ADR: An Introduction to Expert Determination
Introduction
Eighteen years ago, Tomas Kennedy-Grant wrote an article in the New Zealand Law Journal on expert determination (also known as contractual determination).[1] While the alternative dispute resolution (ADR) ground has shifted since that time, parts of the opening of Master Kennedy-Grant's article remain as apposite as ever:
Whether we regard ourselves as in the new millennium or as still in the last year of the old, one thing is certain and that is that disputes are, always have been and, certainly for the foreseeable future, will be a feature of our lives as individuals, communities and countries.
In 1987, at the International Symposium on Pacific Basin Dispute Resolution held in San Francisco, David Newton, who was then Secretary-General of the Australian Commercial Disputes Centre Ltd, said:
If we cannot live together more harmoniously we must learn to disagree more efficiently.
The aspiration of disagreeing more efficiently remains relevant today. Curial resolution of disputes is increasingly inaccessible. Court costs are high. Delays in progressing matters to trial are lengthy. Legal fees are significant. For many people the resolution of commercial disputes is increasingly out of reach.
But that is out of reach only in terms of traditional dispute resolution procedures. Perhaps the question is why parties are not reaching for a better solution. And the answer to that may well be that they do not know about it. This article seeks to illuminate expert determination as a final and binding mode of dispute resolution by:
(a) explaining the nature of expert determination;
(b) outlining the origins of the mechanism;
(c) detailing the courts' approach to such clauses;
(d) setting out the procedural matters to be wary of; and
(e) discussing how expert awards may be enforced.
WHAT IS EXPERT DETERMINATION
Expert determination is a mutually agreed contractual process (that is not arbitration or adjudication) by which parties to a dispute agree to refer it to a third party (usually a barrister for legal issues) for a binding decision.[2] The expert determination clause can be contained either in the contract constituting the relationship between the parties or, more rarely, in a standalone agreement. There is usually no hearing and a truncated determination process. Edwards J has stated the procedure is “an informal, speedy and cost effective way of resolving disputes, particularly those of a technical or specialist character”.[3] the procedure is usually truncated with no ability to call witnesses, or to be heard, unless specifically provided for in the agreement. In England Moore-Bick LJ has stated that parties tend to use expert determination to obtain “a quick and relatively inexpensive decision of a binding nature on a matter that calls for informed judgment”.[4] The attraction of the procedure lies in its informality and absence of the strictures of procedure ordinarily an incident of curial dispute resolution.[5]
Expert determination is most suitable for technical disputes, disputes that turn on specialist knowledge (such as valuation disputes and share disputes), or low value disputes. However, it can be used in a broad range of situations. It is generally unsuited to disputes which demand credibility and reliability assessments because cross-examination is unusual (though can be instituted upon the motion of the expert). This issue of credibility is discussed in more detail below.
ORIGIN OF EXPERT DETERMINATION CLAUSES – THE NEW ZEALAND EXPERIENCE
The idea of expert determination initially arose in the context of valuations of land, share valuations in takeover, and in construction contracts.[6] Kotb says that in these cases "the role of the expert is not to resolve a dispute, but to determine a term of the parties' agreement".[7] In Greymouth Petroleum Acquisition Company Limited v Petroleum Resources Limited, Heath J cited the following passage from an article about expert determination:[8]
Expert determination has been a feature of English commercial and legal practice for at least 250 years. It is a simple procedure which originally enabled technical and valuation issues to be referred to a suitably qualified person or persons to determine ‘as an expert and not as an arbitrator’ … It has developed into use for more general dispute resolution in technical contexts, notably construction. It is used to resolve some very substantial disputes: for instance in 1996 the purchase price of the William Hill and Mecca Bookmakers businesses was reduced by £117.5m by an accountant appointed to act as an expert. The system is quick, cheap and private. It is closely related to arbitration but fundamentally different in that there is no statutory mechanism for review as there is for arbitration under the Arbitration Act 1996 [UK], and there is also no obligation on the Tribunal to keep to the international standard of ‘due process’ laid down by the New York Convention on international arbitration awards, …
It is difficult to ascertain from New Zealand authority when dispute resolution became part of New Zealand’s legal landscape. Wade v Harley (No 2) is an unusual decision of the Auckland Supreme Court (now the High Court).[9] An application for an injunction and an account of profits came before the Supreme Court in relation to allegations that a patent had been infringed. The Court itself referred the question of infringement to three ‘arbitrators’ who were to determine the issue. The ‘arbitrators’ appointed by Court order unanimously held that there was no infringement.[10] While this is not an expert determination as we know it today, it is one of the first examples of experts being appointed to determine a matter within their specialist knowledge in New Zealand case law.
In 1932 the Auckland Supreme Court was required to adjudicate upon a lease dispute in In re a Lease from Auckland City Corporation to Grey Buildings Ltd.[11] This decision highlights the origin of expert determination as being a matter initially confined to technical disputes, particularly valuation disputes. Grey Buildings was the holder of a lease from Auckland City Corporation. It had a right of renewal at a rent to be fixed by valuation made by three independent persons under s 154 of the Municipal Corporations Act 1920. The three valuers could not agree. An arbitration was required. The case concerned a narrow point of statutory interpretation that is irrelevant for present purposes, as the case simply highlights the origins of expert determinations in New Zealand.
