Page 72 - M & A Disputes

Identification of the Specific Disputed Issues Within the Neutral Practitioner’s Scope

Many engagement letters will also contain either within the body of the document or as an addendum or
exhibit thereto a summary of the items that are within the purview of the neutral practitioner to adjudi-
cate. Although seemingly self-evident, in complex arbitration proceedings, it is not uncommon for the
parties to have a differing view on what items should be submitted to the neutral practitioner and what
items should be dealt with in a different forum, such as a civil litigation proceeding.

Although legal interpretative guidance can be varied, there is widespread recognition by many courts of
law that the ultimate decision of what items fall within the practitioner’s scope of adjudication is first
before the neutral practitioner.

Therefore, and in response to this broad view of jurisdiction of the neutral practitioner, the engagement
letter should, with a reasonable degree of specificity, make clear which issues or items that are in dispute
between the parties are to be resolved by the neutral practitioner in the anticipated dispute resolution
proceeding and which issues or items are to be decided in some other dispute resolution forum or by
some other arbiter with differing skills.

If not careful, there can be an atypical allocation of duties: a neutral may decide issues of law, or a legal
arbitrator may decide accounting disputes.

A carefully crafted engagement letter that addresses in a comprehensive manner the apportionment of
duties between the practitioner retained by the parties to resolve issues of an accounting nature and other
arbiters retained to resolve disputes of a legal nature will significantly mitigate the possibility of a misal-
location of duties. There are situations in which disputed accounting items in a closing balance sheet
true-up process may also relate claims being made by a party in a breach of representation and warranty
claim. If a practitioner is engaged to rule on disputed items related to the closing balance sheet, such de-
cisions may impact the representation and warranty claim. This is true to the extent that the practitioner
concludes that the historical accounting methods were not in accordance with the terms of the transac-
tion agreement. However, the closing balance sheet purchase price adjustment provision is separate and
distinct from the representations and warranties, and any potential decision by the neutral practitioner
should focus on the closing balance sheet disputes, not the breach claim (which is likely being addressed
by a legal arbitrator).

Confirmation of the Absence of Known Conflicts of Interest and Disclosure of Existing or Prior Relation-
ships

The engagement letter should affirmatively acknowledge that the practitioner conducted an evaluation of
any current, prior, or future relationships that could potentially impair the practitioner’s ability to dis-
charge the anticipated duties in an objective and unbiased manner, and the engagement letter should also
state that no such conflict of interest was deemed to exist. Prior and existing relationships with the par-
ties to the dispute resolution proceeding should be fully disclosed in the engagement letter. Likewise,
any waivers requested by the neutral practitioner of any potential conflict of interest that may be claimed
later by any interested party should be set forth in the engagement letter.

Right to Resign if a Conflict of Interest Arises That Would Impair Impartiality

The practitioner should continue to monitor possible events that may occur during his or her retention by
the parties that could result in a conflict of interest. With regard to the practitioner’s ongoing responsi-
bilities regarding the monitoring of possible conflicts of interest, a provision should be included in the

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