Binding agreements

The expert determination of disputes is proving to be a cost-effective and popular alternative to

both arbitration and litigation. David Ashton explains its advantages

The expert determination of disputes has steadily gained popularity during the past several years. It serves as a useful adjunct to other means of resolving disputes without recourse to costly and time-consuming litigation.

The process of expert determination can best be described by what it is not rather than what it is.

It is not a judicial proceeding. There is no set procedure and the particular format that determination takes will depend upon the requirements of the parties and, increasingly, the approach and experience of the expert.

And, there is little or no control by the court and little or no appeal available from a disputed determination. The expert determination is also frequently non-reasoned since a simple one-line determination can tip the balance in substantial commercial disputes.

Expert determinations are often compared to arbitrations, but in reality resolution by arbitration is a different process altogether.

The arbitration framework is controlled by the courts through the application of the 1950 and 1979 Arbitration Acts; the arbitral award is subject to appeal and, most important, the award is treated as a judgement debt.

This latter point does not apply to an expert determination which would need court action to enforce the determined payment on an unwilling party. And, unlike arbitrations, costs in expert determinations can be apportioned in advance.

Many commercial contracts include a specific clause which will refer certain matters in dispute to an expert in the absence of any agreement between the parties.

Phraseology of such reference clauses varies between contracts and the wording can make quite subtle differences to a number of factors, such as whether the expert's determination is properly binding, the extent to which it needs to be reasoned and the process and timing of the determination.

As increasingly large sums of money are being determined by experts, it becomes all the more important to have a tautly written reference clause.

Most expert determinations proceed relatively smoothly and give a commercial answer to the parties from an individual in whom they have confidence. That answer can frequently be obtained with a minimum of fuss and avoid a lengthy hearing.

Many are based upon written reports by the parties, with scope for a second report or rebuttal to assist the expert in his decision. In most cases, a core file of documents will be agreed between the parties at the outset of the expert determination process.

As the amount being determined by experts increases, so various matters are gradually being tested in more contentious disputes.

The expert clearly has a duty to apply their professionalism and objectivity.

What is less clear is their duty to investigate facts and matters which the parties fail, either by intent or omission, to put before them.

Views differ as to the degree of responsibility that experts must take upon themselves; whether they should instigate further investigation of such matters or whether they can rely upon the information, however imperfect, that may be put before them.

A second matter relates to the interplay between the expert's determination and warranties under the contract. There is a grey area between the final and binding nature of an expert's determination, within the expert determination clause, and whether or not their determination is final and binding as applies to the contract as a whole. This could be critical for the applicability of warranties or whether they are already bound up in the expert's determination.

Third, there can be some confusion between the role of the expert and that of the mediator. Unlike the mediator, the expert has no responsibility for bringing the respective parties together, although that might be the effect of his role.

They are limited directly by the letter of appointment and the expert reference clause under which their role arises in the first place.

They have no further freedom to act unless the parties mutually so decide and the expert also finds that the position is agreeable.

With the proliferation of alternative means of dispute resolution, set against a backdrop of increasingly expensive litigation, it is clear that the role of expert determinations will come to assume an even greater level of importance in the current commercial environment.

David Ashton is a partner at Arthur Andersen specialising in expert evidence and determinations.