In Glenvill Projects Pty Ltd v North Melbourne Pty Ltd & Taylor  VSC 717 (Vickery J), Justice Vickery (the Judge in Charge of the Supreme Court Technology, Engineering and Construction List) was considering a challenge to a decision of an expert appointed under an expert determination clause in a residential building contract.
His Honour referred to 500 Burwood Highway v Australian Unity & Ors in which His Honour had analysed the role of a contractually appointed expert, and the basis upon which an expert determination might be invalidated following judicial intervention. His Honour had said in 500 Burwood Highway:
…. there is no procedural code for expert determination, in contradistinction to arbitration. The activities of an expert are subject to little control by the court, save as to jurisdiction or departure from the mandate given. Unless the parties specify the procedure, the expert determines how he will proceed; it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert ….
For these reasons, unless required by the contract in question, the parties have no entitlement to insist that the expert adopt any particular procedure; or that the appointed expert seek their approval to the proposed determination; or that they are given any hearing or facility to provide input into the process. An expert is not obliged to afford to the parties procedural fairness in the manner required of a court or arbitration in a curial context. A certifying expert is not under an obligation to provide procedural fairness or natural justice in the absence of an express contractual provision, and there is none in the present case …. How the task is undertaken is in the hands of the expert, subject to anything to the contrary in the contract pursuant to which the appointment was made.
This result is in part the product of the contract and what is to be gleaned from it as to the intention of the parties. When the parties appoint an expert, they usually do so because they agree to place reliance on the expert’s skill and judgment. They implicitly agree to accept and be bound by the determination. In the usual case, provided the decision is arrived at honestly and in good faith, the parties will not be able to re-open it and will be bound by the result.
It is also in part the product of a particular body of expert experience, learning, skill and judgment which the parties wish to apply to the problem to be dealt with. This is to be applied in a manner which is untrammelled by procedural considerations, so that the specialist skills and insights of the expert can be freely applied to the issue.
Finally, considerations of commercial utility are likely to be relevant factors. Efficiency, the production of a speedy and authoritative outcome and the elimination of the expense of a more elaborate procedure, undoubtedly play a part in parties selecting the contractual process of expert determination.
Mistake or error in the process of the determination of the appointed expert will not invalidate a decision. However, if the expert asks the wrong question or misconceives the function of the appointment, the task required to be performed by the contract will not have been fulfilled. In this event, the determination will be exposed to being set aside.
Parties to a contract who, by the terms of that contract, agree to submit a question to an independent expert, are bound by the determination of that expert acting honestly and in good faith.
His Honour reasoned further in relation to the construction of the expert engagement contract:
An expert is appointed by contract to make an expert determination in respect of specific matters which may arise during the course of a commercial relationship. An expert, in making a determination, is not obligated to abide by the rules of procedural fairness in the manner required of a court or an arbitration in a curial context. The expert’s obligations with regard to procedural fairness, or natural justice …. , are defined by the content of the express contractual agreement between the parties comprised in the Expert Engagement Contract, which in this case includes the terms of the IAMA Rules.
The manner in which the task of making the determination in question is undertaken is in the hands of the expert, subject to anything to the contrary in the contract which governs the appointment of the expert and in the IAMA Rules.
The result which is arrived at by the expert – the determination, in this case – is thus ultimately the product of the contract in the full sense of the word, as properly construed in accordance with the usual approach to the construction of commercial contracts.
The approach was recently considered in ICM Investments Pty Ltd v San Miguel Corporation & Ors [No 2]). Where it was observed that the applicable principle is often stated in terms of a necessity to construe commercial agreements so as to accord with ‘business commonsense’ or ‘commercial reality’.
As Santow J said in Spunwill Pty Ltd v BAB Pty Ltd, in construing a written document, the object is to discover and give effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended the document’s language to create.
Further, the language used in the contract is generally assigned its natural and ordinary meaning, read in the light of the contract as a whole. Where it is ambiguous, surrounding circumstances may be taken into account in assigning the constructed meaning. The surrounding circumstances include the matrix of mutually known facts, and the background, object, context and commercial purpose of the transaction, in the objective sense of what reasonable persons in the position of the parties would have had in mind.
…. The commercial context in which a reference of disputes to an expert in a commercial contract is thus most relevant. The decision to refer disputes for determination by a contractually appointed expert will usually arise because the parties desire a particular body of expert experience, learning, skill and judgment to be applied to the resolution of defined issues which may arise in the course of the relationship and need to be dealt with. This problem-solving role is usually intended to be applied in a manner which is untrammelled by overly restrictive procedural considerations, so that the specialist skills and insights of the expert can be fully applied to the issues for resolution, in an expeditious and cost effective manner which is attended with an appropriate measure of ‘finality’.
This may give rise to the parties agreeing that they will abide by a decision which in hindsight appears to be ‘wrong’. In such circumstances, mistake or error in the process of the determination of the appointed expert will not invalidate a decision, as long as it is made in accordance with the terms of the agreement.
This is not to say that there are no parameters of fairness or that the determination will be unreviewable. For example, if the expert asks the wrong question or misconceives the function of the appointment, the task required to be performed by the contract will not have been fulfilled…..
In this case, His Honour ultimately concluded that the Expert had acted within the terms of his engagement in making the procedural determinations that he did.