MARKET COMMENTARY 13
EXPERT DETERMINATION – THE SOLUTION?
PROBLEMS WITH EXPERT DETERMINATION
THE DISPUTE RESOLUTION MECHANISM IN A PRICE REOPENER PROVISION SHOULD REFLECT ITS PURPOSE – TO CONCLUDE THE PROCESS OF TWO PARTIES NEGOTIATING IN GOOD FAITH TO ADJUST THE CONTRACT PRICE TO REFLECT CHANGED ECONOMIC REALITIES. IT IS A TASK WHICH REQUIRES EXPERTISE IN THE GAS MARKET IN GENERAL AND THE PARTICULAR MARKET(S) RELEVANT TO THE CONTRACT IN PARTICULAR. INSTEAD OF EACH PARTY PRODUCING EXPERT EVIDENCE TO SUPPORT ITS CASE, WHY NOT APPOINT AN EXPERT TO RESOLVE THE DEADLOCKED NEGOTIATIONS? Expert determination is recognised in English law, and many other legal systems, as a contractually-binding method of dispute resolution, in which a neutral, jointly-appointed expert issues a binding determination of the question before him. The process is commonly used for disputes relating to accounting and technical operational issues. Expert determination clauses usually specify the qualifications the expert should have; a process for his/her joint appointment, and default provisions should the parties not agree; and the procedure to be followed. The procedure is up to the parties - often it is a simplified version of the memorial-style procedure used in arbitrations, with each party submitting its written submissions (legal and technical) along with any supporting evidence, possibly with a second round of submissions in reply. The expert will usually determine the issue within a specified period, often without a hearing. There are now even default rules which can be incorporated by reference (e.g. the ICC Expert Rules, launched in January 2015). In English law there are limited grounds to challenge an expert’s decision: fraud/ collusion; partiality; material departure from instructions; failure to state reasons; and, if the expert determination clause so provides, manifest error. Otherwise, the expert’s decision will be binding upon the parties because they contractually agree to be bound. So expert determination offers a private, confidential, flexible and speedy method of concluding the price reopener process. Since the issue will be determined by an expert in gas purchasing, limited expert evidence will be required. Overly technical legal arguments will be dissuaded as they are unlikely to sway an expert as much as a tribunal composed of lawyers. Challenges to the composition of the tribunal, procedural hearings and even oral merits hearings can be kept to a minimum, speeding up the process and keeping costs down.
SO IS EXPERT DETERMINATION A PANACEA? POSSIBLY NOT, BECAUSE IT SUFFERS FROM THE FOLLOWING DRAWBACKS: • The expert determination cannot be registered and enforced like an arbitral award. A refusal to abide by the decision is a breach of contract, so the determination is “enforced” by a breach of contract claim (in England, summary judgment will often be available). In a cross-border context, this might invite satellite litigation, effectively re-opening the matter. Moreover, the jurisdiction where enforcement is sought might not recognise expert determination as a valid dispute resolution method. • Where there is a dispute concerning the jurisdiction of an expert, there is no principle of kompetenz-kompetenz. This could result in a challenge in the national courts (although the prospect of this can be minimised by a well-drafted expert determination clause). • There are no supportive rules of procedure like the Arbitration Act 1996. So, for example, it is generally not possible for an expert to order a party to disclose documents or to issue a witness summons. • If there is an important legal principle which needs to be decided to dispose of the price review notice justly, an expert will probably not be as well placed to deal with it as an arbitral tribunal. This can be addressed by allowing the expert to take his own legal advice, perhaps from a lawyer who is mutually acceptable to the parties; however, this could effectively become a “summary arbitration” in itself, undermining the parties’ confidence in the process.
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