Posts tagged: expert determination

Expert Determination and Limitation

The decision in Braceforce Warehousing Ltd v Mediterranean Shipping Company[2009]raised interesting questions about the extent to which the Limitation Act 1980 applies to expert determinations.

In Braceforce Mediterranean had agreed to build and grant a lease of a warehouse.  Disputes were to be determined by an expert surveyor in default of agreement to be appointed by the President of the RICS.  The parties proceeded on the assumption that the Limitation Act applied to expert determination and Mediterranean asked Braceforce to agree to the appointment of an expert.  Braceforce failed to respond and Mediterranean both issued court proceedings and applied to the RICS for the appointment of an expert.  Braceforce argued that (a) the appointment of the expert was out of time; (b) there was an agreement to litigate the dispute rather than refer it to expert determination and (c) Mediterranean had elected to have the dispute determined by the court and not the expert.

The judgment raised two interesting points.  Firstly, the court doubted that the parties’ agreement that the Limitation Act 1980 applied to expert determination was, in fact, correct.  The court was plainly correct to have those doubts.  The framework of the Limitation Act is to prevent “actions” being brought.  For example, section 5 provides that: “An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”  Action is defined in section 38 as “includes any proceeding in a court of law”.  Although the use of the word “includes” may contemplate something other than a proceeding in a court it is difficult to imagine what that might be.  Another statutory definition of “action” in the Supreme Court Act 1981 defines action more tightly as meaning “any civil proceedings commenced by writ or any other manner prescribed by rules of court.”  Furthermore, in Johnson v Refuge Association [1913] Buckley LJ said: “In my opinion it was intended to include in the term “action” any civil proceeding in which there is a plaintiff, who sues, and a defendant, who is sued, in respect of some cause of action, as contrasted with proceedings, such as statutory proceedings, which are embraced in the word “matter.””   Where the legislature wishes to apply the Limitation Act to something other than court proceedings it has to do so expressly – as it has done by section 13 Arbitration Act 1996 which provides: “The Limitation Acts apply to arbitral proceedings as they apply to legal proceedings.” An expert determination is thus plainly not an action (or a legal proceeding) and the Limitation Act does not apply to it.

Secondly, the court held that even if the Limitation Act did apply, the expert determination was commenced by the letter to Braceforce asking it to agree to the appointment of an expert (rather than on the actual appointment of the expert) and hence would have been in time in any event. This too, is eminently sensible and borrows from the Arbitration Act.  Section 14(4) of that Act provides that: “Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.”  The contract between Braceforce and Mediterranean required them first to try and agree upon an expert and the letter was sufficient to commence the expert determination.

The practical point from the case is that expert determinations, not being subject to the Limitation Act, can be commenced at any time after the act complained of subject only to equitable and common law arguments such as laches, waiver or estoppel.  Such uncertainty is unlikely to be wanted by either party and, in consequence, expert determination clauses should have a contractual limitation to the effect that they can only be commenced within a specified period.

Fiona Trust not applicable to Expert Determination

In Barclays Bank v Nylon Capital [2011]. B had invested £250 million in two hedge funds in the Cayman Islands. The funds were managed by N, which was a limited liability partnership. B was a member of the partnership. A partnership agreement set out how the profits were to be allocated. B withdrew its investment, and a dispute arose as to the allocation of profits. However, no formal allocation of profits had been made. B issued a claim for a ceratin declarations. The partnership agreement contained an expert determination clause. It stated that in the event of a dispute regarding profits, an affected party could refer the matter to an accountant for determination, including the determination of any dispute concerning the interpretation of the agreement. The reference could be made 30 days after allocation of profits. N argued that B’s claim should be stayed pending determination of the dispute by an expert under the agreement. B argued that the court should first determine the jurisdiction of the expert, and the expert had no jurisdiction because N had not yet formally allocated the profits.

Against that backgound the court determined the jurisdiction of the expert. The term “jurisdiction of the expert” was a convenient way of encapsulating the issue as to whether under the contract the expert had a mandate to enter into a determination of any part of the dispute between the parties. The extent, and limits, of his mandate was a different question.  Although, generally speaking, parties should adhere to the agreement which they had made, the approach to an expert determination clause should not be the same as the approach to an arbitration clause. Arbitration was usually an alternative to a court for the resolution of all the disputes between the parties. However, in contradistinction, expert determination clauses presupposed that the parties intended certain types of dispute to be resolved by expert determination and other types by the court. The rational of Fiona Trust v Privalov [2007] did not therefore apply.  It was neither just nor convenient to defer a decision until after the expert had determined whether he had jurisdiction,  Under the agreement 30 days had to elapse after allocation of profits before the dispute could be referred to the expert. That made it clear that the making of an allocation was a condition precedent to the appointment of an expert. The expert had no jurisdiction to determine any issues until there had been an allocation.

This seems a sensible approach.  the parties had agreed that the expert was to consider the allocation of profits but only after the profits had been allocated.  Without an allocation the expert had no jurisdiction.

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