Conducting Effective Expert Determinations Online

If you haven’t been through an arbitration before, you may be daunted by the prospect of commencing proceedings. If you simply break it down into steps or stages, you can prepare your relevant documentation and anticipate what is required and when, to help the process run smoothly.

Stages of arbitration:

An arbitrator is appointed: An arbitrator can either be engaged directly by the parties in dispute or appointed by administering bodies such as the Resolution Institute, the Australian Dispute Centre or the International Chamber of Commerce or other appointing bodies.

Terms of Reference: Once appointed, the arbitrator will write to the parties with their Terms of Reference and, once agreed, follow up with a series of procedural orders. This is to confirm the rules and outline the agreed issues in dispute and processes to be followed, including an indicative timetable for submissions and hearing.

Procedural Orders: This document will cover for following areas:

 -    General provisions

 -    Procedural timetable

 -    Procedural requirements for communications / witnesses / written submissions / agreed bundle of documents / oral hearing / orders.

Exchange of documents and submissions: At this point, both parties must supply any documentation relevant to the arbitral hearing.

Preliminary conference: This is the first opportunity for the parties to meet with the arbitrator and discuss the process. If the parties have any amendment requests to the procedural orders, or timetable, this is the opportunity to have an open discussion and ensure both parties are comfortable moving forward.

Hearing: Once submissions have been exchanged, the arbitrator will hear from both parties either in person or via video link (unless the submissions are presented via documents only). This is the opportunity for both parties to present their case to the arbitrator which may include oral submissions, witnesses and cross examination, and to offer their understanding of the legal arguments of the issues in dispute.

Arbitrator will deliberate / determine award: Once the arbitrator has received all submissions and heard the parties oral submissions during the hearing (usually recorded and transcribed), the award will be written, signed, and sent to both parties. This Award should be completed within the agreed timetable.

Enforcement: Once the Award is handed down (issued), the parties must comply. If they do not, the Award can be enforced via the Courts without revisiting the merits of the decision. It is binding on the parties save for very limited grounds for appeal.  

Arbitration is often the next step if mediation fails, so as I always say, ‘don’t waste the mediation.’  

A fast resolution to a dispute via mediation, that is fair (where both parties wear a bit of pain for the sake of reaching an agreement), is always the best outcome.

When dealing with arbitration, there are three different ways a case can settle, so it is important to understand how each outcome can affect you.

There are no good or bad outcomes, it just all depends on your circumstances and the type of resolution you are seeking. So, by understanding the pros and cons of each outcome, you can go into the process with realistic expectations.

Why arbitration over mediation?

In short, mediation is the process of two parties negotiating an outcome in the interests of the parties, and is not necessarily based upon the legal rights and wrongs of the issues in dispute.

An independent mediator guides the discussions, but is not making a decision on the matter in dispute (which is what occurs in an arbitration).

With mediation, it is up to both parties to come to an agreement and participate in the process, otherwise the mediation will fail.

This will lead to an alternative resolution process needing to commence and protracting the dispute resolution.

On the other hand, arbitration is when the parties engage an independent arbitrator to hear both sides of the matters in dispute and make a decision in an enforceable Award (like a court judgement) that resolves the dispute.

The arbitration process can occur on an ex parte basis, so if one party doesn’t participate, the process can continue forward without their input.

For this reason, arbitration may be required to resolve a matter that has previously experienced a failed mediation.  

Settlement Option 1: award settlement.

An award settlement is when the arbitration process continues right through to the Arbitrator providing a reasoned award deciding on the issues in dispute after having heard the arguments from each side in dispute. Once the arbitral award is handed down, this decision is final and binding and enforceable.

This type of settlement is enacted when the parties cannot negotiate to the point of a mutual agreement.

It is the arbitrator’s task to make a decision that is reasoned based upon the submissions of the parties.

Once this award has been issued by an arbitrator, this award becomes enforceable under the New York Convention and can be enforced in any of 169 signatory countries. And so is not limited by jurisdiction in which the parties have conducted the Arbitration.

This decision is more final than a judge ruling in a court of law, as an arbitral award cannot be contested or appealed (except under very limited circumstances) and applies beyond the jurisdiction of a court judgement that usually only applies to a particular country.

Settlement Option 2: award by consent.

When two parties can agree on a settlement, the second option is an award by consent. In this situation, the parties can put forward a proposal to the arbitrator to issue an award setting out their agreed terms.  

This decision is still final and binding, but this settlement option gives the parties the option of having an enforceable solution that again is not limited by jurisdiction, and is with their agreed consent.

For this to be possible both parties must be in agreement of the resolution of the issues in dispute as set out in the consent award, as opposed to the third option which is a private settlement, where the arbitrator does not issue an award and vacates the Arbitration.

Settlement Option 3: parties reach a settlement.

The third option is similar to an award by consent in that both parties need to reach an agreement on settlement outcome. However, it is done behind closed doors, between the parties and their lawyers,  meaning that the arbitrator is no longer involved in the process (and often is not even privy to the final outcome). The arbitrator brings the arbitration to a close via a final order ending the arbitration based only upon advice from all parties that they have reached a resolution of the dispute.

This situation is preferred in cases involving corporate entities that could potentially face reputational damage as a result of the outcome. The settlement is usually bound by strict confidentiality clauses.

By reaching a private settlement, without an arbitral award being handed down, the parties are able to resolve the matter without the details being known outside of the parties and their lawyers.

When a settlement is reached between the parties, in this circumstance it doesn’t have the standing of an arbitration award.

This means, the settlement can run the risk of potentially being contested at a later date, and the agreed decision not being enforceable.  

Arbitration is often the next step if mediation fails, so as I always say, “don’t waste the mediation”.

An expeditious resolution to a dispute, that is fair (where both parties wear a bit of pain for the sake of reaching an agreement), is always the best outcome and this can most likely be achieved by mediation.

 If you would like to find out more about mediation, get in touch with me for a no-obligation discussion.   

A mediation clause is standard practice in Australian commercial contracts. The purpose of the clause is to create a clear path forward should a dispute arise that cannot be agreed upon between two parties. At that point, an external and impartial mediator is appointed and the process of mediation commences.

I have mediated many matters in my career. Although I always strive to reach an outcome that can be accepted by both parties, allowing them to move forward and put the matter behind them, mediation can still not achieve a resolution of the issues in dispute.

There are many factors that can affect a successful mediation outcome, but from my experience, these are the most common contributing factors that can lead to a breakdown of discussions.

The corporate representative that has been sent into the mediation negotiations may have been given unrealistic bounds in which to negotiate a resolution, making it virtually impossible for that representative to effectively have room to negotiate a settlement in the mediation.  

If a party representative is constrained to limited bounds and is unwilling to move or give some ground, even a little during the mediation sessions working through the issues in dispute, the mediation will almost always fail.

If you haven’t been through the dispute resolution process before, you may not be aware of the required time and money that goes into the various escalation stages. It’s common for parties to feel so certain that a potential judgement will fall in their favour, that they just go through the motions of the dispute resolution escalation process, with the aim of going to trial.  

As I’ve discussed in previous articles, the total costs management time and delay in achieving a result associated with litigation can be counterproductive to the desired outcome of resolving the dispute. So at this early stage, I always encourage parties to actively seek a reasonable resolution at mediation.  

Business and financial matters can be incredibly stressful, and for a small business there can be a lot of emotion involved in a contract dispute. For a party that doesn’t have the perspective to even entertain a resolution, or will not sit face-to-face (even virtually) with the opposing disputing party in the negotiation process, can make it extremely difficult to find a suitable resolution at the mediation stage. If you can’t get the parties into the same room to work through the issues in dispute, the chances of obtaining a resolution via “shuttle diplomacy” which is going back and forth between the disputing parties for one on one sessions I find just too difficult.

Dispute resolution is complex and emotionally taxing, so it can be hard to keep an open mind throughout the mediation process.

From my experience working with various parties over the years, the best outcomes I have seen are always when the two parties are able to reach a reasonable resolution that is still in the parties interests. It may not be what either party was hoping to achieve but they can live with it. This allows them both to move on and put the matter in dispute behind them.

It may not be the solution that either party was seeking to achieve, but if you are able to put a dispute to rest, without it having a long-term impact on your business, then that should be considered a successful outcome. You can again focus on running your business as the dispute has gone away becoming a fading memory and no longer a cause of lost sleep.

After all, the next stage is litigation, and unless you have a lot of time and money at your disposal, and are prepared for many more nights of disturbed sleep, you may end up in a more precarious position when the court (sometimes several years later) finally makes its decision often years later.

Commercial contracts will always have a dispute resolution clause, but in some cases, a resolution of the issue(s) in dispute cannot be agreed upon directly by the contracting parties and the dispute resolution clause options escalate.

The first escalation step will be a meeting between two senior executives from the opposing parties, in the hope that they can resolve the matter between them. If this process fails, the matter will often be referred to mediation.

Why mediation?

The purpose of mediation is to have an impartial mediator who will try to achieve a resolution that meets the interests of the parties - so that they may be able to move on - and ideally continue to work together.

What if mediation fails?

The next step beyond mediation is litigation – whether it be attending arbitration, or a court hearing before a judge.  

The first thing most parties fail to realise when undertaking this process, is the time and money that is involved in going to trial. To start with, it can take up to five years before you even have a trial date. During this time, you will be required to prepare for your trial which will involve intensive and expert legal counsel. To be represented in court you will need to have solicitors and barristers working on your case. The legal costs in the lead up to a trial alone can amount to upwards of $500K, and a dispute that ends up in Supreme Court can expect to cost upwards of $1MIL – so for that consideration alone, litigation is a very costly and time-consuming undertaking.

“But isn’t it all worthwhile if you win at trial?”

Not necessarily. It all depends on the financial compensation you expect to receive. For example, if you are seeking $1MIL in compensation, and you are awarded the full $1MIL at trial, but the other party may not be required to pay your legal fees. Alternatively, as is often the case, you may only obtain partial recovery of legal costs even if you “win” in court. You may have accumulated in excess of $1MIL in legal fees and even if you win will not recover those costs. Further, your time and effort absorbed on the case will have been at the expense of running your business. Finally, realistically what is the probability of success being stated. So, once you factor in the legal costs, as well as the time and energy that has gone into fighting the matter at trial, and probability risk that you may not win, you could still walk away empty-handed once all of the funds are dispersed.

It's also worth keeping in mind, if by chance the judge does not rule in your favour, there is always the chance that you may be instructed to pay the opposing side’s legal fees, in addition to your own.

When you add this all up, is it really a gamble you can afford to take?

And lastly, please keep in mind that it is also not unheard of that a judge appointed to hear a case at trial, may direct both parties back to mediation to seek to determine an outcome through this process, before being allowed to continue the trial. So, after several years you may well end up back at square one in mediation, but with a hefty legal bill in tow.

Don’t waste the mediation.

At the end of the day, dispute resolution is never going to be a black and white – there is always a grey area (which is why there is a dispute in the first place). So, my advice is that to have a successful mediation outcome, both parties may need to accept a bit of pain to achieve an earlier resolution. The best outcome is the one where both parties are bearing pain, but can move forward and put the matter behind them.

Don’t waste years and countless dollars chasing litigation that may not fall in your favour. Approach mediation with an open mind. Understand that the goal is to achieve a timely and reasonable outcome for both parties, and avoid extensive delays in attempting to seek “justice” in what may be unnecessary and risky litigation.

I have never had an expert determination end before I've had the chance to hand down my decision.

To that end, expert determination is a highly effective way to resolve a business dispute.

But when is expert determination the best dispute resolution method?

Typical issues that I help solve through expert determination involve business sales, including:

1.  A dispute between the buyer and seller of a business, over its sale value.
2.  A dispute between a partnership or trust and a departing partner, over the value of their share.

I have also had business disputes arising as a result of:

1.  Disagreements regarding the value of a business's work in progress.  
2.  Issues that come up during a transaction process. These are typically issues that may cause challenges for the business moving forward, such as staff deciding to leave en-masse, due to the change in ownership or uncertainty around their jobs.  

What industries are most prone to disputes?

Business sale disputes are universal. I've dealt with disputes across many businesses, from medical practices and professional partnerships to large-scale manufacturers.

And regardless of the industry and nature of the dispute, expert determination is a powerful method that allows me to get to the heart of any dispute: finances, it’s often all about the dollars!

How to sell your business quickly, and for its true value

Expert determination saves your business time and money through the sale process.

And that is why it's pleasing to see more businesses add an expert determination clause to their contracts and agreements.

While there may still be a mediation or arbitration clause, an expert determination clause allows resolution of highly technical issues (such as accounting, finance, and legal issues) that may arise throughout the transaction.

On many occasions, I've presided over a dispute as a mediator, which went longer than it needed to. We would have solved the dispute far quicker in those cases had we conducted an expert determination instead.

Expert determination only works when you…  

When I conduct an expert determination, I will first ensure I have a clear and agreement of the issues in dispute that I must decide on.

I will spend some time with the parties unpacking the issues. I will then present a formal description, giving the parties a chance to review and agree with the fundamentals of the problem.

I will only move forward from this stage once I'm clear on the issues that I have to determine.

Getting the parties to agree on the nature of the dispute is essential because often, issues can be so complex that the interpretation of the issue will affect the result. Considering expert determinations are often final and binding for both parties, it's critical to get it right at the start.

Compared to arbitrations, expert determinations solve business disputes in far less time and with less chance of the parties abandoning the process along the way.

How expert determination can help value your business

 And what could happen if you get them wrong... 

When a business finds itself in a dispute, the dispute resolution clause of a contract or partnership agreement decides how efficiently it’s solved.

A clear and concise dispute resolution clause will undoubtedly save you and your business time, money and headaches en route to a speedy resolution.

The catch is: You need to get the clause right.

How Wording Can Change Disputes

I acted as the  expert determiner  of a dispute in which ambiguous clauses had turned the case on its head.

The dispute was regarding a commercial property lease and the amount of turnover rent (a percentage of rent based on annual sales turnover) the tenant was required to pay the landlord.

However, the agreement did not adequately define ‘turnover’, so the amount payable was up for dispute and both parties had very different views.

