Материал: Amy C Kläsener
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Joinder and Consolidation in M&A Arbitration
instead of one arbitration.30 Whether it is possible to join additional parties also depends on the applicable arbitration rules. If, for example, a purchaser brought a claim only against one of multiple sellers, the seller could join the others as an additional party to pursue its claims against the other sellers in one arbitration.The details would very much depend on the arbitration rules selected by the parties. Under the ICC Rules, it would, for example, be insufficient if the seller, who was named as the respondent, raises hypothetical claims against the other sellers should the purchaser prevail.
Transactions including more than one SPA
Especially complex M&A transactions can also entail multiple SPAs because, for example, a purchaser wishes to acquire from one or more sellers more than one target, potentially with the targets being located in different jurisdictions. It goes without saying that multiple SPAs should not contain different dispute resolution mechanisms to avoid different forums. It may even be worth considering a joint, overarching multilateral arbitration agreement covering all SPAs to ensure that disputes are decided efficiently. Since not all disputes will arise at the same time, the multilateral arbitration agreement should provide for the combination of different claims and counterclaims in one proceeding and solutions for the joinder of parties that are not named respondents in the arbitration that is initiated first.
Choice of the most suitable arbitration clause
In both scenarios, it may be helpful to add specific provisions on joinder and consolidation that reflect the specific circumstances of the transaction. It is, however, even more important that the parties make a deliberate decision with respect to the details of the arbitration clause when negotiating the SPA. In multiparty and multi-contract situations, the parties are well advised to conduct negotiations with a view to the content of the arbitration rules. They should assess what provisions the arbitration rules offer regarding multiparty and multi-contract situations, joinder and consolidation of cases. As described above, while all leading arbitration institutions deal with the composition of the arbitral tribunal in multiparty cases, they vary with respect to the other topics.This requires the parties to shift their assessment of the applicable arbitration rules. Frequently, the parties focus very much on the national background of an arbitration institution and perceive it as a loss in the negotiation when the arbitration institution chosen reportedly favours the jurisdiction of the other party. Also, the parties typically consider the cost structure of the arbitration institutions. While these are important factors, the parties need to look deeper into how the arbitration rules address situations of particular relevance to the individual transaction. In the long run it may be much better for a party to agree to the rules of an arbitration institution that it originally would not have chosen because of the solutions offered with respect to multiparty and multi-contract situations.
30 For example, pursuant to Article 10 of the ICC Rules.
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Joinder and Consolidation in M&A Arbitration
Multiparty and multi-contract contexts arising out of the SPA
In M&A transactions, the substance of the SPA typically creates situations where the purchaser has claims against the seller for the breach of obligations under the SPA on the grounds that a third party has brought claims against the target company.While the background of such claims can be manifold, these types of cases often relate to the guarantees, representations and warranties given under the SPA. All these situations involve two disputes that may not be resolved amicably but are brought before courts or arbitral tribunals, namely one between the target and a third party, and one between the purchaser and the seller (and potentially other guarantors) under the SPA.
Typical SPA provisions on third-party claims
In the situations described above two, or sometimes more disputes must be conducted in parallel with, or shortly after, each other.With respect to disputes between the target and the third party, there can be many different variations, with the dispute being subject to either arbitration or court litigation. In contrast, the SPA will typically provide for arbitration.As described above, all affected entities could enter into a new, multilateral arbitration agreement or amend an existing agreement even after a dispute has arisen.Theoretically, it would be possible to conclude a multilateral agreement combining the two disputes before one arbitral tribunal.31 In practice, this often will not be feasible because of conflicting interests.32 The purchaser in particular has an interest in aligning the cases since it wants to avoid a situation where the newly acquired target is held liable without having the possibility to hold itself harmless in proceedings against the seller.The target and the seller are not concerned so much on alignment of the cases.The target will primarily be concerned about its day-to-day business operations rather than whether the purchaser can pursue subsequent indemnification claims against the seller.The seller will mainly be interested in avoiding liability under the SPA and therefore would not mind parallel proceedings that presumably give it more flexibility in its lines of argument.33
While SPAs usually contain provisions on third-party claims, they often do not state if and how a dispute between the third party and the target shall be aligned with any subsequent dispute between the purchaser and the seller. Most clauses on third-party claims oblige the purchaser to inform the seller when a third party is pursuing claims against the target. Subsequently, the purchaser has to continuously update the seller about the course of the proceedings and provide relevant information. As the case may be, the seller or the purchaser may have the right or the duty to defend the third-party claim. In this regard there is no single best practice but a number of variations.The SPAs typically also
31Dorda, M&A und alternative Streitbeilegung, Der Gesellschafter 2012, 5, 7.
