Many forms of commercial contract these days contain clauses which seek to bring about a resolution of disputes by referral to an independent expert who ‘determines’ the outcome. Sometimes these work well, offering a flexible and straightforward way to settle the dispute. Sometimes, however, having an expert’s determination might not be at all satisfactory – at least from the standpoint of one of the parties to the dispute.

The main advantages of using an expert determination clause are:

• it can be an inexpensive and quick method of resolving a dispute;
• there is no need to go to court; and
• it is normally a mediated form of settlement, in the sense that the expert hears the points of view of both sides and makes a decision – the degree of confrontation which can occur in litigation is therefore less likely.

The main disadvantages are:

• there is virtually no right of appeal against a decision by the expert;
• the expert may not have the breadth of knowledge which might be necessary to understand fully the issues and thus achieve a fair result;
• the expert cannot compel (as can the court) the parties to the dispute to cooperate; and
• the decision of an expert can only be enforced by the court.

There will be some sorts of dispute, therefore, which are best dealt with through legal process rather than expert determination. The problem which can arise, however, is that when the contract provides that a dispute will be settled by expert determination, the courts are reluctant to intervene, so in the event of a ‘bad’ decision by the expert, unless the aggrieved party can persuade the expert to issue a revised decision, they may well be stuck with it.

Clearly, the overriding argument for the use of such a clause will be where commercial expediency dictates that the speed and informality of the approach has advantages which outweigh the benefits of using the courts. If such a clause is used, it is essential to make sure that the expert has appropriate qualifications and experience, and that the terms of reference of the decision are very carefully drawn up.

Kelly Hodson can advise you on any aspect of contract law. Contact her on 020 7182 4500, or email [email protected]

Spring 2008