Expert Determination (or Appraisal) is a form of alternative dispute resolution that is achieving growing acceptance in other parts of the world. Within New Zealand it appears to have an untapped potential. In this article Brett Gould considers its applicability, and the issues raised by its use.

Expert determination

Definition
- Determination by an expert of an issue or issues between the parties in a manner that does not amount to an arbitration but is an alternative to it;
- Is usually binding but can be non-binding;
- Involves opinion of expert on defined issues;
- Governed by terms of contract and generally limited rights of review; and
- Used to be referred to as appraisal or valuation.

If as is more usual the determination is to be binding, there can be no question of uncertainty. However, even where it is to be non-binding there is the same need for the expert to prescribe the process to be adopted, in order to overcome the argument that the parties have done no more than agree to agree, or agree to negotiate. The process also needs to be adequately described.

Expert Determination is to be contrasted with Expert Appraisal, which is a non-binding opinion by the expert - an impartial assessment of the disputed facts.

Distinction from Arbitration
The key difference in reference to an independent expert and arbitration lies in the degree of expertise that the independent expert brings. Referral normally relies on particular skills and specialist knowledge of that expert to produce an answer, which both parties can have confidence is appropriate and robust. For example, valuation or technical aspects of a business. It is less adversarial, formal, and more in a forensic/investigatory manner. (Refer Comparative Analysis in Schedule.)

Use
Expert determination is a long established procedure (eg A-G v Offshore Mining Co Ltd [1983] NZLR 418 (CA) - records the fact that in art 16 Maui Gas Sale and Purchase Agreement, dated 1 October 1973, there is a "Reference to Independent Expert") and is used internationally (eg Institute of Arbitrators and Mediatiors, Australia ("IAMA"), and the Institution of Engineers Australia ("IEA") each have published rules for expert determination).

The ICC Centre for Expertise was established in 1976 as a system to adjudicate construction contract disputes in the UK. It is also used across a wide range of disputes as illustrated in case law in respect of construction contracts, property, insurance, and accounting professional service contracts, sale of goods contracts, valuations, and other types of assessment - refer cl 2.2 of the Auckland District Law Society's lease form.

Expert determination is often specified as part of dispute resolution regime within standard form contract or is adopted by mutual agreement between the parties, when a dispute arises, as an alternative to litigation or arbitration.

In Australia it is estimated that in the last 5 years several hundred commercial disputes have been dealt with using a process of expert determination in lieu of arbitration or litigation.

Process
The independent expert who conducts process is usually chosen by the parties or appointed by nomination from a professional institute (eg AMINZ). The expert should be selected for his or her high level of expertise and experience in the subject matter of the dispute.

Expert determination is designed to be a relatively quick and straightforward procedure. In most cases the "agreed rules" will provide that the expert receives submissions and documentation from each party in respect of the issues in dispute. The expert may also convene a conference with the parties in order to ask questions and to gain a complete understanding of their respective contentions. However, no oral evidence is taken, nor is there any formal hearing with witnesses. In some cases, it may be appropriate to conduct a view, or to carry out tests. The expert will then consider all the relevant information, and publish a written determination of the disputed issues, usually with supporting reasons.

Unlike litigation or arbitration the expert is not constrained from applying his or her personal expertise to the determination. They may also be able to be inquisitorial in some cases. There are no issues with documentation, for example discovery and production, and no questions of admissibility can arise. There is no right of appeal and the circumstances in which the Courts will decline to enforce an expert determination agreement (and the result) are very limited. A "final and binding" agreement with respect to the expert's determination usually means just that.

Rules
The rules governing any process of expert determination will depend solely on the parties, and the specific provisions of the contract they have entered into. It is fundamental for the parties not only to agree that their disputes will be referred to expert determination, but also to define the rules of procedure that they wish to use. This supposedly gives the parties greater flexibility as, subject to maintaining procedural fairness, they can fashion a set of rules to suit their particular needs and the specific nature of the disputes likely to arise between them. However it is more common for the parties to rely on a "standard" set of rules, several of which have been promulgated by industry bodies or professional institutes. These can be incorporated by reference into the dispute resolution provisions of the parties' contract. A typical set of rules would include provisions defining:
- The appointment and remuneration of the expert, and date for payment;
- An exclusion of liability and an indemnity;
- The identification and definition of the issues in dispute;
- The powers of the expert in the conduct of the process;
- The necessary qualifications of the expert;
- The steps by which the expert is to be informed of each party's case, for example, written or oral submissions, a view, exchange of questions/answers;
- Other procedural requirements, for example, disclosures of conflict of interest, communications with the expert, representation and confidentiality;
- The form of determination by the expert, for example, in writing, with/without reasons, inclusion of interest or costs, interim or staged decisions;
- Provision for a party to apply on its own for determination;
- Whether the decision be final and binding;
- Power to award interest;
- Costs met equally or following an award; and
- Procedures to be decided by the expert where not prescribed.

