M&A transactions often give rise to disputes concerning pre-contractual obligations, enforcement of warranties, or post-closing price adjustments such as earn outs. Against this background, parties should regard the complexity of M&A transactions and the specifics of corresponding disputes when including arbitration clauses in their SPA. The following checklist outlines some key elements to consider.
Arbitration or litigation?
Parties should consider whether resolving disputes through arbitration is in their best interest. While arbitration is usually the parties' first choice for its greater procedural flexibility, the typically shorter timeframe for resolution of a dispute, and international enforceability, a party may still opt for state court litigation where the prospect of an appeals process, a public proceeding and (in some jurisdictions) the absence of document production plays into its hands.
Seat of the arbitration?
The seat of the arbitration is likely the most important decision to make during negotiations of an arbitration clause as it will define the applicable arbitration law. Preferably, the arbitration law at the chosen seat is based on the UNCITRAL Model Law and the jurisdiction is arbitration-friendly, thus providing effective support by local courts where needed. In an international context, the ability to select the seat of the arbitration independently from the law applicable to the merits also allows the parties to choose a neutral forum, thereby alleviating concerns that one party might benefit from a "home advantage".
Enforcement?
M&A transactions often involve complex corporate structures. Parties should therefore assess – as far as this is foreseeable at the time of contract negotiations – in which jurisdictions the opposing party holds assets and consider whether such jurisdictions pose particular challenges for a potential enforcement of an arbitral award.
Institutional Rules?
Institutional arbitration ensures a structured framework and administrative support that makes it favorable to ad hoc arbitration. It is further worthwhile to carefully compare the rules of different institutions. Particularly when it comes to costs, confidentiality, scrutiny, or expedited procedures relevant differences can be found and leveraged in a party's interest.
Qualifications of the arbitrators?
Given the complex and nuanced nature of M&A transactions, the parties may wish to ensure that the arbitrators have pre-determined expertise or qualifications. Determining the arbitrators' qualifications from the outset may also streamline the arbitrator selection process once the need for arbitration arises.
Taking of evidence?
Mostly, neither national arbitration laws nor institutional rules include specific guidance on the taking of evidence. At the same time, expectations in this regard may greatly differ between parties from different jurisdictions. Parties should therefore consider agreeing on the applicability of a certain set of rules such as the IBA Rules on the Taking of Evidence in International Arbitration or the Prague Rules already in the arbitration clause to avoid unpleasant surprises after a dispute has arisen.
Pre-closing disputes?
Parties should further be mindful that an arbitration clause in the SPA will not only determine the resolution of disputes after closing but also at the time between signing and closing. At this stage in the transaction a fast resolution of any conflict will usually be of high priority. Parties may therefore consider including a specific procedure, such as fast-track arbitration, for disputes arising pre-Closing.
Consolidation or joinder?
Where multiple parties are involved in an M&A transaction, parties should ensure that the arbitration clause covers disputes between all parties involved. Where a transaction is conducted by concluding more than one contract, it may further be appropriate to align the respective arbitration clauses and to address the consolidation of proceedings arising in the context of the same transaction or the joinder of related parties.
