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Arbitration v Expert Determination:

what are the relative merits?
21 May 2020

This article first appeared in Construction Law in 2016. However, the key points remain
relevant and with parties increasingly looking beyond traditional court hearings to
determine their disputes, we republish it now. The issue of expert determination in
property transactions was also debated on 21st May 2020 in the Hardwicke Property
Team’s #HardwickeBrew. If you would like a copy of the Takeaway Cup from that
event, please contact Sally Wollaston. Members of Hardwicke can appear as Experts
as well as appearing in arbitrations as Counsel or Arbitrator. More details on the ADR
Hub.

Catherine Piercy and Andy Creer consider the relative merits of using expert
determination over arbitration as an alternative means of dispute resolution. The former
is increasingly used where a valuation has to be determined or a technical expert
opinion required.

Key points
Expert determination is more unfamiliar than arbitration to some and the case law is
less developed.

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 Uncertainty surrounds the jurisdiction of the expert, the procedure and the nature of
the decision.
It is however often a quicker, cheaper and less adversarial method of resolving
disputes.
This can assist in maintaining good relations between commercial parties.
Arbitrations can be incredibly expensive whereas expert determination often
presents a much cheaper method of dispute resolution.

Introduction
Arbitration is a long established dispute resolution procedure and commercial parties,
their advisors and the Courts are familiar with the process and the extent to which the
Court will intervene. Expert determination presents more unfamiliar territory to some
and the case law is less developed, resulting in more uncertainty as to the jurisdiction of
the expert, the procedure and the nature of the decision. However, as further explained
below, it often presents a quicker, cheaper and less adversarial method of resolving
disputes, which may assist in maintaining good relations between commercial parties.

Procedure
Arbitrations in England and Wales are regulated by the Arbitration Act 1996. The
procedural rules will be identified in the contract, usually by reference to one of the
standard sets of rules, such as ICC, LCIA or UNCITRAL. The procedural rules set out the
requirements of the request for arbitration and the response, how the tribunal is to be
appointed, the procedure for adducing evidence and conducting hearings and the
delivering of awards.

Conversely, standard form rules do not often apply to expert determination. However,
as with arbitration, the scope of the expert’s instructions will be defined by the
underlying contract and, once a dispute or issue has arisen, it will be further informed
by any letter of appointment. The procedure the expert is required to adopt can be
prescribed, but absent such parameters, the expert is free to determine the reference in
any way he thinks fit. The consequence of this is that specific provision needs to be
made for a reasoned determination, as a determination without reasons is generally
binding on the parties unless a requirement for reasons is provided in the terms of the
expert’s appointment.

By their contract, the parties can displace any of the functions of the Court and allocate
them to the expert. An expert can make decisions on points of law if that is within the
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scope of his instructions, alternatively (and more usually) an application can be made to
the Court resolve any points of contractual interpretation which affect the expert’s remit.

The courts will respect the parties’ freedom to contract and, therefore, not interfere with
the procedure adopted by the expert provided that he has not departed from his
instructions. Indeed, an expert’s interpretation of the procedural rules has been upheld
by the court with the court stating that it would only interfere with the expert’s
interpretation where the expert was obviously in error (Conoco (UK) Ltd v Phillips
Petroleum Co, unreported, 19 August, 1996

Evidence
Unlike the quasi-judicial function that an arbitrator performs, the expert is required to
exercise his own skill and judgment. He is responsible for the information gathering
process and, therefore, unlike an arbitral tribunal, can adopt an inquisitorial approach.
Inevitably, in practice, this includes receiving submissions from the parties, but the expert
is not bound to have regard to them: Palacath Ltd v Flanagan [1985] 2 All ER 161.
Conversely, an arbitrator is likely to seek the parties’ permission before carrying out its
own investigations and the parties should be given an opportunity to make submissions
on the results of such investigations before the final award is made.

The expert, as the name suggests, is chosen for his particular knowledge and expertise.
He is expected to draw on his own experience to decide the questions referred to him
and may dispense with the need for the parties to instruct their own independent experts
if deemed appropriate. An expert is required to make his own inquiries unless he
reasonably considers that the evidence provided by the parties is sufficient. It is very
rare that an expert will conduct an oral hearing, whereas in arbitration, similar to
litigation, there is often a fully contested hearing with involving examination of witnesses
and experts and oral submissions by legal representatives of the parties.

Unlike an arbitrator, unless the contract expressly provides that an expert can, for
example, order a party to disclose relevant documents or to issue a witness summons
compelling a witness to give evidence, there will be no jurisdiction for him to do so
(British Shipbuilders v VSEL Consortium plc [1997] 1 Lloyd’s Rep 106). Consequently,
expert determination is often less suitable for cases in which there are substantial issues
of fact in dispute.

Liability

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One of the important distinctions (not least from the appointee’s perspective) is that an
expert has no immunity from suit. They owe a contractual and tortious duty of care to
both sides and a party can obtain damages if the expert has been negligent: Arenson v
Casson Beckman Rutley & Co [1975] AC 901

In valuation cases it is necessary to show that the value determined by the expert was
outside of the permissible margin of error. In effect, the expert’s decision has to be so
wild of the mark that proving negligence is rare in practice. In fact, the Handbook of
Rent Review (Vol 1) section 14.3 contains case summaries of five cases of alleged
negligence, all of which failed.

