The recent decision of Stynes J. in Schott AG v Melton Willows Pty Ltd [2023] VSC 364 explains the limited circumstances in which a court will be prepared to interfere in a contractual expert determination.
 
In Schott the parties to a share sale agreement (‘SSA’) agreed that an independent accounting expert was to value entitlements under the SSA in the event of a dispute. The contractual dispute resolution clause provided that the expert’s determination was final and binding on the parties except in the case of manifest error or fraud. A dispute arose. An expert was appointed and made a determination (‘determination’). The plaintiff was unhappy with the determination and sought judicial review of the determination on the basis of manifest error.
 
Stynes J. summarised the legal principles applicable to contractual expert determination as follows:

• an expert’s authority is derived from the parties’ contract: [52];
• the question of whether an expert’s determination is binding or open to review on the ground of error depends on whether the determination was made in accordance with the task that the expert was contractually required to undertake: [54];
• where the expert carries out the contractual task, the determination is not challengeable even if errors are made or irrelevant considerations are taken into account: [55];
• where however the expert objectively does not perform the contractual task or carries out the task in a way that is not within the contractual contemplation of the parties the determination may be liable to be set aside: [55].

 
As the SSA did not define ‘manifest error’ Stynes J. considered it appropriate to apply Almond J’s conclusion in Funtastic Ltd v Madman Film and Media Pty Ltd [2016] VSC 708 that ‘manifest error’ is confined to clear and obvious errors and that an error that is ‘abstruse, obscure or inconsequential’ will not fall within the definition of ‘manifest error’: [56].
 
After considering the evidence and submissions Stynes J. found that the expert had made a manifest error, meaning that the determination was not final and binding on the parties.
 
The key take aways for practitioners are:

• at the front-end careful consideration should be given to whether an expert determination clause is appropriate and if so what tasks the expert should be entrusted with and whether the determination should be made final and binding; and
• where parties have agreed to a contractual expert determination clause that makes an expert’s determination final and binding:
  • it will be difficult to persuade a court to interfere with an expert determination unless the expert has objectively misconceived the task that the expert was appointed to perform;
  • manifest error is unlikely to be found unless the error is both clear and consequential.

Andrew Laird

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