17 Sep 2010
Preventing expert determination from becoming a costly process
You should ensure the expert determination clause contains no errors or ambiguity and is consistent with other clauses in the contract.
The recent decision of the Full Court of South Australia in Hardesty & Hanover International LLC & Ors v Abigroup Contractors Pty Ltd  SASC 44 serves as an important reminder that mistakes in contract drafting can result in lengthy and costly court proceedings and also leave the parties without any resolution of their dispute.
This article will outline the Full Court's decision, provide lessons to take away from this decision and lastly provide tips on what factors should be considered when drafting an expert determination clause.
The contact between Abigroup and Hardesty
The dispute between the parties arose from the design and construction of two bridges spanning the Port River at Port Adelaide.
Abigroup Contractors Pty Ltd was retained by the State Government to build the bridges. It engaged Hardesty & Hanover International LLC to provide consultancy and design services.
The contract governing Hardesty's engagement made provision for dispute resolution in both its "general" and "special" conditions. The special conditions were to take "precedence" over the general conditions.
Differences existed between the general conditions and special conditions. The requirements under which the determinations would become binding were materially different between the general conditions and the special conditions. By an error of drafting, the opening lines of the special conditions included references to provisions of the contract which were non-existent.
A single judge of the South Australian Supreme Court held that two expert determinations, purportedly made in accordance with the dispute resolution provisions of a contract between Hardesty and Abigroup, were not binding for a number of reasons, including:
the special conditions were void for uncertainty and therefore the issues were to be determined by the general conditions alone;
on its own terms, the contract required strict compliance with the procedures which were prerequisites for reference to an expert;
there was not strict compliance with the procedures in the general conditions.
Hardesty appealed against the decision of the single judge on the basis that the special conditions were intended to refer to the unnumbered sub-paragraph of the general conditions and the special conditions must be read with the general conditions.
Decision of the Full Court
The Full Court upheld the single judge's decision and unanimously dismissed Hardesty's appeal. It held that:
the special conditions were void for uncertainty;
"in circumstances where the contract requires strict compliance with the steps it sets out as a prelude to reference to an expert, non-compliance, for whatever reason, is fatal to the validity of the determination reached";
since there was non-compliance with the required process set out in the contract, the jurisdiction of the expert was not enlivened;
the expert acted without jurisdiction and the determination was not binding.
Lessons to take away
An important lesson to take away from the Hardesty case for contract drafters is to ensure the expert determination clause contains no errors or ambiguity and is consistent with other clauses in the contract prior to the parties executing the contract.
Another important lesson for parties once the dispute arises is to strictly follow the procedures set out in the contract to resolve the dispute.
Tips for drafting an expert determination clause
When drafting an expert determination clause, the following factors (amongst others) should be considered:
consider at the outset whether arbitration or traditional court litigation is a more suitable forum;
whether the process required under the clause/contract is distinct from arbitration - inquisitorial rather than adversarial.
the types of disputes to be resolved by expert determination - for example, is it intended that all disputes be resolved by the expert, or just certain disputes, or disputes subject to a monetary cap;
- specify the expert(s) to determine the dispute or alternatively nominate an authority to appoint the expert;
include a provision as to how the parties will agree the expert's terms of engagement (or annex terms agreed with the expert);
formal notice requirements to proceed to expert determination;
time limits to proceed to expert determination;
how the parties will agree the rules of expert determination (or annex or refer to agreed rules);
time limits for the expert to make a determination;
formal requirements of expert's determination (for example, whether it must be issued in writing and whether reasons are required);
whether the expert's determination is final and binding;
liability of the expert; and
- who bears the costs of expert determination.