Expert determination, which is particularly useful in disputes concerning highly technical matters (such as insurance and construction disputes, or merger and acquisition (M&A) transactions), can stand on its own, or be used as part of a multi-tier dispute resolution system. It can also serve as a complement to arbitration, where expert determination would be used as a means of resolving specific issues while arbitration remains as the general dispute resolution mechanism.
Under Swiss law, expert determination is a contract by which an expert is required to make findings of fact or law that are intended to bind the parties. Swiss law distinguishes between expert determination and arbitration. However, it is often difficult to differentiate a proper arbitration agreement from an expert determination clause. The difference is important because:
- Unlike arbitral awards, expert determinations have no res judicata effect.
- Unlike arbitral awards, expert determinations cannot be enforced directly. Put differently, because an expert determination constitutes a binding contractual obligation between the parties, if one party fails to comply with the determinations, the other party has to seek enforcement by the courts (by a declaratory action, an action for specific performance or an action for payment depending upon the circumstances). By contrast, arbitral awards benefit from mechanisms that facilitate their recognition domestically or internationally (for example, through the New York Convention).
- Only limited grounds for challenge are available against arbitral awards. By contrast, expert determinations can be challenged in ordinary proceedings (by arbitration or in court) by establishing that the findings are arbitrary, flawed, clearly violate equity or are based on erroneous assumptions of fact.
Distinguishing between expert determination and arbitration may sometimes be a rather difficult exercise. Both are consensual mechanisms; both involve neutral decision-makers; and both produce, in principle, a binding decision.
The Swiss Supreme Court, which has grappled with that distinction, has set out a number of criteria to differentiate arbitration from expert determination. These include:
- The language and the terms used by the parties: for instance, references made to an “arbitral tribunal”, an “arbitrator”, or a specific “seat of the arbitration“, would be a strong indication that the parties intended to submit their dispute to arbitration.
- The role of the decision-maker: whereas an arbitral tribunal would decide on the dispute as a whole, an expert would normally only determine specific factual or legal issues.
- The finality of the decision: is the decision final? An affirmative answer would suggest arbitration.
Additional criteria developed by legal commentators would include the role of the decision-maker: would the decision-maker have to decide based on his or her personal knowledge (suggesting an expert) or would the decision-maker base his or her decision on the submissions presented by parties (suggesting an arbitrator)?
It also bears noting that the Swiss Supreme Court has held repeatedly that arbitration and expert determination are not mutually exclusive.
Given the observations above, the distinction between arbitration and expert determination is certainly not always obvious. At the same time, it is of utmost practical importance, since it determines the way in which parties can enforce or challenge a decision, and when and how courts can intervene in the process. For these reasons, considerable care should be exercised when drafting an expert determination clause (whether standalone or in combination with an arbitration clause). In doing so, practitioners would be well advised to delineate clearly the expert’s mission, ensure that the process agreed and the powers granted to the expert do not amount to arbitration, and determine precisely and carefully the issues to be decided by the expert.