UK: An Independent Expert Or An Arbitrator?

Last Updated: 28 September 2011
Article by Duncan Elson and Jamie Cartwright

The recent decision of Wilky Property Holdings Plc v London & Surrey Investments Ltd [2011] EWHC 2226 has served to illustrate certain of the factors which may prove relevant in distinguishing between arbitration and expert determination clauses.

In Wilky, the parties had entered into consultancy agreement in November 1996 relating to property development. The agreement contained a dispute resolution clause expressly providing for the appointment of an "independent expert" (clause 22). A dispute arose as what LSI was entitled to be paid under the agreement and, LSI sought to refer the issues for expert determination. Wilky disputed the referral on the grounds that it contended that certain of the matters fell outside the scope of clause 22 (and also that there was no dispute yet capable of a referral). Wilky issued Part 8 proceedings seeking declarations as to the construction of the agreement. Having made the referral, LSI then sought to argue that clause 22 provided for arbitration and applied to stay Wilky's Part 8 proceedings.

In short, if clause 22 provided for arbitration, a stay of Wilky's Part 8 proceedings would be mandatory under section 9(4) of the Arbitration Act 1996 and, in such a case, the court would be able to apply the guidance laid down by the Supreme Court in Fiona Trust (Premium Nafta Products Limited and Others v Fili Shipping Ltd and others [2007] UKHL 40) resulting in the court interpreting clause 22 widely so as to cover all disputes.

Richard Snowden QC, sitting as deputy judge of the High Court, held that clause 22 meant what it said and dismissed LSI's contention that clause 22 provided for arbitration. It was an expert determination clause and not an arbitration clause.

In addressing whether clause 22 was an arbitration agreement, the judge stated that the answer to the basic question of "What is an arbitration?" is not always straightforward. "In the absence of guidance, the question must in the end be answered intuitively".1 Intuition is to be guided by reference to a number of factors that have been seen as material to the question of whether a particular process qualifies as an arbitration. Those material factors include:

  • The agreement between the parties. In Wilky, the agreement made several references to "expert" and "determination" and there was no reference to arbitration or the 1996 act.
  • In the ordinary and natural use of words, there is a clear difference between dispute resolution by arbitration and expert determination. Prima facie, parties who have, in a carefully drafted written agreement, expressly chosen to refer their disputes to an expert have not intended a reference to arbitration.
  • The wording "to act as an expert and not as an arbitrator" would have put the matter beyond doubt but its absence was neither significant nor did it support the opposite conclusion that the reference to "independent expert" in clause 22 was intended to be a reference to an arbitrator.
  • Of considerable focus in Wilky was LSI's contention that a process which provided
  • for the determination of a dispute that had already arisen was arbitration as opposed to expert determination. This contention was rejected. The judge held that the cases cited by LSI were not authority for a general proposition to that effect.
  • LSI's argument that the range of matters that might need determining under clause 22 was so wide that the parties must have envisaged a quasi judicial process was also rejected. The clause was not as wide as LSI contended and did not cover disputes regarding performance, breach or termination.
  • Although the determination under clause 22 primarily concerned valuation and computation, LSI's contention that certain questions regarding meaning and interpretation could also be resolved under the clause was accepted. The meaning of an agreement in its commercial context was less obviously appropriate for expert determination. However, there was no restriction on who might be appointed under clause 22 (i.e. the appointment of a lawyer was permitted) and it was important that the parties be held to their contractual choice of dispute resolution even if the court might think it inappropriate.

On a base level, Wilky serves as a salutary reminder to commercial lawyers that, when drafting a dispute resolution clause, it is important expressly to provide not only for what a clause is but also what it is not. On a broader level, Wilky follows hot on the heels of the Court of Appeal's decision in Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826 by holding that the express wording of clause 22 and its references to an "expert" were clear and their ordinary meaning was not displaced by contra-indications from the agreement or surrounding circumstances.

Footnotes

1. Quoting 2001 Companion Volume to Mustill & Boyd: The Law and Practice of Commercial Arbitration in England (1989) 2nd ed. (paras 30-52)

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.

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