Australia: High Court set standard for expert determination: Shoalhaven City Council v Firedam Civil Engineering
Building and Construction Update

In the recent High Court decision of Shoalhaven City Council v Firedam Civil Engineering Pty Limited [2011] HCA 38, the Court reinforced its trend against setting aside expert determinations except in limited circumstances. The High Court held that an expert determination, which had been conducted in accordance with the provisions of a contract, expressed to be binding on the parties,generally prevented legal proceedings in respect of the same subject matter.

The Dispute

The matter related to a contract between Shoalhaven City Council (Shoalhaven)and Firedam Civil Engineering Pty Limited (Firedam), in respect of the design and construction of a wastewater collection and transportation system for the Conjola Regional Sewage Scheme.

A dispute arose under the contract relating to variation claims and subsequent extension of time claims by Firedam. Shoalhaven asserted by way of cross-claim, an entitlement to damages due to delayed completion.

In accordance with the provisions of the contract, an expert was appointed to determine the dispute, the outcome of which the parties had agreed would be "final and binding", unless a party had the right to commence litigation. The threshold amount under the contract permitting the parties to proceed to litigation, was a finding by the expert in excess of $500,000 (the amount awarded by the expert against Shoalhaven was $497,142.55). The contract also required that the expert provide reasons for his determination.

Expert Determination

The expert declined to make a determination for an extension of time, given that Firedam had "not provided any reasoned support" and had not substantiated its claim for delay. However, in determining the common law damages claimed by Shoalhaven, the expert made use of contractual discretion conferred on the principal, to extend the time for completion of the works.

The expert referred to clause 54.6 which stated that "The principal may in its absolute discretion for the benefit of the principal extend the time for completion at any time and for any reason, whether or not the contractor has claimed an extension of time." Accordingly, the expert determined that Shoalhaven had contributed to the delay, and as such, he gave effect to that finding by exercising the discretion conferred by clause 54.6 and extending the time for completion by the amount of the delay attributable to Shoalhaven.

Firedam contended that the expert's reasoning for his determination was inconsistent and, as this inconsistency was unexplained, the determination did not accord with the requirements of the contract and was therefore not binding on it.

Case History

At first instance, the judge found that there was no inconsistency between the reasons of the expert for rejecting Firedam's claim for an extension of time, and his reasons for allowing an extension of time in the exercise of the discretion conferred on Shoalhaven by clause 54.6. He stated that the expert was dealing with distinct claims, based on different criteria which called for different findings.

In the New South Wales Court of Appeal decision, the Court found that the determination reflected a finding of fact inconsistent with the expert's conclusion in dealing with Firedam's claims. The Court found that the expert failed in giving proper reasons for his decision.

In the High Court decision, the appeal was allowed as the Court found there to be no inconsistency in the expert's reasoning. In handing down the decision, the Court stated that the expert's use of the principal's discretion to extend time as a device for allocating responsibility for delay caused by the principal, was adequately explained and not inconsistent with his refusal to allow the contractor's claimed extensions of time.

Practical Implications

The decision reaffirms the reluctance by the court's to interfere with expert determinations. The High Court has reinforced that the circumstances in which a party may challenge the determination of an expert (in situations where the parties have previously agreed that the determination will be 'final and binding'), are limited to circumstances where an expert has acted outside the powers given to him by the contract or when the determination is otherwise tainted by some illegality.

Importantly, this decision is the first time that the High Court has considered the standard of reasoning required by an expert and contrasted that with the standard required of an arbitrator or judge. The standard required of an expert is again dictated by the provisions of the contract.

For more information, please contact:

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.