The Spa Arbitration Clause In Post-Closing Disputes

Expert Determination or Arbitration for Earn-Outs and Completion Accounts? An Assessment from the Perspective of Turkish Law and the ISTAC Rules

Introduction: The Post-Closing Dispute Wave and How the Problem Arises

The upward trend in global M&A volumes in recent years has driven a proportional increase in the number of post-closing disputes. In practice, we see three types of dispute coming to the fore: (i) breaches of representations and warranties and price adjustments arising from (ii) earn-outs, and (iii) completion accounts. These disputes are increasingly referred to arbitration, because in cross-border transactions, parties favour arbitration for its confidentiality, a neutral forum/court, and ready enforceability under the New York Convention. Yet most share purchase agreements (“SPA“) do not adequately separate how and where disputes arising from earn-outs and completion accounts are to be resolved.

It must first be established whether earn-out and completion-accounts disputes are, in essence, a matter of accounting/calculation or one of legal interpretation. An arbitration clause drafted without drawing this distinction leaves it uncertain which issue is to go to an independent expert and which to the arbitral tribunal. As a result of that uncertainty, and however much the processes may run in parallel, the parties may encounter jurisdictional overlap and conflicting decisions. In this article, focusing on transactions in which Turkish law is designated as the governing law and the Istanbul Arbitration Centre (“ISTAC“) as the competent arbitral institution, we aim to offer a practical framework for correctly separating the two mechanisms and designing the SPA accordingly.

Price Mechanisms and Sources of Dispute

How the purchase price is determined directly shapes the dispute profile. Three basic structures arise in the determination of the purchase price:

• Locked-box: The price is fixed by reference to a set reference balance sheet, with no separate post-closing adjustment. The buyer is protected by a right to indemnification against value leakage between the reference date and closing. Under this method, disputes are comparatively rare; those that do arise stem largely from the definition and proof of “leakage.”
• Completion accounts: At closing, the buyer pays a provisional amount, which is then adjusted so as to become final by reference to the closing-date financial statements. If the accounting policies to be applied in making that adjustment are not adequately regulated in the SPA, a dispute between the parties is almost inevitable. Typical flashpoints are which accounting standard is to be applied, how net working capital and net debt are to be defined, and which items are to be included in the calculation.
• Earn-out: Part of the price is tied to post-closing performance (revenue, EBITDA, and the like). The earn-out is the mechanism from which the most disputes arise, since the buyer’s conduct of the business directly affects the metric and, if the accounting method is shifted, differences running into the millions can result.

In completion-accounts practice, most disputes cluster around the target working capital. The parties fix a target working capital, and any deviation of the actual figure at closing from that target requires the price to be recalculated upward or downward. Where how the target working capital is calculated, which items count as working capital, and whether one-off/extraordinary items are to be excluded have not been clarified between the parties in the SPA, the post-closing adjustment can become a dispute in its own right. For this reason, building into the SPA an accounting hierarchy that also sets an order of priority — for example, first the specific principles enumerated in the SPA, then the target company’s historical practice, and only then the relevant accounting standard — both eases the expert’s task and reduces the likelihood of a dispute.

In locked-box transactions, the dispute is predominantly legal in nature, being directed at establishing whether leakage has occurred, and is directly suited to arbitration. In completion-accounts and earn-out mechanisms, by contrast, the dispute calls for both a quantitative calculation and a legal interpretation; it is this dual nature that makes the distinction between expert determination and arbitration necessary.

What Does Expert Determination Mean Under Turkish Law?

The institution of “expert determination” found in English and international practice has no exact statutory counterpart under Turkish law. The closest institution is to render binding, as between the parties, the report/outcome produced by an expert appointed under the SPA, by means of a written agreement in the nature of the agreement on evidence regulated under Article 193 of the Code of Civil Procedure (“CCP“). Under such an agreement, the parties agree that a specific matter in dispute — for example, the amount of an item in the completion accounts — will be determined by a designated person or panel, and that they will accept that determination.

