Ackerman v Ackerman [2011] EWHC 3428 (Ch) [first instance] & [2012] EWCA Civ 768 [Court of Appeal]

Expert determination is an alternative method of dispute resolution; it is often used to determine discrete technical issues but it can also be used to determine a wide range of disputes. The expert's decision will be legally binding on the parties, where they have entered into a contract which provides for that to be the case. 

It is possible to challenge the decision of an expert if he / she has materially departed from his / her instructions. In Ackerman & Ackerman the Chancery Court considered what would be regarded as a material departure from instructions. 

This case concerned the demerger of a family group of companies in acrimonious circumstances. One of the parties, Mr Joseph Ackerman, had been advised by a senior tax QC (Mr Andrew Thornhill QC) for many years and all parties agreed that he should be appointed to deal with the demerger. Mr Thornhill's instructions provided for a 'Provisional Adjustment Report' to be prepared, followed by a 'Final Report' to be issued within a year. Following submission of the 'Provisional Report' by Mr Thornhill, Mr Joseph Ackerman subsequently brought proceedings against him, and the other parties involved in the demerger. He sought to have the initial determination made by Mr Thornhill set aside for a number of reasons, including the fact that Mr Thornhill had not carried out the exercise he had been instructed to perform, as a result of which the report was not that for which the parties had contracted and so was not binding.

In Veba Oil Supply & Trading GmbH v Petrotrade Inc [2002] 1 All ER 703, the Court of Appeal had previously held that:

  • A departure from instructions would be material unless it could "truly be characterised as trivial or de minimis in the sense of it being obvious that it could make no possible difference to either party".
  • "...once a material departure from instructions is established, the court is not concerned with its effect on the result...the determination in those circumstances in simply not binding on the parties".
  • The test for materiality is "whether the parties would reasonably have regarded the departure as sufficient to invalidate the determination".

However, in Ackerman v Ackerman the Judge at first instance considered this test to be contradictory since it is surely only possible to consider whether a departure from instructions is "trivial" by considering the effect on the result. As such, the Judge drew a distinction between a departure from a substantive instruction and a departure from an instruction relating to procedure.

In this case, he held that there had been a departure by the expert from his instruction, but this had related to a procedural point and had not made a difference to the determination. It was therefore not a material departure from instructions and the determination remained binding. 

The Court of Appeal gave permission to appeal on this specific issue on the basis that it is arguably irrelevant whether the result is the same or not. The question is whether the expert departed from the agreed contract to more than an "insignificant degree", since "the parties did not agree to be bound by a report made otherwise than in accordance with the agreed procedure".

The substantive appeal did not, however, take place as the matter subsequently settled.  This issue is therefore still open for debate. It is questionable whether the distinction between procedural departure and substantive departure will survive, except perhaps in circumstances where the departure is so immaterial that it could not in fact be categorised as a departure at all.