Interpretation of a clause – is it Arbitration or Expert Determination?

[2011] EWHC 2226 (Ch) TEDR Volume 16 Issue 3

The Facts

The Defendant was applying for a stay of Part 8 proceedings issued by the Claimant pursuant to the Arbitration Act 1996 or the inherent jurisdiction of a Court. The Defendant claimed that it had invoked a dispute resolution provision in the Agreement between the parties which they said was an arbitration clause to which the Act applied. The Claimant contended that the dispute resolution provision was for expert determination; that, therefore, the Arbitration Act was of no application; and thus they were entitled to have issued a Part 8 claim to have the Court rule upon various matters.

The Issues

How should the provisions of the Agreement between the parties be interpreted?

The Decision

The relevant term of the contract was as follows:-

“22. If there is any difference or dispute as to the meaning or effect of the terms of this letter of appointment, or the calculation of a profit share to be paid thereunder, we agree and acknowledge that either you or we acting independently should be at liberty to refer any such dispute to an independent expert to be appointed by either you or ourselves jointly, but in the event that you or ourselves cannot agree upon such an expert, then either we or yourselves shall request the president of the Royal Institution of Chartered Surveyors to appoint an expert to determine the dispute, whose decision thereon, and the liability for the costs of the referral, shall be binding upon ourselves and yourselves.”

Mr Richard Snowdon QC (sitting as Deputy Judge of the High Court) considered whether that clause amounted to an arbitration agreement in the first instance.

His Lordship observed that the Act did not attempt to answer the basic question of, “what is an arbitration?” but he was referred to the leading textbook (Mustill & Boyd) which urged that the question should be answered intuitively. His Lordship observed that the obvious place to start was the agreement and prima facie, parties who had expressly chosen to refer to their dispute to an expert should not be taken to have intended a reference to arbitration. His Lordship considered that he could not find anything in the wording of the clause which intended that the reference to an “independent expert” was intended to be a reference to an arbitrator.

Accordingly, the Defendant urged His Lordship to consider the substance of the dispute that the decision maker was being required to make. It was argued that the Clause required the decision maker to settle a dispute that had arisen and it was argued that that was a distinguishing feature of an agreement for arbitration. The Defendant referred to various authorities which His Lordship declined to accept were general authority for the proposition that a process that provided for a binding determination of dispute that had already arisen was an arbitration rather than an expert determination, particularly when the clause was clear. Accordingly, His Lordship did not consider that the Defendant was entitled to a stay of the action under the Arbitration Act 1996. In actual fact His Lordship’s view was the Court should not use its inherent jurisdiction to stay the claim either.

Comment

It is clear that when interpreting a contract for either expert determination or arbitration that the normal meaning of the words used should be considered and will be persuasive. If the words remain unclear, there is authority for the proposition that one can look to the subject matter of the dispute and what it is the decision maker is being asked to do to consider what label should be put upon the decision making process. If one is acting as an expert or an arbitrator and remains unsure it may be wise to seek clarification from the instructing parties prior to undertaking work so that it is clear what process is being invoked.

Arbitration or Expert’s Determination

Expert Determiners need to know what they are doing

[2008] EWCA Civ 1 TEDR Volume 13 Issue 2

The Facts

This appeal concerned whether a certificate issued by an expert for a determination pursuant to a lease was valid and therefore binding. The lease was of commercial premises part of which involved an area where extraction of minerals can and did take place. The lease provided for early termination upon written notice by the tenant with a cessation of liability to pay rent 12 months thereafter. The lease specifically made provision for an expert to determine the validity of the notice. The Court of Appeal considered that the surveyor was given exclusive power to determine the questions to which his certificate was directed. As part of his consideration he was bound to consider “minerals” on the site. As a matter of fact, the surveyor took into account only the minerals and not the reserved minerals on the site. The issue as to the determination was whether he should have taken into account both or not.

On the facts the Trial Judge and the Court of Appeal determined that the surveyor ought to have taken both into consideration.

The Issues

What effect did this finding have upon the validity of the decision and the binding nature of that decision?

The Decision

The binding effect, or otherwise of an expert’s determination has already been considered in a number of cases over the years. Each case depends upon the terms of the contract under which the determination is made, both as to what it is that the expert has to decide, and as to how far his decision is binding upon the parties. Accordingly, it is necessary to examine the scope of the expert’s authority. If the expert goes beyond that scope, then the determination has no effect as between the parties. If it does stay within the bounds of that authority, the contract itself will govern the question of whether the determination is binding and if so, in what circumstances and to what extent that decision can be challenged.

Accordingly, it was decided that the first question was to ask what the agreement had entrusted to the expert. Thereafter the second question was whether that is what he has decided. If so, the third question is whether it can be shown he has made such a mistake as to vitiate his decision.

