Canada: Expert Determination

A recent judgment of the B.C. Supreme Court (the Court) in Haisla Nation v. Bear Creek Contracting Ltd. illustrates the importance of clearly distinguishing between expert determination and arbitration in commercial agreements.

Expert determination clauses are found in many agreements and are generally meant to provide a relatively simple way of resolving discrete technical, accounting or scientific matters. The matters covered by expert determination clauses vary among different industries and commercial relationships. While expert determination can be an efficient means of resolving certain discrete technical issues by an independent decision-maker, it is not the same as the arbitration of a dispute.

The legal effect of expert determination and the process that it entails is significantly different than the legal effect and the process of international or domestic arbitration of a contractual dispute. Arbitration generally involves a more formal process in which an independent decision-maker undertakes more of a judicial function involving findings of law and fact. A typical arbitration provision is meant to apply to all legal and factual disputes arising from a contractual relationship and not simply a discrete technical matter.

Arbitration Clause or Expert Determination Clause?

Courts have struggled with distinguishing between expert determination and arbitration provisions. The leading cases have been applied in such a way in Canada that, when the characterization of a provision is in dispute, it is often difficult to predict whether a court will conclude that the provision is of one type or the other. For example, compare the decisions in Ivaco Inc. v. III Canada Acquisition Co. and Hanzek v. TRM (Canada) Corporation.

This unpredictability is a concern because such a conclusion is far from inconsequential. International and domestic commercial arbitration in Canada must proceed in accordance with the applicable domestic or international commercial arbitration legislation including any mandatory procedural rules. An expert determination is not governed by such legislation. Further, the availability of judicial review is quite different in the context of expert determination and in the context of arbitration. Judicial review of arbitral awards is essentially statute based while judicial review of expert determinations is governed by the common law. The scope of judicial review of an expert determination in Canada has been considered in a limited number of cases. This subject has received relatively more attention in other common law jurisdictions. Generally, the law in Canada is that the decision of an expert may be set aside where the expert departed materially from its instructions or where the expert was biased.

Lord Denning MR, in a leading common law decision in Campbell v. Edwards regarding expert determination, outlined the following principles:

"It is simply the law of contract. If two persons agree that the price of property should be fixed by [an expert] on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. [emphasis in original] If there were fraud or collusion, of course, it would be very different. Fraud or collusion unravels everything."

To the extent that judicial review of expert determinations has been considered in Canada, these principles appear to be in accordance with the current law in Canada. As a corollary to the limited circumstances under which a court may set aside the decision of an expert, experts may be sued for negligence. In contrast, arbitrators are for the most part immune from civil liability.

Perhaps most significantly, a determination of an issue by an arbitrator is enforceable in its own right in most jurisdictions around the world whereas an expert determination merely creates contractual rights which can only be enforced through a further proceeding for breach of contract in the appropriate court with jurisdiction over the contractual dispute.

Haisla Nation v. Bear Creek Contracting Ltd.

Haisla Nation serves as an example of a decision where a court considered whether under a provision in an agreement the parties to the agreement contracted to submit an issue to an expert or to arbitration. In Haisla Nation, the defendant, Bear Creek Contracting Ltd. (Bear Creek), applied for an order that the proceedings commenced by the claimant, The Haisla Nation (Haisla), be stayed pursuant to s. 15 of B.C.'s Commercial Arbitration Act. Haisla and Bear Creek disagreed about the appropriateness of certain deductions made by Bear Creek from the profits of the parties' partnership.

Bear Creek took the position that the core of the action was a dispute concerning the correctness of certain audited financial statements and that the parties agreed to arbitrate such a dispute under s. 7.03 of the parties' agreement. Under s. 7.03, any dispute between the parties with respect to any financial calculations or determinations to be made under the agreement was to be submitted to the accountants of the parties' partnership. The decision of the accountants was to be final and binding on the parties except in the case of a manifest error. Haisla took the position that s. 7.03 was not an arbitration clause governing the dispute raised in the action. According to Haisla, the role of the accountants under s. 7.03 was to verify the accuracy of calculations or determinations while the issue in the action was whether Bear Creek was entitled to payment of the disputed deductions and a share of the profits under the parties' agreement.

In its analysis, the B.C. Supreme Court considered the four indicia of arbitration set out by the Supreme Court of Canada in Sport Maska Inc. v. Zittrer:

  1. there is a dispute or a difference between the parties which has been formulated in some way or another;
  2. the dispute or difference has been remitted by the parties to the person to resolve in such a manner that he is called on to exercise a judicial function;
  3. where appropriate, the parties must have been provided with an opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and
  4. the parties have agreed to accept his decision.

In applying these indicia to the agreement between Bear Creek and Haisla, the Court held with respect to the first indicia that there was indeed a dispute between the parties as to the net income or profit of the parties' partnership. When considering the second and third indicia, the court examined the nature of the dispute and the involvement of the accountants more closely. The court concluded that the disagreement between the parties did not fall within the scope of s. 7.03. However, the court still considered whether s. 7.03 required the parties to submit to arbitration disputes within the scope of this section. The court noted as relevant that the parties did not explicitly agree to arbitration and that there was nothing in s. 7.03 which implied that the accountants were to exercise a "judicial function". The court emphasized that s. 7.03 did not contemplate the accountants receiving submissions from the parties. Ultimately, the court found that the second and third indicia of arbitration were absent. The court concluded that s. 7.03 was not an agreement by the parties to submit the kind of dispute raised in the action to the accountants for binding arbitration. Accordingly, Bear Creek's application to stay the proceedings was dismissed.

Careful Drafting of Dispute Resolution Clauses

Haisla Nation highlights the importance of careful drafting of dispute resolution provisions including expert determination and arbitration clauses. If the court in Haisla Nation concluded that the parties' dispute was within the scope of an arbitration provision agreed to by the parties, the court would have stayed the claimant's court proceedings. The claimant would have been required to pursue all legal and factual disputes by way of arbitration before the named accountants and subject to the Commercial Arbitration Act. Expert determination and arbitration clauses trigger significantly different processes and have significantly different legal effects. When drafting an expert determination or an arbitration provision, it is helpful to review Sport Maska Inc. and its application in cases such as Haisla Nation to provide as much certainty as possible to the parties who will be subject to the provision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions