN Group Pty Ltd NSWSC, 14 July 1997 (unreported)
- The construction contract included an expert determination clause which said that ‘the third party who has been agreed upon or appointed shall act as an expert and not as an arbitrator and that party’s decision shall be final and binding upon the Proprietor and the Engineer.’
- The principal, MPN, argued that the expert determination clause was void because it was uncertain or attempted to exclude the jurisdiction of the court, which would be contrary to public policy.
- The court found that the expert determination clause did not seek to exclude the jurisdiction of the court. It was an agreement between the parties that the specified disputes should be determined by an expert. There is nothing unusual about this provision and parties should be held to their bargain if they agree to such a clause.
- There is nothing unusual about the clause providing that the expert’s decision is ‘final and binding’ or ‘conclusive’, and this does not oust the jurisdiction of the court.
- The effect of the clause is to make the decision of the expert final and binding, provided the matters referred to the expert are contemplated by the agreement.
- The expert’s decision will be susceptible to attack in a court if it fails to comply with the contract or there is some vitiating factor relevant to the decision.
As a result of such decisions, the decision of an expert, although stated to be final and binding, can be challenged in certain circumstances. For example, if the expert has acted outside the scope of the agreement that appointed the expert, the decision may be challenged on the grounds of jurisdictional error. The expert determination may also be challenged anywhere there is a failure to comply with the contract or the decision is affected by a factor, such as fraud.
On 5 October 2011 the High Court, in addressing the role of expert determination, held that experts need to ensure that they do not act inconsistently with the agreement under which they are appointed. The level of reasoning required of experts will vary in accordance with the particular contractual requirements, as the role of an expert is neither arbitral nor judicial.
- Firedam Civil Engineering Pty Limited (respondent) contracted with Shoalhaven City Council (appellant) to design and construct a waste water system for Shoalhaven.
- Under the contract, expert determination would be used to determine disputes, and the expert’s findings would be final and binding if the aggregate liability of one party to the other was less than $500,000.
- A dispute between the parties arose regarding extensions of time, delay costs and payment for additional works. The dispute was referred to expert determination in accordance with the contract.
- The expert determined an amount of $497,142.55 was payable to the respondent. The respondent sought a declaration that the expert determination was not binding as the reasons given by the expert were inconsistent and not adequately explained.
- In an unanimous decision, the High Court set aside the decision of the Court of Appeal. It held that the expert’s determination was sufficiently explained and did not contain any inconsistencies as contended.
- The court stated that:
- the content of the requirement for experts to give reasons must reflect the nature of the expert determination process, which is neither arbitral nor judicial;
- the role of the expert is in accordance with the private contractual arrangement;
- judicial observations in other cases about the requirements of experts or arbitrators to give reasons must be read in accordance with their context, as the obligation to give reasons is likely to be determined on the basis of the facts of each case and the contractual terms covering the expert’s engagement;
- unless the expert failed to do what was required by the contract, a mistake in the reasons given by an expert will not necessarily:
- deprive the determination of its binding force; or
- mean that the character of reasons do not meet the requirements of reasons under the contract;
- In this instance, the expert had not acted inconsistently with the contractual requirements.