The expert can limit the scope of this liability in his retainer, for example, to instances of
deliberate misfeasance and can also attempt to negotiate immunity from suit with the
parties, but there is no automatic immunity.

Conversely, arbitrators, like judges acting in their judicial capacity and the Official
Receiver, are in the diminishing categories of individuals who still retain immunity from
liability in negligence.

Challenging the decision

The grounds on which an arbitration award can be challenged are provided in the
Arbitration Act 1996, namely

challenging the tribunal’s substantive jurisdiction (section 67)

challenging on the basis of serious irregularity affecting the tribunal, proceedings or
the award (section 68) and
appealing on a point of law (section 69).

In relation to expert determination, as the referral to the expert arises from contract,
there is no right of appeal. Case law shows that it is extremely difficult to set aside an
expert’s decision even in the face of a patent error of law, as this would undermine the
contractual bargain made between the parties: Pontsarn Investments Limited v
Kansallia-Osake-Pankki [1992] 1 EGLR 148.

There are, therefore, limited grounds on which an expert determination can be

challenged: (i) if the expert can be shown to be biased; (ii) if the decision is vitiated by
fraud or dishonesty; and, (iii) if the expert has materially departed from his instructions.

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Grounds (i) and (ii) arise from the expert’s duty of good faith. Even if the expert applied
the wrong methodology, it appears that so long as he did it in good faith, his
determination is unimpeachable. Whereas, ground (iii) involves the expert acting
outside of the scope of his instructions, for example, if he incorrectly interprets the
instrument. In such a case, it does not matter that the outcome is not significantly
different from what it would have otherwise been: the expert has not done what he was
appointed to do (for example, see Veba Oil Supply and Trading GmbH v Petrotrade
Inc [2002] 1 All ER 703).

A successful challenge invalidates the decision and the parties have to start again.

Enforcement
Unless otherwise agreed, the expert’s determination will be contractually binding, so
can be enforced in the same manner as any agreement: by an application for specific
performance or action for breach of contract (where summary judgment should no
doubt be considered).

Arbitral awards, however, are capable of enforcement in a similar way to a judgment

within England and Wales and, often internationally where the New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards 1958 applies.

Whilst there are benefits to the ease with which an arbitration award can be enforced,
there is often a greater chance of finality with an expert’s determination, because the
parties have often chosen that expert for a reason and are prepared to accept the
decision as resolving the dispute. Although it may be due to the greater volume of
judgments and arbitration decision, in the past such rulings have been more likely to be
the subject of a challenge or appeal than an expert’s determination.

Costs
In arbitration, the tribunal usually has jurisdiction to allocate the parties’ costs, with the
general rule being that costs follow the event. An expert, however, has no power to
award costs unless his instructions or the terms of the contract provide for it.

Typically, as in arbitration, the parties share the cost of the appointment, but there is no
means for the Court to tax the costs. There is also no statutory control over experts’ fees
as there is over the fees of an arbitrator as provided by section 64 of the Arbitration Act

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1996, which states that arbitrators can only recover reasonable fees and expenses
incurred unless the parties agree otherwise.

A significant difference between arbitration and expert determination is the level of

costs that will likely be incurred by the parties; arbitrations can be incredibly expensive,
whereas expert determination often presents a much cheaper method of dispute
resolution, primarily because the process is much shorter and less labour intensive.

Timing
Expert determination is likely to provide a far quicker alternative to the Courts. The
length of an arbitration very much depends on the issues in dispute, the scope of the
evidence being adduced by either party and, increasingly, the availability of the
tribunal both to conduct hearings and write the decision. However, in substantial
disputes it is not uncommon for arbitrations to last 18-24 months.

Conclusion
Expert determination should no longer be considered only appropriate for rent review
and lease renewals. It has a wider applicability to any decision involving quantification
of loss in a specialist field, for example, the cost of remedial works or technical issues
affecting a plant or a project.

One of our colleagues summarised the key differences thus:

“Expert determination is quicker and cheaper but you’re stuck with the decision”.

For some clients, in some disputes (where the cost of litigation, especially an appeal,
may be prohibitive) this may be exactly the resolution they’re looking for. Indeed, in an
over-stretched legal system, one could see a possible place for a hybrid emerging: with
liability determined by the Courts and the parties agreeing that quantum is referred to
an expert assessor.

Summary

Expert
Arbitration
Determination
Procedure Governed by the Arbitration Act No statutory control
1996 and procedure identified in and procedure

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 the contract, often by reference to defined by the
standard form rules. contract.

Timescale 18-24 months ~ 3 months

Remit Contractual Contractual

Normally by agreed
statement of facts
Disclosure, witness statements,
Evidence and parties’
expert evidence oral hearing.
respective
submissions.

Liability of No immunity from

Immune from suit.
tribunal suit.

Costs of referral
Costs can be allocated by the
Costs borne by each
tribunal.
party.

Contractually
Challenging
Limited to points of law. binding unless set
the decision
aside.
Enforceable as a
Enforcement Enforceable often internationally.
contract.

Authors

Andy Creer Catherine Piercy

Call: 2005 Call: 2007

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Disclaimer
This content is provided free of charge for information purposes only. It does not constitute
legal advice and should not be relied on as such. No responsibility for the accuracy and/or
correctness of the information and commentary set out in the article, or for any
consequences of relying on it, is assumed or accepted by any member of Chambers or by
Chambers as a whole.

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