Business disputes aren’t always concerned with legal issues – in fact, many arise because of a disagreement over specialist technical matters. This is where expert determination comes in as a potentially valuable tool. In summary, expert determination is a method of alternative dispute resolution (ADR) that engages non-legal specialists in relevant sectors to determine unresolved issues.
In this guide we’ll discuss:
- What is expert determination?
- What’s an example of expert determination in action?
- What types of disputes are suitable for expert determination?
- How do you draft and use an expert determination clause in your contract?
- Things to consider when your solicitor is drafting an expert determination clause:
- What’s the relevant expert determination procedure?
- How do you appoint an expert?
- What if the parties don’t agree on who to appoint?
- Expert determination: advantages and disadvantages
- Expert determination vs arbitration
- How much does expert determination cost?
- Is expert determination final and binding?
What is expert determination?
Expert determination is a form of ADR designed to find faster, cheaper solutions to commercial disputes. When there is little or no disagreement on the facts of the case or the applicable law, expert determination has proven to be one of the most cost-effective ways to settle commercial disputes. An added advantage is that because it is carried out in private, you need not fear adverse publicity on behalf of your business, or the release of any market sensitive data.
With a less strict set of rules than litigation and arbitration, expert determination is used widely in all kinds of business disagreements – particularly when the contested issues are more technical as opposed to legal or factual in nature.
What’s an example of expert determination in action?
An example of expert determination in action might be a specialist company auditor being appointed as an expert, having been asked to determine the value of a business for sale, in circumstances where there is a disagreement between the buyer and the seller over the value of that business.
Like all methods of ADR, the process has advantages and disadvantages, which we will discuss in more detail below.
A further point to note about expert determination is that the expert’s decision is usually binding on the parties. It’s therefore crucial when entering a commercial contract to consider carefully whether you wish to include a provision relating to expert determination or not. In recent years, challenges to the appointment of experts have increased. Partly this is due to imprecise contract drafting at the outset. It’s important, therefore, to obtain specialist advice if you’re unsure about whether or not you wish to include provisions relating to expert determination (and ADR more generally) in the terms of your contract.
What types of disputes are suitable for expert determination?
Expert determination doesn’t lend itself well to disputes of a strictly legal nature, or to business disputes that revolve around significant factual disagreements. However, the procedure is commonly used when either of the following is required to resolve a disagreement:
- A market appraisal or valuation – of, for example, a commercial lease, commercial or agricultural land or a business entity.
- A technical or professional opinion on a specific matter – for example, an engineer’s opinion may be sought on compliance with specific requirements in a construction contract.
How do you draft and use an expert determination clause in your contract?
We mentioned above that it’s important to get specialist legal advice on the inclusion of an expert determination clause in your contract. Make sure you are satisfied that this method is suitable to deal with certain types of dispute under the contract. If a dispute does arise, you should be aware that the courts will hold parties to an expert determination clause. They may refuse to hear any dispute about the contract, and instead insist that it’s determined by an appropriate expert.
Since there are no statutory rules governing expert determination (unlike arbitration, for example), the way that an expert will determine areas of disagreement will depend entirely on the contractual terms. If the contract is poorly drafted, there is an increased risk that the expert’s appointment will be challenged. Challenges such as this can lead only to unwanted delays and additional cost.
Things to consider when your solicitor is drafting an expert determination clause:
- Check whether the term ‘expert’ is used explicitly. It may seem obvious, but if you don’t use the term precisely, the contract may be interpreted as referring to an adjudicator or some other form of arbitrator, which consequently means that different rules will apply.
- Ensure that provisions are included on how you and the other side will agree on who to appoint as an expert. If you are unable to agree on a particular appointment, it’s usual to set out that an external body can decide on this.
- What does the clause say about whether the expert’s decision will be final? What mechanisms are in place as to how a decision can be challenged?
- Bear in mind confidentiality. It’s usual to specify that any expert determination is to be carried out in private.
- What will the procedural rules be? It’s up to you and the other side to agree on how the expert determination will work in practice. It’s a good idea to at least outline procedures in the contract, so that you’re not faced with developing a procedure from scratch when in the midst of a dispute with the other party.
- Consider the scope of the expert’s work. This means identifying as far as possible the issues to be determined by the expert, and being clear on any limitations you wish to impose on the expert’s jurisdiction. It’s often useful to draw up – separately from the contract – an expert’s 'terms of reference' document, so that his or her powers are transparent.
- Factor in dealing with the apportioning of costs. You may wish to agree that each side pays its own costs, or specify that the expert can decide who is responsible for the costs of the determination process.
What’s the relevant expert determination procedure?
Unlike other forms of dispute resolution (chiefly arbitration and litigation,) there are no statutory rules governing the expert determination procedure. As we’ve highlighted, this is why careful attention should be paid when drafting an expert determination clause in your contract. The way the expert determination proceeds if you end up in dispute will be determined only by the contractual terms. If the contract is silent on procedure, you and the other party will be forced to agree terms – at a time when commercial relations may be strained because of the dispute.
When deciding on the procedure, you should consider:
- Setting out a clear timetable for deciding issues.
- Whether or not there should be an oral hearing.
- Whether each side should make written submissions.
- What form submissions to the expert should take. For example, how detailed should they be, and should the other side have a right of reply?
- Whether the expert is required to provide detailed reasoning alongside their decision.
Procedure for expert determination is often set out in a 'terms of reference' document (as touched upon above), which is to be read in conjunction with the contract.
How do you appoint an expert?