The reference can be on a binding or a non-binding basis. In respect of the latter, there needs to be a prescription of the process to be adopted by the expert, to overcome any argument that the parties have only agreed to agree, or agree to negotiate. The process needs to be adequately described.

Enforceability
Most agreements provide for the expert's determination to be final and binding on the parties. Along with the speed and relatively small cost, this is often seen as the main advantage over litigation.

However, it is a "Russian Roulette" style of decision-making that may dissatisfy those use to the more traditional process.

The Courts have indicated that as long as the expert complies with the terms of his or her appointment, and the expert determination agreement, then the determination, whatever it may be, will be immune from challenge. This means that a determination cannot be overturned on the basis that the expert has made an error, or considered or relied on irrelevant matters, but only if he or she has gone outside the terms of the agreement. For example, by determining a matter not referred to him or her, or by failing to act impartially or honestly.

As to whether the determination is final and binding, the difference can sometimes be a financial threshold, for example, binding under $250,000 and non-binding over $250,000, or as an alternative it only goes to expert determination if under $250,000.

Method of Enforcement
The following methods of enforcement are used in expert determination:
a) Termination or action for damages for breach of agreement;
b) Stay of proceedings, until process followed; or
c) Specific performance


Issues

1. Not all disputes are suited to the process. It seems to work well where there is a single issue, for example, valuation or quality. Without traditional procedures, such as discovery and cross examination, there have been concerns expressed about the difficulty of resolving disputed facts. Where credibility is an issue the process can often result in an arbitrary, and relatively untested, decision by the expert.
Similarly, where there are a number of interrelated disputes, for example, a construction dispute with a complex background of facts and a mixture of legal and technical issues, problems are often reported.

2. Ouster of Jurisdiction of Courts
The issue of whether Courts will, as matter of public policy, allow their jurisdiction to be ousted only arises with binding expert determination. In the Australian decision in Baulderstone Hornibrook Engineering Pty Ltd v Kayah Hldgs Pty Ltd (1997) 14 BCL227 (based on the decision in Scott v Avery (1856) 10 ER 112) the Court held that expert determination, which was final and binding, was beyond the allowable scope of the expert.
In limited circumstances the jurisdiction of the Courts will be ousted. For example, this may occur where the appointment is for the sole purpose of making a finding of fact, in relation to a subject upon which the expert has the appropriate expertise.
In Baulderstone, by giving the expert power to determine any dispute, it extended to damages, which was beyond the scope of his expertise and powers. Issues of breach of contract, damages, and statutory breach, can only be determined by the Courts and arbitrators.

This decision is to be compared with Fletcher Construction (Australia) Ltd v MTN Group Pty Ltd 14/7/97, Rolfe J, Supreme Court of NSW 55028. This decision contrasts with the Baulderstone decision in holding that the agreement did not involve such an ouster. If the expert has acted within the scope of the dispute resolution clause, and his or her decision is not otherwise vitiated, it will be given effect to.
A better view, that the Baulderstone decision overlooks, is that the finality is subject to the Court's power to upset the determination. There is no ouster simply because the determination is described as final and binding. It is to be expected that any matter to be determined is within the expert's expertise. However, in the Baulderstone case the determination was of matters both of fact and law, and may then include matters outside the jurisdiction of the expert's expertise.
Therefore, to avoid such problems, there must be a determination of a clearly defined range of matters, all of which are within the expert's expertise.

3. Distinction between expert opinion and expert determination. There is an issue as to whether "expert opinion" should be treated in the same way as expert determination. The preferred conclusion is that expert determination (which interestingly enough the Oxford Dictionary defines as "the conclusion of a dispute by the decision of an arbitrator") would be binding, but not expert opinion.

