Материал: Amy C Kläsener
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Germany
Michael Rohls1
Frequency of M&A disputes
The frequency of M&A disputes in Germany is difficult to determine with any certainty. Reviewing the number of transactions and disputes in Germany in which the author’s firm participated over the past decade, and having cross-checked these findings with warranty and indemnity insurance brokers, an estimate would be that fewer than 10 per cent of all M&A transactions in Germany result in an M&A dispute (including mediation, contractual settlements or ad hoc settlements) that go beyond dealing with general
post-closing issues.
Of all M&A transactions in Germany, 3 per cent or less result in arbitration2 (or more rarely litigation).
Form of dispute resolution
The ratio of arbitration to litigation is rather clear. In our experience, 1 per cent, or maybe 2 per cent, of all M&A disputes end up in litigation at German courts, the rest that have not been settled beforehand go to arbitration.
This experience is backed up by the fact that German courts have rendered very few decisions on M&A disputes and most of them concern relatively small businesses and transactions, such as a beverage wholesaler,3 a fitness studio,4 a jewellery store,5 an advertising
1Michael Rohls is a partner at Freshfields Bruckhaus Deringer LLP.The input of the author’s fellow partners Rolf Trittmann, Boris Kasolowsky, Roman Mallmann and Patrick Schroeder is much appreciated.
2The general rules for arbitration in Germany are stipulated in Book 10 (§ 1025 et seq.) of the Code of Civil Procedure (ZPO).The German Federal Ministry of Justice and Consumer Protection has published an English convenience translation of the ZPO: https://www.gesetze-im-internet.de/englisch_zpo/.
3See BGH, 28 November 2001,VIII ZR 37/01, NJW 2002, 1042.
4See BGH, 6 February 2002,VIII ZR 185/00, BeckRS 2002, 03131.
5See BGH, 12 November 1969, I ZR 93/67, NJW 1970, 653.
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agency,6 and so on. Accordingly, concerns are regularly voiced that the number of court decisions in this area of law is too low to allow for the continuous development of case law specific to M&A disputes governed by German law.
Another way to determine the frequency of arbitration over litigation is to look at the ratio of M&A deals with and without arbitration clauses. Again, in our experience, the result would be around 98 per cent or more in favour of arbitration.This assessment obviously very much depends on the kind of M&A deals examined.When, however, some sources report that only about a third of M&A deals in Germany have an arbitration clause and, hence, could potentially go to arbitration, this statement seems hard to believe. Such a low ratio in favour of arbitration would also be difficult to reconcile with the small number of decisions of German courts in this area of law.
Again, these findings seem to be supported by warranty and indemnity insurance brokers who ‘almost never’ see a litigation clause in the M&A deals for which they arrange insurance coverage in Germany.
Grounds for M&A arbitrations
An educated guess regarding the relevant frequency of types of M&A arbitrations is that claims for breach of warranties and for indemnification are frequent; as are, to a lesser extent, purchase price adjustments and earn-out disputes.
Disputes in connection with material adverse change clauses are very rare because MAC clauses are very rarely included in M&A contracts governed by German law.
Disputes arising out of the failure to complete the transaction are also rare as such failure does not happen often.
Under German substantive law, in the specific case of arbitration the categories of claims mentioned above – and others not mentioned – are very frequently overlaid by claims for intentional misinformation, as explained in detail in the Section below.
Sometimes the sole type of claim in an M&A arbitration is intentional misinformation.
Fraud and failure to disclose
In Germany, the threshold for liability due to intentional misinformation is comparably low and such liability cannot be contractually excluded. It is the main tool used in the attempt to overcome any and all contractual limitations of liability.
Culpa in contrahendo
Generally, M&A transactions under German law are subject to the German provisions on the sale of goods, applied by (statutory) analogy to M&A transactions.7 In practice, the parties exclude the application of said rules and replace it with contractual provisions.
6See BGH, 15 June 2005,VIII ZR 118/03, BeckRS 2005, 30358080.
7See § 453.1 BGB.
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However, the parties might not effectively exclude, or validly change, direct8 liability for intentional misinformation.9 Such liability is commonly referred to as culpa in contrahendo.
However, the parties may contractually exclude, or limit, liability for gross negligence.
Intention – a shot in the dark
The threshold for intention is lower than one might expect. Dolus eventualis is sufficient, and the intention generally only needs to cover the misinformation as such but not the consequences (damage) caused by that misinformation.
A common phrase that is used in court decisions, is that the threshold might be already met if a statement was a shot in the dark.10 It might be sufficient that the party deems it possible that a statement is not correct and the party makes the statement anyway.
General duty to disclose relevant information
Under German law, a party to an M&A transaction has a general obligation to disclose information relevant to the other party.A party must disclose information about the target to the other party that might defeat the other party’s intended purpose of the transaction and of which the other party might reasonably expect disclosure.11
For example, a seller might be held liable if it provided information on current and expected turnover, if it obtains new information on turnover, and the buyer would have had a reasonable interest in that new information. The seller might, in that example, be able to contractually exclude its liability if the parties agreed on a cut-off date for such information, namely if the buyer knew it would not get new information after a specific agreed date.
