Supreme Court: The Purchase Price in an M&A Transaction May Be Determined by an Expert

In M&A transactions, parties often agree on a preliminary purchase price before all relevant facts are known. Only after signing of the agreement, completion accounts, warranty claims, earn-out calculations and other post-closing adjustments become known and eventually determine the actual amount payable. Sophisticated transaction documents commonly provide that specific valuation disputes will be decided by an independent expert rather than a court.

A recent decision of the Czech Supreme Court confirmed that Czech law accommodates this widely used approach.

The Dispute

A contractual arrangement had been agreed, under which a specific purchase price reduction was to be determined by an expert. The expert was to be selected by the parties according to predefined criteria.

The dispute arose from a claim relating to defective performance. One of the parties challenged the validity of the agreed mechanism, arguing that the determination of the amount by an expert was incompatible with Czech law.

The Supreme Court’s Conclusion

The Supreme Court rejected this argument and confirmed that such arrangements are generally permissible under Czech law.

According to the Court, a contractual provision under which an independent expert determines the amount of a purchase price reduction, is not invalid merely because the exact amount is determined by a third party. It is sufficient that the parties establish a sufficiently clear framework and criteria for the expert’s determination.

The decision confirms that parties may validly delegate the resolution of technical valuation questions to a qualified expert rather than leaving them to judicial determination.

Why This Matters for M&A Transactions

Although the case concerned a purchase price reduction arising from defective performance, the Court’s reasoning has broader relevance for M&A transactions.

Share purchase agreements commonly appoint independent accountants, valuation experts or other specialists to determine technical pricing matters. This is particularly useful where the dispute turns on financial or accounting expertise rather than legal interpretation.

The decision therefore provides welcome judicial confirmation that such expert-determination mechanisms are compatible with Czech law and aligned with established international transaction practice.

A Reminder for Transaction Drafting

The judgment also highlights the need for clear drafting. The agreement must give the expert clear criteria for the determination.

The clause should define the expert’s role, the method to be used and whether the decision is final and binding. Clear terms help avoid disputes and speed up post-closing adjustments.

Confirmation of Market Practice

From a broader perspective, the decision is another example of the Czech Supreme Court adopting a commercially pragmatic approach to business transactions. By confirming the validity of expert determination mechanisms, the Court has endorsed a tool that is widely used in international M&A practice.

By Mgr. Ing. Jan Durica

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