Frequency of M&A disputes

The relative frequency of M&A disputes is quite volatile, and seems to depend to a large extent on the performance of the M&A market in general and the types of parties to a transaction in particular.

According to statistics published by the Vienna International Arbitral Centre (VIAC), disputes arising out of share purchase agreements in the context of M&A transactions amounted to 6 per cent in both 2016[2] and 2015.[3] M&A disputes accounted for 17 per cent of all disputes administered by VIAC in 2014, only 2 per cent in 2013 and 14 per cent in 2012.[4] VIAC did not publish detailed figures on sale and purchase agreement (SPA) disputes for 2017 and 2018 but stated that arbitral proceedings relating to business ownership accounted for 14 per cent of VIAC administered cases in 2017[5] and 7 per cent in 2018.[6]

The transaction parties are another factor in determining the frequency of M&A disputes. While in the case of professional investors of similar (significant) size, arbitration is often the very last resort and alternative dispute resolution mechanisms (such as business mediation or other forms of settlements) seem to be preferred, small-scale transaction parties tend to seek arbitral relief more frequently.

Form of dispute resolution

As the Austrian courts do not track statistics on the frequency of M&A disputes, the figures provided by VIAC described above cannot be compared with those for court proceedings. Therefore, any statements on the relative frequency of arbitration compared with litigation in the context of M&A disputes can only be based on market experience.

It is standard market practice in international and large-scale M&A transactions to agree on arbitration clauses.[7] Often, confidentiality aspects and the possibility of choosing a tribunal with experience in international business dealings and knowledge of the underlying economic implications are viewed as the main advantages compared with court litigation.[8] In addition, when considering that M&A transactions are increasingly cross-border, parties may find it useful to agree on the governing language of the arbitration. Finally, recognition and enforcement of arbitral awards under the New York Convention[9] is a strong ‘selling point’ for arbitration over litigation in an international context.

However, the general preference for arbitration to resolve international M&A disputes leads to some concern that this may limit Austrian Supreme Court jurisprudence and, thereby, publicly available case law on contentious issues typically arising in M&A transactions. Critics hold that this is further aggravated by arbitral awards not usually being published, since confidentiality is often a primary motive for parties to choose arbitration.

The costs and length of arbitration,[10] which seem especially disproportionate in complex proceedings, cause further concern. Although, according to VIAC, the average duration of arbitrations it handles is approximately one year, this is not likely to apply to highly complex cases (e.g., those with an unusually high number of interim or partial awards, or a bifurcation of proceedings). However, this average figure does not include the time required to initiate the procedure and constitute the tribunal. Note that while Austrian court proceedings are generally regarded as swift, before state courts such complex disputes will also last a considerable amount of time (in particular in light of appeal rights to the second and the third instance).

There is no uniform answer to the question whether litigation or arbitration is more costly. For example, the costs of arbitral procedures under the Vienna Rules with a three-member tribunal are regularly higher than the corresponding court fees (when calculating the cumulative fees for all three state court instances) for amounts in dispute below approximately €2 million; the costs of arbitrations relative to litigation start to decline for amounts in dispute above €2 million. Therefore, for higher amounts in dispute, and in particular when the tribunal consists of a sole arbitrator, the costs of arbitral procedures might become lower than the corresponding court fees. The above-mentioned time and cost factors sometimes motivate domestic transaction parties and parties involved in small-scale M&A deals to prefer litigation to arbitration. Yet, in larger deals and in an international setting, arbitration is the preferred dispute resolution mechanism.

Grounds for M&A arbitrations

Based on experience and market insight, a broad range of grounds including failure to complete the transaction, price adjustment, earn-out, pre-contractual failure to disclose or fraud, breach of representations and warranties are subject to M&A arbitration. Disputes over financial aspects of a deal (such as price adjustment disputes or earn-out disputes) may alternatively be subjected to arbitral expert (Schiedsgutachter) procedures if accounting principles, calculation aspects or auditing processes are concerned. On the other hand, disputes arising over factual or legal matters (such as failure to disclose or breach of representations and warranties or indemnities) are typically referred to an arbitral tribunal (Schiedsgericht).

