National Grid Company Plc v M25 Group Ltd

An expert appointed under a contract has exclusive authority over the question actually referred for determination. The scope of that authority depends on the wording and context of the particular contract.

Where contractual directions prescribe the principles governing the expert’s decision, the expert must act within those limits. The expert’s need to interpret those directions does not, without express or implied provision, give the expert exclusive authority to determine their legal meaning. The court may therefore decide whether the expert has misconstrued the limits of the authority conferred.

A lease required an independent valuer, acting as an expert, to determine whether the rent should increase. It also prescribed assumptions and disregards governing that valuation. National Grid sought declarations from the court concerning the correct construction of those directions.

Pumfrey J struck out the originating summons. He held that the construction questions were exclusively for the expert because they had to be decided on the way to determining the revised rent. He indicated that, had he possessed a discretion, he would have permitted the court proceedings to continue.

The central issue was whether the lease conferred exclusive authority on the expert to decide the construction questions, thereby excluding the court’s jurisdiction.

1. Appeal allowed unanimously; cross-appeal dismissed. Lord Justice Mummery delivered the judgment, with which Lord Justice Thorpe and Lord Justice Stuart-Smith agreed. The lease gave the valuer exclusive authority to decide whether, and by how much, the rent should increase. It did not give him exclusive authority to construe the contractual limits governing that valuation.

2. The scope of an expert’s authority is determined by construing the particular agreement in its own context. Clause 1(3) referred the valuation question to the valuer. Had the clause ended there, the court could not have assumed responsibility for answering that question.

3. Clause 1(4), however, directed the valuer to ascertain an open-market rent on stated assumptions, to have regard to the lease terms other than those concerning rent, and to disregard specified matters. The valuer could act lawfully only within those contractual directions. Determining the perimeter of his authority required the lease to be construed. Nothing in the lease expressly or impliedly entrusted that construction exclusively to him.

4. Norwich Union Life Insurance Society v P & O Property Holdings Ltd [1993] 1 EGLR 164 was distinguishable. The dispute in that case was itself referred broadly to the expert, without equivalent contractual limits on the expert’s power. The court nevertheless followed its guidance that each agreement must be construed according to its own language and context.

5. The court adopted the approach taken in the dissenting judgment of Hoffmann LJ in Director General of Telecommunications v Mercury Communications Ltd, later upheld by the House of Lords in [1996] 1 WLR 48. An expert may make a decision within the entrusted field even if a court would have reached a different answer. An expert who acts on a legally incorrect understanding of the principles delimiting that field acts outside the conferred authority.

6. The court retained a discretion to decline to determine the construction issues before the expert’s valuation. Pumfrey J had indicated that he would permit the originating summons to proceed, and his assessment disclosed no error of principle. The court therefore declined to stay the proceedings. The appeal was allowed with costs here and below, and the cross-appeal was dismissed with costs.

1. Court of Appeal (Civil Division): In [1998] EWCA Civ 1968 , unanimously allowed National Grid’s appeal, declined to stay the originating summons, and dismissed M25 Group’s cross-appeal.

2. Chancery Division: Pumfrey J struck out the originating summons on 19 March 1998 for want of jurisdiction, while indicating that he would have allowed it to proceed had a discretion existed. He granted leave to appeal.