Frequency of M&A disputes

As a rule, the frequency of M&A disputes reflects the general condition of the economy and does seem to depend to a significant extent on the performance of the M&A market in general and the types of parties to a transaction.

Permanent courts of arbitration in Poland do not publish detailed statistics relating to the frequency of M&A disputes. From the data that is available, however, it can be deduced that the Court of Arbitration at the Polish Chamber of Commerce, which is the largest arbitral institution in Poland, decides, on average, on fewer than 10 M&A-related disputes per year. In 2017, the eight M&A cases made up for 4.1 per cent of all cases resolved before this court.

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

No statistics on the frequency of M&A disputes are being published, either by the Polish courts or by the Ministry of Justice. Therefore, any assessment of the relative frequency of arbitration in the context of M&A disputes can only rely on market experience.

It is common practice in international and large-scale M&A transactions to incorporate arbitration clauses into the contracts. The aspects of arbitration viewed as most advantageous when compared with litigation include confidentiality and the possibility of choosing arbitrators with experience in international business dealings and knowledge of the underlying economic implications, as well as an open view on particular mechanisms or sets of rules included in the contract, which do not always follow the general concepts of Polish law. Moreover, considering that M&A transactions are increasingly cross-border, the possibility of agreeing on the language governing the arbitration is yet another useful aspect considered by the parties. As regards international disputes, recognition and enforcement of arbitral awards under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is a strong reason for choosing arbitration over litigation.

When comparing the speed of resolving M&A-related disputes in Poland, arbitration has proven to be more advantageous than litigation. However, what needs to be considered is the fact that arbitral awards are very often being challenged before the state courts. Lengthy follow-up proceedings and the risk of the award being set aside effectively reduce the benefits of potentially faster arbitration.

The costs of arbitration remain higher than the costs of litigation proceedings. However, the competitiveness of litigation in this respect has been effectively reduced by recent legislative changes. Nevertheless, the fact that it is possible for the prevailing party to recover most of its lawyer’s fees is what still makes arbitration attractive in what can be costly litigation.

Grounds for M&A arbitrations

There is no official publicly available information on the relative frequency of any types of M&A arbitrations in Poland.

A wide variety of grounds may be identified based on market experience, including failure to complete the transaction, price adjustment, earn-out, pre-contractual failure to disclose or fraud, breach of representations and warranties. As the general number of M&A arbitrations is relatively low (see ‘Frequency of M&A disputes’, above), it is in fact not possible to establish the degree of frequency of any particular types of claims.

Fraud and failure to disclose

Fraud or error by the parties are the two main textbook reasons that would allow a party to rescind a contract. Error by a party needs to pertain to the main obligations under the contract (e.g., error as to the number of shares being the subject of the deal), whereas in the case of fraud, it is irrelevant whether the fraud pertained directly to the essential business of the contract or not.

Still, the scope of duties to disclose information in M&A transactions goes beyond the circumstances that potentially fall under the general civil law regulations of fraud or error. However, it remains unclear to what extent and how far-reaching it is, and therefore it is often the subject of a contractual arrangement between the parties.

It remains a general rule that the seller needs to provide accurate information and cannot conceal issues if actively requested. Because in the majority of M&A transactions a due diligence process is carried out, the seller may reasonably expect that the buyer identifies certain risks or defects (if acting with due care) and to that extent the seller is released from actively informing the buyer about it.

Burden of proof

The general rule on burden of proof in Polish law is stipulated in Article 6 of the Polish Civil Code (substantive law). The Article provides that the burden of proof relating to a fact shall rest on the person who attributes legal effects to that fact. This rule is well established in Polish arbitration and is also applicable to M&A transaction claims.

There are various detailed provisions, however, that may disable or shift the burden of proof between the parties. Those provisions can be divided into two categories:

legal presumptions – provisions that set forward certain facts ex lege. However, legal presumptions can still be rebutted. If that is the case, the party that declares otherwise is obliged to provide evidence to the contrary; and

provisions that shift the burden of proof to the other party. A textbook example would be Article 471 of the Polish Civil Code, which provides that the debtor is obliged to repair any damage resulting from non-performance or improper performance of the obligation, unless the non-performance or improper performance is a consequence of circumstances for which the debtor is not liable. If that is the case, the debtor may exclude its liability by providing appropriate evidence.

