Barclays Bank Plc v Nylon Capital LLP

The court is the final decision-maker on whether an expert has contractual jurisdiction, even where the expert determination clause purports to make the expert’s decision on jurisdiction final and binding. A court may decide a real jurisdictional dispute before the expert where justice and convenience favour that course.

An expert determination clause attracts no presumption of wide construction equivalent to that applicable to an arbitration agreement. Its scope is determined by ordinary contractual construction. Where the agreement requires an allocation before referral, that allocation is a condition precedent to the expert’s jurisdiction.

An LLP agreement between Barclays Bank Plc, Nylon Capital LLP and other members provided for certain allocation and outgoing-member disputes to be determined by an accountant acting as an expert. Other disputes were subject to the exclusive jurisdiction of the English courts.

Barclays sought a declaration that profits from its capital investment did not have to be brought into the LLP’s profit-allocation process. Nylon sought a stay in favour of expert determination, although the managing member had made no allocation. The Chancellor refused a stay in [2010] EWHC 1139 (Ch).

The appeal concerned whether the court or the expert should first determine the expert’s jurisdiction and whether an allocation was a condition precedent to that jurisdiction. The parties settled after the principal judgment had been prepared but requested that it should not be handed down.

1. Appeal dismissed unanimously. Thomas LJ delivered the principal judgment. Etherton LJ and Lord Neuberger MR agreed. The court was entitled to determine the expert’s jurisdiction before any determination by the expert.

2. The court is ultimately responsible for deciding whether an expert has a contractual mandate to enter upon a dispute. This remains so where the contract purports to confer power on the expert to decide jurisdiction finally and bindingly. The analogous arbitration principles, including section 72 of the Arbitration Act 1996, supported that conclusion.

3. A court considering whether to decide jurisdiction in advance should determine whether the dispute is real rather than hypothetical and whether justice and convenience favour immediate determination. Here the dispute was live and involved a short question of construction. Deferral risked duplicative proceedings or a substantive determination by an expert who had no jurisdiction.

4. The wide-construction presumption applicable to arbitration agreements under Fiona Trust did not apply. Expert determination commonly coexists with court proceedings and is confined to selected categories of dispute. The parties had chosen the English courts generally and had carved out a limited class of allocation disputes for an accountant. The expert clause therefore had to be construed without a presumption either way.

5. On its ordinary meaning, clause 26.1 required an allocation before referral to an expert. The stipulated 30-day period following an allocation and the reference to an “affected party” made allocation a condition precedent. The power in clause 26.1(B) to decide questions of interpretation and jurisdiction belonged only to an accountant validly appointed under clause 26.1(A); it could not enlarge the circumstances in which an appointment could be made. As no allocation had occurred, the expert had no jurisdiction and the proceedings should not be stayed.

6. Lord Neuberger MR observed that an expert’s binding valuation may, depending on the contract, be challengeable where it rests on a mistake of law taking the expert beyond the contractual mandate. The proposition in Nikko Hotels that an erroneous answer to a necessary question of construction is invariably conclusive could not safely be treated as a general rule. This issue did not require final determination.

7. The court retained discretion to give judgment following settlement. Judgment was appropriate because the principal judgment had already been prepared, the issues were of general significance, the decision clarified the law on a basis differing from that below, and no sufficient countervailing interest had been shown.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously in [2011] EWCA Civ 826. The court upheld the refusal of a stay, although on a basis differing in part from that adopted below.
2. High Court, Chancery Division: The Chancellor refused to stay Barclays’ proceedings in favour of expert determination in [2010] EWHC 1139 (Ch).