Expert determination is a popular mode of dispute resolution which is used in a wide range of contracts. Its popularity is attributable to the speed, cost-effectiveness, informality, expertise and confidentiality which commercial parties expect from the expert determination process. Parties are able to determine the manner in which the process is conducted, either by adopting rules (for example the Australian Commercial Disputes Centre or Institute of Arbitrators and Mediators Australia rules), or by setting out their own rules for this purpose in the contract. Parties are also able to determine whether the expert determination process is mandatory or optional and whether an expert determination is binding upon the parties. For example, the contract may provide that a determination is not binding in cases of material error, or where damages exceed a certain monetary threshold. Expert determination is also appropriate for use in jurisdictions requiring dispute resolution steps to be taken before litigation is commenced. However, determinations are often the subject of court appeals, rendering them little more than yet another tier of adjudication, and frustrating some of the factors that led the parties to opt for expert determination in the first place, particularly speed and cost-effectiveness.
This article reports on three recent cases in the New South Wales jurisdiction which have examined aspects of expert determination.
SHAOLHAVEN CITY COUNCIL V FIREDAM CIVIL ENGINEERING PTY LIMITED  HCA 38
In this case, the expert determination was the subject of an appeal to the Supreme Court of New South Wales, the Court of Appeal of New South Wales and ultimately, the High Court of Australia. The latter's decision was handed down three years after the initial referral to the expert and the parties would have incurred vast legal and other expenses in the dispute resolution process.
Shoalhaven City Council ("Shoalhaven") had engaged Firedam Civil Engineering ("Firedam") to design and construct a waste water collection and transport system. Firedam was entitled to have the date for practical completion extended in certain circumstances, for example if Shoalhaven directed a variation to the scope of works. In some of those circumstances, and if a claim was made in writing within the prescribed time, Firedam was also entitled to receive delay damages on a per day basis for the period of the extension of time. Shoalhaven was entitled, "quid pro quo", to receive liquidated damages on a per day basis if Firedam did not complete by the date for practical completion including any extensions. In addition to Firedam's entitlement to extensions, Shoalhaven also had an "absolute discretion" to grant an extension for any reason if it so chose.
Firedam did not complete the works by the date for practical completion as extended, contending that it was entitled to further extensions of time and delay damages due to Shoalhaven having directed variations. Shoalhaven disputed Firedam's entitlement to the claimed extensions of time and delay damages and asserted that Firedam was in fact required to pay delay damages due to the failure to complete on time. The parties referred their dispute to Mr Neil Turner under the relevant provisions of the contract for a binding expert determination.
The expert found that Firedam was entitled to part, but not all, of the extension of time and delay damages claimed. Conversely, Firedam did not complete by the date for practical completion as extended and, accordingly, Shoalhaven was also entitled to delay damages. The expert set off the delay damages owing to each and determined that the net amount of damages was some $497,000, payable to Firedam.
Although this seems a favourable result for Firedam, it was not satisfied with this result and so it sought a declaration from the Supreme Court of New South Wales (Acting Justice Tamberlin) that the determination was not binding due to the expert's reasons allegedly being inadequate and internally inconsistent. Such a declaration would allow Firedam to commence fresh court proceedings in which it could argue that it was entitled to a greater quantum of damages. However, Justice Tamberlin declined Firedam's application, holding that the expert did exactly what the contract required him to do.
The Court of Appeal of New South Wales (Justices Macfarlan, Beazley and Campbell) overturned the decision of Justice Tamberlin, but his Honour's decision was restored by the High Court of Australia (Chief Justice French and Justices Gummow, Heydon, Crennan, Kiefel and Bell). The latter court held that an error made by an expert (such as reasons being inadequate or internally inconsistent) may invalidate the determination if:
- the error indicates that the expert has not made a determination in accordance with the requirements in the contract; or
- the error is such that the reasons supplied do not " meet the requirements in the contract relating to the supplying of reasons.