The above rules are well established in Poland and are generally used in arbitration too. However, it should be emphasised that arbitral tribunals have a certain amount of freedom in establishing the duties of the parties in this regard, since they are subject to restrictions that result from the relevant legislation (i.e., the Polish Code of Civil Procedure), the arbitration rules of the relevant arbitral institution (as agreed by the parties) and the arbitration clause in the relevant contract.

An arbitration clause may contain or refer to a particular kind of procedural agreement between the parties, which would set forth in detail the rules on the burden of proof in the relevant proceedings. However, a procedural agreement on burden of proof in an arbitration clause needs to reflect the rule of equal treatment of the parties, as an award rendered on the basis of such a clause may be at risk of being set aside.

Knowledge sharing

A common market practice is to include knowledge qualifiers in M&A contracts to limit the liability of the parties to the transaction for statements made in deal documentation, such as warranties, share or asset purchase agreements or operational representations.

In respect of contract negotiations, it is questionable whether the definition of ‘best knowledge’ refers to the seller’s knowledge only or includes the target company’s knowledge as well (accordingly, in the case of a target holding company with operational subsidiaries, knowledge of the subsidiaries’ corporate officers or other key personnel). Another element that usually features in contract negotiations is determining whether best knowledge constitutes simply a person’s actual knowledge or includes what the person should have known about the matter in question when acting diligently.

The main implication from an arbitration standpoint seems obvious: the greater the number of people whose knowledge triggers liability, the higher the chances of proving a violation of contractual representations and warranties. In addition, if it is construed that the knowledge a person should have had was to count towards contractual liability, it would make the position of a party in the arbitration better, for, in addition to such persons’ witness statements, experts could also give opinions on what the relevant persons should typically have known.

However, it is possible to point to further, and consequently less obvious, effects of a contractual definition of ‘best knowledge’. Once certain operational representations and warranties (back-to-back) have been confirmed to the sellers by the target company’s management, or other key persons, prior to the contract being signed, then it may be more difficult for a buyer to claim that these persons (those working in the buyer’s field) either knew or should have known that the pertinent representations or warranties were not correct. This can get complicated as any such persons, post-closing, who occupy (usually) key positions, would be personally implicated by their new shareholder’s remedial endeavours because of their personal liability towards the sellers. What also needs to be considered is the fact that knowledge within a target company can be subject to special confidentiality restrictions and, because of that, is not so readily accessible or usable by sellers or buyers in an M&A transaction. This can prove to be the case especially for entities under supervision, such as banks or other financial institutions that are subject to obligatory banking secrecy, and entities that are subject to stringent contractual confidentiality obligations or strict business and trade secrets.


The Polish Civil Code provides for several potential remedies that can be applied by parties to any asset or share purchase agreement. Those used most often are damages (including limited damages for culpa in contrahendo), liability for breach of representation and warranties, and withdrawal from a contract, among others.

In practice, as regards remedies in M&A transactions, the parties very seldom rely on their potential statutory rights and obligations and attempt to provide their own set of rules in the contract itself, so as to give them a more tailor-made solution in the event of breach of contract. This holds true, in particular, if a potential dispute is to be decided upon by an arbitral tribunal, which will be more willing to set aside the statutory set of rules and apply only the rules agreed by the parties. The seller tries very often to limit its liability for damages to the actual damage only, that is to say any lost profit is excluded. It is also common that the liability is capped at a certain amount; this is often the purchase price.

Other popular means of providing remedies to parties in M&A transactions are the price adjustment mechanism, compensation in the case of a leak of a locked-box mechanism, or regulations in the case of breach of warranty or representation. The latter is, in most cases, regulated by a mechanism that should hold either the buyer or the target guiltless; in other words, put the buyer or the target in a position they would be in if the respective warranty or representation were accurate. Potential unwinding scenarios (in practice rather unlikely) are often handled by put or call options.

