In Dandara South East Ltd. v. Medway Preservation Ltd. and another, [2024] EWHC 2318 (Ch), the business and property division of the England and Wales High Court considered the applicability, and separability, of expert determination clauses in the context of a contract for the sale of land.1
As readers may know, contractual dispute resolution processes (particularly in construction contracts) often contain a clause whereby a dispute is referred for determination to an "expert" prior to litigation and/or arbitration. Such clauses are fundamentally distinct from arbitration clauses (particularly with respect to a lack of formal procedure), but share certain similarities (as discussed in this case comment).
In Dandara, the EWHC determined that an expert determination clause in a contract for the purchase of lands was separable from the underlying agreement, such that it continued to apply after termination of that agreement.
Decisions of the EWHC – while not binding in Canada – can nevertheless be persuasive to Canadian courts (particularly in the area of construction law). Given that this decision was a novel one by the EWHC, it may be influential in other common law jurisdictions (including Canadian common law provinces) and is therefore worthwhile reading. Below, we consider Dandara and its key takeaways for Canadian practitioners.
Factual Background
The parties entered into a contract in June 2022, in which the first defendant, Medway Preservation Ltd., agreed to sell land, with certain construction works acting as a precondition to the sale, to the claimant, Dandara South East Ltd. ("Dandara"), as buyer (the "Contract").
The second defendant, Medway Preservation & Development Limited, was named in the Contract as the contractor (collectively with Medway Preservation Ltd., "Medway").
With respect to dispute resolution, the Contract contained Clause 28, which provided as follows:
28.1 Any dispute or difference between the parties as to any matter under or in connection with this contract shall be submitted for the determination of an expert (the Expert) and the following provisions of this clause 28 shall apply to any submission and to any other matter required to be dealt with by the Expert.
The Contract also contained Clause 31, which provided that "[e]ach party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this contract or its subject matter or formation (including non-contractual disputes or claims)."
With respect to the completion of the sale of the land, there were two condition precedents under the Contract to be met. Dandara and Medway could not agree as to whether one of the two conditions precedent had been met.
As a result, Dandara terminated the Contract in December 2023. Dandara then commenced an action before the EWHC (ostensibly pursuant to Clause 31) for declarations that: 1) it was entitled to terminate the Contract, and 2) it did validly terminate the Contract; as well as an order for repayment of its deposit.
In response, Medway commenced an application for a stay of the court proceedings to enable the dispute between the parties to be determined through the expert determination procedure, as provided for in the Contract under Clause 28.1.
The Issues
The EWHC considered the following three issues:
- Whether, on its true construction, the expert determination provision extended to the present dispute between the parties.
- Whether the expert determination provision in the Contract was separable from the Contract, since the Contract had come to an end by way of asserted termination.
- Regardless of the separability of the expert determination provision, whether the dispute was plainly unsuitable for expert determination such that the court should refuse to grant a stay as a matter of discretion.
The England and Wales High Court's Decision
- Constructability
As a preliminary note, the EWHC first observed that there was no decided authority on whether an expert determination clause can be separable from the underlying agreement.
In contrast to expert determination clauses, arbitration clauses are widely understood to be separable from the underlying agreement in which the clause is found (a proposition that is well established across several common law jurisdictions, including Canada2). The EWHC noted that in relation to arbitration agreements, the principle of separability is enshrined in statute.
The EWHC then reviewed a precedential case, Barclays Bank plc v Nylon Capital LLP,[2012] Bus LR 542, in which the England and Wales Court of Appeal (the "Court of Appeal") explored the similarities and distinctions between arbitration and expert determination clauses with respect to their scopes of jurisdiction. In particular, the Court of Appeal found that "the construction of an arbitration clause should start on the assumption that the parties, as rational businessmen, were likely to have intended that any dispute arising out of the relationship into which they had entered should be decided by the same tribunal." This is the "one-stop" principle.
Accordingly, the Court of Appeal found that an arbitration clause should be construed in accordance with that presumption, unless it was clear that certain questions were to be excluded from the arbitrator's jurisdiction.
In contrast, the Court of Appeal found that "expert determination clauses generally presuppose that the parties intended certain types of dispute to be resolved by expert determination and other types by the court (or if there is an arbitration clause by arbitrators)", such that the parties agreed to two different avenues of dispute resolution. Therefore, when there are expert determination clauses, there is no presumption either way and the question of which jurisdiction a dispute falls into is a matter of construction.
Parenthetically, this is often the case in Ontario construction contracts where experts are called upon under dispute resolution provisions to address only specific issues for which an expert would be appropriate. For example, expert determinations are often utilized in respect of issues such as determining volume of soils, contamination, accounting, structural deficiencies, utilities issues, building code compliance, and flooding: where the experience of the expert (often an engineer or consulting specialist) would be beneficial as compared to a decision maker that may not have such expertise.
