Expert Determination Clauses – Are they Final and Binding?

Expert Determination Clauses and Strata Management Statements – Are they Final and Binding?

Strata Management Statements often include dispute resolution clauses that include a mechanism to refer some or all disputes that might arise to an expert for determination. Typically, an expert determination clause within a Strata Management Statement provides for a ‘final and binding’ determination by an independent expert.  In other cases, the expert determination clause is silent on the issue of whether or not the determination by the independent expert is ‘final and binding’.

When faced with a dispute that is the subject of a Strata Management Statement, parties need to properly consider whether expert determination is the ‘right’ process to be followed for resolving their dispute under the Strata Management Statement and if so, what is the most appropriate procedure to follow for resolving disputes which are likely to arise.  

Generally speaking, courts are reluctant to set aside a ‘final and binding’ expert’s determination. To do so would be contrary to the contractual intention of the parties to agree a process for resolving their disputes under the Strata Management Statement. However, it has been held that an expert determination is liable to be set aside in the following circumstances:

• Fraud or collusion: Legal & General Life of Australia v A H Hudson Pty Ltd [1985] 1 NSWLR 314 at 335

• If the expert has not complied with the contractual terms of the Strata Management Statement specifying the procedure for how the determination must be carried out: Legal & General Life of Australia v A H Hudson Pty Ltd [1985] 1 NSWLR 314 at 335; Straits Exploration (Australia) Pty Ltd v Murchison United NL (2005) 31 WAR 187.

An expert does not act in the capacity of a judicial officer or Tribunal member and so is not bound to determine the issues based on the facts presented by the parties. Further, there is no requirement for the expert to follow and apply the rules of natural justice unless expressly required by the terms of the Strata Management Statement.

If an expert makes the wrong decision, the aggrieved party will need to closely scrutinise the provisions of the Strata Management Statement to determine their next steps.

Too often expert determination clauses are incorporated into Strata Management Statements without proper consideration as to their intended effect and may discriminate between different types of disputes.  It is also not uncommon to find an ambiguously worded expert determination clause in a Strata Management Statement the effect of which either frustrates the parties to the dispute or makes them realise that they have committed to an unsatisfactory process with an unacceptable level of risk attached to that process.

In conclusion, parties who find themselves to be in a dispute that is in the realm of a Strata Management Statement’s dispute resolution clause should first obtain legal advice about their rights and remedies before embarking upon a proposed course of action.

The information in this article is not legal advice.  If you need legal advice, please contact Michael Pobi on (02) 8710 3430.  

Written by Michael Pobi of Pobi Lawyers.