M&A DISPUTES AND ARBITRATION: THE ICC PERSPECTIVE€¦ · M&A DISPUTES AND ARBITRATION: THE ICC...

M&A DISPUTES AND ARBITRATION:THE ICC PERSPECTIVE

Tunde Ogunseitan

Counsel

International Conference for Promoting Arbitration

4th Edition

2017 Dispute Resolution in M&A Transactions

18-19 May 2017, Warsaw

MERGERS AND ACQUISITIONS (M&A)

Two distinct kinds of transactions:

A 'merger' combines two or more companies to form a newcompany,

An 'acquisition' (or 'takeover') does not lead to the formationof a new company but is simply the purchase of onecompany by another.

Despite this difference in meaning, the two terms are oftenused together to refer collectively to all legal transactionsleading to the consolidation of companies.

TRENDS

Arbitrations relating to share purchase agreements, shareholders agreements and joint

venture and cooperation agreements, which generally underlie M&A transactions, represent

a significant portion of the caseload of the International Court of Arbitration of the

International Chamber of Commerce (ICC Court).

One third of the M&A disputes submitted to ICC arbitration involve several parties, which is

in line with the ICC overall statistics.

In three quarter of the cases, the parties opt for a three-member arbitral tribunal and the

president is nominated by the co-arbitrators.

ICC INTERNATIONAL COURT OF ARBITRATION ®

ICC INTERNATIONAL CENTRE FOR ADR

ICC EXPERIENCE WITH ARBITRATION OF

M&A DISPUTES

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2015 13.6% of 108

cases

2016 17.7%of 141

cases

2017 16.0%of 121

cases



BETWEEN 1986-2016, ICC M&A DISPUTES

INVOLVED


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31

Countries

16.58 %

From

France

10.36 %

From

U.S.A.

9.84 %

From

The

Netherlands

Wide range

of business

sectors

1/3 of cases

involve

more than

2 parties

Ranging

from

US$ 2

million to

US$ 400

billion



M&A : BUSINESS SECTORS


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Range of

business

sectors

Construction

Tele-

communication

Energy

Insurance

Finance

Metallurgy

Pharma

Industry

Food

Industry



MOST DISPUTES RELATED TO

POST-CLOSING PHASE


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0

2

4

6

8

10

12

14

16

18

Breach ofRepresentations &

Warranties

Price Adjustment Specific Performanceunder Purchase

Agreements

Conditions Precedent Parties' obligationsunder NDAs and

ExclusivityAgreements

M&A Disputes at the ICC

No. of cases



JURISDICTION

The various instruments comprising an M&A transaction

may contain different dispute resolution clauses.

A single instrument may combine different dispute

resolution procedures (typically expert determination and

arbitration)

TYPES OF DISPUTES


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Different dispute resolution clauses

Are the clauses are compatible?

Claims which are usually made under different instruments can be determined in

a single arbitration, as is explicitly foreseen in Article 6(4)(ii) of the 2012 and 2017

ICC Rules of Arbitration

It is also not uncommon for the relevant instruments to contain provisions aimed

at coordinating their respective regimes (including dispute resolution) such as an

'entire agreement' clause indicating that the instrument replaces and supersedes

all previous stipulations.

Arbitration and expert determination

M&A agreements frequently provide for expert determination to settle factual or

technical issues arising out of the transaction

Res judicata and enforceability issues

ISSUES ARISING


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The coexistence of a clause providing for expert determination and an arbitration clause can

cause jurisdictional and procedural complications.

The cliché chicken and egg: Arbitration cannot usually be undertaken until the contractual

expert has determined the technical or factual matter at issue.

Not always easy to demarcate the tasks of the expert from those of the arbitrators.

ICC Case 11587: C agreed to sell to R all the shares of several companies incorporated in

various jurisdictions. The SPA provided two different closing dates. At each date, 50% of the

shares of the target companies were to be transferred against payment of 50% of the

purchase price. Price was subject to adjustment depending, amongst other things, on the

determination of the consolidated net equity of the target business.

