Recent case law on expert determination

There has been a spate of recent case law relating to expert determination. In this post James Farrell, Emily Lew and Michael Mendelblat consider three judgments in which the court had to decide whether to stay legal proceedings in favour of expert determination, namely the Court of Appeal decision in Barclays Bank PLC v Nylon Capital LLP [2011] EWCA Civ 826, and two High Court decisions that considered Barclays: Persimmon Homes Limited v Woodford Land Limited [2011] EWHC 3109 (Ch) and Wilky Property Holdings Plc v London & Surrey Investments Ltd [2011] EWHC 2888 (Ch).

Whilst there is some indication that the courts are reluctant to oust the jurisdiction of the court by way of a wide expert determination clause, each case is likely to turn on its own facts and the construction of the particular clause in question.

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Barclays v Nylon

The judgment in this case dealt with two distinct issues: (1) an expert's jurisdiction to decide a particular dispute (i.e. whether or not he has a mandate at all); and (2) the extent and limits of that mandate, once it is accepted that the dispute is within his jurisdiction. 

In relation to the first issue, the court held that ultimately it is always for the court to determine the jurisdiction of the expert, and that often it will be appropriate for the court to do so first, even where the agreement expressly provides (as it did in this case) that the expert can determine his own jurisdiction. The court needs to consider whether it would be in the interests of justice and convenience for the court to determine the jurisdiction issue, or for it to be remitted to the expert. In this case Thomas LJ was of the view that it would have been wasteful for the expert to have decided the issue as to jurisdiction first. 

The court found that the expert did not have jurisdiction to determine the dispute, as a relevant condition precedent had not been fulfilled which was necessary for referral of a dispute to the expert.

The judgment also addressed the question of the expert's mandate. Here the court said that while generally the courts will not intervene in matters which fall within the expert's jurisdiction, this is not necessarily the case when questions of law are in issue. Thomas LJ, who gave the majority judgment, noted that the authorities in this area were cases where the expert had determined mixed questions of fact and law. However, the authorities did not decide that where there was a pure issue of law which was the subject of an expert determination, this issue could not be challenged in the courts where the contractual interpretation adopted by the expert resulted in him not determining the matter in accordance with his mandate.

Thomas LJ preferred to leave the question open, but Lord Neuberger MR, who made a number of obiter comments at the end of the judgment, went further. Whilst maintaining that the position will need to be assessed on a case by case basis (depending on the actual terms of the expert clause), he considered that there was a powerful argument that even a "final and binding" determination by an expert could be challenged in court if it could be shown to have been arrived at on the basis of a mistake of law.  In essence, an expert who made a mistake of law would, Lord Neuberger suggested, be acting outside his mandate and therefore his decision would be open to challenge by the courts. He did, however, suggest that very careful drafting could exclude an appeal to the courts.

Persimmon v Woodford

In this case, a widely drafted dispute resolution clause in the agreement between the parties provided for any dispute to be referred to an expert if it could not be resolved by directors. A dispute arose, and the issue was referred to an expert for determination.

However, Persimmon advanced an action in the High Court claiming relief under five heads: (1) a declaration that the expert had decided certain issues of construction in the terms pleaded by Persimmon; (2) (if the expert had not so decided) a declaration that the true meaning of the agreement was as pleaded by Persimmon; (3) whether satisfactory technical consents within the meaning of the agreement had been provided; (4) whether the agreement could be rectified to reflect the parties' common intention; (5) an estoppel claim.

Woodford applied to strike out or stay Persimmon's claim in favour of expert determination, other than in relation to the rectification claim, which both parties accepted should go to trial.

The strike-out application was granted in relation to heads (1) and (3), which the court held fell within the dispute resolution clause and had to be referred to the expert for determination. 

The application was however refused in relation to heads (2) and (5), which were both closely related to the rectification claim that the parties had agreed should be litigated. The court agreed with the parties that rectification was a remedy that only the court could grant. It was always discretionary in nature and its retrospective effect could not be brought about by agreement between the parties, or by the determination of an expert. The fact that the parties had agreed that rectification claims were excluded from the scope of the dispute resolution clause showed that the clause could not be read literally (as having no exceptions). The court held that the parties must have been taken to have intended that the court should also be free to decide any questions upon which the rectification claim depended. Otherwise there was the risk of conflicting decisions.

Wilky v LSI

Following a dispute between the parties, an expert was appointed in accordance with the dispute resolution clause in the agreement, but one of the parties commenced proceedings in the High Court. The clause permitted the expert to decide disputes as to the meaning of the terms of the agreement.

The judge stayed the substance of the claim in favour of expert determination. He did not accept that the judge in Barclays v Nylon was intending to lay down a prescriptive rule to the effect that any decision by the expert in relation to his own jurisdiction would inevitably be subject to review by the court, and thus it would be wasteful for the expert to decide such matters first. Instead, in this case, it was important first to clarify whether (and if so on what basis) the claimant intended to run a point relating to contractual interpretation, in relation to which an issue existed as to the expert's jurisdiction to decide the matter. The obvious and convenient forum for that clarification to be sought was in the expert determination itself, and it could be done without prejudice to any argument that the expert had no jurisdiction to decide the matter.

In the decision in Barclays v Nylon, the judicial trend appeared to be tending towards the concept of the parties' inability to oust the court's jurisdiction by way of a wide expert determination clause, and away from holding the parties to their contracts.  However, in Wilky v LSI the court was content to allow the expert to determine a range of issues and for any disputes as to jurisdiction to be referred back to the court subsequently. Each case is likely to turn on its own facts, depending on the expert determination clause in the agreement.

For a more detailed account of the judgments and issues, please click here for a pdf of our article which appeared in Property Law Journal on 6 February 2012.