M&A DISPUTES AND ARBITRATION: THE ICC PERSPECTIVE Tunde Ogunseitan Counsel International Conference for Promoting Arbitration 4 th 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 new company, An 'acquisition' (or 'takeover') does not lead to the formation of a new company but is simply the purchase of one company by another. Despite this difference in meaning, the two terms are often used together to refer collectively to all legal transactions leading 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 EXPERIENCE WITH ARBITRATION OF M&A DISPUTES 2015 13.6% of 108 cases 2016 17.7% of 141 cases 2017 16.0% of 121 cases Insert presentation title with 'Insert - Insert date with 'Insert - 3
BETWEEN 1986-2016, ICC M&A DISPUTES INVOLVED Wide range of business sectors Ranging from US$ 2 million to US$ 400 billion 16.58 % From France 31 Countries 1/3 of cases involve more than 2 parties 10.36 % From U.S.A. 9.84 % From The Netherlands Insert presentation title with 'Insert - Insert date with 'Insert - 4
M&A : BUSINESS SECTORS Energy Food Industry Construction Pharma Industry Range of business sectors Telecommunication Insurance Metallurgy Finance Insert presentation title with 'Insert - Insert date with 'Insert - 5
MOST DISPUTES RELATED TO POST-CLOSING PHASE 18 M&A Disputes at the ICC 16 14 12 10 8 6 No. of cases 4 2 0 Breach of Representations & Warranties Price Adjustment Specific Performance under Purchase Agreements Conditions Precedent Parties' obligations under NDAs and Exclusivity Agreements Insert presentation title with 'Insert - Insert date with 'Insert - 6
TYPES OF DISPUTES 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) Insert presentation title with 'Insert - Insert date with 'Insert - 7
ISSUES ARISING 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 Insert presentation title with 'Insert - Insert date with 'Insert - 8
ISSUES ARISING 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 Insert presentation title with 'Insert - Insert date with 'Insert - 9
PRE-CONTRACTUAL LIABILITY 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. Insert presentation title with 'Insert - Insert date with 'Insert - 10
INTERIM AND CONSERVATORY MEASURES 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. Insert presentation title with 'Insert - Insert date with 'Insert - 11
IMPORTANT PROCEDURAL ELEMENTS 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 fasttrack 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 Insert presentation title with 'Insert - Insert date with 'Insert - 12
IMPORTANT PROCEDURAL ELEMENTS 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. Insert presentation title with 'Insert - Insert date with 'Insert - 13
THANK YOU Tunde Ogunseitan Counsel ICC International Court of Arbitration 33-43 Avenue du Président Wilson, 75116 Paris FR tunde.ogunseitan@iccwbo.org +33 1 49 53 28 36 Insert presentation title with 'Insert - Insert date with 'Insert - 14