Expert determination: does it have a place in the brave new world of construction disputes resolution?

As we all know, statutory adjudication has significantly altered the landscape of dispute resolution in the construction industry. Day to day experience coupled with anecdotal evidence suggest that after a slow start it has increasingly become the procedure of choice for informal dispute resolution and has, for example led to a significant reduction in mediation and other forms of ADR.

At the same time major projects and forms of conditions for specialist processes, both domestic and international, have seen a proliferation of new forms of dispute resolution, both binding and non-binding, ranging from early neutral evaluation to dispute review boards via such strange hybrids as med-arb (mediation which can be converted into arbitration in the absence of settlement). Clearly, in the case of a domestic construction contract the right to statutory adjudication is automatically available whatever other arrangements the parties might agree. Where the stakes are high however neither of them may be attracted by the rough justice which its fans and critics alike agree is often meted out in adjudications.

Is there a straightforward and cheap alternative which will provide an informed and binding decision? Litigation and arbitration have seen significant reforms and improvements in recent years, but both still suffer from relatively high cost, a degree of formality and other disadvantages.

What's it all about?

One answer may be expert determination. Apart from in the field of rent reviews - which is statistically by far the most frequent use of expert determination - this form of dispute resolution has led something of a Cinderella existence in the shadow of more established procedures. Perhaps inevitably where the debate involves more than one lawyer, there are also questions of definition. Traditionally, for example, expert determination was not seen as a form of dispute resolution at all. The theory here was that an expert settles an issue on which the parties have not taken defined positions; if they have done so, then - on this view of life - the process becomes arbitration. Although there are a few types of expert determination where no dispute need arise, for example the valuation of shares in private companies, it has become increasingly recognised over the years that in all other cases this distinction is artificial and unhelpful. The author of the single reference work on the subject makes the point with commendable under-statement:

"If people have gone to the trouble and expense of referring something to a third party for decision, they are most likely not to have agreed about it, and however one analyses their disagreement, they are in dispute." Footnote 1

Where there are tactical games to be played, however, this traditional approach can be surprisingly resilient. In a recent expert determination on technical issues, for example, the other side maintained that our clients' proposed directions, which provided for mutual disclosure, the exchange of submissions and the exchange of experts' reports was, in their words, "contrary to the spirit of expert determination". Instead, it was argued, there should be "no pleadings, no discovery, no formal hearing, no oral evidence, no cross-examination of witnesses and no oral submissions". In addition, it was said, the expert should not have available to him expert evidence from the parties but should instead use his own knowledge and make his own enquiries. While, fortunately, these views did not prevail, the fact that they could be advanced at all demonstrates two key features of expert determination:

• The extent of its flexibility; and
• The fact that it is widely misunderstood and therefore liable to be hijacked as a concept by parties for their own ends.

In truth, the particular attributes of expert determination can be clearly defined. We are probably all familiar with dispute resolution clauses which enjoin the valuer, expert or other third party to act "as an expert and not as an arbitrator". The differences between the two provide a useful thumbnail definition of expert determination and are both straightforward and far reaching. In summary:

• Experts are subject to no statutory control equivalent to the Arbitration Act 1996 which governs the conduct of arbitrators and their removal;
• Expert determination can be used for multi-party disputes without the problems which arise in arbitrations;
• Experts are not subject to the rules of natural justice which apply to Arbitrators;
• Unlike in the case of arbitration, a court has discretion to stay or halt proceedings where there is an expert determination clause;
• While the parties can agree that his decision is final, there is no appeal from an expert's decision;
• An expert's decision cannot be enforced as a judgment; and
• An expert can in principle be sued for negligence or breach of contract.Footnote 2

The drawbacks

On paper, the principles governing expert determination look to be pretty clear. As so often, though, the devil is in the detail. Reference has already been made to the absence of statutory regulation. In addition, at least in the construction sphere, there is no equivalent to the Construction Industry Model Arbitration Rules or other generally accepted procedures for the conduct of expert determinations. To help fill this vacuum CEDR, the Centre for Effective Dispute Resolution, has produced a form of model expert determination agreement which, together with its guidance notes, usefully summarises the key issues for inclusion in such an agreement and in the procedural directions which will need to be given. In addition, bodies such as CEDR, the RIBA and the Academy of Experts run training courses for the experts on their panels, while enterprising websites provide additional guidance. Despite these efforts, it remains the case that hands on knowledge of expert determination in the industry is still in short supply.

