Is your expert determination clause a red card waiting to happen?

Background
The dispute involved WH Holding Ltd (“WHH”), E20 Stadium LLP (“E20”), and West Ham Football Club, who were parties to a contract containing an expert determination provision which provided that the expert’s decision would be final and binding on the parties in the absence of manifest error.  An issue arose over whether E20 was entitled to a £3.6 million profit share under the terms of the contract.  Following the expert determination process, the expert ruled in favour of E20.  WHH challenged this decision, citing two allegedly manifest errors on the part of the expert:

1. Acceptance of E20’s profit share calculation, which was not supported by the relevant contractual clause.
2. Treating four relevant agreements as a single transaction, contrary to other contractual provisions requiring them to be treated separately.

What was the outcome of that challenge?
The judgment contained a useful discussion of the meaning of “manifest” in this context.  Essentially, the Judge concluded that for an error to be regarded as “manifest” the error must be obvious and “obviously capable of affecting the determination as to admit no difference of opinion”.

The Judge also stated that determining whether there has been a manifest error is contract-specific and depends on the specific circumstances of the case.

In this case, the Judge agreed with WHH that the expert’s decision was “obviously wrong”, in particular, when it came to calculating the profit share.  The expert had treated a contractual “or” as an “and”, meaning that they had used a formula unsupported by the contract.  The expert’s decision was set aside on that basis.

Key Takeaways for Businesses

1. Understanding manifest error: the High Court’s judgment provides valuable insight into the meaning of “manifest error”.  The Judge emphasised that terms like “blunder” and “howler” are unhelpful and that errors must be so obvious and capable of affecting the determination as to admit no difference of opinion.  This underscores the importance of clarity in contractual provisions and the criteria for challenging expert determinations.
2. Context and contract-specific: the ruling highlighted that whether an error is manifest depends on the context and specific contract terms.  Businesses should ensure that their contracts are clear and fully up to date to reflect on the ground practices.  In addition, consideration should be given to the scope and any limitations which are to be placed on an expert under an expert determination clause, including the situations where the expert’s decision will be open to challenge and whether the expert will be required to provide reasoning for their decisions (which may reveal the basis for a claim of manifest error).
3. Implications for dispute resolution: this case serves as a reminder for businesses to carefully consider the best forum for resolving contractual disputes.  While expert determination is generally quicker and cheaper than High Court litigation or arbitration, it can often lead to a “rough and ready decision” which cannot subsequently be challenged.
4. Drafting contracts: businesses should pay close attention to the drafting of contracts, especially clauses related to dispute resolution.  Including clear definitions and criteria for the expert determination process, including around the meaning of “manifest error“, could help mitigate risk and provide a possible foundation for challenging erroneous determinations.

Conclusion
The High Court’s decision to set aside the expert determination in WH Holding Ltd v E20 Stadium LLP due to manifest error should be viewed as a potential red card for businesses.  It highlights the importance of precise contractual provisions, thorough understanding of dispute resolution mechanisms, and careful consideration of the best forum for resolving disputes.  By taking these key takeaways into account, businesses can better navigate the complexities of contractual disputes and safeguard their interests.

Our experience involving expert determination
We have acted for clients in relation to a variety of issues which have been subject to expert determination clauses, from the level of deferred consideration payable following a business sale to the price to be paid for land to be drawn down under an option agreement (see case study here) to doors failing a fire test (see case study here).  Our experience ranges from dealing with challenges to the scope of disputes which can be dealt with under an expert determination clause and also dealing with the expert determination process itself, including preparing submissions and counter-submissions to the expert in support of the client’s case.

If you need help with anything relating to expert determination, be it drafting an expert determination or dispute resolution clauses and understanding their effect, or referring an issue to expert determination for resolution, or challenging an expert determination based on manifest error, contact our Disputes and Corporate & Commercial teams that can help.