When disputes arise in commercial leases and contracts, parties are often bound by specific dispute resolution mechanisms outlined within the agreement. While litigation and arbitration are well-known routes, many contracts include alternative methods such as expert determination, which can provide a quicker and more cost-effective resolution.
What is Expert Determination?
Expert determination is a process in which an independent expert is appointed to resolve a dispute. This method is often used for matters requiring specialist knowledge, such as rent reviews, property valuations, and technical issues in construction or commercial agreements. Unlike arbitration or litigation, expert determination is not a judicial process. Instead, the expert’s decision is typically final and binding, unless it is shown to be a ‘manifest error’ or otherwise challenged on limited grounds.
A recent case involving West Ham United and the London Stadium is a prime example of the impact of an error during an expert determination. A dispute over financial obligations led to an expert making a determination that was later found to contain a manifest error, potentially costing £3 million. This case highlights the risks and limitations of expert determination, as well as the importance of carefully drafting dispute resolution clauses to mitigate potential losses. Effectively implemented Expert Determination can provide a cost-effective solution should a dispute arise.
Typical Approach to Resolving a Contractual Dispute
Contractual disputes typically follow a structured approach, starting with informal negotiations between the parties. If an agreement cannot be reached, mediation or expert determination may be pursued as a quicker and less adversarial solution. If these methods fail, arbitration or court proceedings become necessary to reach a legally binding resolution. The approach taken often depends on the terms set out in the contract, as well as the willingness of parties to engage in alternative dispute resolution methods.
Dispute Resolution Clauses in Leases and Contracts
Many leases and commercial agreements contain built-in dispute resolution mechanisms to provide structured pathways for resolving disagreements. These may include:
- Negotiation and Mediation – Encouraging parties to reach a settlement before formal proceedings.
- Expert Determination – Appointing an expert to make a binding decision on specific issues.
- Arbitration – A formal process akin to litigation but held privately.
- Multi-tiered dispute resolution procedure – A framework for the parties to try to resolve disputes through negotiation at various levels of seniority, then mediation, and if the parties fail to reach an agreement, court or arbitration proceedings.
- Court Proceedings – Typically a last resort, but sometimes unavoidable depending on the nature of the dispute.
Each method has its advantages and drawbacks. While expert determination can be expedient and cost-effective, it does carry risks, including that of an error being made by the expert. Arbitration, on the other hand, offers more procedural safeguards but can be more expensive. Choosing the right mechanism depends on the nature of the agreement and the preferences of the contracting parties.
Benefits of a Dispute Resolution Clause
Including a dispute resolution clause in a contract can provide certainty, streamline the resolution process, and reduce costs associated with lengthy legal battles. By outlining a clear procedure for resolving disagreements, parties can avoid unnecessary litigation and work towards a mutually beneficial outcome. Moreover, alternative dispute resolution methods like mediation or expert determination can help preserve business relationships and ensure that disputes are handled efficiently.
Adding Value Through Effective Problem-Solving
At DTM Legal, we understand that resolving disputes efficiently is key to protecting your commercial interests. From the drafting of corporate and commercial agreements to commercial disputes and property litigation, our expert team advises clients on all aspects of dispute resolution, ensuring that lease and contract clauses provide the best protection while maintaining flexibility for different resolution methods. Whether through negotiation, expert determination, arbitration, or litigation, we offer strategic guidance to help you achieve the best possible outcome.
If you are facing a contractual dispute or need assistance in drafting robust dispute resolution clauses, get in touch with our team today.
