Hand with a loudspeaker

Although expert determination clauses are not so common in standard form building contracts, they are common in development agreements and land sale agreements. They come in many forms, but the idea is that disputes under the relevant agreement are referred to an expert to determine. This provides a far quicker, cheaper and more streamlined way to resolve the dispute than other forms of dispute resolution (particularly Court proceedings).

Usually the parties agree that the expert’s determination is final and binding. Yet this does not necessarily mean that the expert’s determination is the end of the road. A party who is unhappy with the expert’s decision can, in certain (very limited) circumstances, challenge the decision at Court. The most common ground for such a challenge is that the expert lacked ‘jurisdiction’. In other words, the dispute was not within his or her remit.

If a party has doubts about an expert’s jurisdiction, it should reserve its right to challenge it right at the outset of the determination process. This is common practice in adjudications, but not so common in expert determinations. However, if a party fails to challenge the expert’s jurisdiction at the outset, it will find it extremely difficult to do so subsequently.

This is a situation that a building contractor, ZVI Construction Co LLC (ZVI) found itself in, in a very recent Technology & Construction Court (TCC) case[1].

ZVI entered into a development agreement in respect of a building near Waterloo in London, known as Conway Hall. The other parties were the Seller (TGAC) and the Buyer, the University of Notre Dame (UND).

ZVI entered into a separate building contract with TGAC for the building works, together with a duty of care agreement with UND.

ZVI carried out the works to the building. However, on completion, UND alleged that there were six serious defects with the building works which it said amounted to a cost to it of around $9,000,000.

There was an expert determination clause in the development agreement (clause 17). The relevant part of this clause (17.1) read:

“Save as otherwise provided in this agreement any dispute arising between the parties hereto as to their respective rights, duties and obligations hereunder or as to any matter arising out of or in connection with the subject matter of this agreement (other than any with regard to the meaning or construction of this agreement) shall be determined by an independent duly experienced surveyor …”.

Any dispute as to the meaning or construction of the development agreement would be referred to an independent solicitor or barrister pursuant to clause 17.2.

UND referred the dispute as to the defects to an independent surveyor (under clause 17.1). ZVI did not object to the independent’s surveyor’s appointment and fully participated in the expert determination process, up until the point where the expert determined that ZVI were liable for the defects. At this point, however, ZVI asked the expert determination proceedings to be stayed so it could challenge the expert’s jurisdiction.

ZVI argued that the expert had no authority to issue an award against ZVI, as he had no jurisdiction to do so. This was on the basis that ZVI only owed one (very minor) obligation under the development agreement in respect of the building works (the obligations in this respect were set out in the building contract and the duty of care agreement). Since ZVI did not actually owe any substantial obligations under the development agreement, the expert determination clause at clause 17 could not apply to the disputes that involved ZVI because it had no “rights, duties and obligations” under the development agreement. To support this argument, ZVI pointed to the fact that the wording of clause 17 provides that it is the Buyer (UND) and Seller (TGAC) that can apply for the appointment of an expert – there is no mention of ZVI being able to do so.

If this sounds like a convoluted argument, it is because it is, and the TCC did not agree with it. It pointed to the fact that clause 17 refers to “any dispute arising between the parties“, and that ZVI was a party. Even if that was wrong, the Court considered that ZVI had impliedly submitted to the expert’s jurisdiction by fully participating in the expert determination.

Although silence is not enough to amount to an implied submission, ZVI’s actions clearly indicated that it had submitted to the expert’s jurisdiction. The actions included:

  1. at no point prior to the expert’s determination on liability did ZVI or its solicitors challenge the procedure;
  2. ZVI agreed (along with the other parties) that the expert should decide the issue of liability before dealing with quantum; and
  3. ZVI served submissions and counter-submissions without any reservations.

Conclusion

ZVI tried desperately hard to wriggle out of the expert’s determination. As well as challenging it in the English Courts, it also challenged it in the Courts in the USA (both TGAC and ZVI were American companies). Yet despite its rather ingenious arguments, the deciding factor was that although it never expressly accepted the expert’s jurisdiction, it took several steps that made it very clear that it was, in fact, submitting to the expert’s jurisdiction.

So the lesson here is that if a party has any doubts about an expert’s jurisdiction, it must raise them with the expert and other parties as soon as it becomes aware of them. This is common practice in adjudication proceedings, and is the practice which should also now be adopted by parties in expert determination proceedings.

For more information, email blogs@gateleyplc.com.

[1] ZVI Construction Co LLC v The University of Notre Dame (USA) in England [2016] EWHC 1924 (TCC)


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.