October 25, 2021
No matter how big or small, all projects are faced with the risk of parties butting heads and charging into litigation battles. Those who fail to turn their minds to an effective dispute resolution strategy do so at the expense of the project itself as tensions inevitably rise, communications cease, finances freeze and works halt. When works become delayed, additional challenges form and the blame game continues, further shifting parties’ attention from practical completion to dispute resolution and litigation. What differentiates effective projects from turbulent ones is where meaningful dispute resolution strategy is embedded into the contract.
There is no universal approach to dispute resolution. What constitutes effective dispute resolution under one contract may be entirely inappropriate for another. This article series explores three different avenues of dispute resolution which can be relied upon in isolation or cumulatively. The first process explored is that of Expert Determination (ED).
Expert Determination
In practice, ED is a process where an independent expert decides an issue, difference, or dispute between the parties. The parties agree beforehand what specified disputes shall be determined by the expert and whether or not the decision will be final and binding. The rationale for this mechanism is entirely pragmatic. It is intended to facilitate the expeditious, effective, and non-adversarial resolution of disputes, particularly those which are of a technical character or specialised kind. ED is an entirely consensual process that respects party autonomy and freedom of contract. While the precise terms of ED clauses may vary, they have in common a contractual process by which ED is conducted.
What disputes should be referred to Expert Determination
A broad range of issues are capable of being referred to ED and in principle, there is no reason why factual, legal or technical issues, or any combination them, could not be determined by an expert. However, whether a dispute can and should be referred to ED are entirely different considerations. Certain disputes are less suited for the process of ED. For example, difficulties arise when disputes involving complex and contested issues of fact where credit is central to the enquiry – that is, who is to be believed. The absence of traditional litigation procedures, such as the ability to compel a witness to give evidence and the disclosure of documents, render it difficult to test and resolve disputed facts. In those circumstances, the expert can be in an impossible position to determine the truth out of competing versions of facts. Notwithstanding this, much will depend on the terms of the agreement governing the ED. An agreement that fails to make adequate provision for the expert to arrive at a determination may be void or unenforceable.
Procedure for Expert Determination
Naturally, the starting point of an ED is distinguishing the rules and processes. A part of that process is expert selection. Typically ED clauses require parties to agree on the identity of the expert. Where agreement cannot be reached within a specified timeframe, either pay may request a nominated third party (such as the president of an industry body) to appoint the expert. A word of caution – do not assume the professional body is willing to make the appointment. Some of these bodies regard the appointment of an expert as being outside of their charter and will refuse to comply with requests to appoint. There is a line of authority which suggests that in such circumstances, the clause is incomplete and therefore unenforceable. To mitigate this risk, it may be prudent to include a clause which expressly provides that the parties will do all things reasonably necessary to cooperate in the selection of an alternative industry body to make the appointment where the named body fails or refuses.
When drafting ED clauses, parties must decide whether or not to specify a procedure to be followed by the expert in carrying out the determination. Absence of a procedure will likely result in the expert determining that procedure and a number of consequences may follow. For example, unless required to do so, the expert is not obliged to apply procedural fairness nor the rules of natural justice and is not required to provide reasons for the determination. However, in the normal course an expert will be appointed because they possess a particular expertise which makes them a suitable choice to determine the issue. Assumably, this expertise would equip them to determine the best process and flexibility should be provided here. Often clauses will provide the expert to proceed in a manner they see fit, subject to certain minimum requirements, and enable them to conduct any investigation, examine documents and interview persons they consider necessary to making the determination. Further and regardless of the process depicted by the parties, it will ultimately be up to the expert on whether they agree to be bound by the terms. Where an expert request amendment to the ED clause, the parties are to decide whether they agree to the terms or choose a new expert.
Merits and Pitfalls of Expert Determination
Merits
1. Fast, flexible and cost-effective determinations;
2. The decision is confidential;
3. Less adversarial than arbitration or litigation; and
4. Upon election, the determination can be final and binding.
Pitfalls
1. Less suited to factual disputes and issues turning on credit;
2. A determination may be challengeable;
3. Arguably less suited to large and multifaceted disputes; and
4. Unless there has been jurisdictional error a party may be stuck with an unjust final and binding result.
So, is expert determination the right horse for the course? It depends. ED provides parties with an avenue for expeditious, cost-effective and confidential dispute resolution through a process that can be tailored to uphold their values and priorities. However, the resolution strategy is not without limitations. When ED clauses are considered by the parties to a construction contract, thoughtful drafting is essential to its effect and function.
LPC Lawyers
The LPC Lawyers team have a wealth of experience to assist across contractual drafting and dispute process. Through providing clients support across the duration of a project’s lifecycle, we can assist in ensuring a project’s successful and efficient delivery.
If you have any questions or concerns about your current or future projects, please do not hesitate to contact LPC Lawyers for a discussion on how we can assist.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
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