Buyers claimed that any dispute relating to the calculation of the price was to be settled by

expert determination pursuant to the dispute settlement clause contained in the contract,

and requested the appointment of a contractual expert.

Seller objected, arguing that the dispute extended beyond mere price determination and

covered the buyers' compliance with their contractual obligations.

THREE PARTIAL AWARDS

ISSUES ARISING


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Limited scope of the arbitration agreement and arbitral tribunal's jurisdiction over the

parties' pre-contractual liability

If preliminary negotiations fail, a party may raise claims related to the other party's

conduct during the pre-signing phase, alleging a breach of pre-contractual obligations or

the general duty to negotiate in good faith and relying on an arbitration agreement in the

negotiated agreement (eventually unsigned) or in one of the preliminary agreements

entered into during the negotiations.

Case 11789: Tribunal rejected the respondents' objections, and upheld its jurisdiction

over the pre-contractual liability claims made by the claimant. It determined that the

arbitration clause was not limited to claims 'arising out of' the agreement, but extended to

all disputes 'in connection with' the agreement.

PRE-CONTRACTUAL LIABILITY


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Means of protecting the status quo and endanger the successful outcome an on-going

arbitration.

Conservatory measures can be used to:

Prevent the seller from aggravating the financial situation of the target company before the

closing;

Enforce confidentiality or exclusivity agreements pending finalization of the transaction;

Enjoin a party to abstain from disposing of the shares of the target; and

Order a party to refrain from calling a bank guarantee issued to secure the parties'

obligations under the contract, or require a party to place the purchase price or shares in

escrow.

Under the 2017 ICC Rules of Arbitration, arbitrators are empowered to order provisional

and conservatory measures pursuant to Article 28(1), which expressly authorizes the

arbitral tribunal to issue such measures in the form of an award: Unless the parties have otherwise

agreed, as soon as the file has been transmitted to it, the arbitral tribunal may, at the request of a party, order any interim

or conservatory measure it deems appropriate. The arbitral tribunal may make the granting of any such measure subject

to appropriate security being furnished by the requesting party. Any such measure shall take the form of an order, giving

reasons, or of an award, as the arbitral tribunal considers appropriate.

INTERIM AND CONSERVATORY MEASURES


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Bifurcation: Common in M&A arbitrations, where arbitral tribunals often deal with preliminary

issues by means of interim or partial awards.

• Interim and conservatory measures: Important in M&A, SPEED

• Fast-track Procedures Versus Urgent Measures: Speed Vs. Finality

• Fast-Track, Expedited, Accelerated Procedures

ICC statistics: 15 cases related to M&A disputes conducted on the basis of shorter deadlines

out of 175 fast-track arbitrations administered by the ICC. This represent 8,50% of the fast-

track cases. If the 175 fast-track cases are compared with the cases filed in 22 years, the

result demonstrates that fast-track cases including the M&A cases represent an infinitesimal

percentage of 1.50%.

it is difficult to understand how time limits can be significantly shortened in complex disputes

especially where bifurcation is sometimes indispensable, for instance in cases where the

arbitral tribunal is required to decide about liability before hearing the parties on the quantum

IMPORTANT PROCEDURAL ELEMENTS


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Confidentiality: Any breach of these obligations may be pre-empted by means of interim

measures, or may be subsequently sanctioned in an award on the merits. It is not always clear

whether the parties' obligation of confidentiality extends to the arbitration proceedings. Considering

the uncertainty that still surrounds this issue, parties should draft confidentiality provisions so as to

clearly indicate whether, and to what extent, the arbitral proceedings are covered by the duty of

confidentiality.

IMPORTANT PROCEDURAL ELEMENTS


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Tunde Ogunseitan

Counsel

ICC International Court of Arbitration

33-43 Avenue du Président Wilson, 75116 Paris FR

[email protected]

+33 1 49 53 28 36

THANK YOU


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