In brief - Make sure your contract clearly sets out how the expert should make decisions
If your contract contains an expert determination provision, then you will probably have no choice but to abide by whatever the expert decides. Making sure your expert determination provision specifies what matters need to be considered and what should be excluded can lead to a better outcome for you.
When can expert determinations be challenged?
Expert determinations are hard to challenge. Generally, opportunities to challenge a decision will only arise if the expert has incorrectly identified the objective of the expert's task, if there is an error of law or if there is a manifest error.
Most businesses regularly agree to expert determinations that "will be binding on the parties". Expert determination commonly applies to leases, joint venture agreements, consulting agreements - in fact most types of commercial agreements.
Expert determines "reasonable fee" for use of broadcast transmission towers
Recently, an expert was asked to determine the reasonable fee payable by a digital television services company for access to and use of a number of broadcast transmission towers owned by three commercial television networks (channels Seven, Nine and Ten).
The expert was challenged in the Supreme Court of New South Wales (TX Australia Pty Limited v Broadcast Australia Pty Limited  NSWSC 4).
Commercial networks claim that expert is wrong
The commercial networks complained that the expert got it wrong, that the fee was too cheap and that in legal terms, that there were a number of errors of law. The networks presented several arguments:
- The expert misconceived his function. Rather than determining subjectively what a reasonable fee would be, he instead determined objectively what the "market value" or "fair market value" was.
- The expert failed to take a relevant consideration into account. This was the special value that use of the broadcast transmission towers represented to the digital television services company.
- The expert wrongly gave no weight to the fees payable under the earlier agreement, arguing that it was a 10 year agreement and things had changed.
- Comparable transactions were ignored and others which were less favourable to the networks' position were used for comparison instead.
- Detailed reasons were not given and the written agreement required this.
- The result was manifestly unreasonable because the networks were being forced to help the digital serves company make a "windfall" gain.
Despite many complaints, the expert's opinion prevails
The commercial networks failed on all grounds. The complaints were dismissed as unjustified and costs were awarded against the commercial networks.
The service provider will presumably be happy - the "windfall" amount was suppressed but was probably substantial. So subject to any appeal, the three commercial networks are forced to comply with the expert's findings.
Your contract needs to specify how the expert makes the determination
The lesson to learn is that you should have a contract that properly sets out what is required of your expert and how your expert should make decisions. It should state what matters need to be considered and what should be excluded, bearing in mind the industry that you are in.
This can make a substantial difference to the outcome.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.