GSY Hospitality Limited v Gladstone Court Developments Limited

A contractual expert determination is not binding where the expert materially departs from the contractual mandate, including by failing to apply the correct legal principles. A no oral modification clause is effective in English law and prevents an informal variation from taking effect unless the contractual formalities are satisfied, subject to any applicable estoppel. Where the expert’s mandate excludes manifest error and error of law, failure to consider those matters may constitute an error of law. Once a material departure from the mandate is established, the court does not investigate whether the result might nevertheless be correct for another reason.

The parties entered into contractual arrangements for the development and operation of a hotel. A dispute concerning the apportionment of preliminaries, mechanical and electrical subcontractor overheads and profit, and fire-fighting lift costs was referred to expert determination.

The expert initially accepted that the contractual cost apportionment governed, but subsequently found that the parties had varied the agreement so that the defendant’s liability was capped at £800,000. He did not consider the contractual no oral modification clauses or the Supreme Court’s decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd.

The claimant sought summary judgment declaring that the determination on the apportionment issue was erroneous and non-binding. The defendant accepted the legal error but argued that the same result could be supported by estoppel by convention.

1. The claimant’s application for summary judgment succeeded. The expert determination concerning the apportionment issue was not binding.

2. Under clause 18.1(e) of the sale and purchase agreement, the expert was required to reach a decision containing neither manifest error nor error of law.

3. The contractual no oral modification clauses were effective. Consistently with MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24; [2019] AC 119, an informal agreement did not vary the contracts in the absence of the required written formalities, subject to any estoppel which might otherwise arise.

4. The expert’s failure to consider the no oral modification clauses and MWB was an error of law. It led to the legally erroneous conclusion that a valid and binding variation had been made.

5. Applying the principles accepted in Premier Telecommunications Group Ltd v Webb [2014] EWCA Civ 994; [2016] BCC 439, the court must construe the expert’s mandate and determine whether the expert asked the right questions and applied the correct principles. Once a material departure from the mandate is established, the court is not concerned with the effect of that departure on the result. The possibility that an estoppel by convention might later support the same financial outcome did not preserve the determination.

6. The court did not determine the ultimate consequences of setting aside the determination or the correct result on the apportionment issue. Those matters remained for determination in due course.

First-instance decision. No prior appellate decision is stated in the judgment.