Expert determination clauses are commonplace in commercial agreements, being of particular use in technical or financial disputes where the parties require a swift evaluation to be carried out.  The process of expert determination is generally quick, informal, and significantly cheaper than alternative methods of dispute resolution, although parties should be aware that courts have little control over the activities of such experts and, unless explicitly set out in the agreement, there is generally no opportunity for parties to appeal an expert’s decision. 

A recent case has highlighted that an expert determination clause will not always prevent a court intervening in the dispute at an early stage where the jurisdiction of the expert is in question.  In that case the court held (on appeal) that it is in the interests of justice for the courts to determine whether an expert has jurisdiction to hear a dispute under an expert determination clause.  The court said that it is “neither just nor convenient” to defer that decision until after the expert has decided whether he has jurisdiction.

Background

Two parties had agreed an expert determination clause which provided that, in the event of a dispute regarding profits, the affected party could refer the matter to an accountant for determination, including the determination of any dispute concerning the interpretation of the agreement.  A reference to expert determination could be made up to 30 days after an allocation of profits. A dispute arose as to whether, in the absence of an allocation of profits, the expert had jurisdiction to deal with the dispute. 

The court had to consider whether or not it should stay the proceedings before it on the basis that the issues fell within the expert determination.  The court gave judgment on this issue, despite the fact that the parties had reached a settlement before judgment was handed down, as the issues were thought to be of general importance.

Decision

The court decided that expert determination clauses presupposed that the parties intended certain types of dispute to be resolved by expert determination, and other types by the court.  This is to be distinguished from arbitration clauses, for example, which are construed on the assumption that the parties intend any dispute, including a dispute as to the tribunal’s jurisdiction, to be decided by the arbitral tribunal.

The court held that, even where an expert determination clause conferred a right on an expert to determine his jurisdiction, the court is the ultimate decision maker on the expert’s jurisdiction.  Lord Justice Thomas referred to the dissenting judgment of Lord Justice Hoffman in Mercury Communications Ltd v the Director General of Telecommunications, (which the House of Lords later approved on appeal), in which Hoffman LJ stated that “in questions in which the parties have entrusted the power of decision to a valuer or other decision-maker, the courts will not interfere either before or after the decision.”  However, Hoffman LJ went on to explain that, where that expert has gone outside the limits of his decision-making authority, the courts will intervene.  Where parties have agreed that the expert should reach a decision in accordance with certain principles, it is for the court, not the expert, to decide on the meaning of those principles.

Regardless of the conclusion the expert reached as to his jurisdiction, that decision would therefore be capable of challenge.  In view of this, the court was mindful of the potential waste (presumably in respect of both time and cost) in the event that the expert proceeded to make a determination on a matter that was outside his jurisdiction, which was then challenged before the court.  It would therefore not have been just for the court to defer its decision until after the expert had decided whether he had jurisdiction.   

In this case Court of Appeal upheld the first instance decision that the expert did not have jurisdiction over the matter in question as no profit allocation had been made.

Comment

Parties often choose expert determination as a swift and economic means to determine issues of a technical nature.  To achieve that purpose the scope of the matters to be referred to an expert needs to be clearly set out and unambiguous.  Ambiguity in the scope can render the expert determination mechanism unfit for purpose if the effect is that a party can ask a court to make an initial determination on the scope of the expert’s function. 

Case reference:

Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826

Mercury Communications Ltd v the Director General of Telecommunications [1996] 1 WLR 48 (HL)