Accordingly, the Court considered the agreement; considered his decision; and came to the conclusion that he had only considered the minerals (as opposed to the reserved minerals as well).

Therefore, the Court of Appeal (and indeed the Court below) concluded that the expert did not proceed on the correct basis. Accordingly, his decision was not binding upon the parties.

In so determining, the Court had the benefit not only of the decision of the expert but also of a series of correspondence flowing between the disgruntled party and the expert post his decision. The expert had replied to those letters. The Court, therefore, considered those letters in regard to its final conclusions as to what the expert did and did not take into consideration. The Court made the point that:-

“Mr. Hill need not have responded to the request for clarification of the certificate and his report. If he had not done so, he could not have been compelled to explain himself. However, since he did do so, and thereby made clear the basis upon which he had proceeded, it seems to me that the Court must look at his explanations when considering what was the reasoning which led him to issue his certificate and whether it was prepared on the correct basis”.

Comment

This case re-emphasises the importance of an expert breaking down his or her precise role. That role ought to be clearly set out in the contract that governs the reference to the expert in the first place. However, it highlights the importance of the expert staying within the brief so that the ultimate decision is binding and not subject to challenge.

Further, it reinforces that (under this particular agreement) there was no necessity for the expert to explain himself further although he did do. If of course the expert then does go on to explain himself that becomes evidence which may be used in any later challenge.

Of course, the agreement itself may demand that the expert give reasons for any decision and therefore care should be taken at all times to comply with the agreement in that regard too.

Once again, the Academy of Experts “Rules for Expert Determination” state that:

“Unless otherwise agreed by the parties and communicated to the Expert in writing at the time of his appointment, the Expert will not give reasons for his determination”

Utilising that agreement may therefore be preferable.

Expert Determination – the dangers of (inadequate) reasons

[2007] EWHC 503 TEDR Volume 13 Issue 2

The Facts

The parties agreed to refer their dispute for determination by an Expert.

They agreed the Umpire’s terms of reference, which included terms that:

1. The decision would be binding on the parties save in the case of a manifest error;

2. The Umpire would include reasons for the decision.

A decision was given after the Umpire had held several meetings with each party and viewed various documents.

Halifax contended that the Decision was not binding because:

1. The Umpire had failed to give reasons as to why he rejected part of their contentions;

2. The Umpire failed to give reasons which explained what he had learned from his private meetings with Equitable life;

3. The Umpire therefore materially departed from his instructions and/or his decision contained a manifest error.

Equitable argued the decision should be binding.

The Issues

1. What were the terms of reference to the Umpire?

2. Therefore, what as a matter of contract had the parties agreed to remit to the Umpire by way of expert determination?

3. What was the Umpire appointed to do?

4. Has the Umpire done that which he was appointed to do?

The Decision

The decision reached by the Umpire was to be binding save for “manifest error” as per the agreement of the parties. Manifest error means, “oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion” (See: Veba Oil Supply and Trading v Petrograde Inc [2001] EWCA Civ 1832).

In litigation, justice will not be done unless the parties understand who has won, who has lost and why? Therefore, a Judge needs to give reasons for his or her conclusions. This is the same in any judicial or quasi-judicial decision, for example arbitrations pursuant to the 1996 Act.

What of expert’s Determinations? In this particular case, the Umpire was also required to give reasons by agreement in his terms of reference.

“Reasons” need to “convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.They could be briefly stated but they had to explain the Umpire’s reasons for his conclusion on key or substantial points raised…”.

In this case, it was found that reasons were given but they were not adequate.

Accordingly, the Court directed the Umpire to review the matter and provide further reasons on certain specific issues.

Accordingly, the Court proceedings were adjourned for the case to be remitted to the Umpire and permission was given for the matter to be returned to Court once those reasons were available for further consideration as to whether the decision was binding.

The Court recognised that in arbitrations, there was a specific power under the 1996 Act for the Court to remit the decision for further reasons. Although there was no similar statutory power with regards to Expert Determination, the Court considered that there was power to do so whether by way of remedy in relation to the original contract or under the inherent jurisdiction of the Court or both. In any event, it was acknowledged that the Court was entitled to invite the Umpire to provide further reasons.

Comment

The importance of defining the role of the Umpire within his or her terms of reference is stressed.

It is useful to note that The Academy of Experts “Rules for Expert Determination” state that:

“Unless otherwise agreed by the parties and communicated to the Expert in writing at the time of his appointment, the Expert will not give reasons for his determination”

This will not relieve the Expert from the duty to act in accordance with his or her terms of reference but will seemingly avoid the type of situation in this case.

An information sheet introducing the ADR approach, Expert Determination

Application to TAE to make an appointment under the Academy’s Rules for Expert Determination.

For further information and online resources see Expert Determination