A new High Court decision makes it more difficult to challenge a business valuation expert’s authority under a price determination mechanism in a share sale and purchase agreement (SPA)—at least after a substantial amount of work has been done.

In General Electric Company v AI Alpine US Bidco Inc. [2021] EWHC 45 (Ch), the High Court also offers new clarification about how much lawyers respond to expert’s requests or participate in the valuation process itself, since such activities may indicate that the lawyer has accepted the expert’s jurisdiction (or is at least prepared to see the process play out before raising any challenge).

This new case concerned the sale of the shares in a company operating a power distribution business. Under the SPA, the price for the shares was to be adjusted via a “completion accounts” term, post-sale, to reflect the company’s working capital, cash, and debt at the time of completion. The mechanism called for estimated closing statements, final closing statements, and a 60-day dispute period—fairly common transaction terms in UK deals.

In this case, the buyers triggered the dispute process after receiving the final closing statements and substituted their own “correct” version. The sellers claimed that these new statements used new accounting judgements, so a third-party independent valuer was appointed to resolve the disagreement—particularly whether the buyers were permitted to revisit the company’s historical accounting practices in their final closing statement and the resultant valuations. The seller tried to stop that expert’s review, and then the buyers asked the court to stay the seller’s application so the expert could issue its determination promptly.

The expert may complete the analysis: First, the High Court said the accounting experts were qualified and that the matter fell within the expert’s “jurisdiction.” It stayed the proceedings to allow the expert to proceed.

A full analysis of the new decision from McFarlanes notes that several factors of import to business valuation experts influenced the judge’s decision, including that:

• “[T]he independent accounting firm’s determination was ‘well advanced’ and so an intervention by the court would not be likely to save the buyers and seller from incurring substantial costs;
• “[T]he proceedings would take some time and so delay what was intended to be a quick process for determining the final price under the SPA; and
• “[T]here is no saying that the seller would be unhappy with the expert’s determination, and to continue proceedings at this point would potentially be a waste of time and resources.”

McFarlanes advises counsel that “it is clearly better to avoid a dispute in the first place. This becomes a matter of drafting the SPA carefully, setting out clearly the matters on which the expert is to reach a determination, as well as the factors the expert is or is not permitted to take into account when doing so.”