Effective dispute resolution: how do expert determination and arbitration compare?

Expert determination and arbitration each offer an alternative dispute resolution process that can be designed to suit party preferences. Choosing which of those processes will effectively resolve future disputes is a decision driven by considerations such as efficiency, cost, subject matter, confidentiality and appealability. There is no one-size-fits-all answer, but understanding how each process works - and, critically, how it will play out in practice - can help parties select the best forum for the disputes most likely to arise.

Frameworks at a glance

Expert determination and arbitration are both consensual processes, framed by rules and procedures chosen by parties to a commercial contract.

Expert determination generally requires a sole, independent expert to determine issues between parties. Arbitration can involve more than one independent third party determining party issues.

Modern commercial contracts typically specify certain categories of disputes or issues to be resolved by way of expert determination. Those disputes are often technical in nature, requiring specialised expertise to achieve resolution, for example, share valuation or extension of time claims in construction contracts.

By comparison, arbitration is a process whereby the resolution of issues (of any nature or type) between two or more parties is made by an independent decision-maker or panel of decision-makers. That process is often, but not always, administered by an independent body (such as the ICC or ACICA). It is also a process governed by federal and state arbitration legislative regimes.

Weighing up expert determination and arbitration

Expert determination and arbitration share similarities in that they are processes whereby parties establish a contractual framework for a third-party independent decision maker to determine an issue between parties. However, there are a number of differences between the two processes which necessarily inform their suitability to resolve future issues.

Time and cost

Expert determination is typically a speedier process than arbitration, primarily because it is often used for specific technical and narrow issues. It involves more informal procedures and dispenses with hearings and procedural processes such as document disclosure, cross examination of witnesses and experts and joint expert processes. An expert determination process is often conducted solely on the papers with no examination of witnesses, experts or hearings. This presents an opportunity to expedite resolution. However, the narrow focus of an expert determination process carries with it the risk that resolution of specific party issues will not address broader, systemic matters and lead to the inevitable need for a further arbitral or litigation process to address such matters.

By comparison, while arbitration is generally viewed as a faster alternative to litigation, an arbitral process, even if confined to narrow issues, is generally lengthier than an expert determination process. The length is driven by procedural processes that are not found in an expert determination: procedural conferences, party disclosure, interlocutory applications, joint expert conclave processes and a hearing (with cross examination, oral submissions). While those processes lengthen the resolution process, compared to expert determination, they are directed at ensuring that all issues are fully and finally ventilated between the parties.

The cost of an expert determination or arbitral process will almost invariably be informed by the length of that process and the extent of the issues for determination. In general terms, shorter expert determination processes may present a cost effective resolution process when compared to arbitration. However, this needs to be balanced against the parties' desired outcome: addressing narrow and specific technical matters (which may be more suited to a shorter, focused, expert determination process) or full ventilation of matters between the parties, including narrow and specific technical matters (which is better suited to an arbitral process).

Subject matter suitability

The subject matter of a dispute or future dispute will invariably inform the process best suited to resolve it.

Expert determination is directed at determining issues by an appointed expert who is usually a specialist in the relevant field of the subject-matter in issue. Such an expert may not necessarily be legally trained. This is underpinned by a thesis that the specific knowledge and expertise of the decision maker will expedite the decision-making process and lead to practical outcomes aligned to the particular subject-matter and any relevant industry standards. It is for that reason that expert determination has become a commonly deployed method of resolving disputes in the building and construction industry, which typically gives rise to issues that are technical in nature.

By comparison, party-selected arbitrators are usually legally trained professionals (often former judges) and may not have specific technical industry expertise or experience. Parties may seek to identify and choose arbitrators who have had relevant legal experience in respect of the subject matter of a dispute. However, that party autonomy may be impacted where agreement cannot be reached between parties on arbitral appointments and the appointment is made by an administrating body.

While both processes seek to appoint decision makers best aligned with the underlying subject matter of the dispute, arbitral appointments typically demand decision makers with legal training, given the procedural framework and requirements of an arbitral process.

Due process and fairness

Expert determination is often characterised by its lack of formality and limited procedural steps. The process is usually stipulated in the underlying commercial contract, which may make reference to applicable rules prepared by an administrating body. An expert determiner is not bound to follow case management steps that are more typical in an arbitration process. An expert determination is usually carried out with limited case management intervention from the expert determiner at all. This may give rise to concerns regarding procedural fairness or equitable treatment between parties by reason of the lack of procedural safeguards in an expert determination process. An expert determiner is not empowered to make determinations regarding party conduct or impose sanctions such as costs or other orders. Party cooperation is critical to ensuring that an expert determination process reaches an outcome within the required time. The outcome of an expert determination process may require further steps in a Court of competent jurisdiction to enforce its outcomes.

By comparison, arbitration empowers an arbitrator to make determinations about the conduct of the matter and the parties. This provides a safeguard for parties in respect of ensuring party equality and procedural fairness. These matters are directed at securing the integrity of the arbitral process that leads to delivery of a safe, enforceable award.

Binding nature of the determination

The outcome of an expert determination process will only be binding if the parties so agree. A non-binding expert determination process may in many respects undermine any notion of time or cost efficiency gained through the process if it is only a precursor to further formal arbitration or litigation proceeds to finally determine the underlying issues.

The scope for a court or arbitral tribunal to review an expert determination decision will depend on the wording of the expert determination clause, although there are usually very limited grounds to challenge the decision (e.g. fraud or manifest error where the clause allows). Further, to enforce an expert determination, a party may need to sue for debt or specific performance - an extra step that can erode time and cost savings.

In contrast, an arbitral award will be final and binding upon the parties once rendered by the arbitrator or arbitral tribunal. Grounds of challenge in respect of an arbitral award are prescribed by statute and are also very narrow. Those narrow grounds are in respect of matters such as an arbitrator acting outside his or her jurisdiction or failing to afford procedural fairness. In jurisdictions that follow the UNCITRAL Model Law on International Commercial Arbitration (and many others), such grounds exclude any challenge in respect of errors of fact or law. The limited nature of challenge and the high rate at which such challenges fail mean that an arbitral award will more often than not reflect the complete end of the underlying dispute, bringing finality to issues between parties.

The weigh in: which process to choose?

Expert determination of a final and binding nature will typically suit technical disputes with a narrow issue for determination. This may be advantageous to assist parties to move forward in the context of an extant transaction, commercial enterprise or project. By comparison, expert determination processes that are antecedent steps to arbitration or litigation processes are unlikely to achieve the time, cost efficiencies and practical outcome that an expert determination process is typically directed at.

The arbitral process offers parties the procedural framework to fully and finally ventilate issues between them. While the process is often longer and by its nature may involve greater cost than an expert determination process, it enables parties to address issues between them in a procedurally equitable framework.

In principle, if the primary concern is resolving narrow technical questions quickly and keeping a project on track, a well-drafted, binding expert determination clause may be an efficient tool. However, where disputes are likely to be high-value, multi-faceted or involve offshore counterparties and detailed forensic analysis of factual, technical and legal issues - and where a single, enforceable decision is required - arbitration remains the gold standard.

Whichever path the parties choose, investing time at the drafting stage to align the dispute resolution clause with the project's risk profile will pay dividends when disagreements arise.

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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