The English language is full of phrases and idioms in everyday use. A few that spring to mind include it’s raining cats and dogs, on a wing and a prayer, horses for courses, pillar of strength and all sweetness and light. We all use them and we all understand what they mean, even if they may appear nonsensical to an outsider.
Another phrase that is often used refers to buses and how you can wait ages for one and then three turn up together. I often think case law is a bit like buses. Just after I had finished writing about Shafi v Rutherford, I read another Court of Appeal judgment on expert determination (Premier Telecom Communications v Webb). This time, in contrast to Shafi (where Floyd LJ held that the expert’s determination was invalid and unenforceable), Moore-Bick LJ held that the expert’s determination was binding as the expert had not departed from the mandate.
Premier Telecom Communications Group v Webb
This case was all about the value of Mr Webb’s 40% shareholding in Premier. When he parted company with Premier, he reached an agreement with his co-director, Mr Ridge, that his shareholding would be sold to Mr Ridge. Grant Thornton was appointed to carry out the expert valuation, which was not straightforward, given the nature of Premier’s business (something vague, to do with personal relationships that had been built up between senior people at various companies).
Grant Thornton was appointed to undertake a valuation of the shares on a “fair value on a pro rata basis”, assuming “the fair value [was] equal to the market value”. Their letter of engagement said they would provide a factual memorandum, setting out the facts on which the valuation was based. They arrived at a value of £4.218 million, which I’m sure was much higher than Mr Ridge expected and caused him to “spit feathers”, given he issued proceedings to overturn the valuation. Mr Webb responded with an application for summary judgment, arguing that Mr Ridge’s claim had no real prospect of success. HHJ Havelock-Allan QC agreed, and so the matter came before the Court of Appeal.
In the Court of Appeal
At first instance, the court set out a summary of the principles applicable to expert determination, which the Court of Appeal repeated and which I think are worth mentioning:
- Where the parties have chosen to resolve an issue by expert determination, the expert’s determination is final and binding unless it can be shown that he acted outside his remit.
- A distinction can be drawn between the expert who has:
- misunderstood or misapplied his mandate with the consequence that he has not embarked on the exercise the parties agreed he should undertake, where a failure means the determination is not binding because it is not what the parties have contractually agreed should be binding; and
- embarked on the right exercise but has made errors in conducting that exercise and has come up with what is arguably the wrong answer, where the determination is not invalidated, but may leave the expert exposed to a claim in negligence.
- In deciding whether an expert determination can be challenged:
- the first step is to construe the mandate, which is ultimately a matter for the court; and
- the second step is to ascertain whether the expert adhered to his mandate and embarked on the exercise he was engaged to conduct by asking himself the right question(s) and applying the correct principles.
- If the expert departed from his instructions in a material respect, the determination is not binding.
- If the expert made an error on a point of law that was not delegated to him, the impact of such an error comes down to what the expert was asked to do, which is a construction point.
- Where a procedure has been laid down (for example, to produce a factual memorandum) the expert must follow it. However, what the procedure requires the expert to do is an aspect of the mandate, and ultimately a matter for the court.
The court noted that the issue between the parties came down to what Grant Thornton had been asked to do, and that came down to reviewing the letter of engagement. It rejected all of Mr Ridge’s arguments, concluding that there was no departure from the mandate. Grant Thornton had produced a fair valuation and, even if they had made any errors or failed to follow an agreed procedure, they still had not departed from the madate.
Questions of law referred to the expert
I was particularly interested in the discussion about the impact of an error of law.
Here the Court of Appeal suggested that the impact of an error of law will depend on whether the point of law was part of the expert’s mandate. It concluded this was necessary as otherwise, such an error may invalidate the determination and that would “risk undermining the whole purpose of the reference”.
Further, questions of law “pervade many of the issues that are likely to arise on a valuation” (or any other matter) and it was unlikely that parties would refer a matter to expert determination without expecting some points of law to be determined and binding. As the court observed, parties use expert determination precisely because it is a quick and relatively inexpensive way of getting a binding decision on a matter that requires informed judgment. That determination may involve the application of principles and expressions that are familiar to those involved in that particular field and it was unlikely that the parties intended the determination to be invalidated if there was a mistake made in the application of a well-recognised principle:
“Parties who refer a dispute to an expert must be taken to have recognised that mistakes may be made, both of fact and law, but they are prepared to take that risk because they place a high degree of confidence in their chosen expert.”
Expert’s mandate must be clear
I guess it all comes down to ensuring the expert’s mandate is clear and is not wider than necessary. If you want an expert to decide something or not to consider something in particular, you should say so. When I’ve acted as expert determiner, I’ve assisted the parties’ solicitors with the wording of the matters I was being asked to determine. The wider the mandate, the wider the expert’s discretion and the more unlikely a court will find that the expert has gone outside the terms of the mandate and made a manifest error.
Expert determination and adjudication
Two thoughts struck me about some of the things that Moore-Bick LJ said, and how adjudication jurisprudence has developed to deal with those points:
- Firstly, with regard to errors of law, we are all familiar with the principle that an adjudicator must answer the question he is asked. Provided he answers the correct question, his decision will be enforceable even if there are errors of law. Interestingly, that principle originally arose from a case concerning expert determination (Nikko Hotels (UK) Ltd v MEPC plc).
- Secondly, the scope of the mandate is determined by the drafting of the notice of adjudication and cannot be widened subsequently. However, the scope can end up being widened by the responding party during an adjudication. As Coulson J pointed out in Pilon v Breyer Group, “subject to questions of withholding notices and the like, a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off)”.
I think that Premier v Webb demonstrates that, despite the finding in Shafi, the courts remain firm supporters of expert determination and other forms of ADR.
In my view, there are good reasons why adjudication will usually be preferred to expert determination by the construction industry. In particular, adjudication is only temporarily binding and the adjudicator is limited to deciding between the parties’ cases and not veering off and using his own expertise. The other important issue is that expert determination is obviously great where the entire dispute is within the expertise of a single expert, but that is rarely the case with construction disputes where a number of different experts might be required (such as engineering, architecture, time, quantum, and so on).