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Expert determination clauses: traps for the unwary?

Expert determination clauses have proved popular in all sorts of contracts. This is because they offer the prospect of a cheap and relatively fast way of resolving disputes, unlike clauses providing for the resolution of disputes by arbitration or court proceedings. If such clauses also provide that the expert need not give reasons for their decision, it also means, in effect, that it becomes extremely difficult for the losing party to appeal the decision on substantive grounds. The jurisprudential basis for expert determination clauses was placed on a firm footing in Jones v Sherwood, where the Court of Appeal held that as a matter of contract law, where two persons agree an expert determination clause, they are bound by the outcome if the determination is made by the expert honestly and in good faith, even if there has been a mistake in the determination. The Court of Appeal expressly rejected the earlier authorities that had treated such clauses as mere machinery for calculation that could be automatically overridden by the courts if it appeared to be wrong. In light of this seminal case, one might have thought that subsequent litigation concerning expert determination clauses would have been limited, save in cases where dishonesty or bad faith is alleged against the expert. However, there has been a spate of recent cases concerning the logically anterior questions of whether, as a matter of contract:

  • The expert has the jurisdiction (or put another way, has the authority) in fact to determine the dispute referred to them.
  • If so, the circumstances in which a party to the contract could potentially waive their right to refer such a dispute to an expert.

Chancellor Vos considered the second of these two issues in the February 2017 unreported Chancery Division case George Scarr-Hall v ISS (UK) Limited.

The “jurisdiction” of the expert

Before turning to the question of potential waiver, it is instructive to consider the court’s approach to dealing with questions of expert jurisdiction. In short, where the court considers that the expert will act, or is acting, outside their decision-making authority, the court will intervene and, if necessary, enjoin the expert determination process and its purported effect. The court will generally wait until the expert has made a determination before intervening. This is because it may transpire that the expert does not in fact act outside their authority: Director of General Telecommunications and another v Mercury Communications Ltd (per Hoffmann LJ dissenting but whose judgment was approved in the appeal to the House of Lords). The questions of if, or when, the court will intervene is determined on what is just and convenient in the circumstances of the case in question: Barclays Bank v Nylon Capital; MP Kemp v Bullen Developments Limited.

The potential risk of waiving jurisdiction 

In George Scarr-Hall v ISS (UK) Limited, the claimant, GSH, had sought to claim deferred compensation under a business sale agreement. Deferred compensation was based on a series of post-completion accounts of the target company. Those post-completion accounts were to be prepared without interference by GSH or the defendant, ISS. In the event of a dispute arising from the post-completion accounts, the matter was to be referred to expert determination.

GSH had commenced court proceedings for deferred compensation. It said that, since ISS had interfered with the preparation of the target company’s post-completion accounts, there were no accounts from which a dispute could be said to arise within the meaning of the expert determination clause. As such, the expert determination clause did not apply to the dispute. ISS filed an acknowledgment of service (but did not contest in that document the court’s jurisdiction to determine the dispute). ISS then served a defence reserving its right to refer the dispute to expert determination. Subsequently, ISS sought to invoke the expert determination procedure and applied for a declaration from the court that it was entitled to do so. GSH opposed the application on the basis that, by failing to dispute jurisdiction under CPR 11, ISS had been deemed to waive its right to expert determination. GSH relied on the submission that the court’s jurisdiction in CPR 11 covered questions of “the court’s power and authority” to determine issues: per Hoddinott v Persimmons Homes.

The Chancellor rejected GSH’s argument on the particular facts of the case. The judge was concerned, as a matter of case management, that the expert determination procedure should provide an opportunity for the dispute to be resolved before the matter came on for trial. The judge also found that ISS on the facts had not waived its right to refer the dispute to expert determination in the first instance.

Conclusion

When a client is faced with concurrent court proceedings (potentially in breach of an expert determination clause) and expert determination proceedings, it must be careful not to waive its right to expert determination. It can protect its position by filing an acknowledgement of service contesting the court’s jurisdiction as appropriate.

Quadrant Chambers Jeremy Richmond

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