Expert Determination – Resolving Disputes Not Creating Them

In the recently published judgment in O’Brien and O’Brien v TTT Moneycorp Limited [2019] EWHC 1491(Comm) High Court (Business and Property Courts), the High Court dealt with various applications concerning a stalled expert determination procedure. The judgment provides for some practical insights into the workings of such a dispute resolution procedure, and particularly in the M&A/sale of business context.

Key issue

My primary focus in this article is to consider the following question: since the powers of the expert, and a suitable process, should have been sufficient, how did this dispute escape the agreed expert determination alternative dispute resolution (“ADR”) procedure, and end up in litigation?

The case

The Claimants’ case concerned, inter alia, in summary:

1. The sale by the Claimants, and others, of the issued share capital of the subject corporate entity (foreign exchange business) to the Defendant under a Share Purchase Agreement (the “SPA”);

2. The expert determination procedure (“the ED procedure”) in the event of the non-agreement of the Completion Accounts provided for in the SPA;

3. Whether the following provisions of the ED procedure were a condition precedent (“the condition precedent”) to a reference to the Independent Accountant (Expert) under the ED procedure:
a. “… the Vendors (and their respective agents and advisers) access during normal working hours to all relevant files and/or working papers (with the right to take copies at the Vendors’ expense) in the Purchaser’s and/or the Company’s possession or control to the extent that they are reasonably required for the purposes of the review of the Draft Completion Accounts by the Vendors.”

4. Whether the Claimants’ purported request (“the Request”) to the Defendant for relevant files and/or working papers pursuant to the ED procedure was “… valid and effective, so that the Independent Accountant had or has jurisdiction to determine the Completion Accounts…”

5. The alleged non-compliance of the Defendant with the Request; and

6. The Claimant’s injunction application seeking an interim injunction:
a. “…requiring the Defendant to provide certain documents and information to the Claimants…”; and
b. “… prohibiting…” the Defendant “… from taking any further steps in relation to the independent accountant procedure under …” the SPA “… until such date as ordered by the Court…”


In its discussion of the parties’ submissions, the Court noted, inter alia, that pursuant to later provisions in the SPA in connection with the ED Procedure, “… the parties here chose to give the Independent Accountant the power to determine what assistance and documentation he reasonably requires to finalise the Completion Accounts. This makes sense given the Independent Accountant will inevitably have far greater expertise than the Court to decide what information is in fact reasonably required for the Completion Accounts to be finalised…”

In this regard I also note, in summary, the Court’s reference to some of the Claimants’ main submissions/concerns, inter alia:

1. Save for the alleged condition precedent, the Defendant could “…unilaterally shortcut…” the ED procedure and “… could decide not to give the Vendors any real opportunity to review or analyse the Draft Completion Accounts, let alone to agree them on an informed basis. The Claimants submitted that this would obviously be inconsistent with the parties’ objectively construed intentions that agreement should be reached on the Draft Completion Accounts if possible, and offensive to business common sense…”

2. “… Whilst, the Claimants accepted, it is true that the Independent Accountant (once validly appointed) can require the parties to provide “assistance and documents … for the purpose of reaching a decision”, there is no guarantee that the Independent Accountant would oblige…” the Defendant “… to provide him (let alone the Vendors) with the documents and information that the Vendors had reasonably requested … Nor is there any provision… for the parties to have the right or any opportunity to comment on any such documents which the Independent Accountant has requested and received. The Vendors would therefore have no right to make any submissions as to what those documents say, even if the Independent Accountant accepted their submissions as to what documents and information were needed…”

3. “… there would be a material risk that the Independent Accountant would therefore determine the Completion Accounts without the Vendors ever having access to the files and working papers that they reasonably required for the purposes of reviewing the Draft Completion Accounts…”

4. “…This would be profoundly unjust. The Independent Accountant is not obliged to give reasons for his decision. His determination can only be challenged on the grounds of manifest error or fraud, as made clear by the Schedule itself; and a decision not to require …” the Defendant “… to provide documents or information to the Vendors would not (without more) be sufficient for such a challenge…”

5. “Further, if (in accordance with its stated intention) …” the Defendant “…issues proceedings by way of a Warranty Claim in relation to the Alleged Client Money Shortfall, it will inevitably have to disclose in those proceedings the information which is required to review the Alleged Client Money Shortfall. The Claimants submitted that this was an important aspect of the context for the present applications. It would be a remarkable conclusion that the Draft Completion Accounts could be prepared on a basis that binds the Vendors and requires them to pay out substantial sums of money, but in a breach of warranty claim based on the same Alleged Client Money Shortfall, the Court could come to a completely different conclusion because it had the required information which the Claimants were not able to rely on before the Independent Accountant. This would make no commercial sense at all…”

The Court concluded, among other things, that the subject provisions of the ED procedure (relevant files and/or working papers) were a condition precedent to a reference to the Independent Accountant (Expert) under the ED procedure.

The Court declined to make the applied for “… summary determination of the question of whether or not there has been sufficient compliance…” with those provisions, on the basis that the court did not have sufficient material to do so. The Court left this for trial judge.

Agreeing the issues for determination

In my experience as appointed expert determiner, and as in the subject case, it is not unheard of that the agreed issues for determination by the expert are not specified at the outset of the procedure.

Clearly, if they are agreed at the outset, the expert can design the framework for the process in consultation with the parties to resolve the agreed issues for determination.