In the present case, the EWHC stated that in general, when an expert determination clause anticipates that some disputes will be resolved by an expert and others by the court, the one-stop principle that is applicable to arbitration clauses does not apply. As such, the interpretation of Clause 28, so as to determine its scope, is logically the prerequisite question to that of whether or not the clause is separable from the balance of the underlying agreement (i.e., the Contract).
The EWHC then turned to the interpretation of the expert determination clause at issue and found that, on its face, the clause was a broad and all-embracing provision which required all disputes concerning the Contract to be subject to expert determination. The natural reading of the clause 28 was that any dispute concerning the Contract would be subject to expert determination, including a dispute as to whether the Contract was validly terminated. The EWHC noted that the wording in Clause 28 mirrored the breadth of disputes generally subject to a "one-stop" arbitration clause. In this regard, the clause was broader than many expert determination clauses commonly found in Canadian construction contracts.
The EWHC concluded that on an objective basis, the parties, as business people, would have known that the wording of the expert determination clause would cover all disputes arising in relation to the agreement, similar to an arbitration clause. The EWHC noted that the question is whether the parties objectively intended that some questions would be determined by the expert and some by the courts. In this regard, the EWHC found that it would be "violence to the broad and mandatory provisions" of the expert determination by introducing a distinction not justified by any identified commercial rationale or any wording contained in the Contract. In addition, the fact that there was no carve-out in the expert determination procedure for certain disputes to be determined by the courts, was a factor favouring a one-stop construction of the clause.
While Dandara argued that the expert determination clause would be in tension with Clause 31 (which provided the courts of England and Wales with exclusive jurisdiction to settle disputes and claims), the EWHC found that the true construction of Clause 28 as a one-stop clause did not make Clause 31 ineffective. While the expert determination is conclusive and binding in this Contract, if parties need to enforce the expert's determination, or if there was a manifest error or omission, the parties would then be able to turn to the courts accordingly.
- Separability
On the issue of separability, the EWHC noted that the authorities support the view that there is a strong connection between the one-stop principle and separability. Once it is established that the parties intend for all disputes to be resolved by a prescribed form of dispute resolution, the party arguing that those resolution procedures are not separable has the burden to prove that the parties objectively intended for some disputes nonetheless to be resolved by the courts.
In this case, Dandara did not put forward any such objective explanation for the proposition that the parties intended for some disputes to be resolved by the courts.
The EWHC stated that in circumstances where parties have set up a one-stop dispute resolution in the expert determination clause, there is a presumption of separability as there is with arbitration clauses. Further, the EWHC noted that there is no reason in principle why an expert determination clause cannot be separable from the contract in which it is found. The key question of separability is dependent on the parties' intentions (which is, of course, a case-specific analysis).
The EWHC held that the expert determination clause in this particular Contract was the contractually-agreed method for the resolution of all disputes in relation to the Contract, and was not limited in the way contended for by Dandara.
The EWHC further held that the expert determination clause was separable from the Contract, at least for the purposes of determining a dispute as to whether this Contract had been terminated by a supervening event (which was the issue in this dispute).
- Suitability
In the alternative, Dandara argued that a stay should be refused as a matter of discretion, on the basis of the unsuitability of expert determination for this termination dispute. In this respect, the EWHC held that Dandara had not met its burden of proof, and the EWHC therefore chose not to exercise its discretion on this point.
Despite Dandara's argument that the dispute was too complex for expert determination, the EWHC found that "[p]arties to construction contracts regularly agree that disputes of fact will be resolved by an expert in a short period of time, without disclosure of the kind that would be ordered in court proceedings." The EWHC found that Dandara's assertion in this regard was only maintained at a high level, and stated that it was not provided with any substantial reason to be persuaded that Clause 28 was unsuitable for determination of the dispute.
As such, the EWHC granted Medway's application for a stay, and ordered that the parties to proceed with the expert determination pursuant to Clause 28.
Analysis
The Dandara case is a novel decision by the EWHC regarding the separability of expert determination clauses. Despite noting the differences between an expert determination clause and an arbitration clause, the EWHC found that similar principles were applicable in both circumstances (specifically whether an expert determination clause is drafted broadly to encompass all disputes similarly to an arbitration clause).
In this regard, despite noting that arbitration clauses and expert determination clauses begin with differing presumptions during the interpretation stage, the Dandara case demonstrates that if both clauses are found to be a one-stop dispute resolution mechanism, a court will likely presume that the clause will be separable due to the strong connection between the one-stop principle and separability. As the expert determination clause in this case was a one-stop dispute resolution mechanism, similar to most arbitration clauses, the EWHC determined that it was separable and that the parties would need to proceed in accordance with the expert determination clause.