The appearance of an expert determination clause that looks more akin to what we see today emerged in the 1980 decision Re Securitibank.[12] While the case did not involve an expert determination, it is notable for its reference to an expert determination clause that read “… or failing agreement shall be submitted for final determination by an expert to be agreed upon by the banks or in the event of their being unable to agree upon a mutually accepted appointee then by an expert … to be nominated by the President for the time being of the New Zealand Society of Accountants or his deputy …”.[13]
The 1983 decision of the Court of Appeal is one of the first involving substantive consideration of an expert determination clause.[14] The Crown had agreed to purchase a fixed amount of gas from the Maui offshore field, whether or not the gas was taken. Article 9.2.1 of the agreement said that the price was to be paid at a rate it would have paid if the gas was taken. Article 12.4.2 provided that undisputed amounts must be paid and any disputed amounts would be referred to an independent expert in accordance with Article 16. Pricing disputes were duly referred to Mr JH Wallace QC as an agreed independent expert acting under article 16. An award was given by Mr Wallace. The Crown subsequently filed an application in the High Court seeking to set aside the award. That decision is notable for the way the clause was interpreted. Cooke P stated that “[b]oth sides here accept that, although not all the provisions of the Arbitration Act 1908 applied to the reference to Mr Wallace, his decision is an arbitrator's award in the eyes of the common law”.[15] As will be seen below, that is not the position that would be reached if the provision came before a New Zealand court today.
It was not until the early 2000s that there was distinct upwards trend in the number of case being litigated over expert determination clauses, some of the more important ones being detailed below. What is apparent is that over time expert determination has become a general form of dispute resolution by which a lawyer (most often a barrister of some years’ standing) will determine a dispute that has arisen under a contract or otherwise between themselves.[16] In a footnote in Lighter Quay Residents' Society Inc v Waterfront Properties, Ellis J has commented on the proliferation of expert lawyers determining disputes as follows:[17]
The practice of appointing lawyers as “experts” appears to be a burgeoning one and has led to an unhelpful blurring of traditional distinctions between arbitrations and expert determinations. But in David Wilson Homes Ltd v Survey Services ltd (in liquidation) [2001] 1 All ER (Comm) 449 the Court of Appeal held that the fact that the agreement in question provided for a Queen's Counsel to be appointed to resolve disputes meant that the parties intended that any such inquiry was to be a judicial one, i.e. an arbitration rather than an expert determination.
COURT'S APPROACH TO EXPERT DETERMINATION
Expert determination is a mechanism borne purely of contract and, unlike arbitration or adjudication, does not have any legislative imprimatur. The metes and bounds of the procedure are determined by the four corners of the contract.[18] And the courts are willing to give effect to what the parties have agreed. In 136 Fanshawe Ltd v Wilson Parking New Zealand Ltd, Toogood J eschewed the historic position that there could be no expert determination if the expert was required to act judicially, and instead said the focus is on the terms of the relevant contract and modern principles of contractual interpretation.[19] If the parties meant to have an expert determination, then their intent will be given effect to; a clause will not be read up to be an arbitration clause.[20]
The reference in the passage above to Methanex is to a decision of Fisher J from 2003.[21] While recognising that contractual interpretation was the touchstone, before Methanex there seemed to be an implied approach to construction that the courts prefer arbitration over expert determination.[22] That is no longer likely to be the case. In the words of Fisher J it is unlikely that the courts will have issue with the proposition that by agreeing to expert determination “… the parties were content to cast themselves adrift from that bundle of rights and duties that has been developed over many years to protect the integrity of the arbitration process …”.[23]
This is well emphasised by the recent judgment of Fitzgerald J in Triezenberg v Mason.[24] Clause 15 of a trust deed stated that if trustees could not reach agreement, then the matter shall be referred to an independent person to be agreed upon by the trustees and, in default of agreement, by a person nominated by the President for the time being of the Auckland District Law Society, and the decision of that person shall be final and binding on the trustees who shall be bound to implement such decision.[25] It was said that this clause was an arbitration clause. Fitzgerald J gave this argument short shrift and said “I accordingly do not consider cl 15 is an “arbitration agreement” for the purposes of s 2 of the Arbitration Act. It is more akin to a referral to expert determination”.[26]
Therefore, the courts will interpret an ADR clause as they will any other contract (although not as liberally as they would an arbitration clause given its legislative mantle). Where the parties have committed themselves to expert determination the courts will give effect to the objective intention of the parties and their freedom to contract.[27] There is less room for argument that an expert determination clause is void as against public policy (for example on the requirement that such a clause ousts the jurisdiction of the Court).[28] Such an argument has been raised in England,[29] Australia,[30] and New Zealand.[31] However, the New Zealand Court of Appeal has recently doubted whether the fact an expert is required to act judicially will convert an expert determination into a de facto arbitration.[32] And certainly the trend in the English judicial system is one of encouragement of general dispute resolution by expert determination.[33] The Courts are willing to give effect to such clauses on the basis of freedom of contract and the public interest in disputes being resolved timely and efficiently, without unnecessarily using judicial resource.[34]
[1] Master Tomas Kennedy-Grant "Expert Determination and the Enforceability of ADR" [2000] NZLJ 222.
