ARBITRATION AND LITIGATION OF CORPORATE DISPUTES
As corporate transactions have become more sophisticated and international arbitration has become more widely perceived as a time and cost-efficient alternative to court litigation, the types and number of corporate transactions which contain one form or another of an arbitration clause have increased exponentially.
However, despite the apparent advantages of arbitration, certain circumstances and conditions will make court litigation preferable or unavoidable.
For instance, there may be situations where the target of the transaction did not or cannot agree to arbitration, be it because the transaction did not include all shareholders, or because the laws applicable to that organisation do not favour arbitration of disputes arising under its formative documents. In these cases, while there may still be advantages to submitting to arbitration disputes among a limited group of shareholders or among all shareholders but not involving the target entity, any binding on that target entity will, in principle, need to be decided in court, which may lead to an unwanted duplication of efforts, cost and time.
The same will happen where the remedies sought cannot be awarded by an arbitration tribunal, as will often be the case where the claims made call for the dissolution of an entity, or its reorganisation or liquidation, except in the very limited scenario where all creditors and equity holders in that entity, and the entity itself, are parties to the arbitration agreement. In certain jurisdictions, the initiation of reorganisation or bankruptcy proceedings affecting either a claimant or respondent party to an arbitration can have a significant impact on the ability to continue that arbitration, even if the reorganisation or bankruptcy itself is not directly sought in, or caused by, the arbitration dispute. Depending on the insolvency laws applicable to that party, this may lead to a change in the representation of the relevant party, which may need to include a trustee or receiver for the insolvent party, or even to the termination of the arbitral tribunal’s subject-matter competence to resolve the matter, which may be affected by the gravitational pull of the insolvency proceedings.
Apr-Jun 2025 issue
GST LLP