Expert determinations – an alternative dispute resolution process worth pursuing?

Challenging economic conditions may push disputes down an entity’s priority list but, equally, the incentive to pursue compensation is greater. Parties typically tend to favour a dispute resolution process that is time efficient and cost effective and, under the right conditions, expert determinations can offer a pragmatic solution. In this blog, we explore, from an expert’s perspective, what the expert determination process typically looks like, why Parties select the process and some tips for facilitating the process.

What are expert determinations?

The expert determination process is ultimately what the Parties to the dispute jointly want it to be. It is a contract-based form of alternative dispute resolution that allows the Parties to put their disagreements in front of a jointly selected expert with appropriate expertise in a format that works for them, rather than being bound by the traditional court or arbitration process. Parties to an expert determination can be individuals, companies or public sector organisations across a range of industries. The appointed expert and the Parties collectively agree a set of procedures that, whilst generally following a tried and tested pattern, are bespoke to their circumstances. By common agreement, the determination made by the expert is generally then legally binding on both Parties or otherwise provides a basis for negotiation and settlement between the Parties.

As expert accountants and valuers, the most common process we follow involves both Parties making submissions, in which they have an opportunity to set out the basis for their arguments and their interpretation of the underlying agreement, whether that is an SPA, Put and Call option, shareholder agreement, joint venture agreement or other form of commercial contract. Once the Parties have made their submissions, we typically ask questions to clarify our understanding and allow us to make an appropriately informed and evidence-based determination.

Benefits of expert determinations

In most circumstances, a key advantage of expert determination is speed and cost, as it is usually more efficient and cost effective than either litigation or arbitration. Many agreements often stipulate an ambitious timetable; although we often need to amend this timetable to take account of the size, volume and complexity of the dispute, the process of expert determination typically remains much more expedited than, for example, a comparable litigation or arbitration process.  

The flexibility of the process means that both the timetable and procedures can be adjusted to accommodate unforeseen circumstances. The expert simply consults with the Parties, then flexes as is necessary and reasonable in the interests of a fair and robust process.  

The document-based nature of most expert determinations can help to take some of the sting out of what may be a dynamic, contentious relationship between the Parties by the time formal dispute resolution processes begin. It can also help to have a neutral third party involved, if only so that the Parties have someone to voice their concerns and case to, other than one another. 

Unless Parties agree otherwise, both the process and outcome of expert determinations remain private, avoiding exposure of the dispute in the public domain and any associated reputational impact. Although it is open to Parties to dispute the outcome of an expert determination through the courts, the available grounds are limited and actual instances of such follow-on disputes are extremely rare.

Challenges to watch out for

The flexibility afforded by an expert determination can be helpful, but it does require both Parties to co-operate fully with the process. For example, it is not unusual for experts to grant requests for timetable extension, even where only one Party wants more time, in an effort to ensure procedural fairness and afford both Parties a full opportunity to put their case forwards. Some Parties seek to abuse this good practice to delay the process and it can be challenging for the expert to prevent this, even once engagement terms have been agreed.

Parties have very limited options if they disagree with the expert’s decision and want to get it overturned, as they have typically contracted to be bound by the determination. This can be seen as an advantage, since it provides closure and certainty for all concerned. However, the threshold for successful appeal is high, usually limited to just fraud or manifest error, and therefore Parties need to think very carefully about the expert they jointly select and entrust with the decision-making process.

The expert’s scope is limited to what is set out in the underlying agreement regarding the nature of issues the expert can determine on. Subsequent engagement terms will then be agreed between the expert and the Parties before they begin their work. These terms should agree the scope of the expert’s work, the process and the type of determination to be provided. A good expert will know where their expertise starts and stops, and when it is necessary to bring in additional experts in support, including legal experts. However, this can extend the process if not anticipated well in advance, particularly where additional issues underpinning the items in dispute arise and need expertise beyond the chosen expert’s field.    

There is no statutory control over costs in expert determinations, with the expert often having discretion to allocate their costs between the Parties (and no possibility of awarding the costs incurred by one party to the other). However, in practice, experts rarely use that discretion and generally apply a 50:50 split unless one Party has directly caused specific costs or the underlying agreement requires otherwise. In practice, if the allocation of the expert’s costs is a particular area of concern, the Parties can agree to limit the expert’s powers in the expert’s engagement letter. Few experts will object to this type of limitation as long as it is implemented in a practical way.

Some practical tips

Selecting the right expert is crucial to a successful expert determination process. The first step should always be to establish what professional experience is required of an expert to allow for a robust determination. The Parties may then start to think more strategically about how experts have determined on similarly issues historically (to the extent they or their advisors have visibility of previous engagements) and accordingly whether an expert is more likely to land favourably in this case.  

In preparing submissions to an accounting or valuation expert, Parties should consider:

1. Style and tone of language – Avoid unnecessarily complex and aggressive language. Accounting and valuation experts are typically far more interested in the underlying documentary evidence than the carefully crafted rhetoric. Adopting an aggressive position risks antagonising and frustrating the expert, which is better avoided.

2. Consistency – Ensure that the underlying agreement is interpreted consistently, or at least that any deviations are robustly explained. It can harm the credibility of a Party’s position more broadly if the expert considers that you are trying to have your cake and eat it! However, most experts are perfectly capable of considering both primary and secondary positions, and properly articulated, this can help to mitigate the risk of an expert disagreeing with an early submission and finding against a Party on that basis.

3. Content – Submissions should be evidence based and underpinned by the wording of the underlying agreement. There will inevitably be instances where the underlying agreement is ambiguous, particularly when debated in a dispute context, and commercial circumstances may therefore be a valid consideration. However, a submission which focuses purely on the commercial intentions of the Parties, rather than the actual wording of the agreement, is a red flag to the expert that the agreement doesn’t actually say what a Party may have wanted it to say.

These considerations boil down to making it as straightforward as possible for the expert to see your structured point of view, recognise your supporting evidence and determine in your favour. Talking the expert’s own professional language can be hugely helpful in this regard.

Determine the determination

Used well and in the right circumstances, with the right expert, expert determinations provide a helpful and efficient form of alternative dispute resolution. The flexibility associated with expert determinations allows for a customised process which may be well suited to the individual Parties in dispute. However, the process is most effective and efficient in resolving disputes between Parties when the matters in dispute are well defined, the selection of an expert is carefully and objectively considered, and the Parties engage fully in the process to assist the expert in making their determination.

We are happy to assist you in navigating expert determinations, in the context of M&A disputes, valuation disputes and other commercial disputes, whether that be in a party-side advisory role or an independent expert determination role. If we can help, please get in touch with our Forensic disputes team.