Where an adjudicator or an umpire appointed to carry out an expert determination fails to provide adequate reasoning for their decision is there anything that can be done? This was something Mr Justice Cresswell had to consider in the recent case of Halifax Life Limited v The Equitable Life Assurance Society [2007] EWHC 503.

Expert Determination

In the case before Mr Justice Cresswell, the Halifax brought proceedings seeking a declaration that an expert determination was not final and binding because the expert had materially departed from his terms of reference and had failed to provide adequate reasons.

The Halifax said the Expert had failed to provide reasons which explained why he rejected their principle contentions and that he had failed to provide reasons which explained what he had learned from private meetings with the Defendant's representatives, what documents he had been shown and how this information influenced him in deciding how to deal with the concerns expressed by the Halifax. Hence, the Expert had materially departed from his instructions and his decision contained a manifest error. There was no allegation of fraud or partiality.

The Judge referred to the case of Bernhard Schulte & Others v Knarl Holdings Ltd where Cooke J said that an expert, subject to the express provisions of his remit, is entitled to carry out his own investigations, form his own opinion and come to his own conclusion regardless of any submission of evidence adduced by the parties themselves. Here, the Expert was appointed to resolve defined issues in accordance with the contract. The parties had to provide to him such information or documentation as he reasonably required and to make available to be questioned any person whom he considered to be able to supply relevant information. In coming to his decision, the Expert was entitled to consider only the matters in dispute and only to take into account such evidence and information as the parties put before him.

The Judge noted that if an expert makes a mistake while carrying out his instructions, the parties are bound by it for the reasons that they have agreed to be bound by his decision. However where the expert departs from instructions in a material respect, the parties have not agreed to be bound. This is because the expert has not done what he was appointed to do. Where the contract provides that a decision should be final and binding save for manifest error, any departure from instructions is material unless it can be properly characterised as minor.

The Judge decided that provided an expert stayed within his terms of reference, then the expert determination would be binding. He then went on to consider the need to provide reasons. He referred to the case of South Bucks DC v Porter (2) [2004] 1 WLR 1953, in which Lord Brown at paragraph 36 stated:

"The reasons for a decision must be intelligible and they must be adequate. They must enable the reader to understand why the matter was decided as it was and what conclusions were reached on the "principal important controversial issues", disclosing how any issue of law or fact was resolved. Reasons can be briefly stated, the degree of particularity required depending entirely on the nature of the issues falling for a decision."

Mr Justice Cresswell noted that the requirement for the giving of reasons concentrated the decision maker’s mind. He went on to state at paragraph 53:

"A requirement to give reasons concentrates the mind: if it is fulfilled, the resulting decision is much more likely to be soundly based on the evidence than if it is not. Where there is a contractual requirement that reasons are to be given, it is not enough to say that the reasons can be inferred."

Here, the Judge felt the Expert was required to provide reasons which were intelligible and adequate in the circumstances. Those circumstances included the context, the nature of the issues and fact that he was required to conduct an expert determination leading to a decision. The reasons could be stated briefly but they had to explain the reasoning for his conclusions on key points raised. This was not a case where no reasons were given. The question was whether the reasons were adequate in the circumstances.

It should be noted that, as the Judge said, typically a Judge would never receive evidence or hear submissions from one party in the absence of the other. The same would be true of an Adjudicator. Here, with the expert determination process, matters were different and the Halifax would not object to the procedure adopted.

The Halifax had four basic areas of concern which were noted by the Expert. The Judge felt that it was incumbent on the Expert to set out, albeit briefly, his reasons for his conclusions in relation to each of these four areas. These reasons would include the information taken into account in reaching those conclusions. The Judge found that the Expert did not do this.

The Judge then had to consider what could be done in these circumstances. He did not consider that the expert's failure to give sufficient reasons meant that the determination was not binding. Instead he directed the Expert to provide the reasons he had failed to provide the first time round. This included indicating the extent to which he had checked the relevant underlying figures. It was only when sufficient reasons were provided that a proper view could be taken as to whether the parties were bound by the decision.

How might this decision affect adjudication?

This is an interesting decision by the Commercial Court which, it is easy to see, may well affect adjudication. Although the decision related to the need for the giving of reasons in an expert determination, the case may be equally applicable to adjudication. Certainly where an adjudicator is required to give reasons, then that adjudicator would be well advised to bear the Judge’s comments in mind. Any reasons must be intelligible and deal with all of the main issues. As a minimum, the reasoning should identify the analysis and basis upon which the decision is made.

Mr Justice Cresswell held that the decision of the expert could not stand as it was because the expert had failed to give adequate reasons. It therefore seems likely that it is only a matter of time before an unsuccessful party in an adjudication argues that an adjudicator’s decision is not enforceable because inadequate reasons had been given. Whether such an application would succeed and in what way is a completely different question. An adjudicator’s job is done once his decision has been issued. It may be too late to order him to provide better reason as Mr Justice Cresswell did here. The court’s only option may be to refuse to enforce the decision in question.

However, adjudication and expert determination are different processes. Adjudication is typically swift, some would go as far to say "rough and ready", and the courts have recognised that allowance must be made for this, whilst an expert determination will tend to be more measured. It is likely that this will lead to different standards being applied. However it is not so likely that this will be enough to stop someone trying - so watch this space!

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

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.