MARKET COMMENTARY 13
EXPERT DE TERMINAT ION – THE SOLUT ION?
PROBLEMS WI TH EXPERT DE T ERMINAT ION
THE DISPUTE RE SOLUTION MECHANISM IN A PRICE REOPENER PROVISION SHOULD REFLECT ITS PURPOSE – TO CONCLUDE THE PROCE S S OF T WO PAR TIE S NEGOTIATING IN GOOD FAITH TO AD JUST THE CONTRACT PRICE TO REFLECT CHANGED ECONOMIC RE ALITIE S. IT IS A TA SK WHICH REQUIRE S E XPER TISE IN THE GA S MARKE T IN GENERAL AND THE PAR TICUL AR MARKE T(S) RELE VANT TO THE CONTRACT IN PAR TICUL AR. INSTE AD OF E ACH PAR T Y PRODUCING E XPER T E VIDENCE TO SUPPOR T ITS C A SE , WHY NOT APPOINT AN E XPER T TO RE SOLVE THE DE ADLOCKED NEGOTIATIONS? Expert determination is recognised in English law, andmany other legal systems, as a contractually-bindingmethod of dispute resolution, inwhich 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 thememorial-style procedure used in arbitrations, with each party submitting its written submissions (legal and technical) along with any supporting evidence, possiblywith a second round of submissions in reply. The expert will usually determine the issue within a specified period, oftenwithout 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 decisionwill be binding upon the parties because they contractually agree to be bound. So expert determination offers a private, confidential, flexible and speedymethod 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 asmuch as a tribunal composed of lawyers. Challenges to the composition of the tribunal, procedural hearings and even oral merits hearings can be kept to aminimum, speeding up the process and keeping costs down.
SO IS EXPERT DETERMINATION A PANACE A? POSSIBLY NOT, BEC AUSE 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, thismight invite satellite litigation, effectively re-opening thematter. Moreover, the jurisdiction where enforcement is sought might not recognise expert determination as a valid dispute resolutionmethod. • 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 beminimised by awell-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 awitness summons. • If there is an important legal principle which needs to be decided to dispose of the price reviewnotice 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 froma lawyer who ismutually 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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