Материал: Amy C Kläsener

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Switzerland

representations and warranties in the sale and purchase agreement that concern the target and extend the seller’s liability to certain qualities of the target. Moreover, even if there were no such representations and warranties in the agreement, the buyer can base claims for rescission, price reduction or damages on the concepts of fundamental error or fraud so that the above case law concerning warranty rights becomes irrelevant.

Under Swiss law a buyer must inspect the object of the purchase (target) as soon as feasible in the normal course of business and, if the buyer discovers defects for which the seller is liable under warranty, the buyer must notify such defects without delay and in sufficient detail.12 Should the buyer fail to do so, the target is deemed accepted except for defects that cannot be revealed in the course of a customary inspection.Also, an action for breach of warranty becomes time-barred two years after closing, even if the buyer does not discover the defects until later.13

These requirements for asserting a warranty claim are quite strict, and buyers are only exempted from them if they can prove that the seller deceived them.The statutory requirements and time bars are, however, not mandatory, and the parties are free to agree on certain periods for representations and warranties and for the serving of a notice of breach, which the parties usually do.

Special procedural issues

Chapter 12 of the Private International Law Act (PILA) contains the lex arbitri for international arbitration in Switzerland. Pursuant to Article 182 PILA, the parties are free to apply whichever procedural rules they wish, except that minimal procedural guarantees such as equal treatment and the right to be heard must be ensured by the tribunal at all times.

The principle of equal treatment in connection with the constitution of tribunals in multiparty disputes – a frequent scenario in M&A disputes – is addressed in Article 8(3-5) Swiss Rules in that, similar to many other modern arbitration rules, the parties’ agreed procedure shall apply first and only if they cannot reach a consensus will the SCAI Arbitration Court (the Court) step in. If the parties fail to designate an arbitrator within the time limit set by the Court, it may appoint all the arbitrators. Consequently, the Court has the explicit power to revoke an appointment.14 This not only ensures equal treatment of the parties when constituting the tribunal but it is also entrusted with sufficient flexibility to tackle specific particularities of multiparty disputes.

In respect of consolidation of arbitral proceedings the Swiss Rules contain detailed provisions on how to consolidate proceedings. Notably and in contrast to other institutional arbitration rules, it is not necessary that the proceedings relate to the same parties. According to Article 4(1) Swiss Rules, the Court may decide, after consulting with the parties and any confirmed arbitrator in all proceedings, that the case shall be consolidated, taking into account all relevant circumstances, ‘including the links between the cases and the progress already made in the pending arbitral proceedings’. If the Court decides to

12Article 201 CO.

13Article 210 CO.

14Article 5(3) Swiss Rules.

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consolidate the proceedings, which it usually will only do in well justified cases and with the consent of the parties concerned, the parties ‘shall be deemed to have waived their right to designate an arbitrator’ and the Court may appoint new arbitrators.

Unlike in consolidations, the tribunal rather than the Court must decide on joinder requests from an original party or from a third person.15 There is no explicit time limit in the Swiss Rules for a request to be made but the tribunal must take into account all relevant circumstances when forming its decision.While this provision sets the procedural framework for the joinder of a third person, the joinder often requires an extension of the arbitration agreement by virtue of legal theories under the applicable law, such as legal succession or piercing the corporate veil.

Finally, according to Article 192 PILA, the parties can either fully waive their right to file an action for annulment with the Federal Supreme Court or limit it to one or several of the grounds listed in Article 190(2) PILA; however, only if none of the parties has its domicile, habitual residence or business establishment in Switzerland, and the waiver or limitation is made by an express statement.

15 Article 4(2) Swiss Rules.

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Turkey

Ismail G Esin, Ali Selim Demirel and Demet Kas¸arcıog˘ lu1

Frequency of M&A disputes

The frequency of disputes largely depends on market conditions and M&A literacy.Turkey’s attractiveness to investors over the past decade has naturally resulted in an increase in M&A transactions.The total disclosed number of deals realised in Turkey for 2018 was 83, and for 2017 it was 127.2 Even though the number for 2018 is significantly lower than the previous year, total transaction volume increased in 2018, mainly because of a slightly higher number of large ticket deals.3 The decrease in 2018 is the consequence of many socio-economic and political factors, such as Brexit (the UK is one of Turkey’s most significant trade partners); increasing uncertainty about the EU’s future; sharp depreciation of the Turkish lira against the dollar and the euro; and the downgrading of Turkey’s credit rating by several international rating agencies.As such, the decrease of transactions from year to year is understandable and recoverable. Furthermore, M&A literacy in Turkey has greatly improved in the past 20 years, bringing heightened professionalism to transactions. As Turkey’s economy strengthened, M&A transactions increased, outnumbering transaction-related disputes (that is, many marriages and very few divorces). Recently, around one-third of M&A transactions have ended up in dispute. A few years ago, commercial arbitration tended only to relate to construction, distributorship, sale of goods or provision of services, etc. Nowadays, the arbitration arena has expanded to include M&A transaction disputes.

1 Dr Ismail G Esin is managing partner, and Ali Selim Demirel and Demet Kas¸arcıog˘lu are senior associates, at Esin Attorney Partnership, a member firm of Baker McKenzie International.

2 Ernst andYoung Turkey, Mergers and Acquisitions Report Turkey 2018, January 2019, https://www.ey.com/ Publication/vwLUAssets/Mergers_and_Acquisitions_Report_Turkey_2018/$File/EY%20Mergers%20 and%20Acquisitions%20Report%20Turkey%202018%20(Web).pdf (last accessed 21 August 2019).

