The New South Wales Court of Appeal in the recently decided matter of Australian Vintage Limited v Belvino Investments No.2 Pty Ltd  NSWCA 275 had cause to consider whether or not an expert determination under a dispute resolution clause in a lease was final and binding. The decision provides a welcome reminder as to what is considered to be final and binding in circumstances where an expert makes a determination or for example a valuer carries out a valuation for a market rent review.
It is not unusual to find provisions in commercial leases (as well as other contracts) which provide for disputes to be determined by way of expert determination and for those same provisions to stipulate that the decision of the expert is to be final and binding. Obviously this allows for some certainty for the parties to the lease or contract.
However, in certain situations it is necessary to consider exactly what final and binding means. Because, for example, a party which is not pleased by the determination may wish to consider challenging the determination.
This case involved an appellant lessee under a lease for the development and operation of a vineyard. The lease contained a provision for circumstances where the productivity of the premises was affected by a natural disaster. If the lessor and lessee could not agree on certain matters regarding circumstances where productivity was affected by a natural disaster then under the lease, either party could refer the matter to an expert. Pursuant to the lease the expert could issue a final determination on the issue. The relevant provision in the lease dealing with the expert determination stated that the decision was to be “final and binding”.
The Court needed to consider what was the effect of the use of the words “final and binding“. It took the opportunity to restate the principle that the relevant test was that the expert’s determination would only be set aside if it was not done in accordance with the terms of the contract. This means that if, as a matter of construction, the expert’s mandate extended to determining the true construction of the contract, the decision would not be reviewable. However, if the expert in fact carried out the required task in accordance with the terms of the contract then the fact that the expert made errors or took irrelevant matters into account would not render the determination challengeable. Alternatively, if the expert had not objectively performed the task contractually conferred on them but rather performed some different task or carried out his or her task in a way that was not within the contractual contemplation of the parties, then the determination would be liable to be set aside despite the use of the words “final and binding”.
In the circumstances of this case the decision was made that the matter be referred again to the expert for determination in accordance with the Court’s reasons. The Court had found that the expert did not comply with a relevant provision of the lease and accordingly the determination was not to be considered final and binding.
Parties to contracts, including leases, that make provision for expert determination or valuation and provide for such determinations to be final and binding, should take heed of the confirmation of the position at law contained in this case. This means they need to ensure the determination has been carried out in accordance with the terms of the contract.