Expert Determination Clauses: what is a “manifest error”?

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In the recent case of Flowgroup plc (in liquidation) v Co-operative Energy Ltd [2021] EWHC 344 Comm, the High Court provided some useful guidance as to the meaning of “manifest error” in the context of expert determination clauses.

Facts

By an acquisition agreement dated 10 April 2018 (“the Agreement”), Co-operative Energy Ltd (“the Buyer”) purchased the share capital of Flow Energy Ltd, a subsidiary of Flowgroup plc (“the Seller”).

Under the terms of the Agreement, the purchase price was subject to a working capital adjustment. However, when it became apparent that the parties would be unable to reach an agreement, the dispute was referred for expert determination. The referral was made pursuant to Paragraph 4.13 of Part A of Schedule 9, which stated that:

In respect of any matters… on which no agreement is reached… such matters will be referred, on the application of either the Buyer or the Seller to the Expert for determination…

Under the terms of the Agreement, the expert determination was to be final and binding in the absence of a “manifest error”.

The subsequent determination – a report by Ernst & Young LLP (“the Report”) – found heavily in favour of the Buyer. The Seller subsequently challenged the Report’s findings.

Judgment

The High Court found in favour of the Buyer, judging that:

  • A “manifest error” is more than merely a “wrong answer”. Rather, a “manifest error” refers to “oversights and blunders so obvious and obviously capable of affecting the termination as to admit of no difference of opinion”; and
  • An expert’s determination that is final but for a “manifest error” can only be challenged in a “tightly circumscribed” set of circumstances. This follows from the principle that, where parties to a contract have agreed to settle their disputes by expert determination, the expert’s determination should ordinarily be the final forum. If the Courts were to have a wider scope in which to interfere with an expert’s determination, “the danger [would be] that the Courts would simply become an alternative forum for the party dissatisfied with the expert’s conclusions”.

Conclusion

The High Court’s decision demonstrates the extremely narrowly circumstances in which an expert determination can be challenged if the parties’ contract provides that determinations shall be final in the absence of a “manifest error”. Accordingly, we would always advise parties to carefully consider the merits of challenging an expert’s determination where their contract “tightly circumscribes” the circumstances in which such challenges can be made.

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