It is common for supply and other agreements to include expert determination clauses. Parties often agree to such clauses in the hope of avoiding the time and cost involved in going to Court to resolve any dispute that might arise by asking an industry specialist to resolve the dispute.

Expert determination clauses often include a clause to the effect that the expert’s determination is final and binding in the hope that a Court will not set aside an expert determination. However, the practical reality is that one party is almost always disappointed with an expert determination. Sometimes so much so that they will seek redress through the Courts. The parties then end up in Court, the very thing they were hoping to avoid, having already incurred time and cost in the expert determination process.

It is true that there are only limited circumstances in which a Court application can be made in relation to an expert determination made under a contract that provides that the determination is ‘final and binding’. However, they are not as limited as you might think. An application might be possible, for example, if in the course of making the determination the expert is required to construe the contract and the expert does not do so correctly. In that case, unless the expert determination clause provides that the expert is required to construe the contract (which would be unusual), an application may be made on the basis that the parties are not bound by the manner in which the expert has construed the contract and so the expert determination is capable of being set aside (Australian Vintage Limited v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275).

How then might you run an expert determination to minimise the risk of a Court application?

Your contract might require there to be a panel of experts, rather than just one expert. If an industry expert is required, each party could select one industry expert (avoiding disputes as to the most appropriate expert). A senior legal practitioner such as a retired judge or senior barrister could be appointed as the third panel member. Such a panel would be well equipped both to determine industry specific issues and to construe the contract. The senior legal practitioner is also likely to provide valuable assistance with written reasons for the expert determination (if required) and otherwise assist the panel of experts comply with contractual requirements.

Appointing a panel of experts would of course increase costs, although costs would likely still be lower than those incurred in litigation. To guard against incurring increased costs of appointing a panel unnecessarily, it may be possible to limit the types of matters referred to a panel of experts, as opposed to a single expert, to disputes that are, say, over a certain monetary threshold.

An alternative to a panel might be to appoint one senior legal practitioner to make the expert determination relying on submissions from the parties including submissions or expert reports from industry specialists.

[This article was written by Sophie Edwards, Special Counsel at Norton Rose Fulbright. sophie.edwards@nortonrosefulbright.com.]

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