How to Draft Expert Determination Clause Into Contracts

Expert determination is a form of Alternative Dispute Resolution (ADR) whereby you resolve a legal dispute outside of court. ADR can take many forms, with mediation the most common. Expert determination is a lesser-used form of ADR, but can prove more useful in certain situations. If you wish to resolve a dispute through expert determination, you need to ensure that your contract clearly sets this out to ensure it reflects the parties’ intentions and is enforceable.

What is Expert Determination?

Expert determination is where the parties appoint an independent person (the expert) to decide on an appropriate settlement for the dispute. Parties use expert determination where a dispute is of a technical nature. However, it is now typically used to settle disputes arising out of a contract.

The parties can agree on the following at the time of entering the contract:

• The identity of the expert;
• What expertise the expert should have;
• The process for the expert determination; and
• How parties will resolve any issues relating to the appointment of the expert or the process.

An expert’s determination is usually final and binding unless the contract provides otherwise.

Why Consider Expert Determination?

Expert Determination is generally far more cost effective than litigation as the process is dealt with efficiently. The process is also more informal and as such can feel less adversarial. If the parties agree, the process can be addressed simply on the papers making it more suitable for parties who do not reside in the same State. In some cases, parties can also continue with their business relationship while the expert makes his or her determination.

How to Start an Expert Determination

Parties to the dispute need to enliven the process. But what if they disagree? In a case heard by the NSW Court of Appeal last year (Campbelltown City Council v WSN Environmental Solutions Pty Ltd [2015] NSWSC 155), the parties disagreed about whether to use expert determination to resolve their dispute.

In that particular contract, two clauses addressed disputes:

1. The expert determination clause; and
2. A general dispute resolution clause.

The contract set out the circumstances in which the expert determination clause was to apply (in variation circumstances or if the parties otherwise agreed). A dispute arose and the parties disagreed about whether the dispute fell within the expert determination parameters. The Court considered evidence from the parties and determined that the expert determination process was not enlivened. Importantly, parties should then explicitly state what they intend so as to avoid situations where there is “wiggle room” for a party to opt out of the clause.

Key Takeaways

When entering into a contract, it’s important to think about what you will do to resolve a dispute should it arise. Expert determination is one form of ADR that you can include when drafting your contracts to assist reaching a resolution amicably and quickly. Remember that you should make it clear in your contract how you intend to resolve a dispute and which ADR mechanism you will use.

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If you have any questions or require assistance with drafting an ADR clause, get in touch with our litigation lawyers on 1300 544 755.