The High Court in England and Wales recently determined in the case of Dandara South East Ltd v Medway Preservation Ltd and another that an expert determination clause in a contract is separable from the contract itself.
An expert determination clause can be used as an alternative to court proceedings. It is a means of alternative dispute resolution that allows parties to refer a dispute in respect of a particular matter to a suitably qualified expert to determine.
Background
In this case, the dispute arose out of a contract between parties for the sale of land in Kent.
The contract stated that the sale was conditional upon the completion of specific groundworks and the issue of a practical completion certificate. It also stated that the Claimant had the right to give written notice to terminate the contract in the event that these conditions were not satisfied.
Importantly, Clause 28 of the contract provided that:
“Any dispute or difference between the parties as to any matter under or in connection with this contract shall be submitted for the determination of an expert (the Expert) and the following provisions of this clause 28 shall apply to any submission and to any other matter required to be dealt with by the Expert.”
The Expert’s decision was to be final and binding except in the case of manifest error or omission.
However, there was an apparent tension between Clause 28 and Clause 31 of the contract, which provided that the courts of England and Wales had exclusive jurisdiction to settle any dispute or claim arising out of or in connection with the contract.
The Claimant served a termination notice on the Defendants on 3 December 2023 and raised proceedings in the High Court for repayment of its deposit. The Defendants asked the Court to “stay” (suspend) the court action on the basis that the Court did not have jurisdiction because the contract provided that any dispute should be resolved by expert determination.
The Defendants also argued that the principle of separability applied and therefore the expert determination provisions in the contract continued to apply, even though the contract had been terminated.
In England, the principle of separability applies to arbitration agreements as a result of statute. Section 7 of the Arbitration Act 1996 provides that an arbitration agreement that forms part of a wider agreement shall not be invalid or ineffective because that other agreement is invalid or ineffective. The arbitration agreement is treated as a distinct agreement. The Defendants argued that the same approach should be applied to the expert determination clause in this case.
Decision
Firstly, the Judge held that unless the clause made it clear that certain questions were intended to be excluded from the Expert’s jurisdiction, it was to be assumed that the parties were likely to have intended for any dispute arising out of their legal relationship (including any dispute over the validity of the agreement itself) to be decided by the Expert rather than by the Court.
In this case, the expert determination clause was an all embracing “one-stop” provision because the expert determination clause applied to “any dispute or difference between the parties as to any matter under or in connection with" the contract.
It followed that, on a proper interpretation of the contract, any and all disputes arising from the contract should be subject to expert determination. Clause 31 only applied in limited circumstances, for example if the Expert’s decision was unenforceable due to a manifest error.
Secondly, the Judge considered that there was a strong connection between the one-stop and separability principles. He noted that once it could be established that one party intended for all disputes to be governed by a particular form of dispute resolution, then it was for the opposing party to sufficiently explain why the parties would have objectively intended for the dispute to be resolved by the Courts. In this case, no such explanation had been provided.
The Judge, therefore, ordered for the proceedings to be stayed to enable parties to comply with the expert determination clause within the contract.
Position in Scotland
In Scotland, Section 5 of the Arbitration (Scotland) Act 2010 is similar to Section 7 of the Arbitration Act 1996 – it states that an arbitration agreement is separable from the contract in which it is found. Therefore, it would be possible to advance the same argument as was successful in Dandara: an expert determination clause can continue to apply notwithstanding the termination of the contract in which it is found.
The Scottish courts have also accepted that if the parties have agreed that a dispute should be resolved by a form of alternative dispute resolution, any court action raised in relation to that dispute should also be suspended pending the outcome of that process (Fraserburgh Harbour Commissioners v McLaughlin and Harvey Ltd).
Therefore, it is likely that if faced with a one-stop expert determination clause, similar to that in Dandara, the Scottish Courts would adopt a similar approach to the High Court.
Key points
The High Court was asked to consider whether an expert determination clause can be separable from the contract in which it is found, on which no previous English authorities appeared to exist.
It held that where a contract does not carve out specific matters to be determined by expert determination, that an expert determination clause, similar to an arbitration clause, is separable and will not be invalidated or extinguished by the invalidity or extinction of the contract in which it is found.
It is probable that the Scottish courts would adopt a similar approach.
This article was co-authored by Trainee Shona Lean.