If the issues are not so agreed, and notwithstanding the possibility of a party attempting to take tactical advantage of the “uncertainty” in the remit’s terms of reference to create procedural disruption to suit its own agenda, in my view it is within the ordinary scope of the design requirements of the process to provide for the need to define and agree the issue(s) for determination. Of course, such definition and agreement may be challenging to achieve. However, in my experience this is part of the dispute resolution role to which one as expert has been appointed. Pleasingly, and not intending to tempt fate, so far, I have found that this has been achievable – even in some quite challenging circumstances.

The process

However, turning to the subject case, on the face of it we have the opposite outcome. Effectively, instead of the invoked expert determination procedure leading to the resolution of the dispute, its initiation created a dispute which has been put to a litigation procedure. Surely this is not what the parties had intended when agreeing to using expert determination for the particular (technical) issues in dispute arising from their agreement (SPA) and to which it has been applied?

What particularly stands out to me from my reading of the judgment is that there is no mention of any process which the appointed expert designed with the parties and, if there was any such process, how this failed to keep matters on track. This may merely reflect the factual context for the litigation and that the appointment hadn’t advanced substantially.

Expert determination – a valuable ADR forum

Clearly, I don’t know the full circumstances including what process was in place if any, nor how the appointed expert had conducted the proceedings. I therefore do not otherwise comment on the judgment, the legal representation or any other aspect of the litigation. However, it strikes me that the judgment also provides an opportunity to promote expert determination as the valuable ADR procedure that it is.

Unlike court litigation, this binding ADR procedure offers disputing parties a number of advantages: confidentiality; their choice of dispute resolver with suitable expertise in the disputed (technical) issues; a procedural framework suited to their needs designed by the expert in consultation with them, and which is flexible and informal; and, the prospect of a speedier outcome, and at a lower cost.

Furthermore, based on my experience, expert determination as an ADR procedure is not subject to litigation and arbitration procedural law and rules. Accordingly, the procedural powers of the expert are not so limited.

The need for an experienced expert determiner

The true effectiveness of expert determination should be achieved by the appointment of a suitably experienced expert determiner dispute resolver. In my view, mere reliance on the terms of the dispute resolution clause in the underlying agreement between the parties – without the procedural input of the expert – is not enough for an effective process. On the face of it, in the subject case this seems to be what happened.

Features of expert determination – a case law perspective

For those interested and/or new to expert determination, the judgment provides a summary of some of the main features of expert determination from a case law perspective. The following extracts capture the key points:

“… It is also important for the Court to bear in mind the case law on expert determination as a dispute
resolution mechanism. In particular, the Courts have recognised that:

i. Parties elect to use expert adjudication dispute resolution as it is quick and inexpensive: see Premier Telecom Communications Group Ltd v Webb [2014] EWCA Civ 994 at [12].

ii. Where, as here, expert adjudication is specified to be final and binding, the Court will not usually allow parties to circumvent the agreed process. The onus is therefore on a party seeking to litigate rather than submit to the expert adjudication procedure to demonstrate why the Court should not stay its proceedings in favour of the contractually agreed expert process: DGT Steel & Cladding Ltd v Cubitt Building & Interiors Ltd [2008] Bus. L.R. 132 (TCC) at [5]-[12]; Kendall on Expert Determination, 5th Edition, 2015 at §6.4-1.

iii. The Court will generally decline, save in exceptional circumstances, to intervene in anticipation of the determination of an expert of a matter remitted to him, as this is likely to prove wasteful of time and costs, the saving of which is presumed to be one of the reasons why the parties agreed to expert determination: British Shipbuilders v VSEL [1997] Lloyd’s Rep 106 at 109.

iv. The Court will also take into account the fact that expert adjudication would be more likely to produce a speedy and more economic solution to the dispute: Turville Health Inc v Chartis Insurance UK Ltd [2013] BLR 302 (TCC) at [70]-[71]; Barclays Bank v Nylon Capital [2012] 1 All ER (Comm) 912 at [36]-[38].

v. It is well-established that there is no necessary requirement for natural justice or procedural fairness in expert determination, which is typically part of the reason why the mechanism is adopted in the first place: Ackerman v. Ackerman [2011] EWHC 3428 (Ch) at [263]-[267] and [272]-[273] (Vos J); Barclays Bank v Nylon Capital at [37]-[38]. The Court will therefore not assume that the parties intended to mimic court proceedings, when they elected for an expert determination instead.
…”

It should be noted that expert determination is not arbitration. There are some similarities but there are also fundamental differences. Both are ADR procedures, alternative to more formal court litigation. Parties should consider the suitability of such procedures for their circumstances and would be advised to seek expert legal guidance.

Conclusion

Having considered the judgment, I remain confident that expert determination can be an effective binding dispute resolution mechanism in suitable circumstances, for example in M&A disputes involving completion accounts and/or deferred consideration.

Its effectiveness is seen in its application and management by the appointed neutral expert determiner in consultation with the parties.

Finally, my answer to the key question addressed in this article is as follows: it appears to me that in the subject case, had the expert exercised their extensive powers, and there had been an effective expert determination process, the litigation might have been avoided.

Click here for a link to the judgment.


Daniel Djanogly FCA FCIArb CArb MAE QDR
The author is M&A Arbitrator and Forensic Accounting Partner at CVR Global. He is a skilled and experienced arbitrator, expert determiner and forensic accountant expert witness. He specialises in M&A, shareholder, partnership and other complex business disputes.

CVR Global LLP’s Forensic Services team is engaged in the resolution of an extensive range of business disputes and provides Arbitration and Expert Determination services.

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