The recent decision of the New South Wales Court of Appeal in Australian Vintage Limited v Belvino Investments No 2 Pty Limited [2015] NSWCA 275 has clarified when an expert determination can be reviewed by the court, giving useful guidance on the circumstances which are required for a determination to be set aside.

INTRODUCTION

On 11 September 2015, the Court of Appeal allowed an appeal from the decision of the Supreme Court of New South Wales in Australian Vintage Limited v Belvino Investments (No 2) Pty Limited [2015] NSWSC 168. The Court of Appeal unanimously held that the expert's determination was reviewable, disagreeing with the findings of  the primary judge in the Supreme Court. The  parties were not bound by the determination as the expert had failed to carry out the task in accordance with the contract, making a determination on issues which were not within its authority and misconstruing the formula to be applied.

BACKGROUND OF THE DISPUTE

The appellant, Australian Vintage Limited, was a lessee under a lease with the first respondent, Belvino Investments (No. 2) Pty Limited, for premises which were to be used as a vineyard. The lease included a clause to provide for circumstances where the productivity of the vineyard was affected by natural disaster. Under this clause, the parties had to consider whether the production or production capacity of the vineyard had been reduced by more than 50% of the average production capacity, as defined in the lease, and whether this reduction was due to natural disaster. If the parties were unable to reach agreement on the issue, the matter was to be referred to an expert.

Following a severe frost in October 2013, the appellant informed the respondent that the volume of grapes capable of being produced had reduced by more than 50% of the average production capacity. In June 2014 the matter was referred to an expert. The expert determined that any reduction in production or production capacity of the vineyard was less than 50% of the average production capacity, and rejected the calculations put forward by the lessee.

The dispute between the parties centred around the construction of the formula to be used by the expert when carrying out this determination. The appellant brought proceedings seeking to have the determination set aside on the basis that the expert's determination on the construction of the formula was incorrect. The primary judge in the Supreme Court dismissed the summons, and held that the expert had reached the correct decision and that its determination on the construction of the formula was not capable of being reviewed. The appellant appealed against both of these findings.

THE COURTS DECISION

The Court of Appeal allowed the appeal and held that the expert and the primary judge had reached an incorrect construction of the formula to be applied. The determination was reviewable, and the matter was to be remitted to the expert for determination.

The Court set out the circumstances when an expert's determination will be open to review, stating that this turned on whether or not the expert had carried out the determination in accordance with the terms of the contract, objectively ascertained.

When will a determination not be reviewable?

A determination will not be reviewable if the expert has carried out the task which they are required to carry out under the contract. As stated by His Honour, Chief Justice Bathurst, if the expert carried out the correct task, the fact that errors were made or irrelevant matters were taken into account does not lead to the determination being reviewable, and the court will not set aside the decision.

When will a determination be reviewable?

A determination will be open to review if the expert has carried out some other task not required under the contract, or carried out the task in a way which was 'not within the contractual contemplation of the parties, objectively ascertained'; a test supported by numerous authorities, including AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173, for example (AGL Victoria) and Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314.

If in the course of carrying out their task, the expert has to determine matters of fact (such as the formula to be applied), parties will only be bound by the expert's determination of such issues if that was their intention under the contract. If such matters are outside the expert's decision making authority, and the expert reaches an incorrect conclusion, the parties will not be bound by the determination and it will be reviewable. As acknowledged by the Court, it is more likely that only matters of 'discretion and opinion' will be left to the expert for determination; the expert will have the necessary qualifications to reach a decision on such issues, however it is unlikely that the same can be said for determining the proper construction of a contract.

The court also held that if the contract provides that the expert's determination is final and binding, this does not mean it cannot be subject to challenge. As stated by Bathurst CJ, the determination will only be final and binding if it has been carried out in accordance with the contract and is not subject to review, agreeing with the statements provided by Nettle JA in AGL Victoria.

On the facts of this case, despite the expert being required to come to a decision on how the formula was to be applied, this was 'an objective matter outside the expertise of such a person' and the parties would not have intended to have been bound by the expert's determination on the formula to be used. Even though the contract provided that the decision was to be final and binding, this did not prevent the Court from setting aside the decision.

CONCLUSION

When including a provision in a contract which provides for disputes to be referred to an expert, parties should be clear on what issues are within the expert's authority to determine. Parties should avoid showing an intention to be bound by an expert's determination on matters of fact, which the expert may not be qualified to make. In the event the expert comes to an incorrect decision on such matters, the parties run the risk that they are bound by the determination as a court may find the determination is unreviewable. Only matters of opinion should be within the expert's decision making authority, so that even if the expert is required to reach a decision on a matter of fact, the parties will not be bound by an incorrect construction, as such matters will be outside the expert's authority.

To avoid the need for an expert to form a view on how a formula should be applied under a contract, which may raise questions of whether or not such matters are within the expert's decision making authority, it would be good practice for the parties to include worked examples of any formulas to be used in the contract.