Often when drafting an agreement or a lease a provision will be required that provides if the parties to the agreement dispute a matter or are unable to reach agreement on a particular point [for example an agreed increase in rent] an expert is appointed to determine the issue in dispute. Typically clauses of this type provide that the expert’s determination is binding.

Recently I have considered whether an expert determination is necessarily binding or whether, if the expert appears to have made a manifest error in arriving at his determination, his decision can be overturned. The particular issue I was required to consider arose in the case of a valuer making a rental determination.

There are two major types of errors which may be made by an expert valuer in undertaking a rental determination. The first is that the valuation may be made on a basis that does not accord with the terms and conditions of the lease. The second is that the valuer may make a mistake in his application of the relevant valuation principal.

The case of Campbell v Edwards(1976) 1WLR403 provides authority for the idea that generally, if the expert provides a valuation honestly and in good faith, the parties are bound by the valuation even if a mistake is made. This, however, depends upon the nature of the mistake.

If the mistake is a fundamental mistake – for example, if the expert reviews the wrong lease or the wrong property, the valuation will not be in accordance with the lease. But if the expert carries out the instructions in the lease, although these may be approached in different ways, there is no recourse.

The thinking behind the above judgement makes sense.

Where parties have agreed to refer a matter requiring valuation to an expert third party and to accept that valuer’s decision as final if the valuation is carried out in accordance with the agreement both parties will be bound by the valuation.

The general reluctance of courts to impugn valuations, except in extreme circumstances, seems to be based partially on the view that if the valuation is set aside, the court faces a dilemma as to how it should be replaced .The parties have agreed upon an expert and if his or her valuation is found to be wanting the same expert cannot be reasonably asked to make another determination. Instead, the relevant cause of action should probably be between the disgruntled party and the valuer [if his method of valuation is negligent] and not between the parties.

With the above in mind, who is appointed as the relevant expert (or the method for determining who will be appointed) should be an important consideration at the time of preparation and execution of the contract.