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United Kingdom

USA: Delaware Chancery - 'arbitrator' label not determinative; authority test distinguishes arbitration from expert determination; drafting lessons for purchase price adjustments and ADR clauses

Published on: 15 May 2024

Published by a Law360 reporter

Legal News

Article summary

For instance, disagreements about purchase price adjustments are commonly sent to an independent accountant to settle the parties’ differences concerning accounting methods and computations. How that process is characterised—as arbitration or as an expert determination—has several important consequences. A principal distinction is that arbitrators typically possess full authority to rule on all legal and factual matters required to resolve a dispute, including interpreting the purchase agreement, whereas experts are confined to resolving discrete factual issues within their expertise and to interpreting the relevant contract only so far as necessary to decide those factual points. A further divergence concerns the standard of review applicable to efforts to challenge decisions by arbitrators as opposed to experts. Consequently, parties often find themselves litigating, as an initial question, whether the purchase agreement’s dispute procedure constitutes an expert determination or an arbitration. That conclusion dictates whether particular issues must be decided through the agreement’s dispute mechanism or by a court, and whether the agreement’s dispute process can be compelled under the Federal Arbitration Act or a state law analogue. In two recent rulings, the Delaware Court of Chancery made clear that simply naming a decision-maker within the purchase agreement’s dispute provisions in the relevant clause...

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