Bernhard Schulte GmbH & Co Kg & Ors v Nile Holdings Ltd

Under a contractual expert-determination clause, a reference must be made to the appointed expert, rather than merely to the appointing body or the opposing party. Contractual time limits and machinery must be construed according to their ordinary meaning, read in the context of the agreement as a whole.

Where the contract requires the expert to assess value at a specified date, assessment at another material date is a departure from instructions. An expert determination remains binding despite mistakes made within the reference, unless there is fraud, collusion, actual bias or a material departure from instructions. Apparent bias and ordinary procedural unfairness do not invalidate an expert determination. English law recognises no general implied duty of good faith in this contractual setting.

The claimants purchased a fleet of LPG carriers from the defendant under a sale and purchase agreement. The agreement provided for expert determination of any reduction in value revealed by inspection, subject to strict notification provisions and time limits.

The parties made cross-applications for summary judgment. The principal disputes concerned whether valid references had been made to the expert, the extent of the information required in notices, the expert’s jurisdiction and valuation date, alleged procedural unfairness and bias, and counterclaims for breach of confidentiality and good faith.

1. Summary judgment. The court applied the requirement that the applicant show that the opposing party had no realistic prospect of success and that there was no other compelling reason for trial, as stated in [2001] 1 AER 91 and [2001] 2 AER 513.
2. Reference to the expert. On the proper construction of clause 3.3, a reference had to be made to the expert himself. A request to the Chairman of Bureau Veritas to appoint an expert, or a notice to the sellers asking them to treat it as a reference, was insufficient. The claimants therefore made no valid references within the contractual time limits and were deemed to have accepted the vessels at the agreed prices.
3. Notification of reduction. Clause 3.4 and the 20 May amendment required identification of the matters affecting each ship’s value and the total reduction claimed for that ship. They did not require a separate valuation for every defect. The claimants complied with the amendment’s notification proviso.
4. Expert’s jurisdiction. The expert was limited by the contractual criteria and by the maximum reduction notified for each ship, but not by the sum attributed to any individual defect. The expert therefore did not exceed his jurisdiction merely by awarding more for an individual item than the amount attributed to it, provided the total ship reduction remained within the notified maximum.
5. Valuation date. The expert had to assess the vessels’ condition and value at the date of the claimants’ inspection. Assessment at delivery or at the expert’s later inspection would be a departure from instructions. Whether that occurred, and whether any departure was material, raised factual issues unsuitable for summary determination. A departure is material unless trivial or de minimis, applying [2002] 1 LLR 295 (CA).
6. Validity of the determination. An expert determination stated to be final and binding remains binding despite an expert’s mistake, absent fraud, collusion, actual bias or a material departure from instructions. The expert was entitled to conduct his own investigations and was not required to observe natural justice or due process. Apparent or unconscious bias, without actual bias, did not invalidate the determination. The remaining complaints concerned alleged mistakes within the reference or matters falling within the expert’s remit.
7. Counterclaims. The confidentiality counterclaim raised issues with realistic prospects of success and could not be summarily determined. The claimants obtained summary judgment on the alleged duty of good faith: there was no general implied duty of good faith, and the express reasonable-endeavours clause did not create one.
8. The sellers were entitled to declarations on the invalidity of the timeous references and the valuation date. The claimants were entitled to declarations concerning compliance with the 20 May amendment and the inability to challenge the determinations on the specified grounds, together with summary judgment on the good-faith counterclaim. The remaining issues, including possible waiver or estoppel, were left for further consideration.