I conducted some research to define turnover as ‘revenue minus business expenses. The determination then involved the calculation of all relevant costs.

Had turnover been clearly defined in the contract initially, the dispute would have been over much sooner, or it may not have happened at all.

The landlord assumed turnover would be the same as total revenue, but since that was not stated in the clause, it was not up to them to define it either.

The clause stated, ‘turnover rent is payable at 4.5% if turnover is above $540,000. If turnover is $540,000 or under, there is no turnover rent to be paid.’

At the start of the dispute, the landlord believed the tenant owed them $200,000 (4.5% of their definition of turnover) and the tenant thought they owed $50,000 (4.5% of revenue minus relevant expenses).  

Without a clear definition of relevant expenses, the tenant's actual turnover was unclear. In the end, all expenses were deemed appropriate for calculating turnover. The tenant was under the $540,000 turnover threshold, so owed the landlord nothing.

As you can see, it is vitally important to the running of your business and financial security that you thoroughly define all terms in a contract. When you are working on assumptions, there is a significant chance that another party will dispute those assumptions and a subsequent dispute resolution may find your assumptions to be wrong.

Sample dispute resolution clauses:

The  Resolution Institute  and the  Australian Dispute Centre  provide sample clauses that will ensure a smooth dispute resolution process if utilised within your agreements and contracts.

If you can nail the dispute resolution clauses, any dispute will be over much sooner for you and you will be able to get on with your business and your life.

If you want to create or update a dispute resolution clause to safeguard your business against lengthy, costly disputes - Let me help.

For an obligation-free consultation,  contact me today  and let's work together to protect your business and your livelihood.

When it comes to deciding the best dispute resolution method, there are times when a dispute resolution clause stipulates  mediation , despite the situation needing an  expert’s opinion  as well.

Determination:

Where both parties lack the financial or technical knowledge relevant to the issues in dispute, it can be difficult for the parties to reach an agreement through mediation. In cases like these, two parties will need an independent third party to assist with the formal decision-making.

Recently, I was appointed Mediator of a business dispute between a developer and a construction company regarding latent conditions (conditions that were not identifiable at the time of quoting or planning the work) on the site.

The latent conditions at the core of the dispute were some significantly hazardous underground structures that hadn’t been identified during the pre-construction evaluation.

With the agreement of both parties, we embarked on a resolution through mediation.

However, at the end of the first day, we all agreed that we required the expertise of someone knowledgeable in the field of construction. We needed assistance to discern whether the hidden structures were foreseeable latent conditions...

We placed the mediation on hold whilst agreeing on a suitable expert. We then provided the expert with the drawings, bore logs (records of all rocks they drilled into) and other relevant information to assist with the expert’s investigation and to make a determination.

Once the professional had completed their  expert determination , I distributed the findings to both parties and allowed a week for them to consider their options before setting up another meeting to recommence the mediation. In the next session, we struck a resolution within half a day that met the requirements of both the construction company and also the developer and their financier.

The result? It was clear that the construction company had indeed missed the unforeseeable latent conditions.

The role of the construction field expert was an essential part of the process, to provide the information that brought much-needed clarity for the participants to move forward with the mediation process.

The quick decision to seek additional assistance allowed both parties to get on with the construction sooner rather than later. The financier also felt confident advancing the additional funds needed to cover the ongoing and additional construction costs.

We were able to generate a quick resolution that everyone was on board with. No one wants to be a part of a dispute that drags on for months or years - Us included!

To solve disputes quicker, you need dynamic, innovative dispute resolution assistance and processes.

If you are in the midst of a business dispute but desperately want to get back to a normal and enjoyable life - I'm here to help. If you foresee an issue arising -  Contact me  for advice.

Twelve months ago, life as we knew it was thrown into chaos and uncertainty.

Fast-forward to now, and we have all learnt a new language: Social distancing, masks, QR codes, lockdowns, clusters and COVID-safety are just a few phrases that have become a major part of our vocabulary.

As we look forward to the year ahead, one hopefully without such unprecedented disruption, we must do so with the lessons learnt from 2020.

If you are a lawyer feeling apprehensive about expert determination, I'm here to put your mind at ease.

While you may think that legal experts are best placed to make binding decisions in all types of disputes, there are situations where a subject matter expert is needed to get to the heart of a dispute.

And it's up to lawyers to look out for their client’s best interests by working through the expert determination process when it's needed.

Expert determination is a very effective dispute resolution process when there are divergent views on a particular issue.  As a chartered accountant, I get involved as the subject matter expert in a range of financial, shareholder and valuation disputes such as:

• Balance sheet treatment of stock disputes.
• Disputes over the appropriate working capital for a business.
• Disputes over the appropriate valuation of a business.

Most importantly, expert determination requires both parties to accept that the expert will most likely be making a final and binding decision to resolve their disputes.