Shell UK Ltd and Others v Enterprise Oil plc (28 May 1999) High Court, Chancery Division

This case concerned the reliance on an agreed expert to determine changes to be made to a contract, during its term, where the parties themselves cannot agree to those changes. In particular the court was asked to determine whether that expert had departed from his instructions in a material respect, how such materiality was to be determined and whether the expert's decision would, therefore, bind the parties. Shell UK Ltd had entered into a licensing agreement with Enterprise Oil plc for oil exploration and production of adjacent areas of the North Sea. The parties' respective ownership interests in the oil field were reflected in their participation in the proceeds and costs of exploration and production, in agreed proportions. These proportions were to be re-determined by the parties three times throughout the term of the agreement. Matters that could not be agreed between the parties were to be referred to an agreed expert. During the second such re-determination, Enterprise Oil plc claimed that the expert's determination was not contractually binding because the expert had used a different computer package for mapping the seabed to that which he was contractually obliged to use. The judge followed the decision in Jones v Sherwood Computer Services plc ([1992] 1 WLR 277, 278) and held that either party could claim that the decision of an expert was not a binding one where the expert had departed from his instructions in a material respect. The judge stated that what constitutes materiality would be determined on a case-by-case basis. In this case the judge stated that materiality should be considered by reference to the potential effect that the expert's error would have on the result and/or the process, including the ability of the parties to manage the procedure in accordance with the contract. It was neither necessary nor possible to wait until the actual effect of such an error was known. The judge agreed that Enterprise Oil plc had been disadvantaged by the expert using the alternative computer package. This was because the computer package used by the expert was not compatible with Enterprise Oil plc's own package, both the macros and parameter settings used by the expert would be a matter of guess work and Enterprise Oil plc would not be able to duplicate the expert's work (for checking purposes) as exactly as would be possible if the macros and parameters were known. The judge therefore held that the experts' error was material, and the expert's decision would not bind the parties.
(Times Law Reports, 17 June 1999)