There is no statistical or other publicly available information on the relative frequency of any of these types of M&A arbitrations.

Fraud and failure to disclose

The concept of fraud (and also of error) is regulated by Section 870 et seq. of the Civil Code; those provisions also apply to M&A transactions. Fraud requires a party to intentionally mislead the counterparty at the time of contract conclusion. It may be committed by intentionally making misrepresentations or by suppressing correct information; it might even suffice that an already existent error is not clarified. However, the suppression of correct information may only constitute fraud where there was an obligation to provide the respective information. The right to challenge a contract owing to fraud cannot be waived in advance.

A contract may be challenged on the grounds of error if (1) the error is significant (basically, only errors concerning circumstances sufficiently related to the content of the contract are significant), (2) the error induced the contract (if the erring party would have concluded the same contract also without the error, the error did not induce the contract) and (3) one of three requirements exists (the contractual partner caused the error, the contractual partner must have been aware of the error owing to the circumstances of the case or the error was clarified before the contractual partner made any financial dispositions). The right to challenge a contract on the grounds of error can – except by consumers – be waived in advance.

Austrian law also recognises the concept of culpa in contrahendo pursuant to which the parties when commencing negotiations assume pre-contractual obligations (that exist irrespective of whether the contract is concluded). Those obligations comprise the duty to inform each other of the respective object or objects of the contract and of facts that might hinder the conclusion of the contract. Already negligent breach of those obligations might lead to the liability of the party in breach.

Burden of proof

The Arbitration Act[11] does not stipulate which party bears the burden of proof. For civil proceedings before state courts, a generally recognised principle applies. According to this principle, a party must prove those facts on which it wishes to rely so that the court may draw the legal conclusions favourable to that party. Article 18(1) of the Rome I Regulation[12] recognises that the law governing a contractual obligation also applies to the extent that it includes rules on presumptions or burden of proof. This provision, leaving aside whether this provision may be directly applicable in international arbitration, arguably reflects a common consensus (at least within the EU) that rules on the burden of proof are considered to be part of the applicable lex causae. A tribunal with its seat in Austria might therefore likely apply the provisions on burden of proof contained in the law applicable to the merits of the dispute. For instance, it has been argued that if a tribunal seated in Austria decides a matter governed by English substantive law, it might apply the English burden-of-proof rules even though under English law, these are considered to be procedural in nature.[13]

A number of Austrian substantive laws contain special provisions on the shifting of the burden of proof. The most important ones are as follows.

  • Section 924 of the Civil Code: with regard to warranty claims, there is a presumption that the defect already existed when the warrantor handed over the good to the creditor if the warrantee detects the defect within six months of the handing over. In transactions where both parties are businesses, this provision is non-mandatory law and may be waived subject to general considerations of bonos mores.
  • Section 1298 of the Civil Code: with regard to damages arising out of a contractual obligation, the party in breach of the contract is generally presumed to be at fault and must prove that there was no fault on its part. The burden of proving the other relevant facts remains unchanged: the injured party must prove the damage, the causality between the breach of the contractual obligation and the damage and the breach of a legal or contractual provision. Section 1298 also applies to damages arising out of culpa in contrahendo and breaches of duties of protection and due care. It should be added that the switching of the burden of proof only relates to negligence, namely there is a presumption of negligence, but the injured party would have to prove gross negligence. Only if the contract excludes liability for negligence does the switching of the burden of proof also extend to gross negligence, namely the party in breach would have to demonstrate that there was no gross negligence on its side.

Further provisions on the burden of proof are, inter alia, contained in the following areas:

  • protection of creditors in annulling certain transactions (outside insolvency proceedings);
  • product liability;
  • liability for buildings; and
  • in transactions between enterprises and consumers (mostly governed by EU law).