32Drude, Post-M&A Arbitration and Joinder: Process and Drafting Considerations for M&A Transactions, SchiedsVZ 2017, 224, 227.
33Welser,‘The Arbitration Agreement and Arbitrability – M&A Post Closing Issues:Arbitration and Third Party Joinder’, AustrianYearbook on International Arbitration, 2011, 3, 5.
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Joinder and Consolidation in M&A Arbitration
contain provisions as to which side should bear the costs of proceedings. Further, typical SPA clauses set forth whether failures to comply with any of the obligations in relation to third-party claims exclude the liability of the seller towards the purchaser.34
In some cases, there are additional provisions as to whether and under which circumstances the seller is bound by the outcome of the case between the target and the third party.35 Such clauses are often modelled on civil law instruments in civil litigation proceedings on the involvement of third parties in such litigation.They provide for a binding effect on the seller, to the extent that the seller actually participated in the defence of the case against the third party or chose not to participate after having been given full opportunity to do so.36
Alignment of an arbitration with other proceedings
The purchaser, in particular, has an interest in ensuring that the two proceedings are aligned and potential claims against the seller are not jeopardised.The measures that can be taken primarily depend on whether the proceedings are both arbitrations or whether one is a court litigation.
If the initial case between the target and the third party is brought before the courts, the applicable civil procedure rules govern whether the purchaser, the seller or guarantors can be involved.37 Even if the rules contain a mechanism that can bind the third party to the decision, the subsequent arbitration between the purchaser and the seller creates uncertainty.38 The arbitral tribunal would apply the rules chosen by the parties without being per se bound by the decision of a court. In practice, it appears likely that the arbitral tribunal would not reach a conclusion that contradicts the decision rendered by the court. This result would, however, not be based on any clear provision governing the relationship
34While there are multiple variations, typical third-party provisions, for instance, provide whether failures on the side of the purchaser to promptly inform the seller about the filing of a third-party claim relieve the seller from subsequent liability.
35Drude, Post-M&A Arbitration and Joinder, SchiedsVZ 2017, 224, 227 et seq., listing two examples of SPA provisions on third-party claims, one of which contains the provision:‘It is understood and agreed that the Seller shall be excluded with the argument that the third-party claim was not justified, if (i) the Seller
elects to defend and is actually afforded the opportunity to defend the third-party claim in accordance with the foregoing or (ii) the relevant Group Company conducts the defence of the claim pursuant to Seller’s instructions and directions.’
36See, for example, Section 66 et seq. German Code of Civil Procedure, or Section 17 et seq. of the Austrian Code of Civil Procedure.
37While, typically, civil law jurisdictions are known for having mechanism for third parties to join cases between existing parties, similar instruments are also available in common law jurisdictions. In the latter, however, the additional party often has the same procedural status as the original parties and not a status of someone which supports one of the existing parties in the pursuit or defence of claims.
38Gharibian/Pieper, Parteienmehrheit in Schiedsverfahren – Zulässigkeit,Vorteile der Konsolidierung und Herausforderungen bei Mehrparteienkonflikten, BB 2018, 387, 388.
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Joinder and Consolidation in M&A Arbitration
between the first and the second proceedings but on a general notion that a party would act contrary to good faith if it took a different position in the arbitration from its approach in the first proceedings.39
If the initial case between the target and the third party falls within the jurisdiction of an arbitral tribunal, the options depend on whether the underlying arbitration agreements provide for the same arbitration rules.As shown above, a joinder of a third party can only be achieved, for example, under Article 7 of the ICC Rules, if all parties are subject to an ICC arbitration clause and an existing party files a request for joinder.40 Even if there was an ICC arbitration agreement for both disputes, the existing party must bring a claim against the additional party. This will cause difficulty in M&A transactions. The purchaser must rely on the first decision being binding on the seller.The possibility of involving the target or the third party in the dispute with the seller does not help the purchaser. In particular, the purchaser will normally not be able to assert claims against the target as required under Article 7 of the ICC Rules. Assuming there are ICC arbitration agreements between the target and the third party on the one hand, and the purchaser and the seller on the other, the purchaser must seek to join the seller to the arbitration between the target and the third party.The purchaser could reach this goal only if it assigns its claims against the seller to the target and instructs the target to file a request for joinder to add the seller, provided, however, the SPA permits the assignment of rights. Even then, the claims raised by the target against the seller may not be purely hypothetical, as Article 7 of the ICC Rules requires actual claims.