The whole basis of expert determination is flexibility, and also empowering the parties to a contract in deciding themselves the terms of the process of resolving a dispute. This extends to appointing the expert. While it’s open to the parties to appoint anyone they wish, there’s little point in appointing an expert who does not have the required technical expertise and specific insights into the area of dispute.
A comprehensive mechanism for appointing an expert should be included in any contractual provision relating to expert determination. Ideally, the parties will agree between themselves the identity of an expert who is independent and who possesses the appropriate expertise necessary to make the determination required.
What if the parties don’t agree on who to appoint?
The contract should specify what happens when the parties don’t agree on an expert. Usually a professional body, such as the Law Society or the Centre for Effective Dispute Resolution (CEDR) will be named in the contract as the body to consult in this situation. The named body’s role will be to nominate an appropriate expert. The parties must then engage with the process of agreeing the expert’s terms of engagement. Because the process cannot begin until the expert’s terms have been agreed, it is open to one party to refuse to co-operate in agreeing these terms, thereby delaying the process and the dispute being prolonged. To avoid this scenario, it’s possible to include an obligation in the contract that both sides must co-operate in agreeing an expert’s terms of appointment.
Expert determination: advantages and disadvantages
We’ve already mentioned some of the advantages and also the limitations of expert determination as a form of ADR. The table below provides some more detail on these points.
|There are no statutory rules. The process is therefore entirely flexible, and the parties can set their own terms in the expert determination clauses of the contract.||Unlike other ADR methods, because the process is not underpinned by statute, the powers of the expert are restricted by what it says in the contract or terms of reference.|
|Usually results in a cheaper and faster way of resolving complex issues.||Unsuitable for resolution of disputes where there are large areas of disagreement over factual matters, or if there is a significant dispute over the correct interpretation of the law.|
|Freedom to choose the expert means parties can appoint someone with precise knowledge and understanding of the area of dispute.||Limited rights of appeal. If the expert makes an error, the parties may have no choice but to acquiesce in a decision that’s fundamentally flawed. There are ways to challenge the decision in very specific circumstances (see below.)|
|It’s confidential. Not only does this protect commercially sensitive information, it can help maintain good commercial relationships.||Despite the limitations on appeal, challenges to an expert’s decision are on the increase. These challenges bring additional cost and added uncertainty. To reduce the risk of challenge, careful drafting of the relevant clause is crucial.|
|If the expert performs the determination negligently the parties may sue. Remember – you can’t sue a judge who makes mistakes, and there are only very limited ways to take legal action against an arbitrator if you are unhappy with a decision.||Enforcement of an expert’s determination against a losing party unhappy with the result requires further legal action.|
|The decision of the expert is usually binding, so the process offers finality.|
Perhaps the main reason why businesses choose expert determination over arbitration or other forms of dispute resolution is that it enables them to cut out a whole layer of the process. If a dispute is technically complex then it is inevitable that experts will be called to give evidence at trial or arbitration. Expert determination gets the expert opinion the court looks for, but it does so in a much quicker and cost-effective way. The value of this to commercial entities embroiled in a technical dispute cannot be underestimated.
Expert determination vs arbitration
Expert determination and arbitration are two widely used forms of ADR. There are key differences that make each process more appropriate in particular circumstances. Below are the principal differences:
The law around arbitration is more detailed and entrenched. This offers those who embark on arbitration a degree of legal clarity. Expert determination, as we have pointed out, has no basis in statute. While this offers great flexibility, it also means the parties – and the expert – have few legal rules to fall back on when there is a problem with procedure, or if the expert needs to take some measure not anticipated in the contract.
The law relating to arbitration is much more well-established than the law around expert determination. When a dispute arises over the way a determination is being handled, related litigation may arise. Due to the lack of statutory rules and legal decisions, such litigation can, as a result, take a long time to run its course. This can increase the time and money spent on expert determination considerably.
Expertise of decision-maker
Parties embarking on expert determination can appoint someone with the precise expertise they need. Arbitrators are likely to be highly trained legally, but may not have the specialist knowledge necessary to resolve the dispute, having to rely instead on expert witnesses.
As the process is less formal and faster, determinations are usually more economic to run than arbitration.
How much does expert determination cost?
There is no statutory framework underpinning the expert determination process. This means the issue of costs – and who bears what – is largely a matter for the parties themselves. It’s one of the key considerations when drafting the expert determination clause of the contract, or the expert’s terms of reference.
Although this route is generally much cheaper than other forms of dispute resolution, parties are liable not just for their own legal fees, but also the fees of the expert. In complex matters where the expert is backed up by a team of support staff, these costs can be considerable.
Often, both sides agree to pay their own costs and to divide the costs of the expert between themselves. However, it is open to them to insert a provision to the effect that the losing side pays the other side’s costs.
Is expert determination final and binding?
One of the reasons businesses choose this process as a method of resolving disputes is because it offers finality. Generally speaking, the decision of the expert is binding on the parties. The courts also tend to treat expert determinations as binding. They’ve recently demonstrated a marked reluctance to interfere with decisions made by someone who, after all, was appointed solely because of their expertise in a highly technical area.
There are nevertheless ways to challenge the expert. These include:
- Where the expert has been unfair to one of the parties; for example, by giving one side more time to prepare their case, or because of some other procedural unfairness.
- When the expert makes a mistake which amounts to a manifest error (a plain and obvious error).
- If collusion or fraud on the expert’s part can be established.
- In circumstances where the expert goes beyond the terms of reference agreed by the parties in reaching the determination.
Given the flexible nature of the process, the parties may make provision for challenges to the expert’s determination in certain cases. It is worth noting that such grounds must be clearly laid out in the expert determination clause of the contract.