Court upholds expert determination that ‘reasonable’ fees include objective and subjective considerations

10 February 2012 

In TX Australia Pty Limited v Broadcast Australia Pty Limited [2012] NSWSC 4, the New South Wales Supreme Court considered the validity of an expert’s determination as to the amount payable by Broadcast Australia to TX Australia for the renewal of an agreement for the use of television broadcasting towers.

The agreement to be renewed stated that, if the parties could not agree on a renewal fee, an expert was to determine a “reasonable fee (having regard to the rates charged to [other third parties])”. In his reasons, the expert stated that he determined the fee on the basis that, amongst other things, the parties were entering into the renewed contract on a willing basis, acting at arm's length.

TX Australia argued that the expert failed to take into account various considerations that existed as a result of the parties’ relationship as well as windfall gains that would accrue to Broadcast Australia if the expert’s determination was binding.

Brereton J confirmed that, apart from cases of fraud or collusion on the part of the expert, a valuation will be binding as long as it is made in accordance with the terms of the contract. Depending on the terms of the contract, the valuation may still be binding even if the valuation proceeded on the basis of error, was a gross over or under value, or took into account irrelevant considerations. As it happened, the contract in this case provided that the expert’s determination would not be binding on the parties if there was manifest error, negligence, fraud, or error of law.

His Honour considered that there were two aspects to requirements for the expert’s determination in this instance – a subjective one that the fee be reasonable, and an objective one that it be reasonable having regard to the rates charged to other third parties who used the towers.

Having regard to the reasons given by the expert, Brereton J held that the expert correctly carried out the task he was engaged to perform and, in accordance with his engagement, determined a reasonable amount for the fee applying both objective and subjective considerations. As a result, his determination was held to be binding.

The decision can be read in full here.