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September 2016

Expert determination

Unless you have been involved in the process, expert determination may mean very little to you. However, as the number of corporate transactions begin to increase the scope and potential for contractual disputes also increases.

Expert determination is commonly included as a contractual basis of dispute resolution in sale and purchase agreements for resolving technical issues such as the form and content of completion accounts and earn out calculations.

The advantages of Expert determinations include:
a) They can be quicker and less expensive than formal litigation
b) They are carried out in private
c) The decision is made by a neutral third party with the appropriate technical knowledge
d) The decision is final and binding
e) The process may help the parties in dispute to maintain business relationships after the specific issues are resolved

Although neither party will have the burden of proving its case in a formal Court setting, they will be required to set out their position, with supporting evidence, in submissions to the expert. These submissions are normally written and copied to the other party. Submissions may be simultaneous or sequential depending on the issues in dispute.

Following initial submissions the expert may request clarification from either or both parties or a further round of submissions, or both, before making his/her determination.

It is possible that the appointed expert has to decide an issue which is outside the scope of their expertise, for example, an accountancy expert may be faced with a question of interpretation of a legal document within the overall dispute on the completion accounts. The expert will commonly seek independent legal advice in such a scenario to allow them to complete their determination.

The format of the determination may be stipulated in the appointing contract, can be specified by the parties as part of the appointment process or it can be left to the expert. The choice is simply whether the parties want or need a reasoned determination.

This is often referred to as a “speaking” or “non-speaking” determination. The advantage of a non-speaking determination is that the lack of reasons leaves the parties with no ability to argue further and enforces the final and binding nature of the determination process.

However, in the case of an earn-out dispute under a sale and purchase agreement the determination may have a bearing on future earn out periods, therefore, the parties will need a reasoned determination to be able to adopt the correct process for future periods.

An expert’s determination can be enforced in court proceedings. Additionally the determination may also be challenged. Grounds for challenge however are limited to instances of manifest error or fraud by the expert.

The difficulties that arise within determinations are usually party driven, such as refusal to participate in the process fully or at all, and issues over disclosure of confidential and commercially sensitive information.

Selecting the wrong expert can also be detrimental to the process.

The choice of an appropriate expert is important.  Whilst the overall process is governed by the contract the expert, once the appointment is made, is normally left in control of the detailed day to day aspects of the process. 

Therefore, parties should ensure experienced and qualified experts are selected. This can be achieved by use of accreditation bodies such as the ICAEW or Academy of Experts who both have panels of accredited expert determiners. The qualification QDR(ED) is granted by the Academy of Experts to those experts who have been trained and have passed the accreditation course on expert determination.

Expert determination is normally a contractually required process in resolving disputes. It can be cost effective, impartial and flexible, provided the parties buy into the process.

For any further information on the process please contact Adrian Pym FCA MAE QDR(ED) on adpym@primeforensc.co.uk