Fenwick Elliott Grace Legal Notes

Expert Determination

Use

Expert determination clauses have been used in a number of construction contexts in Australia.

Examples of Provisions

In Ipoh v TPS [2004] NSWSC 289, the clause in the development agreement under consideration was in the following terms:

21.2 Expert Determination
The following applies in the case of any dispute referred for determination under this clause:

(a) a party may not begin legal proceedings in connection with a dispute under this Agreement (excluding urgent applications for interlocutory injunctions) unless that dispute has first been decided by a person appointed under this clause 21.2;
(b) the dispute must be referred to a person agreed on by the parties but if the parties do not agree within 5 Business Days after the notice of dispute is given, then to a person appropriately qualified to deal with the dispute appointed at the request of any party by the president of The Law Society of New South Wales;
(c) the expert will:

(i) act as an expert and not as an arbitrator;
(ii) proceed in any manner he or she thinks fit;
(iii) conduct any investigation which he or she considers necessary to resolve the dispute or difference;
(iv) examine such documents, and interview such persons, as he or she may require; and
(v) make such directions for the conduct of the determination as he or she considers necessary.

(d) the expert must:

(i) disclose to the parties any interest he or she has in the outcome of the determination;and
(ii) not communicate with one party to the determination without the knowledge of the other.

(e) The expert will determine who pays each parties’ [sic] costs and the expert’s costs and the parties will comply with the expert’s said determination.
(f) Unless otherwise agreed between the parties, the expert must notify the parties of his or her decision upon an expert determination conducted under this clause 21 within 20 Business Days from the acceptance by the expert of his or her appointment.
(g) The expert will not be liable to the parties arising out of, or in any way in connection with, the expert determination process, except in the case of fraud.
(h) The determination of the expert:

(i) must be in writing;
(ii) will be final and binding.

Sitting under that development agreement in that case there was also an expert determination clause that was broadly but not exactly back to back:

39.4 Selection of Expert
Where the Contract requires or provides for a matter to be referred to or resolved by expert appraisal the matter shall be determined by an independent expert:
(a) agreed between and appointed by the parties; or
(b) in the absence of agreement within 5 Business Days after the date of the relevant notice, appointed by the President of the Institute of Arbitrators, Australia, and administered in accordance with clause 39.5.
39.5 Rules of Expert Determination
(a) The expert shall:

(i) act as an expert and not as an arbitrator;
(ii) proceed in any manner he or she thinks fit without being bound to observe the rules of natural justice or the rules of evidence;
(iii) take into consideration all documents, information and other material which the parties give the expert which the expert in his or her absolute discretion, considers relevant to the determination of the Dispute;
(iv) not be expected or required to obtain or refer to any other documents, information or material but may do so if he or she so wishes; and
(v) make his or her decision within 20 Business days from the acceptance by the expert of the appointment.

(b) The expert may commission his or her own advisers or consultants, including lawyers, accountants, bankers, engineers, surveyors, traffic consultants or other technical consultants, to provide information to assist the expert in his or her decision.
(c) The parties shall indemnify the expert for the cost of retaining those advisers or consultants.
39.6 Expert’s Finding
The determination of the expert shall be in writing and will be final and binding on each party unless a party gives notice to the other party of its intention to initiate proceedings in respect of the determination in a court or other tribunal within 10 Business Days of the determination.The parties are to give effect to the determination of the expert unless and until it is reversed, overturned or otherwise changed by any subsequent litigation proceedings.…

Overall Policy

The modern judicial position on expert determination is set out in Straits Exploration (Australia) Pty Ltd and Anor v Murchison United Nl and Anor [2005] WASCA 241, in which Wheeler JA said:

[14] There is increasingly, as a matter of commercial practice, a tendency of parties to provide for the determination of some or all disputes by reference to an expert. There are a number of reasons for that course, including informality and speed; suitability of some types of disputes for determination by persons with particular expertise; privacy; and a desire to resolve disputes in a way which may be seen as reasonably consistent with the maintenance of ongoing commercial relationships. The law has long recognised that those are proper considerations to which the Court should give appropriate weight, and that it is desirable therefore that parties who make such a bargain should be kept to it. The tendency of recent authority is clearly in favour of construing such contracts, where possible, in a way that will enable expert determination clauses to work as the parties appear to have intended, and to be relatively slow to declare such provisions void either for uncertainty or as an attempt to oust the jurisdiction of the court. A considerable number of cases demonstrating this trend are collected in the reasons for decision of Einstein J in The Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646 at [16]–[33]. (See also Australian Pacific Airports (Melbourne) Pty Ltd v Nuance Group (Aust) Pty Ltd [2005] VSCA 133 at [50] and Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135 at [21].)

The Heart Research Foundation v Psiron case contains a positive flood of judicial support for the expert determination process.

Ouster of Jurisdiction

Questions sometimes arise as to an expert determination provision might offend against the rule against ouster of the court’s jurisdiction.

In upholding the expert determination clause in that case against an ouster challenge in Straits v Murchison, the judge overturned a Master’s decision which had relied particularly upon the decision of Heenan J in Baulderstone Hornibrook Engineering Pty Ltd v Kayah Holdings Pty Ltd (1997) 14 BCL 277. The judge’s analysis of that decision suggests that it has but limited general application:

[22] The most controversial of the three reasons given by his Honour for granting the stay was his finding that the relevant dispute resolution clause was against public policy as purporting to oust the jurisdiction of the court, and was therefore void. It has, in that respect, been the subject of some criticism: see Zeke Services at [17], Jacobs, Commercial Arbitration: Law and Practice at [12.49/8], Campbell, "Final and Binding Expert Determination and the Discretion to Stay Proceedings" (2005) 16 ADRJ 104 at 109–110. In my view, it is not possible to tell from his Honour's brief reasons precisely why it was that he reached the view that the clause in question was an attempt to oust the jurisdiction of the court. The dispute resolution clause itself, from which his Honour quoted, provided that the decision of the referee was to be "final and binding upon the parties, except that the referee may correct his decision where in his opinion it contains a clerical mistake, an error arising from an accidental slip or omission, a defect of form, a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the decision". It may be that, in the context of the contract as a whole, his Honour reached the view that the clause purported to exclude the jurisdiction of the Court to review the referee's decision for such matters as fraud, collusion, or failure to act in accordance with the contract. It is not necessary for present purposes, however, to consider that question.

[23] In the context of this case, it is sufficient to note that the dispute resolution clause in Baulderstone appears to be distinguishable from that in the present case which, as I have noted, appears to preserve and perhaps to widen the court's jurisdiction to review any concluded expert determination, and which does not purport to prevent a party from approaching the court, prior to the making of such a determination. I would understand Baulderstone as being no more than an application of the principles, which I have described earlier, to particular facts. It is not authority for any wider proposition and, in particular, is not authority for any proposition about the general invalidity of expert determination provisions in contracts. It does not suggest, much less require, the conclusion that the clause in issue in the present case is an impermissible ouster of the court's jurisdiction.

Expert determination provisions are thus not, prima facie, objectionable as a matter of public policy.

Natural Justice

Need an expert determinator observe the rules of natural justice?

Some expert determination rules expressly say no (see above). And the closing words of the ringing endorsement of the system in Heart Research Foundation v Psiron (a case in which the relevant provision excluded the natural justice rules) suggest the court was none too worried about the issue:

Indeed, on a practical level, Expert Determination has apparently been attractive, largely because it is less expensive and speedier, avoids the rigours of the application of the rules of evidence and procedure and offers a finality which avoids delays, potential re-hearings and appeals, which is particularly suitable especially where an expert knowledge of the subject is required or where the parties may have a continuing relationship.

The reference to procedure here suggests itself as a reference to the rules of natural justice.

Conversely, the courts have regularly imported natural justice requirements into adjudication procedures around the common law world, including Australia, and the logic for doing so would seem to apply all the more cogently in a final process such as expert determination.