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Expert determination

This guide was last updated in November 2012.

Expert determination is a confidential and binding process that can offer an effective means of settling a technical issue or dispute. It is an impartial and flexible process. The expert is required to act fairly and give each party a reasonable opportunity to be heard and respond to the other party. The determination of the dispute will be by an independent person with expertise relevant to the dispute.

When is expert determination appropriate?

When a fast solution is needed, expert determination is often the quickest and most inexpensive way of resolving disputes – particularly where the facts are agreed.

It is carried out in private, and therefore can be guaranteed to protect confidences and commercial sensitivity.

Expert determination is appropriate for technical or valuation issues. For example, an IT specialist may be appointed in an IT supply and installation contract to determine compliance with specifications or an accountant may be appointed as an expert in a business valuation dispute.

Why use it?

Expert determination has the following advantages as compared to other methods of dispute resolution, in particular arbitration and litigation:

  • it allows the appointment of an expert who is familiar with the technical issues;
  • it is usually cheaper, quicker and less formal than arbitration or litigation;
  • it helps parties to maintain business relationships, as it is confidential and less adversarial than litigation or arbitration;

The expert's decision is normally final and binding because, unless the parties provide otherwise, the decision can only be challenged on limited grounds such as fraud or lack of impartiality.

Enforcement

In England and Wales, an expert's determination can be enforced in court proceedings. However, as an expert's determination may not be readily enforceable by courts in other jurisdictions, disputes that arise out of some international contracts may be better resolved by another method.

Who can be an independent expert?

A person agreed by the parties to be an expert qualifies as one. It could also be a person appointed for the purpose by the head of the appropriate professional body.

The identity of the independent expert may be agreed before any dispute arises - for example, a company's articles of association may specify that on a transfer of shares a 'fair value' is to be determined by the company's auditors.

Procedure

The procedure is normally dictated by the terms of the original agreement made between the parties, incorporating the expert's terms of reference. These terms of reference set out the expert's powers and duties in detail. Some experts may suggest additional terms, in particular a waiver of any liability from the parties.

The following points should be covered:

  • matters in dispute should be identified at the outset;
  • certainty should be provided in relation to the time at which the issues for decision have to be finalised. This will prevent parties from introducing new issues once the determination is in progress;
  • although neither party will have the burden of proving its case before the expert, the terms of reference should make it clear that the expert is required to make his decision on the basis of all the material before him;
  • scope of the expert's function – does this extend to deciding issues involving how the contract itself is constructed? Can the expert appoint a legal adviser to assist with the process?

The terms of reference should also cover the procedure to be followed, for example:

  • the nature of any submissions to be made including guidance on the length, timing and content and the extent of the right of reply;
  • whether or not there should be an oral hearing and, if so, whether or not oral testimony will be permitted at such a hearing;
  • the means by which the expert will deliver the decision and whether or not it will be accompanied by reasons. Note that a reasoned decision may increase the risk of the determination being challenged in court on the grounds of 'manifest error', simply because it is then easier to show that an error is manifest or a mistake is obvious.

Costs

Parties will have to pay for the cost of the expert, and parties will normally bear their own costs. There is no power for the expert to award costs in favour of the successful party, unless that power is specified in the expert determination clause or the terms of reference or if the expert is specifically authorised to award and assess costs.