60 Day Expert Determination Structured to Meet the Commercial Expectations of Business Management By Charles O Neil FCIArb and Dr. Michael Hammes Published in Arbitration Journal April 2011 (Chartered Institute of Arbitrators UK) 1. INTRODUCTION 1.1 The motivation to structure a more efficient and effective Expert Determination process has arisen out of the widespread dissatisfaction of corporate management with the delays and costs of dispute resolution through the courts or with arbitration. 1.2 In preparing this paper, we acknowledged that many legal authorities, institutions and leading dispute resolution practitioners around the world are actively working to remedy the deficiencies of the existing processes. There are many publications that contain papers that analyse and comment on cases, appeals and the various dispute resolution processes in the different jurisdictions. These publications make suggestions for improvement and provide valuable information that help dispute practitioners keep up to date. 1.3 Nearly all of these publications reiterate the universal requirements for dispute resolution: To obtain a fair and impartial resolution of disputes without unnecessary delay or expense 1.4 Significant progress and improvement has been made with dispute resolution processes over the past few years, yet corporate business generally remains sceptical about entering into formal dispute in any form because of the uncertain process, outcome and costs. Clearly, the widespread corporate view is that nearly all dispute resolution takes too long, is too expensive and does not always provide a just result, thereby leaving one or both parties dissatisfied. 1.5 As a contribution to improving ADR, we are proposing a structured and disciplined Expert Determination process designed to overcome these deficiencies that attract so much criticism from corporate business, in order to offer greater commercial satisfaction with the outcome. 1.6 Expert Determination has been chosen because it is a relatively simple process that can be used effectively to resolve single issues or a small number of related issues within the contract. These types of issues represent a large proportion of disputes. 1.7 Therefore, the objective is to formulate a process that will resolve these issues in a manner that is acceptable because it is timely, cost effective, delivers fair and reasonable justice and is not likely to be challenged in litigation. 1.8 This is no easy task and there has been considerable input into this proposal by a number of professionals who are actively engaged in dispute resolution. We acknowledge and thank our colleagues for their advice and comments. (Note: We would particularly like to thank Hannah Tuempel from Paris, Malcolm Holmes QC from Sydney and Robert Horne from London for their helpful comments during the preparation of this paper ) 1.9 Corporate managers around the world require a dispute resolution process that encapsulates the key objectives that are already included in court procedures and institutional Rules, but corporate management is generally not confident that it can rely on these objectives being met by the existing processes in a pragmatic and commercial manner. 1
1.10 When corporate managers have agreed to the dispute being resolved in a binding decision by an independent person or tribunal, they have the following expectations: That the dispute will be resolved competently and impartially by the independent person or tribunal The process will be as fast as possible, without unnecessary delay Legal fees and related costs will be controlled and minimised Executive time and disruption will be minimised Confidentiality will prevail, to the maximum extent possible The risk of court appeals will be reduced if the dispute resolution process is efficient, fair in all respects and robustly managed Relationship damage will be kept to a minimum. Ongoing business between parties is often a very important consideration, as is the maintenance of personal relationships, because it is a remarkably small community in most industries and businesses and also people move between companies fairly regularly these days That the result delivered, if not favourable, will at least satisfy the losing party that it has had a fair hearing and received a properly reasoned decision in accordance with natural justice. All commercial managers want to win but there are no guarantees of this in dispute resolution, so if the result goes against it, then the losing party needs to be satisfied that: it has had a proper opportunity to put its case all issues were addressed the commercial and cost awards were fair and reasonable clear and logical legal, contractual and commercial reasons have been given in respect of each issue decided, with supporting reasoning sufficient to be understood by company management, not just the lawyers the process has been conducted efficiently and impartially so that the dispute has been resolved with certainty and finality and there are no avenues available for appeal 1.11 There does not always have to be a claimant and a respondent in the adversarial sense. It is not uncommon for parties with excellent business relationships to agree to use an independent expert to resolve a difficult contract interpretation or financial situation that has arisen unexpectedly, in order to preserve their relationship. It is also not uncommon with government departments, to overcome the difficulties of consensus decision making or to convey the public perception that they are being fair and reasonable. 1.12 The formulation of 60 Day Expert Determination is therefore designed to respond to each of the above requirements in a pragmatic and commercial manner. 1.13 In some jurisdictions, such as where Shariah law is applicable, it is acknowledged that there may be different protocols in respect to confidentiality; and with Expert Determinations being accepted as final and binding. Therefore this 60 Day Process may require modification to accommodate existing practices in such jurisdictions. 1.14 The next important step is to convince corporate management that it is possible to achieve the above objectives through a structured and disciplined process that is efficiently managed in respect of time, fairness of result and costs. This is best done by their legal and commercial advisers. 2
