Expert Determination for Building and Construction Disputes

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Table of Contents

• The Dispute Resolution Clause
• Just How ‘Binding’ Is It?
• How Does This Decision Impact on Building and Construction Disputes?
• Key Takeaways
• Frequently Asked Questions

Expert determination is an alternative dispute resolution (ADR) procedure where an independent third party will assist in a dispute between parties. Expert determination differs from other forms of dispute resolution, such as litigation or arbitration. Likewise, it can be particularly effective where arbitration or litigation would cause unnecessary expense and delay. The independent third party is an expert in their field and will have specific technical knowledge relevant to the dispute. Before you can resolve your dispute through expert determination, it is essential to consult the dispute resolution clause of your commercial contract. This article explains the importance of a dispute resolution clause and how expert determination can assist your construction business.

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The Dispute Resolution Clause

How you draft a dispute resolution clause will determine whether parties can resolve their dispute through expert determination and its binding effects. A building and construction contract typically prescribes that the expert’s decision will be ‘final and binding’. As such, once the expert makes the determination, the parties are legally bound by their decision with no right to appeal. In itself, this is one of the benefits of using expert determination to resolve a building and construction dispute.

Just How ‘Binding’ Is It?

The New South Wales Court of Appeal considered this issue in Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275. The Court of Appeal unanimously decided that an expert’s decision is not binding if a decision falls outside the scope of the contract.

The Facts 

A dispute arose concerning a lease between Australian Vintage (the Lessee) and Belvino Investments (the Lessor). Under the lease agreement, Australian Vintage was to use the premises to develop and operate a vineyard. 

The lease included a provision for circumstances where a natural disaster affected the productivity of the vineyard. The parties were required to consider whether the production (or production capacity) of the vineyard was reduced by 50% of the average production capacity. If so, whether that reduction was due to a natural disaster. The lease stated that if the parties could not reach an agreement, they would refer the dispute to expert determination.

After a severe frost, Australian Vintage informed Belvino Investments that more than 50% of the vineyard’s production capacity was reduced. 

The Expert’s Decision

The expert determined that:

1. a natural disaster had occurred; and
2. the formula for determining a reduction in production capacity was to compare both the post-frost production and the pre-frost production capacity, with that of the average production capacity.

Based on this formula, the expert determined that the overall production capacity of the vineyard did not amount to a 50% reduction. Therefore, Australian Vintage could not receive any remedy under the contract.

Australian Vintage claimed that the expert used the wrong formula in making its decision and appealed to the Supreme Court. Australian Vintage argued that the expert should have compared the pre-frost production capacity with the post-frost production capacity.

Appeal in the First Instance

The Supreme Court found that the expert’s determination was consistent with the contract terms. Accordingly, Australian Vintage had no right to appeal. Australian Vintage appealed this decision, putting it before the NSW Court of Appeal.

The Final Decision

The Court of Appeal held that the lease required the expert to compare the pre-frost production capacity with the post-frost production. As the expert’s determination was not made in accordance with the lease, the parties were not bound by the decision. Ultimately, the Court allowed the appeal and referred the matter back to the expert for further determination.

How Does This Decision Impact on Building and Construction Disputes?

There are two key findings that we can take from this decision:

• If an expert makes a determination under the contract, that decision will be final and binding. The fact that an expert makes errors or takes irrelevant matters into account will not be a sufficient reason to have the determination set aside.
• An expert’s determination will only be reviewable if they carry out a task or decision that is ‘not within the contractual contemplation of the parties’.

Key Takeaways

It is essential to draft building and construction contracts clearly and prescribe what issues an expert can determine. Otherwise, an expert may wrongly make a determination outside their scope of expertise. If an expert makes a decision in accordance with the contract, the parties will not have a right to review. Nobody wants to be bound by a wrong decision. So, when drafting your construction contract, be clear, be precise and be pre-emptive.

For more information, our experienced building and construction lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions