M&A transactions generate a large number of disputes, many of which are procedurally complex. In this book, M&A disputes specialists pool their knowledge on working with problematic contracts in the most contentious disputes. We hope that their experience will be useful to practitioners and clients in preventing and managing M&A disputes. The Articles concentrate on the distinctive procedural aspects of M&A disputes and highlight the key role that substantive law can play in their generation and resolution. The book has a pragmatic focus on planning and contains a plethora of recommendations for minimising the potential for disputes and resolving them efficiently.
The book is divided into two Sections, with Part I consisting of 10 chapters focusing on procedural and planning issues, and Part II surveying differences in the substantive and procedural laws that may play a role in M&A disputes.
Any dispute will be heavily influenced by the drafting of the arbitration clause. In Chapter 1, Anne-Véronique Schlaepfer and Alexandre Mazuranic of White & Case address pre-arbitral dispute resolution mechanisms, expert determination clauses, and consolidation and joinder. They also consider whether mechanisms such as fast-track arbitration and emergency arbitrator provisions make sense in the M&A context.
Issues of joinder and consolidation present frequently in M&A arbitration. Dr Anke Maier of Noerr addresses these issues in Chapter 2. Potential parties to an M&A arbitration include multiple sellers, guarantors and, increasingly, insurers. The contractual frameworks may include multiple SPAs, ancillary services or other agreements and insurance contracts. Whatever the context, failing to consider them at the transaction phase can add significant uncertainty, time and cost to the resolution of ensuing disputes.
Many M&A disputes can and should be resolved by expert determination rather than arbitration. However, procedural issues can arise where there is competing or overlapping jurisdiction between the expert and the arbitral tribunal. Dr Wolfgang Peter and Daniel Greineder of Peter & Partners address these issues in Chapter 3.
In Chapter 4, Dr Stefan Riegler, Andrea Gritsch and Alexander Zollner of Wolf Theiss address evidentiary issues as they present in M&A arbitration. In this context, he considers how mechanisms under certain laws that switch the burden of proof interact with procedures such as document requests. Parties are advised to take steps to preserve the relevant evidence in the transaction phase that they may require in a subsequent dispute.
In Chapter 5, Thomas Webster and I consider how the advent of warranty and indemnity insurance will impact M&A arbitration. Warranty and indemnity insurance is now obtained in a large proportion of transactions. Although many or even most disputes will now be handled by the underwriting departments of insurers, the disputes that go to arbitration will raise new procedural issues and challenges.
In Chapter 6, Burkhard Schneider and Paul Hauser of Clifford Chance discusses legal remedies in M&A disputes. Parties must negotiate the complex interplay between statutory remedies and contractual remedies, and in some jurisdictions, parties may even seek unwinding of the transaction.
Quantum determinations play a decisive role in many M&A disputes. Two chapters are dedicated to these issues. In Chapter 7, three experienced quantum experts from AlixPartners, Andrew Grantham, Greg Huitson-Little and Kai Schumacher offer strategies on how to maximise the value of expert evidence. This starts with identifying the expertise required, investigative and valuation works, and how to communicate complex valuation techniques successfully. In Chapter 8, Ermelinda Beqiraj and John Fisher of PricewaterhouseCoopers use case studies to explain methods of assessing damages, in particular how the pricing methodology used by the parties in the transaction must be considered.
M&A transactions generate a large number of disputes, but a large proportion of them are successfully dealt with in expert determination proceedings and never reach arbitration. In Chapter 9, an expert, Gerald Hansen, shares his insights on how to make the most of expert determination proceedings. This begins with selecting the right expert and defining an effective and efficient expert determination process.
The capstone chapter of Part I is Chapter 10, which pulls together advice to parties on how to structure their contracts to minimise the potential for dispute. Jonathan Moses of Wachtell, Lipton, Rosen & Katz discusses key clauses that aid parties in ensuring that the deal closes, defining and limiting liability, reducing the risk disputes arising from true-ups and earn-out clauses, as well as minimising the impact of disputes on ongoing business relationships.
Part II is a geographic survey focusing on the particularities of substantive law that may influence the outcome of M&A disputes. Each chapter is structured in the same way for ease of comparison. This first edition includes chapters for: Austria (Wolf Theiss), China (King & Wood Mallesons), Germany (Freshfields Bruckhaus Deringer), Hong Kong (King & Wood Mallesons), Japan (Nagashima Ohno & Tsunematsu), Korea (Kim & Chang), Singapore (Dentons Rodyk & Davidson), Switzerland (Thouvenin), Turkey (Baker McKenzie), the United Kingdom ((Wilmer Cutler Pickering Hale and Dorr) and the United States (Davis Polk, with Vannin Capital’s E Alexandra Dosman). We expect that future editions will reflect an even broader geographic reach.
In these chapters, the first Section considers the frequency of M&A disputes for transactions. The range in frequency is due in no small part to the substantive law and the extent to which it allows disputes to proceed on statutory grounds notwithstanding contractual limitations of liability. In particular, certain civil law jurisdictions open the door to cases where there are allegations of intentional failure to disclose relevant information.
The second Section considers the frequency of litigation versus arbitration as a dispute resolution mechanism. Although litigation remains a popular choice, arbitration has become the nearly ubiquitous choice for dispute resolution in many jurisdictions. While a boon to arbitration practitioners, the dearth of published decisions in M&A disputes makes books like this all the more important.
The following Section assesses the relative frequency of types of M&A disputes, including price adjustment disputes, earn-out disputes, pre-contractual failure to disclose and fraud disputes, and disputes arising from misrepresentations and breaches of warranties. While this cannot be done with scientific precision, this Section demonstrates again that there are two camps – one tending to allow fraud disputes, and one tending to disallow them. This distinction may be so significant as to brand the former as buyer-friendly regimes and the latter as seller-friendly.
The fourth Section of each chapter in Part II addresses the applicable standard in the case of fraud or a failure to disclose information in the transaction phase. The scope of this standard, and the extent to which parties may derogate from it in contract, are key factors in determining the volume of fraud-related M&A disputes. This is without doubt a key factor that parties should consider in choosing the applicable substantive law for their agreement.
The next Section addresses burden of proof issues. In some jurisdictions there is a shifting of the burden of proof in cases where one party has better access to information or has been accused of wrongdoing. This burden-shifting may, in turn, be characterised as procedural or substantive. Burden-shifting can give the party lacking evidence (usually the buyer) a significant advantage and can thus be relevant to the choice of law. Tribunals may be faced with thorny issues involving the confluence of burden-shifting mechanisms arising under substantive law and procedural mechanisms available in arbitration that exceed those that would normally accompany the burden-shifting mechanism in state courts of that jurisdiction.
Sixth, some laws contain rules on imputation, attribution or pooling knowledge of sellers with management or target representatives. As M&A contracts typically limit representations and warranties to the knowledge of a defined group of persons at the seller, it is possible that that relevant information at the target is not disclosed and may form the basis for claims. Whether or not the applicable substantive law contains such doctrines can materially impact a buyer’s chances of succeeding on some claims.
In the seventh Section, each chapter describes the remedies available under the substantive law of that jurisdiction. While all jurisdictions allow for money damages, some jurisdictions prioritise specific performance or may even provide for rescission or unwinding of the transaction in certain circumstances. Both buyers and sellers are well advised to understand the scope of potential remedies under the chosen substantive law.
In the eighth Section, authors discuss how damages are to be calculated. As discussed in Chapters 7 and 8, the choice of method can have a large impact on the measure of damages. Parties and arbitrators should be aware of this legal backdrop in preparing and assessing expert evidence.
Ninth, authors consider whether there are special substantive issues in the jurisdiction that bear consideration. Some jurisdictions may subject M&A transactions to substantive rules governing sale of goods, whereas others may subject them to laws governing general terms and conditions, consumer protection laws or laws concerning unfair contract terms. Some jurisdictions may enforce ‘best efforts’ requirements, while others will not.
Finally, each Section considers any special procedural issues that may arise in M&A disputes. These include special rules regarding the form of arbitration agreements, rules regarding joinder and consolidation, expert determinations, court support of arbitration, and special issues involving set-aside or recognition and enforcement.
My thanks go to the talented and experienced team of lawyers and experts who have come together to deliver a truly pragmatic guide for M&A and disputes practitioners. This book breaks new ground by considering the procedural, substantive and strategic aspects of M&A disputes. We are all grateful to Global Arbitration Review for including this book in the series of GAR Guides and for the team’s highly professional guidance and support.