2. KEY PRINCIPLES OF THE 60 DAY PROCESS 2.1 The Expert appointed by the parties or by an institution must have substantial experience in the area of dispute, be it contractual or technical expertise, i.e. the appointee should be a recognised expert in this area. 2.2 The appointment process and timescale shall be incorporated in the contract. If the parties are unable to agree on the appointment within the contractual time limits, it shall be made by an institution that is nominated in the contract, e.g. International Chamber of Commerce (ICC), which shall also be obliged to appoint a recognised expert in the area of dispute. 2.3 In complex disputes that may involve both contractual and technical decisions, the Expert must be a specialist in the predominant area of dispute, but shall have the right to engage experienced advisers to provide advice on specific issues on which the Expert does not have personal expertise. These advisers might be legal, financial, commercial or technical. The cost of such advice shall be included in the costs of the Expert Determination. 2.4 The parties shall be given adequate opportunity to present their case and respond to the case of the other party. The parties shall be given the opportunity to verbally explain or clarify their submissions. 2.5 The parties shall have the right to request the Expert to undertake site inspections, subject to being accompanied at all times by representatives of both parties. 2.6 The parties shall be given the opportunity to review the draft Determination and make submissions on errors of fact, ambiguity or matters requiring clarification. 2.7 Limits are placed on time periods and the size of submissions in order to facilitate a fast but fair and reasonable resolution. However, the parties always have the right to mutually agree more flexible timescales and submissions for complex disputes. If this happens after the Expert Determination has commenced it shall be necessary for the Expert to also agree, so that the Expert has a measure of control over procrastination and unnecessary delay. 2.8 Subject to the parties agreeing otherwise, The Expert shall robustly apply the procedures and time limits in order to meet the objectives of the process. 2.9 The 60 Day process is designed specifically for single issue disputes where the parties desire a fast resolution that is fair and reasonable and cost effective. However, one Expert Determination may accommodate one or more single issue disputes within the same contract that have some commonality, e.g. o o Interpretation of the contract in respect of obligations and liability, or to resolve ambiguity. A single issue that has multiple sub-issues, e.g. a purchase price dispute with underlying adjustment clauses. 2.10 The 60 Day Timetable does not allow for counter claims, but the Timetable can be adjusted to accommodate them, by agreement of both parties with the Expert. 2.11 Subject to the parties agreeing otherwise, the Expert Determination shall be Final & Binding and not subject to appeal other than in the event of later evidence emerging in respect of alleged fraud or misconduct by the Expert or either of the parties. The Final & Binding agreement should be written into the contract terms at the outset, as it is far more difficult, if not impossible, for parties to agree on decisions being final and binding after a dispute has commenced. 2.12 The disputes to be determined must be clearly defined in the Brief prepared jointly by the parties, so that there is no opportunity for later challenge to this part of the process. The 3
Expert s jurisdiction is governed by this Brief in conjunction with the contractual terms in relation to the use of Expert Determination. 2.13 The Expert shall act as an expert and not as an arbitrator and may make decisions from their own knowledge or expertise and shall be free to manage the proffered evidence as they see fit, subject to no denial of natural justice. 2.14 This 60 Day Process can be conducted in conjunction with the Rules stipulated by institutions such as ICC, CEDR and the Academy of Experts provided that the Key Principles and the Timetable of this 60 Day Process take precedence. 2.15 It is recommended that 60 Day Expert Determination be incorporated in the dispute resolution section of contracts as an Accelerated Dispute Resolution Procedure suitable for single issue disputes. On this basis, its place in the dispute resolution procedures should come after CEO negotiations and mediation, as an alternative, to adjudication, arbitration or litigation. 