Key takeaway

The Court of Appeal’s decision in WH Holding Ltd v London Stadium LLP confirms that challenging an expert determination for manifest error remains difficult. The error must be obvious, material and not reasonably open to dispute. Where an expert adopts a reasoned contractual interpretation that falls within the range of available meanings, the court will not interfere simply because another view may also have been possible.

Why does expert determination matter in commercial disputes?

Expert determination remains a commonly used mechanism for resolving disputes where parties want speed, finality and a decision from someone with relevant expertise. While it has traditionally been associated with technical or valuation disputes, it is increasingly being used in more complex and higher value commercial contexts.

The decision of the Court of Appeal of England and Wales in WH Holding Ltd v London Stadium LLP provides important guidance on the limits of challenging an expert’s determination, and in particular on the meaning of “manifest error”. In overturning the High Court, the Court of Appeal confirmed that the threshold for such challenges remains a high one.

Expert determination is driven by the contract

Expert determination is grounded in contract. The parties define the expert’s role, the scope of the issues to be determined, and whether the outcome is to be binding. Unlike arbitration, there is no statutory framework governing the process. Its force comes from the agreement between the parties.

As a result, the starting point is that the expert’s determination will be final and binding. Parties may, however, include limited carve-outs allowing a challenge in defined circumstances. The most common of these is “manifest error”.

We discuss related drafting issues in our article on why boilerplate clauses matter, including how dispute resolution provisions can affect enforceability, timing and commercial leverage.

What does manifest error mean?

A manifest error will only qualify if it is obvious on its face and can be identified without extensive analysis, and if it is clearly capable of affecting the outcome. It must be the kind of error about which there is no real scope for differing views.

In WH Holding, both parties sought to refine how that test should be applied.

It was argued that the reference to “limited investigation” should mean that the court ought not to engage with adversarial argument. The Court of Appeal did not accept that this imposed such a restriction. While the court should not undertake a detailed reconsideration of the merits, that does not prevent parties from advancing their arguments fully when the issue is considered.

It was also suggested that where a contract includes a mathematical formula, there should be only one correct result unless the wording is genuinely ambiguous. On that basis, any incorrect application of the formula should amount to manifest error.

The Court of Appeal rejected that approach. Even where a formula is involved, its application may depend on underlying interpretations or judgments. If the expert’s approach is based on an interpretation that is reasonably open, the fact that an alternative view could be taken does not make the conclusion obviously wrong.

How did the WH Holding dispute arise?

The dispute arose in the context of an overage provision in a concession agreement. The issue was how an overage payment should be calculated following a transaction involving both a share sale and the grant of a call option.

The expert was asked to determine whether those elements formed a single “Qualifying Transaction” and how the contractual definition of “Consideration” applied. The High Court found that the expert had made two manifest errors. First, it held that the expert had effectively treated the word “or” in the definition of Consideration as “and”, combining different valuation approaches. Secondly, it found that the expert had been wrong to treat the share sale and the call option as a single Qualifying Transaction.

On that basis, the High Court concluded that the determination was not binding.

Why did the Court of Appeal restore the expert’s determination?

The Court of Appeal disagreed with both conclusions. It found that the contractual definition of Qualifying Transaction was sufficiently broad to encompass the transaction as a whole. It also held that the definition of Consideration was capable of operating in a way that allowed different elements of a transaction to be taken into account without those elements being mutually exclusive.

The Court of Appeal accepted that the expert was entitled to consider the commercial purpose of the overage provisions. On that basis, it was open to the expert to conclude that the intention was to capture all value received by the relevant shareholders above the contractual threshold.

Crucially, the expert’s approach was not so obviously wrong that it could be said to admit of no reasonable disagreement. That was sufficient to defeat the manifest error challenge.

For related analysis on how contractual wording can affect the outcome of a dispute, read our recent article on how courts interpret deadlines in commercial contracts.

What does this mean for final and binding determinations?

The decision reinforces the limited scope for challenging expert determinations. Where an expert adopts a reasoned approach that falls within the range of interpretations available on the contract, the determination will stand, even if another view might also have been taken.

For parties who choose expert determination, this provides a degree of certainty. The courts will not readily interfere with the outcome. At the same time, the extent to which a determination can be challenged depends entirely on the terms agreed at the outset.

How should parties draft expert determination clauses?

Where parties want a broader right of review, that must be expressly provided for. If the intention is that the determination should be final subject only to manifest error, the courts will give effect to that bargain.

Read our article on no oral modification clauses and commercial contract disputes for another example of how contract wording, variation mechanisms and expert determination provisions can affect the enforceability of commercial arrangements. For wider contract risk allocation issues, see our article on assignment clauses in commercial contracts.

Barnes Law’s Commercial Litigation and Dispute Resolution team advises clients on expert determination, manifest error challenges, contractual disputes, alternative dispute resolution and the drafting and enforcement of dispute resolution provisions. For more information, please contact our Commercial Litigation and Dispute Resolution team to discuss how we can support you.

Written by Barnes Law Managing Partner Yulia Barnes.