Other arbitration rules may give the purchaser and seller more flexibility to get involved in the dispute between the target and the third party by filing a request for joinder themselves.41 The seller, however, will have no interest in joining the dispute. Moreover, the purchaser would initially have to file a request for joinder and, after being admitted as a party, join the seller. Even if there were ‘compatible’ arbitration agreements between the purchaser and the seller on the one hand and the target and the third party on the other, a joinder that immediately fulfils the needs of the purchaser is difficult to achieve.
When the dispute between the target and the third party is subject to the same arbitration rules as the one between the purchaser and the seller, consolidation of these disputes would still be very difficult to achieve, despite improved arbitration rules. As described above, under Article 10 of the ICC Rules, a consolidation of two arbitration proceedings requires the consent of all parties. In practice, such consent will be impossible to reach in light of the deviating interests of the purchaser and the seller, but also the target and the third party. Further, cases may be consolidated if the claims in the different arbitration proceedings are made under the same arbitration agreement.This is obviously not the case with the SPA, which is limited to the purchaser, the seller and potential further guarantors.
39Drude, Post-M&A Arbitration and Joinder: Process and Drafting Considerations for M&A Transactions, SchiedsVZ 2017, 224, 228 on the legal theory of venire contra factum proprium with respect to the situation where the seller decides not to support the defence of the third-party claim.
40Pursuant to Article 6 of the ICC Rules, the arbitration agreement with the additional party needs to establish the jurisdiction of an arbitral tribunal under the ICC Rules.
41See, for example:Article 7.1 of the SIAC Rules;Article 4.2 of the SCAI Rules;Article 14.1 of the VIAC Rules.
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Joinder and Consolidation in M&A Arbitration
Finally, consolidation is possible under the ICC Rules if claims are brought under more than one arbitration agreement, provided that the arbitrations are between the same parties, the disputes relate to the same legal relationship and the arbitration agreements are compatible.While there would be multiple arbitration agreements, different parties are involved in the proceedings and the legal relationship would presumably be different.
Therefore the purchaser would be well advised to consider the challenges of third-party claims when negotiating the SPA and take action before a dispute has arisen by adding provisions in the SPA’s dispute resolution clause.
Impacts on the negotiation of the SPA
The parties should be aware of the challenges of multiparty and multi-contract disputes from the beginning of the transaction, although it is of course difficult to provide for future disputes while dealmaking.
During the due diligence phase, the purchaser should analyse which dispute resolution clauses the target typically used in its previous contracts.42 Ideally, the target will have uniformly used the rules of a specific arbitration institution. Reality shows, however, that companies often do not make deliberate choices with respect to the dispute resolution mechanism and use a variety of different clauses.43 If, however, the purchaser observes that the target has frequently used the same arbitration institutions – perhaps only in its material agreements – it is certainly worth considering stipulating that institution’s rules in the SPA.44 Although difficult, doing this would give the purchaser a better foundation for joining third parties or consolidating cases.As soon as the arbitration agreement under the SPA and under the contract between the target and the third party are heading in the same direction, there may also be better chances to reach an agreement among all the various entities to consolidate cases after the dispute has arisen.When adjusting the arbitration clause under the SPA to the dispute resolution clauses entered into by the target, the parties should bear in mind that, for example, the ICC requires the arbitration agreements to be ‘compatible’ with respect to the key elements.The parties should therefore take care not to introduce unnecessary variations.
When drafting the SPA arbitration clause, the parties should consider adding provisions regarding the potential interaction with court proceedings. For instance, the parties could clarify that the arbitral tribunal having jurisdiction under the SPA shall take into account the decisions of courts on disputes between the target and third parties that are the basis for disputes between the purchaser and the seller for purported breaches of the SPA. Any existing joinder mechanism in the court proceedings under the applicable rules
42Drude, Post-M&A Arbitration and Joinder: Process and Drafting Considerations for M&A Transactions, SchiedsVZ 2017, 224, 235.
43Welser,‘The Arbitration Agreement and Arbitrability – M&A Post Closing Issues:Arbitration and Third Party Joinder’, AustrianYearbook on International Arbitration, 2011, 3, 14.
44Typically, the lex arbitri does not contain provisions with regard to the joinder and consolidation of cases, but the parties should double-check the applicable arbitration laws when deciding on the specific place of arbitration.This is also the case for jurisdictions that otherwise have third-party mechanisms in their codes of civil procedure, see, for example,Welser,‘The Arbitration Agreement and Arbitrability – M&A Post Closing Issues:Arbitration and Third Party Joinder’, AustrianYearbook on International Arbitration, 2011, 3, 10 et seq.
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