An expert determination is binding if the expert answered the correct question, even if decision contained errors.

The circumstances in which experts' decisions can be set aside have been reviewed again and, in Owen Pell Limited v Bindi (London) Limited [2008], the court has rejected most of them.

Following the Court of Appeal's decision in Homepace Limited v Sita South East Limited [2008] EWCA CIV 1, (see Estates Gazette 7 June page 167), the courts have looked again at the circumstances in which an expert determination is valid and enforceable.

In Homepace, the Court of Appeal refused to enforce an expert's decision because he had answered the wrong question. In the judgment, Lloyd LJ noted that the enforceability of an expert's determination turns on the terms of the agreement under which the determination is made. These terms govern what the expert has to decide and the extent to which that decision is binding on the parties.

In this case, the expert was asked to state whether minerals in a particular area were economically recoverable. He considered only those minerals which were currently being extracted by one of the parties, rather than all types of minerals. The Court of Appeal concluded that the expert had answered the wrong question.

Comments made by Lloyd LJ on the importance of the exact terms of the agreement were reinforced by the judge in Owen Pell. However, this time the court was not looking at whether the expert had answered the right question. Instead, it had to determine other arguments as to why an expert's determination may not be enforceable.

Facts in Owen Pell

A dispute arose during renovation and development works to an existing property. The parties agreed to refer the dispute to an independent expert appointed by the Royal Institution of Chartered Surveyors. They expressly agreed that the expert should conduct the proceedings in any manner that he saw fit. They also agreed that they would be bound by his decision and could not refer the dispute to a subsequent tribunal.

The expert decided that the contractor was owed money from the employer. It refused to pay. When the matter came to court, the employer argued that the expert's decision has no effect and is not binding on the parties if,

• the expert failed to conduct himself in accordance with the principles of natural justice;
• he was biased or had given the appearance of bias; and/or
• where he had provided reasons, there was a gross or obvious error or evidence of perversity.

Her Honour Judge Kirkham rejected the employer's suggestion that the alleged terms rendering the expert's decision unenforceable could be implied into the agreement. She followed the decision in Bernhard Schulte v Nike Holdings [2004] Lloyds Rep 352. This confirmed that there is no requirement for the rules of natural justice to be followed in an expert determination in order for the determination to be binding.

Following Jones and Others v Sherwood Computer Services [1992] I WLR 27, she decided that while actual partiality or bias on the part of the expert will invalidate his determination, apparent or unconscious bias will not normally do so.

Speaking v non speaking

In relation to the third issue, the employer had argued that different rules apply to speaking determinations (those where reasons are given) than to non speaking decisions (those given without reasons). It was suggested that, in the former, there is an implied term that the decision is enforceable only if it is free from gross or obvious error or its conclusions are perverse.

On the facts of this case, the agreement did not require the expert to give reasons although he had chosen to do so. The judge stated that it would be undesirable to distinguish between the two types of expert valuation. It would also produce an odd situation; if an expert chose to give reasons for his determination (as in the Owen Pell case), grounds for challenge may exist, whereas if he had not provided reasons no grounds would exist.

This decision suggests that there is no distinction between a speaking and a non speaking valuation. However, it remains to be seen whether this is limited to instances where there is no express provision for reasons to be given.

Where does this leave us?

In her judgment, Judge Kirkham reinforced the views expressed by the Court of Appeal in Homepace. The terms of the appointment are key to deciding the scope of the appointment, the powers given to the expert and the enforceability of any determination.

On the facts of Owen Pell, the judge concluded that the expert had answered the correct questions. The decision would therefore be binding, even if it contained gross or obvious errors. Since the parties had agreed that the decision was to be final and binding (and there was no evidence of actual bias), the court could not interfere.
It is imperative for parties to ensure that expert determination clauses or agreements accurately and adequately describe their intentions. In particular, the scope of the issues to be determined by the expert must be clearly defined.

Asking the expert to provide reasons for his determination may satisfy the parties that he has answered the right questions. However, it is not clear whether the judge's conclusion - that there is no implied term that the decision is only enforceable if free from gross or obvious error or perversity - extends to circumstances where the parties have asked the expert to provide reasons. For reasoned determinations it is therefore advisable to state the extent to which (if any) reasons provided by the expert may be relied upon to challenge his decision.

It is usual to state that the parties agree that the decision of the expert is final and binding. For good commercial reasons, the parties will often prefer to obtain a decision that cannot be challenged.

For another day

The question of whether an expert determination is final and binding in the absence of any express term stating that it is so was not addressed. It was not relevant to the case, and has therefore been left open for another day.

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For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.