News + Insights

On September 27, 2024, the Ontario Superior Court of Justice (Commercial List) released its reasons for judgment in Avtal Investments Ltd & Mezuman v. Brault & Bouthillier Ltée (2024 ONSC 5370), a decision addressing the scope of authority of an expert under an expert resolution clause in a share purchase agreement. Justice Cavanagh's reasons reinforce the principle that well-drafted agreements can delegate issues of mixed fact and law, including issues of contractual interpretation, to experts rather than courts.

AGB's Nathaniel Read-Ellis and Ritika Rai successfully represented Avtal Investments Ltd. and Talia Mezuman in this significant commercial dispute arising from the earn out provisions in the share purchase agreement ("SPA") pursuant to which Brault & Bouthillier Ltée acquired Avron Foods Limited from Avtal.

Factual Background

The underlying dispute was over whether Avtal was entitled to a contingent earn-out payment based on Avron’s financial performance post-closing, specifically the trailing twelve months EBITDA (the “TTM EBITDA”). Brault & Bouthillier determined that no earn-out payment was payable because the TTM EBITDA fell below the threshold. Avtal objected, asserting that Brault & Bouthillier's calculation failed to include required adjustments.

The SPA's dispute resolution mechanism mandated that unresolved issues concerning the TTM Calculation Statement were to be referred to an independent firm of accountants to be resolved as an expert, and not an arbitrator. Avtal took the position that the parties' dispute over the earn-out ought to be resolved in this contractually agreed upon manner. Brault & Bouthillier, however, took the position that Avtal’s underlying objections involved issues of contractual interpretation that were beyond the jurisdiction of the expert, necessitating a judicial determination.

The Ontario Superior Court of Justice (Commercial List) ultimately granted Avtal's application, ruling that the SPA required the independent accounting firm to resolve all disputes related to the TTM Calculation Statement, including those involving interpretation of the agreement.

Significance of the Case

The Court's reasons are significant for their discussion of dispute resolution mechanisms in commercial agreements, particularly regarding the scope of expert determinations versus judicial determination. Such expert determination clauses are common dispute resolution mechanisms for closing and post-closing adjustments in merger and acquisition transactions. 

Justice Cavanagh's decision reinforces the principle that well-drafted agreements can delegate issues of mixed fact and law, including issues of contractual interpretation, to experts rather than courts. His reasons underscore the enforceability of expedited dispute resolution mechanisms in commercial contracts, highlighting their efficiency in resolving complex financial disputes without resorting to prolonged litigation. This case provides a robust precedent for parties drafting and interpreting contractual dispute resolution clauses.

Current Status

An independent firm of accountants has now been appointed to resolve the parties' dispute over Avtal's entitlement to the earn-out, and AGB continues to represent Avtal in the expert determination process. AGB's victory in this matter on behalf of Avtal underscores our firm's expertise in navigating complex financial and contractual disputes in a manner that safeguards our clients’ interests in high-stakes commercial transactions.