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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 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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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