Expert Determination Clause - Live and Die by the Sword?

In the recent case of Integrated Training and Services Sdn Bhd v Kerajaan Malaysia & 2 Ors [2022] 4 AMR 389, the Federal Court overturned the Court of Appeal’s decision on the assessment of damages. The panel of three Federal Court judges unanimously reinforced the conclusiveness and finality of an expert determination.
Background facts
The appellant entered into two agreements with the first respondent which among others required the respondents to send a certain number of trainees to attend the appellant's flight training courses by batches. Both the agreements contain an expert determination clause (Clause 27.4) which reads as follows:
In the event that this Contract is terminated under any provision of Clause 27.3, the Government shall pay the Contractor upon demand the amount of which to be determined by an independent auditor to be appointed mutually by both Parties in respect of all sums and expenses properly and necessarily incurred by the Contractor in accenting it to obligation under this Contract up to and including the date of termination of this Contract. (Emphasis added)
The respondents failed to send required number of trainees as agreed. As a result, the appellant was forced to end the training courses early. The appellant sued the respondents at the High Court for breach of contract. The High Court and Court of Appeal found the respondent liable for breach of contract. However, the Court of Appeal set aside the quantum of damages awarded and remitted the matter back to the High Court for determination by the deputy registrar in accordance with Clause 27.4.
The parties then agreed for a chartered accountant to be appointed in accordance with Clause 27.4 as an independent auditor (“Independent Auditor”) who then assessed the damages to be RM21,735,613.50. The deputy registrar accepted the Independent Auditor’s report and awarded damages in that sum. Aggrieved, the respondents appealed to the judge in chambers who allowed their appeal and directed the parties to appoint a new auditor to assess the damages in accordance with Clause 27.4. The judge in chambers was of the view that Clause 27.4 did not state that the expert report must be accepted as final and conclusive. The appellant appealed to the Court of Appeal which dismissed the appeal on grounds among others, that section 74 of the Contracts Act 1950 requires the expert to justify the report to ensure that it was fair and transparent.
The appellant subsequently obtained leave to appeal to the Federal Court.
The Federal Court’s decision
The Federal Court allowed the appeal and reinstated the award of damages by the deputy registrar. The Federal Court held that Clause 27.4 is an expert determination clause and that “Once parties have agreed to the mutually appointed expert, parties are bound by the expert’s determination. The court will not generally intervene in a matter which is within the jurisdiction of the expert save in the narrow circumstances where vitiating factor(s) such as fraud, collusion, or partiality/bias can be shown.
The Federal Court held that no such vitiating factor was shown by the respondents, and that taking into consideration irrelevant documents when preparing the expert report is not a vitiating factor. The Federal Court referred to Campbell v Edwards [1976] 1 All ER 785 where Lord Denning MR at paragraph [799] stated the following:
“… It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion, of course, it would be different. Fraud or collusion unravels everything.”
Although Integrated Training and Services Sdn Bhd was decided based on established principles of law as to the conclusiveness and finality of expert determination, it is nevertheless noteworthy as it is the first reported decision by our Federal Court on this area of law.  
Expert determination clauses provide an informal, speedy and effective way of resolving disputes, particularly disputes which are of a specific technical character or specialised nature. As recognised by the Federal Court, the purpose of such a clause is to assist parties in resolving disputes without the delay and expenses of going to court or arbitration.
Whilst litigation and arbitration are governed by the Rules of Court 2012 and Arbitration Act 2005 respectively, there is no express legislation governing expert determination. They are founded entirely on contract. The contract may specify the procedure to be followed for expert determination, but if it does not so specify, the procedure will be decided by the expert.
Another important distinction is that unlike arbitrators who must state the reasons in the award (unless falling within the exceptions under section 33(3) Arbitration Act 2005), there is no duty on the expert to give reasons for his determination. This point was highlighted in Campbell v Edwards where Lord Denning MR held that the valuation could not be set aside by either party on the ground of absence of reason.
The decision of the expert within the scope of the clause will be held as “final and conclusive”, even if there are no such express words in the clause. This means that absent the abovementioned vitiating factors, parties are left with no room to appeal against the expert determination. Thus, once parties have mutually appointed the expert, they would have to “live or die” by the sword of the expert.
Case commentary by Shannon Rajan (Partner) and Tan Pheng Chew (Associate) of the Dispute Resolution Practice of Skrine

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