Establishing Precedence Clauses in Cross-Border Earn out Agreements
Explicit precedence clauses in cross-border earn-out agreements prevent accounting schedules from overriding core legal risk allocations and governing law provisions.
Expert Determination Clause
Meaning
Contractual provisions for resolving technical disagreements assign the decision-making power to an independent specialist whose ruling is final and binding. An expert determination clause is typically used to resolve financial, accounting, or operational valuation conflicts without resorting to formal litigation. The procedure avoids the lengthy process of court trials by relying on the expert’s industry knowledge.
It is limited to specific technical issues defined in the contract.
Technical Adjudication
Financial disputes concerning the valuation of assets or the calculation of net debt are referred directly to an independent accountant. The selected expert operates under instructions agreed by both parties to analyze the disputed books of account. This professional does not act as an arbitrator but rather as an expert using personal skill and judgment.
The process requires both parties to submit their calculations and supporting documents within a set period. Once submitted, the data cannot be altered without mutual consent.
Resolution Finality
The decision reached through this process is binding on both parties and can only be challenged under very narrow legal grounds. These grounds are usually restricted to obvious mathematical error or collusion between the expert and one of the parties. By agreeing to an expert determination clause, both sides waive their right to appeal the decision on its merits.
This waiver accelerates the closing of the accounts and provides financial certainty.
Scope Limitation
The clause must clearly define which matters are subject to this fast-track procedure to prevent jurisdictional disputes. Issues of legal interpretation and contract breach remain within the exclusive domain of the courts or arbitration tribunals. If a party tries to refer a legal dispute to the expert, the counterparty can apply for a court injunction to stop the proceeding.
This boundary protects the parties from decisions made by specialists outside their area of expertise. Clear drafting of the expert determination clause prevents the blending of legal and technical disputes. It also ensures that the expert cannot award damages or decide on the validity of the contract itself, keeping the focus strictly on financial or technical valuation metrics.