A properly conducted expert determination will, as a rule, bind the parties as well as the court and, accordingly, the arbitral tribunal. Because, under Article 193 of the CCP, agreements on evidence that render a party’s right to prove impossible or excessively difficult are invalid, the binding effect of an expert determination is subject to certain conditions: (i) the expert must be selected from among independent and impartial persons; (ii) the report must be prepared solely within the mandate and authority conferred; and (iii) the report must be prepared in accordance with the procedure agreed between the parties. Moreover, the expert’s authority and the possibility of review cannot be entirely excluded by the parties, and the expert cannot be selected or steered in a manner that undermines their independence or infringes a party’s right to prove.

As stated above, the expert will determine a matter of fact or a quantum in accordance with the provisions set out in the SPA. The expert cannot determine or adjudicate a legal dispute, for example, whether a representation has been breached, a breach of the duty of good faith, or damages. The adjudication of a legal dispute falls within the jurisdiction of the arbitral tribunal.

It should be noted at this point that the report prepared by the expert appointed under the SPA and acting in accordance with its provisions goes no further than evidence; it therefore cannot be characterised as an arbitral award and is not enforced like an arbitral award under the New York Convention. The enforcement/performance sought by the party relying on the report may, in turn, be effected pursuant to a decision to be obtained from an arbitral tribunal.

The binding force of an expert determination is directly proportional to how narrowly the review standard in the SPA is drawn. If the standard is not stated, or not stated sufficiently, the party against whom the report goes may decline to accept it on grounds of “manifest error,” “excess of mandate,” or “breach of impartiality,” and may in that event be compelled to take the dispute to arbitration. To prevent this or to minimise the parties’ objections to the report, it is important to: (i) define the grounds of review narrowly and in limited number; (ii) clearly identify the expert’s mandate, the questions to be answered, and the documents to be relied upon; and (iii) regulate the expert’s duty to give reasons and the time allowed for preparing the report.

Expert Determination or Arbitration? Delineation of Scope and Jurisdictional Conflict

The division of roles set out below, by way of illustration, is well established in international practice.

• Matters falling within the expert’s field of expertise: the calculation of accounting and quantitative items, such as net working capital, net debt, completion balance-sheet items, and the calculation of the earn-out metric.
• Matters falling within the arbitral tribunal’s field of expertise: the resolution and adjudication of legal issues, such as contract interpretation, disputes over whether the accounting policy has been correctly applied, breach of representations/warranties, breach of the duty of good faith, damages, and interest.

The scope of the expert’s mandate must be clearly delineated in the SPA. Arguments such as whether a given dispute is a matter of calculation or of interpretation will otherwise be examined before both the expert and the arbitrator. This gives rise to increased costs for the parties, delay in resolving the dispute, and the risk of conflicting outcomes. The solution has three limbs: in the SPA, (i) confining the expert’s mandate narrowly to enumerated items; (ii) providing that legal disputes are to be resolved exclusively through arbitration; and (iii) adding an express provision that even a dispute as to the expert’s own jurisdiction is to be resolved by the arbitral tribunal.

How the question put to the expert is framed determines the fate of the process. Best practice is, rather than telling the expert to “resolve the dispute,” to put enumerated, technical questions, for example, “What is the amount of item X as at the closing date?” Whether the process is to be conducted on the documents or the parties may make submissions, the expert’s duty to accord the parties equal treatment and the right to be heard/to a defence, the time for the decision, and the allocation of costs must likewise be regulated in the SPA; otherwise an allegation of “procedural impropriety” will weaken the binding effect on the parties of the report/determination prepared by the expert.

Designing a Multi-Tier Dispute Resolution Method in the SPA

To separate the powers of the expert and the arbitral tribunal and to enable disputes to be resolved between the parties as efficiently as possible, we recommend designing a multi-tier dispute resolution method in the SPA. Such a structure may be built as follows: (i) inter-party negotiation/senior-management discussion, set within a short and fixed period; (ii) an independent expert determination for enumerated accounting items; and (iii) the designation of ISTAC as competent for all other disputes. The points to bear in mind in drafting the clause may be summarised as follows:

• The time periods, and which circumstances trigger which dispute resolution method, must be regulated with precision, and vague expressions such as “reasonable time” must be avoided. It must be made clear whether the transition between tiers is a condition precedent or merely a time requirement; otherwise the counterparty may raise an objection as to access to, or the admissibility of, arbitration.
• The identity of the expert, or the appointing authority, must be determined in advance (e.g., an independent audit firm; failing agreement, appointment by ISTAC or the relevant professional body).
• The binding effect and the limited review of the expert’s decision must be expressly stated. In this way, the expert’s decision will become open to challenge in arbitration only on grounds of manifest error, excess of mandate, or breach of impartiality.
• It must be regulated whether the expert process suspends the limitation and forfeiture periods applicable in the arbitration.