4. Expertise can come from qualifications or experience. One important issue is how "expertise" is established. The standard used by the Courts in New Zealand reflected in the provisions of r 324 High Court Rules, r 342 District Court Rules, and s 62 District Courts Act 1947.

5. Why is it popular? The groundswell against litigation, and to a lesser extent arbitration, is due to issues of expense, speed, and fairness. Note that a similar adjudication process has been recommended by the New Zealand Law Commission in its recent study on protecting construction workers.
6. Is adjudication the same as expert determination? A better view is that an adjudication can be subsequently reviewed in arbitration, and is really only a fast track procedure.

7. Expensive litigation or arbitration. Often references to expert determination, rather than arbitration, are promoted in an effort to avoid expensive litigation or arbitration. But there is the still problem of being within expertise (and discretion, appointment, or contract) and whether the expert carried out his or her role in accordance with the contract.

8. Lack of detail. There is a problem if there is lack of detail provided about the procedure to be followed by the parties or the expert.

9. New matters. Problems are created when one party attempts to address new issues, or reframe the issues to be determined. This is often a by-product of the lack of any form of pleadings defining the issues. Hence the importance upon embarking on the expert determination process with a clear definition of the matter in dispute.

10. Legal issues. Points of law cannot be questioned unless the wrong question has been asked by the expert, other than where there is substantial miscarriage of justice. However, it is possible to challenge and expert's decision if made outside his or her area of expertise.

Conclusion
Expert determination is now firmly established as a mainstream dispute resolution procedure. It is quicker, cheaper, less adversarial, and more user friendly, but there are the concerns that in many cases the determinations are arbitrary, unpredictable, or based on unproven facts. The continued evolution of a comprehensive set of "rules" should facilitate the improved integrity and efficiency of the process.

Brett Gould is a partner of Reeves Middleton Young
Web site: Reeves Middleton Young
Email: BGould@rmy.co.nz

August 2000

SCHEDULE - Comparative Analysis
ARBITRATION compared to EXPERT DETERMINATION

Nature of Inquiry:
Arbitration
- Rules of evidence apply
Expert Determination
- They don't, bound only to consider evidence in light of personal experience, can still inquisitorial

Basis of Decision:
Arbitration
- Must be based on evidence produced during the proceedings
- Natural Justice applies
Expert determination
- Can rely on personal judgement unfettered by the submissions of the parties depending upon the terms of reference
- Probably applies depending upon the contract but procedural fairness can be more important depending on contract

Finality:
Arbitration
- Final and binding
Expert determination
- Can be, subject to judicial review for failure to follow contract or relevant material vitiating factor e.g. collusion or fraud
- Can apply even in event of incorrect application of the law

Intentions:
Arbitration
- Not only determining factor, important for immunity from negligence
Expert determination
- Not only determining factor, important for immunity from negligence

Engagement and Powers:
Arbitration
- Initially agreement and then Arbitration Act 1996
Expert determination
- Can provide for appointment where can't agree
Usually professional qualification prescribed for expert

Liability of an Expert:
Arbitration
- Legislative protection
- Section 13 Arbitration Act 1996
Expert determination
Open to claims of failure to:
- carry out the reference properly
- deliver a timely decision
- follow parties instructions
- failure to provide the standard of care and diligence expected of a professional in the expert's opinions

Limiting Liability:
Expert determination
- Obtain indemnity from the parties
- Providing limited reasons to be open to attack
- Follow prescribed steps to limit arguments
REFERENCES

1. Adams, Prof J.E, LLB "Expert or Arbitrator" States Gazette May 16, 1988 Vol 258, pg 627

2. Dean, Tony "Expert Determination - A new way to resolve disputes or the Emperor's new clothes?" Paper to AMNIZ Conference, February 2000

3. Easton, G "Expert Determination - A new way to resolve disputes or the Emperor's new clothes?" Paper to AMNIZ Conference, February 2000

4. Kennedy-Grant, Tomas "The winds of change:Dispute Resolution Strategies for the 21st Century" Paper to AMNIZ Conference, February 2000,
"Expert Determination and the Enforceability of ADR, New Zealand Law Journal, June 2000, pg 223

5. Mealey, K. "the Law Relating to Expert Determination" ACLN Issue 57, pg 26