Материал: Amy C Kläsener

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Austria

Burden of proof

The Arbitration Act11 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 Regulation12 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).

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

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

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

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Austria

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.

Remedies

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.

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Austria

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.

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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 Court15 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 consumer16 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.

14For an English version of Section 617 of the Code of Civil Procedure, see https://www.viac.eu/images/law/ ZPO_Schiedsrecht_2014_en_im_VIAC_Layout.pdf.

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

16This prerequisite also applies to a transaction between consumers.

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China

Ariel Ye, Huang Tao and Yang Fan1

Frequency of M&A disputes

Although there are no empirical studies or surveys as to the frequency of M&A disputes in mainland China, it is generally believed that at least 50 per cent of M&A transactions will have disputes of some form or other.

Form of dispute resolution

Based on a survey we conducted, among the 73 post-closing M&A disputes that we randomly pulled from our firm’s 2016–2017 dispute resolution database, 22 of them (30 per cent) included arbitration agreements.

It is, however, rather uncommon to see parties choose expert determination or other forms of ADR processes to settle M&A disputes in China.

Grounds for M&A arbitrations

Among the 73 post-closing M&A disputes that we looked at for this survey, 17 concerned the price of the transaction; 14 related to earn-out; 4 were re-purchase without earn-out disputes; 2 concerned breaches of misrepresentation and warranties; and 2 concerned failure to complete the transactions.

1ArielYe and Huang Tao are partners, andYang Fan is international dispute resolution manager, at King & Wood Mallesons.The co-authors would like to thank all of their KWM colleagues who have supported and contributed to the survey. Special thanks also go to KWM partners Wang Kaiding and SongYanyan for their advice on relevant rules for listed companies.

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