Sample scope-delineation provision: “Disputes concerning solely the amount of the accounting items enumerated in Schedule [•] to the Completion Accounts shall be finally and bindingly determined by the Independent Expert; the Independent Expert’s decision may be reviewed in arbitration only upon an allegation of manifest error, excess of mandate, or breach of impartiality. Any and all other disputes — including but not limited to the interpretation of the agreement, the application of the accounting policies, breach of representations and warranties, and damages — shall be resolved exclusively under the ISTAC Arbitration Rules. Disputes as to the scope of the Expert’s own jurisdiction shall be decided by the arbitral tribunal.”

Protective Contractual Provisions Specific to Earn-Outs

The source of earn-out disputes is, to a significant extent and in most cases, the metric’s susceptibility to manipulation — the adjustments the buyer is able to make within its preferred method of calculation. The following protections, to be included in the SPA, will substantially forestall disputes.

• The accounting method must be fixed. The earn-out calculation must be consistent with the target company’s pre-closing accounting practice, and the buyer must not make changes that reallocate cost or shift general expenses into the earn-out period.
• Targeted conduct-of-business covenants must be established — such as not discontinuing product lines, not materially changing pricing policy, and not diverting the sales team or potential customers (leads) to another unit without the seller’s consent. Rather than a general covenant to “operate consistently with past practice,” enumerated prohibited acts give rise to far fewer disputes.
• Rather than providing for an efforts provision on the basis of broad wording alone, such as “commercially reasonable efforts,” that standard should be made as concrete as possible.
• Obligations must be provided for requiring the buyer to furnish regular reporting in a specified format throughout the earn-out period and to grant the seller access to books/records.

The definitional dispute most frequently encountered in earn-outs concerns, within the scope of the metric selected (usually EBITDA), which revenues and expenses are included/excluded, whether extraordinary and intra-group items are normalised, and how changes in accounting estimates are to be treated. Tying the metric to a formula and a worked (illustrative) calculation table in a schedule will, to a large extent, forestall subsequent disputes.

Sample provision on earn-out protection: “Throughout the Earn-Out Period, the Buyer shall apply the accounting principles and methods of the Target Company consistently with pre-closing practice; without the Seller’s prior written consent, the Buyer shall not (a) reallocate general expenses in a manner that reduces the Earn-Out metric, (b) discontinue key product/service lines, or (c) materially change pricing policy. The Buyer shall provide monthly [format] reporting throughout the Earn-Out Period and grant the Seller reasonable access to the relevant books and records.”

Procedural Levers (ISTAC)

ISTAC offers the following practical tools for M&A disputes, and it is important to provide for them in the SPA:

• Emergency arbitrator: Recourse is had, before the tribunal is constituted, for interim legal protection. In ISTAC practice, an arbitrator is appointed shortly after the application and an urgent decision is rendered. It is valuable for interim-measure requests concerning the conduct of the business during the earn-out period.
• Consolidation of cases: Related SPA/SHA disputes may be consolidated under Article 11 of the ISTAC Rules, thereby preventing conflicting decisions in multi-contract transactions.
• Fast-track (expedited) arbitration: Provides an adjudication process under an expedited procedure for low-value disputes, or those requiring urgent resolution.
• The expert process and the arbitration must be regulated in the SPA so as to interact — for example, the evidential weight and the limits of the binding effect of the expert’s report in the arbitration must be regulated in the SPA (Article 193 CCP).

