August 24, 2018

Post-Closing Adjustments: Expert Determinations v. Arbitrations

This recent blog from Weil’s Glenn West discusses the importance of distinguishing between “expert determinations” and “arbitrations” when it comes to addressing post-closing purchase price adjustments. . Here’s an excerpt summarizing the differences between the two mechanisms:

The powers granted to an arbitrator are “analogous to the powers of a judge.” In an arbitration, “[a]rbitrators are expected to rule on issues of law, make binding interpretations of contracts, resolve disputed issues of fact, determine liability, and award damages or other forms of relief.” And pursuant to the Federal Arbitration Act, an arbitrator’s award is enforceable by a court and there are very limited rights to appeal or review that award.

An expert determination, on the other hand, is not a quasi-judicial proceeding at all, but instead is simply an informal determination by an expert of a specific factual issue that a contract requires to be so determined by the designated expert. One must still utilize the courts to enforce that determination as part of a broader breach of contract action. But courts typically do so if the contract so provides. And, unlike an arbitration, the contract can also establish the court’s standard of review, such as “the expert’s determination shall be binding on all parties, except in the case of manifest error.”

The blog notes that Vice Chancellor Laster’s recent decision in Penton Business Media Holdings, LLC v. Informa PLC, (Del. Ch.; 7/18) demonstrates that Delaware courts distinguish between arbitrations and expert determinations as long as the parties make that intent clear in their contract. The blog cautions that because of the significant differences between the two approaches, “deal professionals and their counsel should be cautious in clearly describing the third-party dispute resolution process they are contemplating for any post-closing purchase price adjustments.”

John Jenkins