Key Points:

The increasing use of expert determination to resolve all disputes under a construction contract is often inappropriate.

Expert determination was developed as a quick and inexpensive way to answer discrete technical or valuation questions. However, it is now increasingly being used as the method of resolving all disputes that arise under a construction contract.

Often the expert determination process is not suited to disputes involving multiple or diverse issues. The use of expert determination as the preferred method of resolving all disputes under a construction contract could result in erroneous decisions. Further, the courts have demonstrated that they will generally not allow a party to avoid a contractually agreed expert determination provision, and they will enforce an expert's determination, even if that determination is incorrect.

Where is expert determination appropriate?

Traditionally, expert determination has been considered appropriate where there is a single discrete technical or valuation question, or a few associated questions of that nature. In those circumstances, an expert determination of the question can benefit both parties because it is:

  • confidential (this may be particularly important where a valuation or pricing question is being determined);
  • impartial;
  • quick and relatively inexpensive;
  • flexible (because there is no legislation governing expert determinations and the parties are free to determine their own rules for the expert determination process); and
  • binding (unless the parties provide otherwise, the expert's determination is final and binding).

Further, as the name suggests, the question is determined by an "expert" who should be familiar with the topic and able to use his or her own expertise or inquisitorial investigations to answer the question.

Expert determination compared to statutory adjudication

There are well established procedures for the giving of submissions and evidence in adjudications and, notwithstanding the speed of the adjudication process, a party to statutory adjudication can generally be content that its arguments will be heard pursuant to a well established and transparent process.

Further, and importantly, the "quick and dirty" nature of adjudication can only be justified on the basis that an adjudicator's decision is subject to a final determination of disputes between the parties following completion. The same cannot be said for expert determination, which is generally quick, dirty and final.

Expert determination compared to arbitration

Unlike expert determination, arbitration provides for a thorough and detailed analysis of complex and diverse issues. This analysis is carried out using tools that are not suitable to expert determination, such as discovery, cross-examination of witnesses and expert testimony on a broad range of technical matters.

In addition, an expert's determination is not enforceable in its own right; it is merely treated as a provision of the contract. If the losing party refuses to comply with an expert determination the successful party is required to commence court proceedings seeking a declaration or order for specific performance. By contrast, arbitral awards can be enforced as if they are court orders.

Why is expert determination increasingly used to resolve general disputes?

Following the introduction of statutory adjudication of construction payment disputes, the construction industry has got used to the quick and cheap resolution of disputes, even where that is at the expense of contractual and legal precision.

In circumstances where statutory adjudication does not apply, parties may consider expert determination to be a similar alternative. Further, when it is compared to arbitration, expert determination can be considered to be quicker, more efficient and less likely to be subject to appeal.

The enforcement of the parties' bargain

Notwithstanding that it may not always be appropriate, Australian courts will not generally permit a party to avoid a contractually agreed expert determination process (The Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646).

Further, although an expert's determination cannot be enforced in its own right, the courts have demonstrated that, except in limited situations, they will enforce the expert's decision. A "final and binding" expert determination will not be set aside if it is mistaken, incorrect or made negligently (Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314).

Where is expert determination appropriate?

Expert determination is not equivalent to adjudication, arbitration or litigation. Instead, it is a useful method of resolving discrete technical and valuation questions where the procedures and formalities of arbitration and litigation would result in unnecessary delay and expense.

An appropriately drafted dispute resolution clause, such as clause 15.2 in the Property Council PC1 contract, allows the parties to specify the clauses in relation to which a dispute would be resolved by expert determination. Examples of issues that are generally appropriate for an expert determination include:

  • valuations of the contractor's plant and equipment that is to be purchased by the principal;
  • certification issues; and
  • determinations of discrete technical matters such as moisture content and rise and fall in a mining contract.  

Conclusion

Parties negotiating a contract should consider what their commercial objectives are and which method of dispute resolution is most likely to suit those objectives. For example, a principal under a construction contract is more likely to have claims made against it than it is to make claims. Accordingly, it is unlikely that a quick and simplistic resolution of those claims would be in the principal's interests.