Offside Ruling Reversed: Expert's Stadium Premium Determination Stands

Following our previous case update, the Court of Appeal has overturned the High Court’s decision in WH Holding Limited v London Stadium LLP (formerly E20 Stadium LLP) that an expert determination was not final or binding due to manifest errors made by the expert.

Background 

The issue in dispute was as to the validity of a determination made by an expert, pursuant to an expert determination clause, regarding whether a “Stadium Premium Amount” was due from E20 to WH Holding (WHH), and if so in what sum. Expert determinations are generally final and binding on parties who have agreed to have a dispute resolved in this way, unless the expert’s determination contains a manifest error. 

WHH considered that the expert had made a manifest error, and so brought the matter to court seeking a declaration that the determination was not final and binding. The Judge at first instance agreed that the expert had made a manifest error on the facts of this case. He found that the expert had made two obvious errors, and that in fact a higher “Stadium Premium Amount” was payable by E20 to WH Holding. 

E20, which as a result would have had to pay an additional £3.6m, appealed to the Court of Appeal, alleging the first instance Judge had taken the wrong approach, and had in any event been incorrect to find that the expert’s determination contained manifest errors.

Legal principles 

Save as set out below, there was not a dispute, at the appeal stage, as to the correct legal principles to be applied. The Court of Appeal summarised the combined effect of the case-law as being as follows:

“Absent contractual terms which provide differently when interpreted in context, an error will be manifest if, after investigation limited in time and extent, it is so obvious (and obviously capable of affecting the determination) as to admit of no difference of opinion”. 

The parties submitted the following refinements to the above test relating to:

• the scope of argument permitted to establish a manifest error; 

• the reasoning a judge may adopt in finding a manifest error; and

• whether the wrong interpretation of a contractual mathematical formula is necessarily a manifest error. 

The scope of argument permitted to establish a manifest error

E20 argued that “limited investigation” meant “without the need for adversarial argument”. The Court of Appeal did not accept that refinement. It was not supported by authority, and indeed the Court of Appeal considered that it would be contrary to the “basic principles and procedures applicable” to challenging an expert determination. 

The reasoning a judge may adopt in finding a manifest error

E20 had criticised the Judge at first instance for taking the analysis in two stages, namely deciding whether a mistake had been made, and then whether that mistake was manifest. E20 felt that this introduced a bias towards finding that a mistake was obvious, and argued that instead a court should only consider whether there is a mistake that “leaps out at you”. 

The Court of Appeal rejected this submission and concluded that the two-stage approach that the Judge at first instance had taken was correct. The structure of the legal test invites an approach whereby the court must decide whether there has been an error, and then whether that error is so obvious as to admit of no difference of opinion.

Whether the wrong interpretation of a contractual mathematical formula is necessarily a manifest error

In resisting E20’s appeal, WHH submitted that, if the expert incorrectly understands or applies an (unambiguous) mathematical formula and produces a wrong answer, that answer cannot be binding. It is only where the formula itself is ambiguous that more than one binding outcome would be possible.

The Court of Appeal said that not only was this an impermissible attempt to import the separate question whether the expert had complied with their instructions, but further the “fundamental difficulty” with this position was that the parties had not instructed the expert merely to interpret and apply a mathematical formula. The expert was appointed to resolve a dispute between them as to the interpretation and application of the formula, and to do so without making a manifest error. 

The Court of Appeal did not see any basis for treating the exercise of interpreting a clause containing a mathematical formula any differently from interpreting any other clause. In either scenario, the Court of Appeal said that the terms fell to be interpreted using the same principles and the test for manifest error was the same. 

Was there a manifest error on the facts of the case?

Having rejected all of the parties’ proposed glosses on the legal test for manifest error, the Court of Appeal turned to the question of whether there had been a manifest error on the facts of the case. 

The Court of Appeal considered that, whilst it was possible that they would have arrived at the same conclusion as the Judge at first instance on interpretation of the relevant formula, the alternative interpretation that the expert had adopted was also arguable. Therefore, the Court of Appeal concluded that the interpretation of the clause by the expert was not so obviously wrong as to admit of no difference of opinion. 

As a result, the Court of Appeal allowed the appeal and found that the expert’s determination was final and binding.

Comment 

This case shows the difficulties of trying to overturn a determination by an expert due to “manifest error”. A difference of opinion is not enough. The Court of Appeal and High Court seemed to agree that the expert may well have come to the wrong conclusion (indeed, the Judge at first instance thought it was obvious that they had). However, because the Court of Appeal was not persuaded that this was a “manifest error”, the expert’s determination was final.