It can be argued that this situation simply reflects the inherent flexibility of expert determination and the wide range of construction or engineering disputes for which it can be used. In practice, however, a clear framework for the process and a clear understanding by all concerned of the powers and responsibilities of the expert are needed to help ensure that an expert determination does not become a journey without maps for expert and parties alike. Expert determinations are in essence a creature of contract and where queries arise the court exercises such control as it has over the process by construing the contract and deciding on the presumed intention of the parties. This can lead to uncertainty, delay and increased cost. In addition, the court has a discretion to allow litigation to proceed, despite an expert determination clause, where in its view this would be more appropriate. In one leading case, shortcomings in the wording of the clause highlighted by the court included the fact that the appointed expert had no experience in dispute resolution, the absence of any procedures for the determination in the clause concerned and the fact that the appointed expert (a soft drinks executive appointed by the Director General of the Soft Drinks Association) would be called upon to decide on the construction of a legal agreement and issues of quantum and damages.

Lessons to be learnt

Leaving aside the slight impression given by the decision of a court looking down its nose at a mere businessman, the case has important lessons for parties wishing to make use of expert determination. First, as already noted, the scope of the expert's remit needs to be clear. Clauses referring all disputes, both technical and otherwise, are increasingly common and the CottFootnote 3 case was an example of this. Such provisions can throw up a number of problems. By way of example, in the absence of a clear contractual code, the expert determination machinery is more likely to break down than its arbitration equivalent as the court is less able to assist. Also - as in the case of a named adjudicator under a construction contract - a brief to determine all types of dispute will almost inevitably take any one expert into areas which are outside his or her particular professional competence and in such circumstances provision needs to be made for the expert to have access to independent advice and perhaps for an alternate expert to tackle particular types of dispute.

A better solution may be to refer specific areas of potential dispute to an expert, provided that those areas can be clearly defined in the contract. The red book fourth edition (2001), produced by the Institution of Chemical Engineers, refers specified types of disputes such as the quantification of contested variation orders to an expert and expressly authorises him in its rules for expert determination to decide both factual and legal issues. Similarly, development agreements and building leases often define areas of dispute to be referred to the decision of an independent surveyor. What is vital is that the scope of the expert's remit, his powers and responsibilities and the procedures which he is to follow, or a transparent procedure for deciding those procedures, are clearly set out in the relevant clauses of the contract and/or the expert's appointment so that parties clearly understand the rules of the game.

With appropriate wording and the involvement of informed participants, expert determination has got enormous potential as a straightforward and binding procedure which can provide the parties with the certainty which non binding ADR often lacks. Although the issue of enforcement needs to be considered, its procedures are flexible and can be tailored to the specific demands of the project.

CEDR reports a disappointing level of response to its expert determination initiative. If parties are willing to look beyond the Draconian confines of statutory adjudication and spend a little time at the outset on agreeing proper procedures for expert determination, there is however good reason to believe that it could make a far greater contribution to effective dispute resolution in the construction industry.

For further information please contact either Henry Sherman at [email protected] or on +44 (0)20 7367 2526 or Martin Salt at [email protected] or on +44 (0)20 7367 2834.

Footnotes

Footnote 1 Expert Determination by John Kendall, third edition 2001 at page 13.

Footnote 2 Although almost always today the expert will insist on protection in his/her appointment from claims similar to that afforded an adjudicator.

Footnote 3 Cott UK Limited v FE Barber Limited [1997] 3 All E.4.540.