General duty to only state correct information
The duty to state correct information is broader than the duty to disclose relevant information.Any information provided must be correct.Any information specifically requested must be accurate, or the request must be denied.12
A party breaches its obligation to make correct statements if the party intentionally (dolus eventualis) provides incorrect information to the other party, no matter whether the information is provided voluntarily, owing to a disclosure obligation, on one’s own initiative, or on request.This also includes the duty to provide complete information.
8But the parties might validly exclude liability for intentional misinformation by third parties, see ‘Knowledge sharing’ below.
9Regarding claims for intentional culpa in contrahendo, see BGH, 27 March 2009,V ZR 30/08, NJW 2009, 2120, 2122.
10Literally ‘into the blue’ (ins Blaue hinein).
11See BGH, 1 February 2013,V ZR 72/11, NJW 2013, 1807.
12See BGH, 20 March 1967,VIII ZR 288/64, NJW, 1967, 1222.
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Burden of proof
Substantive
German law has a number of substantive law rules governing the burden of proof.While one might question the reasonableness of these rules in arbitration where a tribunal has more discretion to come to a decision than a (German) state court has,13 some significant rules as regards M&A claims are the following.
General attribution
Under German statutory law, if a breach of duty is established, the burden of proof is shifted to the breaching party to demonstrate that liability for the breach should not be attributed to it.
However, this rule does not apply if the level of attribution is intention.14 Thus, a buyer making a claim for culpa in contrahendo needs to prove that the seller committed the breach intentionally.
Causation and quantum of claims for culpa in contrahendo
Under general rules of burden of proof, a seller making a claim for culpa in contrahendo would need to demonstrate a causal link between the breach and the damages, and the quantum of damages.
However, German case law provides for an assumption that, if a buyer had been informed correctly, then the buyer would have been successful in concluding the transaction at a lower purchase price reflecting the influence of the misinformation on the overall purchase price.These reliance damages are calculated as the difference between the agreed and the lower purchase price.The buyer does not need to demonstrate that the seller would have agreed to the lower price.15
Procedural
General procedural rules for the taking of evidence
A tribunal with its seat of arbitration in Germany generally has discretion to determine the rules of procedure for its arbitration unless mandatory provisions, or provisions agreed between the parties, apply.16 Obviously, the parties have to be treated equally, and the parties’ right to be heard must be upheld. Other than for such fundamental principles, it is commonly accepted that a tribunals’ discretion is rather wide. German case law suggests that said discretion is, in any case, exercised properly if a tribunal, at the least, follows the rules laid down in the Code of Civil Procedure (ZPO) for state court proceedings.17 As a result, tribunals might take guidance from the German procedural rules for state courts even though they are not, at least not fully, compatible with arbitration proceedings, and
13Rolf Trittmann,The interplay between procedural and substantive law in international arbitration, SchiedsVZ 2016, 7.
14BGH, 1 December 2008, XI ZR 411/06, NJW 2008, 2912, 2914.
15See BGH, 19 May 2006,V ZR 264/05, NJW 2006, 3139, 3141.
16See § 1042.4.1 ZPO.
17See BGH, 17 January 2008, III ZB 11/07, SchiedsVZ 2008, 148 (with an English summary).
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those rules, unsurprisingly, are different from what is, or is evolving into, the international standard for conducting commercial (and M&A) arbitrations.
As expressly stipulated in the same ZPO provision, a tribunal may – again at its discretion – determine if evidence is admissible, if it will be taken, and what the result of the taking of evidence is.18 This provision makes it clear that it is not the parties who decide what evidence is presented and taken, as in state court proceedings under common law, but the tribunal decides.The rule does, however, not per se exclude the taking of evidence by way of, for example, pretrial discovery or extensive disclosure.
Disclosure
In Germany, most arbitral tribunals tend to take a cautious approach towards document disclosure. Much in line with the procedural principle that a party needs to rely on, and only on, documents in its possession, tribunals may grant limited document disclosure for a specific document that is relevant and material (also taking into account which party bears the burden of proof in relation to the facts to be established by the document).
While extensive disclosure, as mentioned above, is not prohibited, it will quite likely only be used under special circumstances.
Estimating the causation of damages and amount of damages
German procedural law has a provision that, once a breach of duty is established, a court might estimate the causation of damage, and quantum, resulting from the breach if the court is provided with sufficient facts to make causation and quantum probable.19 The question whether this provision is procedural or substantive law is rather academic. As explained above, applying this provision is considered to be at the tribunal’s discretion, as confirmed by German case law.20
Knowledge sharing
A seller is liable for the actions and knowledge of its legal representatives. However, the liability for other individuals involved in the transaction may be contractually excluded, even if such persons act with intention.
Generally, a seller is liable for actions of individuals who perform any of the seller’s obligations in the course of a transaction, for example the duty to disclose relevant information. The group of individuals is determined case by case.The members of a seller’s transaction team as well as third-party consultants, such as legal counsel, tax counsel or M&A advisors, might fall into this category.
Whether even actions of target representatives may be attributed to a seller, mainly depends on the actual involvement of the target company in the overall transaction process.The more, for example, a target representative is actively involved in negotiating and managing the transaction, the more likely that its actions would be attributed to the seller.
18See § 1042.4.2 ZPO.
19§ 287 ZPO.
20See BGH, 16 December 2015, I ZB 109/14, BeckRS 2016, 02020.
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