On 3 June 2026, the Supreme Court of Norway handed down an important judgment concerning earn-out clauses and the buyer’s duty of loyalty towards the seller during the earn-out period (HR-2026-1233-A). The judgment is the first Norwegian Supreme Court decision to address this issue directly and provides important clarification for parties involved in M&A, real estate and asset management.

Background

In June 2021, Mira Mare AS sold its ownership interest in the real estate investment company Propcap AS. The purchase price consisted partly of a cash payment, partly of shares, and partly of additional consideration equal to 19.75 per cent of Propcap’s net profit for 2021 and 2022 – a classic earn-out structure.

The shareholders’ agreement required the parties to continue operating the company “as it has been operated up to the present date” and prohibited material changes to ordinary operations, financing, remuneration and accounting principles. The bonus scheme was subject to an absolute prohibition on changes.

During 2022, Propcap carried out two transactions that reduced its annual profit. The company sold shares in two subsidiaries to its own shareholders at 80 per cent of cost and wrote down the value of a third shareholding by 10 per cent. The first transaction was carried out to generate liquidity for a bonus payment that was contrary to the applicable financial institutions regulations and the company’s established practice.

As a result, Mira Mare’s earn-out payment was reduced by NOK 574,781.

The Supreme Court’s Assessment

The Supreme Court emphasised that earn-out clauses inherently create a structural asymmetry between buyer and seller. Following completion of the transaction, the buyer has control over decisions that may affect the earn-out, while the seller has no corresponding ability to intervene. This gives rise to a heightened duty of loyalty. The buyer must take the seller’s interests into account and cannot freely prioritise its own interests at the seller’s expense.

With regard to the sale of shares, the Supreme Court found that Propcap had failed to establish that the shares had been sold at market value. The Court held that the burden of proof rested with the buyer because the shares had been sold to related parties and the transaction was unusual in nature. Propcap had also failed to demonstrate that its liquidity requirements could not have been addressed in a manner that would have achieved a higher sale price.

The bonus payment was contrary to the shareholders’ agreement’s absolute prohibition on changes to the bonus scheme and had also been made in breach of the applicable financial institutions regulations. The duty of loyalty required the matter to be clarified with Mira Mare before the payment was made.

The write-down of the third shareholding, however, was accepted as being in accordance with sound accounting principles, supported in part by confirmation from the auditor and a comparable write-down by another shareholder.

Key takeaways

1. Earn-outs give rise to a heightened duty of loyalty. The buyer cannot unilaterally take actions that reduce the seller’s earn-out without demonstrating that thoseactions are commercially necessary and consistent with the assumptions underlying the agreement.
2. Documentation is critical. Extraordinary transactions during the earn-out period must be thoroughly documented. A lack of documentation may place the burden of proof – and the resulting litigation risk – on the buyer.
3. Absolute prohibitions are interpreted strictly. Clauses that do not contain a materiality threshold will be applied strictly. Changes to bonus schemes, accounting principles or financing structures may require the seller’s express consent where the agreement does not otherwise permit such changes.
4. The duty of loyalty supplements – but does not replace – the agreement. Referring to the Isola judgment, the Supreme Court emphasised that the primary function of the duty of loyalty is to supplement the agreement where it is silent. The parties themselves are expected to identify and regulate key rights and obligations in the agreement. Sellers should therefore not rely on the duty of loyalty alone – robust contractual provisions governing information rights, consent mechanisms and remedies are essential.
5. Professionally justified write-downs will generally not give rise to liability. A write-down supported by an independent valuation, confirmed by the auditor and supported by comparable actions taken by other shareholders will generally not constitute a breach of the relevant operating covenants, even if it reduces the earn-out.

Practical recommendations

Buyers should establish internal procedures for documenting all extraordinary transactions and decisions during the earn-out period. Sellers should negotiate explicit information rights, including the right to be notified of, and where appropriate to approve, transactions or decisions that may affect the earn-out.