Leave it to the expert?
Contract negotiations generate many strategic and legal considerations. Often, in the midst of negotiations, little time is spent considering the ramifications of common clauses, such as expert determination clauses.
Often an expert determination clause is chosen as the preferred dispute resolution mechanism. Such a clause refers a particular dispute for determination by an expert in the relevant area. Such clauses can be beneficial, allowing parties to save both time and money by avoiding litigation.
However, parties need to carefully consider the operation of the clause to ensure these benefits are not outweighed by hidden pitfalls.
First, consider whether expert determination is in fact the best way to deal with every type of dispute that may arise. Expert determination works best in situations of a single issue which is of a technical nature and clearly in the remit of an expert in a specified field. However, such clauses are best avoided where a dispute might involve an issue requiring input from different disciplines (e.g. scientific, accounting…) or where the dispute involves legal considerations.
Second, consider any appeal rights permitted by the clause. Of course, you might be delighted by a favourable – though wrong – determination which the other party can't challenge, but the shoe is likely to be on the other foot just as often. So where an express right of appeal is absent, an expert's determination may only be challenged where 'manifest error' exists or fraud. Unless this can be established, the court will not interfere with the expert's decision. So clearly spelling out rights of appeal may be sensible.
Finally, once it has been decided that expert determination is the best way to deal with a potential dispute, it is important to specify the process for appointment of the expert and the procedure that will govern the expert. Agreeing on these at the negotiation stage is best as it avoids trying to negotiate such matters when a dispute arises and the relationship of the parties has become more fraught.
If you would like to know more or require assistance with any of these issues, please contact us.
Peter Keel | Partner
Tel 61 2 8223 4101
Norman Lucas | Partner
Tel 61 2 8223 4177
Peter Meades | Partner
Tel 61 2 9225 6202
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