SETTLING M&A DISPUTES THROUGH ARBITRATION
CD: What are the most common types and causes of dispute arising from M&A deals?
Ogilvie: Most M&A disputes arise at the post-closing stage. These tend, typically, to involve alleged representation or warranty – including tax warranty – breaches under the governing SPA. Indemnity-based claims are also a recurring theme. Beyond this, disagreements concerning the payment of deferred consideration, such as under purchase price adjustment mechanisms or earn-out provisions, represent a major cause of dispute between M&A counterparties particularly as to the quantum of such consideration and, indeed, whether it has become payable. The satisfaction of conditions precedent and, where applicable, the triggering of put or call options, constitute another common cause of post-closing dispute. Though not quite as prevalent, claims surrounding non-performance and breaches of non-compete or non-solicitation clauses are not uncommon. Pre-closing, the most typical causes of dispute tend to occur at the due diligence stage – particularly as to the scope of the seller’s pre-contractual duties of disclosure. Disputes as to rights of pre-emption are also occurring at both the pre-closing and post-closing stages.
Schaefer: Disputes resulting from M&A transactions typically relate to alleged violations of contractual representations and warranties. In some cases, tort remedies are also relied upon. This is usually the case if fraud on the part of the seller is alleged. Some examples of claims typically raised by buyers include claims for a violation of a financial guarantee, a request for a purchase price adjustment, or an indemnification for third-party claims raised against the acquired target. On the contrary, a seller typically requests pay-out of parts of the purchase price parked in an escrow account or an earn-out. The scenarios are diverse. Nevertheless, in most cases it is fair to say that the buyer is the claimant as it effectively seeks to recoup parts of the consideration paid by bringing claims against the seller. If sellers are in the role of claimants, the disputes are about further pay-outs to them.
Oct-Dec 2014 issue
Peter Yuen & Associates
Herbert Smith Freehills LLP
King & Spalding
Skadden, Arps, Slate, Meagher & Flom LLP