Measure of damages

There are no specific rules concerning award of damages in arbitration other than the general rules of Polish law or specific regulations provided by the parties to an M&A transaction. Polish law does not provide for any particular method for calculating damages and therefore it is very common that the parties to an asset or share deal regulate extensively both the scope of liability (in particular by including specific definitions of ‘loss’ or ‘damage’) as well as the mechanism for calculating damages or other pecuniary obligations (e.g., price adjustment).

The general rule under Polish law is that a party must be compensated for damage it suffered as a result of breach of contract by another party. As a rule, compensation includes both the actual loss a party suffered because of the breach and lost profit. Depending on the nature of the deal, exclusion of liability for lost profit is frequently subject to intense negotiations between the parties. Still, if it is possible to claim lost profit, the general rules of Polish law require that it is proven with a very high degree of certainty that the amount of profit claimed would have been achieved. In practice, arbitral tribunals take a more flexible view than common courts on the degree of certainty that needs to be proven by the claimant in this respect.

Special substantive issues

Polish substantive law provides for direct liability for intentional misinformation, commonly referred to as culpa in contrahendo. In essence, it stipulates that any party that started or continued negotiations in contravention of good practice, particularly without any intention of concluding a contract, shall be obliged to compensate for the damage that the other party suffered as a result of relying on conclusion of the contract.

The common remedy for intentional culpa in contrahendo is the payment of reliance damages. The seller would have to restore the buyer to the position the buyer would have been in if the buyer had not relied on the misinformation.

Special procedural issues

There are a few aspects of procedural law that are regulated in the Polish Code of Civil Procedure that can be relevant in M&A arbitration; in particular, (1) that it is only possible to agree on an arbitration clause with a consumer after a dispute has arisen, (2) the granting of an interim relief by a common court, and (3) common court assistance in taking evidence.

Arbitration agreement with a consumer

According to the provisions of the Polish Code of Civil Procedure, an arbitration agreement with a consumer may only be agreed in writing and only after the dispute has arisen.[2] Moreover, the consumer needs to be informed in the arbitration clause itself – on pain of invalidity - that the verdict of the arbitral tribunal will be binding on the consumer in the same way as a judgment of a common court.

In practice, this regulation more commonly affects minor M&A deals, in particular those concerning start-ups, in which the business is acquired from its founders or other individuals who do not carry out any business activities. In such cases, it is only possible for the parties to agree to jurisdiction of the common courts.

Interim relief

Submitting a dispute to arbitration does not exclude the possibility for the claimant to apply for interim relief to a common court in Poland.[3] Interim relief can be obtained either before arbitration proceedings or while they are pending. In the former case, the claimant is obliged to file a request for arbitration or a statement of claim no later than two weeks after the issuance of the decision on interim relief, otherwise the interim relief is automatically cancelled. Obtaining interim relief from a common court is also possible in situations where the seat of arbitration is outside Poland or not specified.

Taking evidence by a common court

The Polish Code of Civil Procedure also provides for the possibility of legal assistance from common courts to conduct evidence proceedings that an arbitral tribunal is not able to pursue.[4] In practice, this seldom applies in M&A arbitration, as usually both parties make sure they provide sufficient evidence to win the case.

Expert determinations

Unlike in other jurisdictions, neither Polish law nor any of the regulations of the major arbitration courts[5] in Poland provide for any special regimes for expert determinations. If available, such expert determinations would usually be treated as a substantiated position of the party, unless the parties made provision in the arbitration clause for any other specific treatment of such a decision.

Equal treatment of the parties

Even though this rule seems particularly relevant in arbitration, it can affect the validity of an arbitration clause. It is well established in Polish case law that an arbitration clause might be invalid if the true effect of the clause restricts a party from access to justice. This is most likely to be the case in M&A transactions involving parties with different financial standing, when an agreement to jurisdiction by a specific arbitration court may be regarded as invalid in the event that the ‘weaker’ party cannot afford the arbitration fees and charges.


[1] Marcin Rudnik and Paweł Wysocki are senior associates at Wolf Theiss.

[2] Polish Code of Civil Procedure, Article 1164.

[3] ibid., at Article 1166.

[4] ibid., at Article 1192.

Get unlimited access to all Global Arbitration Review content