The Court’s power to review expert determinations

The recent Court of Appeal decision in Homepace Ltd -v- Sita South Limited provides a useful reminder of the extent of the Court’s power to review the decision of an expert appointed by the parties to determine a dispute under a contractual expert determination provision.

In this case there was a dispute regarding a lessee’s liability to pay rent that would cease upon the exhaustion of all economically recoverable reserves of minerals in or under the land in question. The lease provided for the appointment of a surveyor to determine whether the mineral reserves were indeed economically recoverable. The surveyor drafted his report and subsequently answered questions by explaining the approach he had taken and providing clarifications. Issues arose as to whether the surveyor’s report complied with the requirements of the lease, and how far, if at all, that question could be examined by the court. In addition, the court considered whether the surveyor was required to respond to questions relating to his report and whether the court could take his responses into account.

The Court of Appeal reviewed case law in this area and summarised the position as follows:

• The binding effect or otherwise of an expert’s determination depends on the terms of the contract under which the determination is made, both as to what it is the expert has to decide and as to how far his decision is binding upon the parties;
• In each case it is necessary to examine the determination, in order to see whether it lies within the scope of the expert’s authority. If it does not, then it has no effect as between the parties. If it does, then the contract also governs the question whether the determination is binding or whether, and if so on what grounds, the determination can be questioned;
• If there are grounds on which the determination can be questioned, the court then has to consider whether the expert has made a mistake that vitiates his decision.

The court found, in this instance, that the expert in question did not need to respond to requests for clarification of his report and if he had not done so he could not have been compelled to explain himself. However, as the expert had provided an explanation that made clear the basis on which he proceeded, the court had to look at that explanation when considering the reasoning that led him to draft his report and whether it was prepared on the correct basis.

Expert determination clauses need to be drafted with great care. If the parties want the right to question experts about their decision or seek clarification this should be set out in the clause. As long as any determination is within the scope of the expert’s authority set out in the relevant clause it will be difficult for parties to challenge the expert’s decision in the courts unless some form of appeal was envisaged in the original contract. Conversely to avoid challenge, an expert should closely comply with the exact terms of the clause under which he was appointed.

Case Reference: Homepace Ltd -v- Sita South Limited [2008] EWCA Civ 1