Knowledge sharing

The inclusion of knowledge qualifiers in M&A contracts to limit the transaction parties’ liability for statements made in deal documentation is common market practice, in particular in the operational representations and warranties section of a share or asset purchase agreement.

Two aspects usually come up in contract negotiations: first, whether the definition of ‘best knowledge’ only refers to the seller’s knowledge or also comprises the target company’s knowledge including, in the case of a target holding company with operational subsidiaries, knowledge of the subsidiaries’ corporate officers or other key personnel. A second negotiation point regularly evolves around the question whether such knowledge only comprises actual knowledge or also includes knowledge the person should have had in his or her function when acting diligently.

The main implications from an arbitration standpoint are evident: the greater the pool of persons whose knowledge triggers liability, the greater the chances of proving a violation of contractual representations and warranties. Moreover, if not only actual knowledge but also construed knowledge that a person should have had were to count towards contractual liability, the better the position of a party in the arbitration, as, in addition to such person’s witness statements, experts may opine on what the relevant officer should typically have known.

There are, however, further and less obvious effects following the parties’ contractual definition of ‘best knowledge’. If the target company’s management or other key officers confirm certain operational representations and warranties (back-to-back) to sellers prior to contract signing, it may be difficult for buyers to allege subsequently that these persons (at that point in time potentially working in the buyer’s sphere) knew or should have known that the relevant representations and warranties were, in fact, not correct. The difficulty arises because such persons, post-closing, usually remain in key positions and would be personally implicated by their new shareholder’s remedial endeavours owing to potential (personal) liability towards the sellers. Another aspect to consider is that knowledge within a target company may be subject to special confidentiality restrictions and thereby not accessible or usable by either sellers or buyers in an M&A deal. This holds especially true for supervised entities such as banks or other financial institutions that are subject to statutory (banking) secrecy, but also companies with strict business and trade secrets or severe contractual confidentiality obligations.


Austrian civil law recognises a variety of remedial actions that may generally be applied by parties to an M&A transaction: voidance or rescission of an agreement, withdrawal from an agreement or challenging or adapting the agreement owing to error, frustration or change of the fundamental circumstances of the agreement, damages under the principles of culpa in contrahendo, remedies under the clausula rebus sic stantibus or with respect to laesio enormis, claims for breach of representations and warranties, or damage claims as defined by the Civil Code, to name a few.

Owing to the many civil law remedies potentially triggering a wide range of different consequences, M&A transaction parties often agree to exclude and waive the availability of statutory remedies and limit any compensation rights to a contractually agreed set of remedies. Such waivers do not apply to instances of intentional breaches or fraudulent deceit.

Austrian share and asset purchase agreements regularly set forth a regime of remedial rights in case of a breach of contractual representations and warranties as well as indemnities, whereby sellers usually receive the right, within a certain time frame, to restoration in kind if a breach is capable of being repaired; otherwise, sellers will be held liable for monetary compensation only. Another standard remedy in M&A contracts is the seller’s compensation obligation in case of leakage if a locked-box pricing mechanism is used. Depending on deal specifics, further contractual remedies may entail certain post-closing carve-out rights in relation to sub-performing or non-performing target assets, price adjustment mechanisms or earn-out mechanisms as well as call and put options to reverse (parts of) the transaction.

Measure of damages

In Austrian law, the definition of damages is, in general, determined by the terms ‘positive damages’ and ‘lost profit’. Positive damages are defined as the loss or impairment of an already existing legally protected right or asset and cover both material and immaterial damages. In contrast, lost profit means the destruction of an opportunity for profit. In this context, the Austrian Supreme Court ruled that lost profit falls under the ambit of ‘positive damages’ if (1) the damaged party already had a legally protected right to such profit, or (2) profit would with a high probability have been made when the damage occurred.

