Barclays Bank PLC v Nylon Capital LLP [2011] EWHC Civ 826

The Appellant and Respondent had entered in to a partnership agreement which contained an expert determination clause. That clause stated that in the event of a dispute relating to profits, a party could refer the matter to an accountant for determination, including determination of any dispute relating to the interpretation of the agreement. Any such reference could be made up to 30 days after an allocation of profits under the agreement. No such allocation had been made.

Such a dispute did arise, but the Respondent also issued proceedings against the Appellant for a declaration that it was not under any obligation to pay profits to a particular fund manager.  

The Appellant submitted that the Respondent’s claim should be stayed pending determination of the dispute by an expert, as provided for by the agreement. The Respondent argued that the Court should first determine the jurisdiction of the expert, and further that the expert had no jurisdiction because profits under the partnership agreement had not yet been formally allocated.

The Court of Appeal found in favour of the Respondent, stating that it was ultimately for the Court to determine the jurisdiction of the expert. Further, an expert determination clause should not be approached in the same manner as an arbitration clause. While arbitration is usually an alternative to court proceedings for resolution of all disputes between the parties, an expert determination clause presupposes that the parties intend certain types of dispute to be resolved by an expert, and other types by the court.  

The Court first had to determine whether the dispute before it was either real or hypothetical. If it was real, as the Court found that it was in this case, it was then necessary to consider whether it was in the interests of justice and convenience for the court to determine the matter rather than allowing an expert to determine it first. The Court noted that any determination by an expert would not be final, and would be open to challenge. As such, issue could well come before the Court in any event. It was, therefore, in the interests of both justice and convenience for the court to determine the issue of jurisdiction.  

It was also noted that the agreement between the parties made it clear that an allocation of profits was a condition precedent to the appointment of an expert. The expert had no jurisdiction to determine any issues at all until an allocation had been made, as it had not in this case.