3 ibid.

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Form of dispute resolution

The surge in M&A transactions can be traced to foreign investors’ increased interest in Turkey.Foreign investors meant M&A transactions became international;investors requested an independent forum for disputes, the answer to which was arbitration. Consequently, the arbitration practice developed concurrently with the M&A practice. Over the past 20 years, M&A contracts tend to include arbitration clauses and all related disputes are resolved through arbitration. Furthermore, as arbitration has a settled practice and many advantages, arbitration clauses specifying local institutions (such as Istanbul Arbitration Centre arbitration) are routinely included in contracts even when all involved parties are Turkish. Arbitration has several advantages, the first and most significant of which is the ability to opt for confidentiality.The importance attributed to confidentiality is based in the sensitive nature of M&A transactions, in which due diligence reports, long-term business plans containing the target company’s minutiae, and trade secrets are exchanged during and after the transaction. Secondly, efficiency is a sine qua non for these types of disputes. Because of their overwhelming caseload, local courts in Turkey may not always be efficient or expedient enough in dispute resolution, which may jeopardise companies’ operations, especially when disputes are among shareholders.Thirdly, the types of contracts used in transactions are complex, and few judges inTurkey possess the legal expertise required to resolve related disputes. In arbitration, parties have the right to choose their arbitrator – usually one who possesses the relevant expertise – making it more likely the parties will reach a satisfactory resolution. Lastly, arbitration is procedurally flexible, making it a mechanism where parties can more broadly enjoy their right to be heard.4 Therefore, what typically is being negotiated in the Turkish context is not whether to choose arbitration, but the seat of arbitration, the governing law and the drafting of the arbitration clause.

Grounds for M&A arbitrations

The main transactional documents are sale and purchase agreements (SPAs – these may include share subscription instead of or in addition to share purchase, or may be designed as asset transfer agreements instead of share sales) and shareholders’ agreements (SHAs). The common types of disputes arising from SPAs concern breach of representations and warranties terms especially based on failure to disclose or misrepresentation by sellers (very frequent) and disagreements on post-closing price adjustments (very frequent).The most common SHA disputes arise out of the exercise of corporate governance (frequent) and share option rights (very frequent). Lastly, fraud (frequent) is another recurring reason for dispute; however, proving it is highly difficult under Turkish law.

To be more specific, representations and warranties are one of the most important terms in SPAs.Their purpose is to define the target company’s condition and guarantee its past and current (representations) and future (warranties) performance.They map out the sellers’ boundaries of liability for the target company.The representations generally included in SPAs are to ascertain the accuracy of the information the sellers provide about a target

4 Ismail G Esin, Özgün Çelebi, Sevgin Erker, Demet Kas¸arcıog˘lu, Chapter 10:Arbitrating M&A Disputes,Ali

Yesilirmak and Ismail G Esin (eds), Arbitration in Turkey, 2015, pp. 265–266.

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company’s financial, legal and operational status as of the closing date. Disputes arise when representations turn out to be inaccurate, leading the target company and buyer to suffer losses. In this case, the buyer claims for damages.

The majority of warranties disputes arise as a result of the vague wording of representation and warranty terms. Parties frequently agree on purchase price adjustments to track changes in the target company’s valuation in the period between a given commencement date (such as the signing date or last accounts date as of the end of the year immediately prior to the signing date) and an end-date (such as the closing date, immediately prior to the closing date or the post-closing date).These mechanisms are prone to disputes because of the complexity of agreeing on the definition of the relevant balance sheet positions and performance characteristics, and agreeing on the standards and methods applicable for valuation and later adjustments.

After the closing of the transaction, if the sellers remain in the target with majority or minority shareholdings, an SHA kicks in and the target company is, usually, under joint control of at least two shareholders, that can be natural persons or corporate entities, or a combination of natural and legal persons. Wherever there is split control, disputes are likely; however, not all disputes are amicably resolved between shareholders, and arbitration becomes a necessity. Arbitrated disputes occur because parties cannot agree if a share sale or purchase option right is valid, if it is exercised rightfully, in whose favour certain elements in the option right are to be interpreted, or on the structure and management of the target company.

Fraud and failure to disclose

In general, the seller is expected to disclose everything it knows to the buyer. UnderTurkish law, the seller cannot evade liability (unless the liability is contractually limited to the extent allowed by law) based on the argument that it was unaware of certain information, or does not possess certain documents with respect to the target company, as its shares are at stake.5 The only party who possesses such detailed information is the seller. In this context, it is necessary for the seller to know everything about the target company that is crucial to the deal and to disclose it to the buyer.To avoid the omission of crucial information and a blind sale, buyers conduct extensive due diligence. In the due diligence process, a professional team examines all of the target company’s documents for anything missing from the target company’s history and prepares a report wherein it inspects the target company’s existing condition. Moreover, in the context of Turkish M&A, parties tend to attach either a list of due diligence documents, the documents themselves, or a CD containing the documents uploaded to virtual data room to indicate which documents were submitted for the buyers’ review.This aims to limit the sellers’ liability that may arise out of the documents or events disclosed to the buyer during the due diligence process. However, depending on the negotiations and the parties’ bargaining powers, buyers can request to hold the sellers liable even if the buyer conducted proper due diligence and can include this provision in the transaction documents.Alternatively, though rarely, sellers can limit their liabilities irrespective of the due diligence exercise and disclosed information.

5 Code of Obligations Article 219:‘The seller is liable even if he has not been aware of the defects.’

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