3. THE 60 DAY TIMETABLE 3.1 Within 10 business days of the appointment of the Expert, the claimant and respondent shall simultaneously deliver written submissions to the Expert and to the other party, limited to 20 pages, that shall include: A background statement to the dispute (parties often have a different perspective on the background) An executive summary of the issues, with respective points of claim and defence. References to the appropriate points of evidence, which shall be attached. (10 Business Days) 3.2 Within a further 6 business days from receipt of the initial written submissions, the parties shall each be entitled to submit a reply to claim/defence to the Expert and to the other party, limited to 10 pages. (6 Business Days 16 in total) 3.3 Within a further 7 business days of the replies being delivered, the Expert shall conduct an oral conference, limited to one day, for the purpose of clarifying any necessary points arising out of the submissions and replies. Each party shall be allowed an equal amount of time for comments and submissions at the conference. (7 Business Days 23 in total) 3.4 No new evidence may be presented at the oral conference unless this is agreed by the Expert, or mutually by both parties. Then the other party shall have a right of response that shall not exceed 5 business days. It shall be in writing only and no reply to the response from the other party shall be permitted. (5 Business Days 28 in total) 3.5 The Expert shall issue a draft non-binding Determination within 15 business days of the oral conference, or any extension thereof related to new evidence as above. It is incumbent on the Expert to provide full reasons for his decisions, supported by detailed reasoning. The clarity of the reasoning and logic in the written Determination should be such that it satisfies the losing party, as well as the successful one, in that the dispute has been heard fairly and impartially; that the parties have had a proper opportunity to put their case; that all issues 4
have been addressed; and that the Determination provides fair and reasonable justice and will withstand any appeal if the parties have not agreed for it to be binding from the outset. (15 Business Days 43 in total) 3.6 The parties shall have then 7 business days to respond with written comments on the draft non-binding Determination, limited to 10 pages from each party. (7 Business Days 50 in total) 3.7 Within a further 10 business days, the Expert shall issue the final Determination, which shall be final & binding and not subject to appeal unless otherwise agreed by the parties at the outset, except in the case of alleged fraud or misconduct by the Expert or either of the parties. (10 Business Days 60 in total) 3.8 The claimant and respondent shall bear their own costs and equally share the costs of the Expert and any advisers engaged by the Expert. 3.9.1 At all times prior to the issue of the final Determination, the Expert shall be entitled to initiate such enquiries, investigations, witness examinations and site inspections as considered necessary or desirable for the purpose of determining fair and reasonable findings, provided that the Expert shall not at any time meet with any one party alone, or make requests of or communicate with any one party without fully copying or similarly communicating with the other party or parties simultaneously. 4. SUMMARY 4.1 The principle objective is to have a disciplined and fair procedure that is limited to 60 days. However, it is equally important to retain the principle of flexibility when this is required (Clause 2.8). For example, the 60 days might be extended to provide flexibility for complex issues, counter claims, site inspections, or a party request for an additional conference to enable further clarification if it still has serious concerns about the content of the draft Determination. In this regard, the Expert will need to carefully weigh the need for an extension with fairness, time and cost considerations before agreeing, especially if the parties differ on the need for the extension. 4.2 In summary, even with the procedure taking up to 60 business days (plus appointment time), it is vastly quicker than litigation or arbitration. And, if the 60 Day procedure is robustly managed by a real Expert on the issue under dispute, then the corporate management of both parties should be able to accept the Determination on the basis that they have received a fair and impartial resolution of the dispute, without unnecessary delay or expense. 5
Charles O Neil has extensive international experience in both commercial management and dispute resolution. He is currently (2009-10) Director of Asset Management for Bilfinger Berger Projects S.à r.l, based in Luxembourg, which has an international portfolio of more than 60 PPP infrastructure investments. In this role, Charles is responsible for monitoring the financial and operational performance and risk management of the investments. Charles is also a Chartered Arbitrator and Accredited Mediator with broad international experience, including participation in numerous Expert Determinations, as well as Litigation, Arbitration and other forms of ADR. His current memberships and listings include CIArb, ICC, LCIA, DIS, DIAC and IAMA.. Dr. Michael Hammes is a director of PricewaterhouseCooper's Forensic Services practice based in Frankfurt am Main, Germany. Michael has extensive experience in dispute resolution. In many cases he acted as an advisor to the clients and the respective law firms, as party-appointed or tribunal appointed expert in arbitration or court proceedings or as an expert in resolution mechanisms like expert determination and mediation/conciliation. Michael was engaged by the World Bank's International Finance Corporation to support the promotion and research of Alternative Dispute Resolution in Eastern Europe. December 2010 6