As the expert's determination and reasons did not contain an error of the type referred to above, the determination was held to be binding on the parties.
STATE OF NEW SOUTH WALES V UXC LIMITED  NSWSC 530
As stated above, the binding character of an expert determination is sometimes expressed in the contract as being subject to a monetary threshold for any damages determined which, if exceeded, will render the determination non-binding. The case of State of New South Wales v UXC Limited examines this issue.
The case involved a dispute between the New South Wales Registry of Births, Deaths and Marriages ("Registry") and UXC. The Registry had engaged UXC to replace its core computing system. A dispute arose when the Registry purported to terminate the contract for breach by UXC. UXC asserted that the Registry was not entitled to terminate the contract. The dispute was referred to expert determination with Mr Tom Bathurst QC (later appointed Chief Justice of New South Wales) as expert. It was determined that the purported termination of the contract was lawful and that the Registry was entitled to damages in the order of $2,600,000.
Unsatisfied with this determination, UXC commenced court proceedings challenging the Registry's right to terminate the contract. The Registry applied to the Supreme Court of New South Wales (Justice Ball) seeking a declaration that the expert determination was binding and, accordingly, that the court proceedings which had been commenced by UXC should be summarily dismissed. In response, UXC asserted that the provisions of the contract contemplated expert determinations not being binding if a monetary threshold was exceeded and that $2,600,000 should be taken as exceeding that threshold. Although the contract stated that court litigation could be commenced "if the expert determines that one party must pay the other an amount exceeding the amount specified in the Agreement Details", no relevant amount was specified in the Agreement Details.
Justice Ball considered that the absence of any monetary threshold in the Agreement Details meant that the parties could never commence court litigation in respect of a matter which had been determined by an expert.
WALTON PTY LIMITED V ILLAWARRA HOTEL COMPANY PTY  NSWSC 1188
This case concerned the roles of two types of quasi-expert: a superintendent and a referee.
Superintendents are usually qualified architects, engineers, etc. who are vested with powers under a contract to make determinations as to the length of any extensions of time granted to the contractor and the value of any variations payable to the contractor. These powers are usually tempered by a requirement in the contract for the superintendent to act honestly and fairly and to arrive at a reasonable measure of time or value of work.
Referees are people with specialised knowledge and expertise to whom a court may refer matters of a more technical nature for enquiry and report (see rule 20.14 of the Uniform Civil Procedure Rules 2005 (NSW)). Ordinarily, it is the parties, not the court, who nominate the referee to be employed. The referee considers the referred matters and delivers a report to the court which is ordinarily adopted by the court, at least in part.
In the Walton v Illawarra case, Illawarra had engaged Walton to refurbish the Illawarra Hotel in Wollongong. From the outset of the works there were numerous delays and, accordingly, practical completion was not achieved by the required date. Walton had made claims to the superintendent with respect to variations and extensions of time. It was dissatisfied with the superintendent's determination with respect to both the value of the variations and the length of the extensions of time. As a result, Walton commenced proceedings in the Supreme Court of New South Wales (Justice MacDougall) in which it asserted that the superintendent's determination was unreasonable.
The Court referred the matters to Ms Janet Grey, the referee in this case, who determined that the value of the variations and the length of the extensions of time should have been considerably different from what the superintendent determined (greater value of variations and longer extension of time). Accepting the referee's determinations in these respects, Justice MacDougall held that although Walton was ultimately liable to compensate Illawarra for the delayed practical completion, the superintendent's determinations were unreasonable and, accordingly, the quantum of Walton's liability was much less than the superintendent determined.
The merits of expert determination lie in the speed, cost effectiveness, informality, expertise and confidentiality which may be expected by the parties. However, as the cases reported upon have shown, expert determinations are not unassailable and may be overturned on application to a court. Additionally, even if a determination does not contain any errors, it may give rise to costly and time consuming court litigation if the provisions of the contract with respect to expert determination are unclear. Accordingly, it is crucial that parties examine expert determination clauses very closely before entering into any contract.
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