Expert determination clauses – when will they be enforceable to prevent court proceedings?
Frank Bannon and Danielle Briers
An expert determination clause might not keep you out of court, so parties must ensure their contract terms are precisely worded to prevent (or protect) a right to litigate. Expert determination is an increasingly popular method of resolving disputes without the need for lengthy, costly and public litigation. However parties should not assume that the presence of an expert determination clause in their contract will mean that all court proceedings will be stayed unless the clause is complied with. It is possible that the wording of the clause will permit litigation in certain circumstances (see Lipman below) or the particular nature of a dispute will mean it is not suitable for expert determination or falls outside the scope of the clause. The parties should also not assume that an expert determination is only an interim step on the way to litigation. This article looks at three recent cases involving the enforceability of expert determination clauses. It shows the diversity of outcomes that can occur, and the importance of careful drafting to ensure an expert determination clause achieves the parties' intentions.
Stay of proceedings commenced in breach of a clause requiring expert determination Generally speaking, courts have wide discretionary powers to "stay" litigation that has been commenced in breach of a clause requiring expert determination. By granting a stay, the court effectively forces the parties to honour the alternative agreed procedure. By way of distinction, section 8(1) of the Commercial Arbitration Act 2010 (NSW) provides that where a proceeding relates to a dispute which is the subject of an arbitration agreement, the court must refer the dispute to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. Factors a court may take into account when considering whether to grant a stay in the face of a clause requiring expert determination include whether: • honouring the expert determination clause would result in "a multiplicity of proceedings"; • there are procedural rules or safeguards to be observed by the expert; • the specified procedural rules are adequate for determination of the dispute in question; and • the subject matter of the dispute is appropriate for determination by the expert (eg. does it involve questions within the expert's expertise).