There are many reasons why parties provide for the determination of an issue by an independent expert. They usually come down to a desire to achieve speed, informality and privacy. Unless expressly agreed otherwise experts are not obliged to afford parties the full range of procedural fairness that would accompany a court hearing or arbitration.
If your client is involved in expert determination, the following case provides two important lessons for lawyers to consider:
- Before agreeing to appoint an expert, get acquainted with the process to be used. Such as, but not limited to, the procedure for gathering information, permitting submissions from the parties and imposing time limits. If these details are not set out in the engagement agreement, the process is a matter for the expert.
- If your client intends to impugn the impartiality of the expert by asserting bias towards another party, consider whether your client has by conduct waived their right to object to the expert’s conduct.
If lawyers unreasonably interfere in the expert determination process they can harm their clients’ interests as the following case well shows.
This case also highlights the importance of appointing an expert who is well acquainted with the process of expert determination. In my view, the expert in this case should have done more to keep the parties and the process on track. In certain situations, the expert does not need to obtain the parties approval to engage a consultant to assist the expert. As the following case shows, to do otherwise, only opens the way for more disagreement.
In McGrath v McGrath [2012] NSWSC 578, the litigants were two brothers, being parties to a Shareholders Agreement. Following mediation the shareholders entered into a Heads of Agreement to appoint an expert to determine the fair market value of the company to enable a buy-out of the defendant’s shares. The parties agreed on the expert to value the shares, however the defendant refused to agree on the expert’s terms of engagement.
The plaintiff approached the Supreme Court of NSW and sought an order for the discretionary remedy of specific performance of the agreement requiring the defendant to sign the expert’s terms of engagement. The defendant relied solely on an allegation of ‘actual’ bias against the expert.
The imputed conduct occurred during the process of negotiating the expert’s terms of engagement, before the expert’s appointment even commenced. On the facts, the plaintiff unilaterally met with and communicated with the expert. The defendant only became aware of this when the expert later sent an email to the plaintiff’s solicitor and copied it to the defendant’s solicitor. That email referred to their previous communication, requested certain information and provided a fee estimate. The defendant’s solicitor immediately objected to the lack of transparency. The plaintiff’s solicitor then disclosed the nature of the discussion, in particular that the expert agreed to appoint the property valuer as nominated by the plaintiff to value the company’s real estate.
The defendant and his solicitor then separately met with the expert. The defendant then wrote to the plaintiff advising he agreed to the appointment of the expert and property valuer provided his client could interview the property valuer to satisfy himself as to the valuer’s competence and independence. In a later letter, the defendant modified his stance and said he would hold off contacting the property valuer until after the expert assessed and advised both parties as to their suitability. The expert received a proposal from the property valuer and his firm circulated the proposal to the parties requesting confirmation to proceed. Further disagreement continued and the defendant’s suspicions and his mistrust of his brother appeared to escalate. He appointed new solicitors who made the situation worse by issuing an unjustified and oppressive request to be provided all communications between the expert and the plaintiff and the expert and the property valuer. The expert refused. More than six months had elapsed and the expert’s terms of engagement still had not been signed.
The contract did not prescribe any particular procedure for the expert to adopt and Pembroke J held the defendant’s request was, in these circumstances, inappropriate as the appointment of consultants (such as property valuer) to assist the expert was a matter for the expert not the parties. In any event, HH held it was unnecessary because such invitation to the parties only opened the way for more disagreement.
HH held the defendant waived his right to object to the appointment of the expert because he was aware of the unilateral communications and no longer objected to these. The defendant also waived his right to object to the appointment of the property valuer because he in principle agreed to the expert using the nominated valuer for the real property valuations.
Pembroke J also gave the expert the opportunity to revise his letter of engagement and said at [40]:
The expert “might wish to consider reducing the detail of his draft letter of engagement, recognising that he should maximise his discretion and preserve his flexibility rather than seek to be too prescriptive…… . He should recognise that, as an independent expert, he is a decision-maker not a negotiator. He does not need to seek the parties’ concurrence to the detailed procedures which he contemplates adopting in the valuation process”.
As part of his judgement, Pembroke J considered whether the expert’s conduct when negotiating terms of engagement gave rise to actual or apprehended bias, and whether the expert had breached an implied duty to act impartially.
What amounts to apprehension of bias? There needs to be a rational connection between the relevant conduct and the possibility in the mind of a reasonable observer that the decision-maker might be diverted from deciding the question on its merits: Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2001) 205 CLR 337 at [6] – [8] and [30].
Pembroke J held apprehended bias was not available on the facts as the principle applies to judges, other judicial officers or jurors: see Ebner v Official Trustee in Bankruptcy (2001) 205 CLR 337 at [6] – [8].
The crucial test for independent experts is actual partiality rather than the appearance of partiality. See: Macro v Thompson (No 3) [1977] 2 BCLR 36, Candoora No 19 Pty Ltd v Freixenet Australasia Pty Ltd (No 2) [2008] VSC 478, Kenros Nominees Pty Ltd v Tipperary Group Pty Ltd [2009] VSC 524.
What amounts to actual bias? There needs to be proof the decision-maker is so disposed towards one party that he does not, or is not able to, bring an impartial mind to the resolution of the question that he is required to decide: Stanislawa Bahonko v Moorfields Community [2002] VSCA 89 at [25], citing SCII v Minister for Immigration [2002] FCA 688 at [36].
PembrokeJ indicated that cases of actual bias are rare and even rarer where the person concerned, the expert, was not a party to the proceedings or given the opportunity to be heard and defend himself. Rarer still would be a finding of actual bias before a valuation has even begun: [16].
Additionally there was no breach in fact of any implied duty of impartiality. In any event, there could not be any applicable duty before the expert is formally appointed and engaged.
The Court ordered the defendant to sign the letter of engagement generally to the effect of the draft submitted by the expert.