While the Dandara case did not consider any other forms of dispute resolution, its reasoning may have significant implications on whether other forms of dispute resolution could also be deemed separable from the underlying agreement. In particular, this case suggests that other forms of dispute resolution may be separable, such that a court would grant a stay of proceedings in favour of it, if a party can demonstrate that the dispute resolution clause has been set up to be a "one-stop shop". This could enable parties to entirely customize their dispute resolution process to best suit the subject matter of the contract as the parties would not have to resort to either arbitration or the courts as the final and binding decision in the case of termination.
It has yet to be seen whether this case, or a similar issue with respect to the separability of expert determination agreements, will receive consideration by Canadian courts such that Canada will adopt a similar position.
In Canada, there is currently no authority on the issue of whether an expert determination is separable from the underlying agreement. However, similar to the law in England and Wales, the separability of arbitration clauses is a well-established doctrine in Canada.
Given the persuasive value of English court decisions in Canada, it would therefore come as no surprise if Canadian courts ultimately consider the reasoning in Dandara to be persuasive. Similar to the law in England, in Canada, the separability of arbitration clauses is typically enshrined in statute, and the common law also recognizes the doctrine of separability. However, in contrast to the reasoning in Dandara, Canada does not currently have case law establishing a similar "one-stop" principle and the doctrine of separability has only been employed with regard to arbitration clauses. As such, there are distinguishing features between the two jurisdictions of law which may limit Dandara's relevance.
As construction parties continue to explore alternative methods of dispute resolution, the separability of expert determination clauses may make expert determination a more attractive choice. This is particularly true in circumstances where expert determinations are more relevant, such as disputes involving technical issues that an expert, rather than a court, would be better suited to decide (as is often the case in construction contracts).
That being said, the applicability of Dandara to a case involving a multi-stage dispute resolution process may be more nuanced, as expert determination may be followed by mediation or arbitration and may not be flagged as binding and final, unlike the circumstances in Dandara. While Dandara suggests that the different stages of dispute resolution could be separable, the EWHC did not delve into this issue. Rather, the EWHC focused on the fact that the expert determination clause encompassed all disputes, and was therefore a "one-stop" clause; as a result, the all-encompassing nature of this expert determination clause rendered it more strongly connected to separability.
While the EWHC considered that court proceedings acted as a second stage in the dispute resolution process when determining the breadth of the clause, the multi-stage process, and the final and binding nature of the expert determination clause, was not considered when determining the issue of separability itself. As such, it remains to be seen whether a multi-stage dispute resolution process, particularly one with interim binding steps, would be separable from the contract.
In addition to multi-stage dispute resolution, the EWHC also left open the issue of whether a expert determination clause that only confers jurisdiction over some types of disputes (while the court, or arbitration, has jurisdiction over the others), could be separable. As noted above, expert determination clauses in Canadian construction contracts are generally not drafted as a "one-stop shop", and will only be applicable to certain types of disputes. Dandara did not consider this issue, given that the clause in question was all-encompassing and contained similar language to an arbitration clause.
In addition, while the EWHC noted that there was a strong connection between a one-stop clause and the separability principle, this was only a presumption; the EWHC did not make any statements as to whether a clause that is not a one-stop clause would not be separable from the underlying agreement. As this is the first authority on the issue of separability for expert determination clauses, and since the EWHC was not definitive on this issue, the issue remains open as to whether the full range of expert determination clauses could be separable. As such, the applicability of the EWHC's reasoning in Dandara may be limited in Canada, as expert determination clauses are typically not drafted so broadly in Canadian construction contracts.
The reasoning in Dandara may also be distinguished in circumstances in which the parties have specifically drafted a provision for the separability of clauses. Construction contracts in Canada often contain a separate provision which provides that certain clauses – generally dispute resolution provisions and confidentiality provisions, amongst others – will be separable from the underlying agreement. In Dandara, the EWHC does not make any reference to such a provision existing in the Contract. If there was a specific separability provision, this might have had a significant impact on the EWHC's reasoning. If parties wish to rely on expert determination as a separable clause from the underlying agreement, proper drafting can clarify the parties' intentions and ensure that the bargain the parties entered allows for the specific dispute resolution provision they choose, both during the contractual term and outside of that term.
Although the issue has not yet been considered in Canada, parties should be aware that an expert determination clause may be separable from the underlying agreement and may prevent the parties from continuing a court proceeding if the plain meaning of the clause is clear that all disputes must be resolved through expert determination. If an agreement has been set up in this way, parties should seek legal advice prior to proceeding with dispute resolution.
Footnotes
1. Dandara South East Ltd. v. Medway Preservation Ltd. and another, [2024] EWHC 2318 (Ch).
2. See, for example, Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, which decision we have written about here.
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.