It is a frequent negotiation point in M&A deals whether to include or exclude lost profit from the definition of ‘damages’ or ‘loss’. Sellers naturally aim to limit damages to positive damages while buyers insist on compensation for lost profit. In particular, in the context of target companies with large receivable portfolios, this question is critical to determine the compensation regime in case of non-performance or under-performance of such receivables. Unless clearly regulated, transaction parties might argue over the question whether target assets such as trade receivables, loan or leasing receivables, rental claims and related (ancillary) rights and claims (including commissions, fees and other payables) are within the realm of the transaction compensation regime. Therefore, the definition of ‘damages’ or ‘loss’ in SPAs typically receives special attention and is phrased in a precise and thereby often lengthy manner.

Furthermore, professional parties to an SPA usually exclude compensation for consequential damages, indirect damages, punitive damages, whether foreseeable or not.

Special substantive issues

There are no special substantive issues in Austria.

Special procedural issues

Parties to M&A transactions may also be natural persons. In such cases, one should pay special attention to Section 617 of the Code of Civil Procedure,[14] which stipulates special requirements for arbitration agreements concluded with consumers. This is due to (heavily criticised) case law of the Austrian Supreme Court[15] pursuant to which one may conclude that Section 617 of the Code of Civil Procedure applies to all arbitrations having their seat in Austria and disputes arising out of or related to corporate relationships (so that, for example, arbitration agreements in joint venture agreements or articles of association are caught). Further, pursuant to the Austrian Supreme Court’s ruling, one may further conclude that the question whether a foreign natural or legal person qualifies as a consumer should be assessed in accordance with Austrian consumer protection law (under this approach, an ‘economic perspective’ is employed, meaning that it is assessed whether the respective person conducts entrepreneurial activities or not).

As to the (most important) special requirements, Section 617 of the Code of Civil Procedure, inter alia, provides that arbitration agreements between entrepreneurs and consumers may only be validly concluded for disputes that have already arisen, must be contained in a document that may not contain any other agreements other than those relating to the arbitral procedure and be personally signed by the consumer[16] and must stipulate the seat of arbitration (for which further restrictions are provided for in Section 617, paragraphs 4 and 5); in addition, the consumer must, prior to the conclusion of the arbitration agreement, receive written legal advice regarding the significant differences between arbitration and court proceedings. Further, Section 617 contains additional grounds for setting aside an arbitral award and special procedures in this respect.


[1] Andrea Gritsch and Stefan Riegler are partners at Wolf Theiss.

[3] VIAC statistics 2015, available at

[5] VIAC statistics 2017, available at

[6] VIAC statistics 2018, available at

[7] Dorda, ‘M&A und alternative Streiterledigung’ in Festheft für Karl Hempel zum 75. Geburtstag, GesRZ 2012, p. 5 et seq.

[8] Fischer/Walbert, ‘Efficient and Expeditious Dispute Resolution in M&A Transactions’ in Austrian Yearbook of International Arbitration 2017, 21, 21 and 45 with further references (Klausegger, Klein, Kremslehner, Petsche, Pitkowitz, Power, Welser & Zeiler eds., 2017) [Fischer/Walbert].

[9] UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).

[10] See Fischer/Walbert (footnote 8, above).

[11] Section 577 et seq. of the Code of Civil Procedure.

[12] Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations.

[13] Reiner, ‘Burden and General Standards of Proof’, Arbitration International, Volume 10, No. 3 (1994), p. 332.

[14] For an English version of Section 617 of the Code of Civil Procedure, see

[15] Austrian Supreme Court, 16 December 2013, 6 Ob 43/13m; for an English description of the case, see Markus Schifferl/Venus Valentina Wong, ‘Decisions of the Austrian Supreme Court on Arbitration in 2013/14’ in Austrian Yearbook of International Arbitration 2015, 334, 348 (Klausegger, Klein, Kremslehner, Petsche, Pitkowitz, Power, Welser & Zeiler eds., 2015).

[16] This prerequisite also applies to a transaction between consumers.

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