[2] See the definition in J Lee "Expert Determination" in R Gaitskell (ed) Construction Dispute Resolution Handbook (2nd ed, Thomas Telford Ltd, London, 2011)
[3] Archers Road Trust Company Ltd v JMR Business Ltd [2016] NZHC 2987 at [50], citing Greymouth Petroleum Acquisition Company Ltd v Petroleum Resources Ltd HC Auck CIV-2003-404-6984, 22 December 2003 at [38]—[39].
[4] Premier Telecom Communications Group Ltd v Webb [2014] EWCA Civ 994 at [12]. In Scotland see MacDonald Estates Ltd v NCP [2009] ScotCS CSIH_79A at [31].
[5] The Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646 at [86].
[6] Adham Kotb "Alternative Dispute Resolution: Arbitration Remains a Better Final and Binding Alternative than Expert Determination" (2017) 8 QMLJ 125 at 126-127.
[7] At 127.
[8] Greymouth Petroleum Acquisition Company Limited v Petroleum Resources Limited HC Auckland CIV-2003-404-6984, 22 December 2003 at [38], citing John Kendall "Expert Determination in Major Projects" (1997) International Business Lawyer 171 at 172. See too Belchier v Reynolds (1754) 3 Keny 87.
[9] Wade v Harley (No 2) (1909) 29 NZLR 577 (SC).
[10] At 581.
[11] In re a Lease from Auckland City Corporation to Grey Buildings Ltd [1933] NZLR 184 (SC).
[12] Re Securitibank Ltd [1980] 2 NZLR 714 (HC).
[13] At 731.
[14] Attorney-General v Offshore Mining Co Ltd [1983] NZLR 418 (CA).
[15] At 421.
[16] At 127.
[17] Lighter Quay Residents' Society Inc v Waterfront Properties (2009) Ltd [2013] NZHC 2678 at fn 8. See too MP Kemp Ltd v Bullen Developments Ltd [2014] EWHC 2009 (Ch) at [65]–[71]; Sunrock Aircraft Corporation Ltd v Scandinavian Airlines System [2006] EWHC 2834 (Comm) at [56].
[18] The Heart Research Institute Limited & Anor v Psiron Limited [2002] NSWSC 646 at [16]–[17].
[19] 136 Fanshawe Ltd v Wilson Parking New Zealand Ltd [2016] NZHC 1854 at [11] (footnotes omitted). See too paras [9]-[10].
[20] At [11]–[12].
[21] Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95 (HC).
[22] At [51].
[23] At [51].
[24] Triezenberg v Mason [2019] NZHC 14, (2019) 5 NZTR 29–001.
[25] At [75].
[26] At [80].
[27] Barclays Bank Plc v Capital LLP [2011] EWCA Civ 826, [2012] Bus LR 542 at [26] and [28]; Archers Road Trust Company ltd v JMR Business Ltd [2016] NZHC 2987 at [43].
[28] See Re Dickinson, National Provident Fund v Dickinson CA268 & 269/91, 24 September 1991 and Forestry Corporation of New Zealand Ltd (in receivership) v Attorney-General [2003] 3 NZLR 328; Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 353; Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135.
[29] David Wilson Homes Ltd v Survey Services ltd (in liquidation) [2001] 1 All ER (Comm) 449.
[30] Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2008] QCA 160, citing Zeke Services Pty Ltd v Traffic Technologies [2005] QSC 135.
[31] Lighter Quay Residents' Society Inc v Waterfront Properties (2009) Ltd [2013] NZHC 2678 at [50].
[32] Waterfront Properties (2009) Ltd v Lighter Quay Residents Society Inc [2015] NZCA 62, [2015] NZAR 492 at [42]. See also Clive Freedman and James Farrell Expert Determination (5th ed, Thomson Reuters, online ed) citing Doug Jones “Expert Determination in Commercial Contracts”, in Mark Cato (ed) The Expert in Litigation and Arbitration (Lloyd's of London Press, 1999) at 789; Tramtrack Croydon Ltd v London Bus Services Ltd [2007] EWHC 107 (Comm).
[33] Inmarsat Ventures plc v APR Ltd (2002, unreported) and Brown v GIO Insurance Ltd [1998] Lloyd's Rep IR 201.
[34] Clive Freedman and James Farrell Expert Determination (5th ed, Thomson Reuters, online ed) at [6.7-2] citing Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd's Rep 441; Sunrock Aircraft Corporation Ltd v Scandinavian Airlines System [2006] EWHC 2834 (Comm) at [56]; M.P. Kemp Ltd v Bullen Developments Ltd [2014] EWHC 2009 (Ch), at [65]–[71]. See also Doug Jones “Expert Determination in Commercial Contracts”, in Mark Cato (ed) The Expert in Litigation and Arbitration (Lloyd's of London Press, 1999) at 789; Tramtrack Croydon Ltd v London Bus Services Ltd [2007] EWHC 107 (Comm).