Arbitrability, Seat, Governing Law, Enforcement, and Confidentiality

Matters regulated in the SPA — such as price, earn-out, and representation/warranty disputes — concern matters over which the parties may freely dispose, and are therefore arbitrable for the purposes of Article 408 CCP and Article 1/4 of the International Arbitration Law (“IAL“). By contrast, arbitrability is contested in respect of corporate claims that affect the company’s corporate structure and the other shareholders and shareholding ratios, for example, the annulment of a general assembly resolution or the dissolution of the company. Carving such claims out of the arbitration clause within the SPA/SHA may prevent the parties from incurring wasted costs, from facing an action to set aside a possible arbitral award, and, as a consequence, from being unable to enforce the award.

In a transaction in which the target company is in Türkiye, the choice of ISTAC as the competent arbitral institution and Istanbul as the seat of arbitration will be highly advantageous in terms of the enforceability of the award.

As Türkiye is a party to the 1958 New York Convention, the enforceability of the award abroad is also secured. As regards enforcement of the award in Türkiye, two distinct regimes apply, namely the CCP and the IAL. For example, the IAL applies to disputes containing a foreign element — such as one of the parties having its seat abroad — whereas the arbitration provisions of the CCP apply to wholly domestic disputes. Under both regimes, the grounds on which an arbitral award may be set aside are limited, and the public-policy review is construed narrowly. While these provisions secure the enforceability of the award, keeping outside the scope of the arbitration clause those matters in respect of which the parties can foresee a risk that the award may face a possible set-aside sanction or may be unenforceable in Türkiye will forestall duplicated proceedings and wasted costs.

Checklist for Practitioners

In light of the matters addressed in this article, practitioners will find below a summary checklist of the points to bear in mind in the SPA with respect to a post-closing dispute.

• Has the price mechanism (locked-box or completion accounts) — and a dispute route appropriate to it — been chosen?
• Have the items to be referred to the expert been defined in limited number and narrowly?
• Is there a provision that “legal disputes are exclusively for arbitration,” and that any excess of the expert’s mandate is to be resolved by the arbitration?
• Have the binding effect and the limited-review standard (manifest error/excess of mandate/impartiality) of the expert’s decision been stated?
• Has the earn-out accounting method been fixed, and have the conduct-of-business covenants and the efforts standard been defined?
• Are the multi-tier dispute resolution time periods definite, and do they avoid impeding access to arbitration?
• Have the ISTAC seat/rules, the emergency arbitrator, and consolidation been provided for?
• Have non-arbitrable claims been removed from the scope of the arbitration clause?
• Have the risks of the arbitral award being set aside or unenforceable been taken into account?

Conclusion

In post-closing M&A disputes, the decisive factor is not the steps taken after a dispute has arisen, but the detailed regulation in the SPA, before signing, of how the dispute is to be resolved.

An SPA that separates the methods of resolving disputes that may arise from earn-outs and completion accounts into the correct mechanism (expert determination or arbitration), that clarifies scope, that protects the earn-out metric contractually, and that provides for ISTAC’s tools both accelerates the dispute-resolution process and closes off the risk of proceedings running in parallel and, subsequently, of conflicting decisions being rendered.

Sources:

1. Pinsent Masons, “Referral of post-M&A disputes to arbitration set to continue” (out-law.com, last accessed 9 July 2026).
2. DLA Piper, “(M)ergers & (A)rbitration: an increasingly popular choice for deal disputes?” (dlapiper.com, last accessed 9 July 2026).
3. EY, “Locked box vs. completion accounts” (ey.com, last accessed 9 July 2026).
4. Harvard Law School Forum on Corporate Governance, “The Art and Science of Earn-Outs in M&A” (2025) (corpgov.law.harvard.edu, last accessed 9 July 2026).
5. Global Arbitration Review, The Guide to M&A Arbitration — “Expert determinations: an efficient tool for resolving M&A disputes” (globalarbitrationreview.com, last accessed 9 July 2026).
6. ISTAC, Emergency Arbitrator (istac.org.tr, last accessed 9 July 2026).
7. ISTAC Arbitration Rules (2015), Consolidation of Cases, Art. 11 (istac.org.tr, last accessed 9 July 2026).
8. Fast-Track Arbitration Rules (istac.org.tr, last accessed 9 July 2026).