Arbitration

2022 - 12 - 29

Post cover
Image courtesy of "JD Supra"

3 Key Takeaways | Successful Arbitration of International ... (JD Supra)

Partner Randy Hafer presented on the topic of “Successful Arbitration of International Construction Disputes” at the 2022 Risk Management in Underground ...

Third-Party Funding in International Arbitration (GAR)

The significance of third-party funding (TPF) (also referred to as litigation funding, third-party financing or legal finance) in international arbitration ...

The claimants had disclosed the existence of TPF and the tribunal had (unusually) ordered the production of the funding agreement to protect the integrity of the proceedings. Irrespective of the evolution of this discourse, TPF seems destined in practice to remain a salient – and increasingly prominent and important – feature of the international arbitration landscape (including M&A arbitration). Saint Lucia, in which a combination of three factors led to the then unprecedented decision to order security for costs: (1) RSM’s history of non-compliance with costs orders; (2) RSM’s admission of having limited financial resources; and (3) the admission of funding by an unknown funder. [[128]](#footnote-030) The tribunal rejected the first request but granted the second regarding the identity of the funder and the nature of the funding arrangement agreed with it. In this respect, the most noteworthy example is the 2011 Code of Conduct for Litigation Funders, adopted by the Association of Litigation Funders of England and Wales (ALF), updated in 2018. At another level of ‘regulation’ – to the extent adopted by parties and arbitral tribunals – are the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration. [[91]](#footnote-067) Finally, TPF is addressed in the Hague Rules on Business and Human Rights Arbitration [[92]](#footnote-066) and in the ICSID Arbitration Rules 2022. [[70]](#footnote-088) In general, TPF is considered not to be prohibited, a view supported by a 2006 decision of the Court of Appeal of Versailles. [[48]](#footnote-110) Also relevant for the purposes of international arbitration is the Crystallex case (a case under the Companies’ Creditors Arrangement Act parallel to the Crystallex v. [[54]](#footnote-104) Requirements are also imposed on counsel, which must disclose the existence of TPF, as well as the identity and address of the funder, to the tribunal and other parties to the proceedings at their inception (or as soon as possible thereafter). After recovering the investment sum, a funder’s returns are often calculated as a function of the invested amount (typically the invested amount multiplied by a figure) or as a function of the recovered amounts (typically a percentage of the recovered amounts). However, in a narrower sense, TPF can denote ‘non-recourse’ legal finance provided by a commercial funder under the terms of a funding agreement, typically to a claimant (or sometimes defendant) in return for a share of the amounts recovered in the proceeding.

Special Issues in Connection with Warranty and Indemnity Insurance (GAR)

There have been only a handful of reported M&A disputes involving insurers, but it is nevertheless clear that warranty and indemnity (W&I) insurance will also ...

[[20]](#footnote-016-backlink) In Ageas, the claim under the insurance policy was essentially a pass-through of the warranty claim under the SPA subject to deduction of the minimum. [[19]](#footnote-017-backlink) In UDP Holdings, the buyer first had to bring arbitration proceedings against the seller, in part in defence of a claim for payment of the balance of the purchase price and for certain breaches of the sale and purchase agreement (SPA). 2) (UDP Holdings) (2019) VSC 645 (W&I insurance obtained for the buyer’s benefit at the seller’s cost and the seller relieved of liability for claims covered by the W&I insurance). However, if the parties wish to provide for the possibility of the insurers participating in the arbitration itself, it is highly advisable to include consolidation provisions in the arbitration clauses of both the SPA and the W&I policy. As regards the arbitration clause in the SPA, if the insurers wish to have a right to conduct consolidated arbitration proceedings, this should be clearly provided in the clause. This argument can be based on economics, as each layer of insurance is priced in light of all the relevant risks, including the risk that the insurer will need to defend a claim in arbitration. Another option for parties to consider is a mechanism to permit decision-making with respect to the arbitral process at the time of the dispute, which could be modelled on the role of the agent of a financing syndicate in a loan facility. Where the buyer is the insured, its insurance will depend on the scope of the warranties and indemnities that it obtains, and it will be in its interests to seek to maximise recoveries. In addition, disputes sometimes arise as to whether the expert accounting determination is properly viewed as final or final subject to manifest error and the effect of that determination on any subsequent arbitration (see Chapter 3). In many SPAs, there is provision for a post-closing or completion purchase price adjustment with, in some instances, an expert accounting determination of the amount of the adjustment to be made (see Chapters 5 and 6). [[7]](#footnote-029) under the W&I policy (instead of against the seller under the sale and purchase agreement (SPA)). Whatever the figures, the numbers and the effects of W&I insurance on arbitration practice will increase in the coming years.

Italy (GAR)

with regard to caseload, there are no statistics specifically concerning M&A disputes and we have to base our analysis on more general data concerning corporate ...

[[17]](#footnote-023-backlink) Moreover, it is possible that the error has been induced by the wilful misconduct of the counterparty and the erring party is required to prove that the error has been essential to conclude the contract. [[12]](#footnote-028-backlink) In other words, there is a mismatch between (1) the form (the legal point of view), for which the object of the sale is represented by the shares, and (2) the substance, considering that the buyer’s real intention – through the purchase of the shares – is to purchase the assets and the company. [[30]](#footnote-010-backlink) It is usual for the parties to an M&A deal to calculate the price of the target by making reference to a specific multiple that changes depending on the specific industry; this multiple may be explicit in the agreement or, more often, may remain implicit. In past decades, the decisions released by the Supreme Court on this subject have had huge importance, first because of their always enlightening contribution and second owing to the fact that the Supreme Court has not had so many chances to be involved on these topics (because of the overwhelming prevalence of arbitration clauses). But recent volatility and a sharp bounceback in M&A activity has sharpened focus on due diligence and insurance.’ [[4]](#footnote-036-backlink) KPMG report on the Italian M&A market, 2021, [https://assets.kpmg/content/dam/kpmg/it/pdf/2022/05/KPMG_Rapporto_MA2021.pdf?__hsfp=1796390272&__hssc=160160738.2.1670242389858&__hstc=160160738.aad3e98367eaafd1654459659302c034.1670242389857.1670242389857.1670242389857.1](https://assets.kpmg/content/dam/kpmg/it/pdf/2022/05/KPMG_Rapporto_MA2021.pdf?__hsfp=1796390272&__hssc=160160738.2.1670242389858&__hstc=160160738.aad3e98367eaafd1654459659302c034.1670242389857.1670242389857.1670242389857.1) (last accessed 5 December 2022). The evident rationale of this provision lies in the need to safeguard the third party in case it was not party to the agreement including the arbitration clause. It is commonly held that the rules set forth by the Italian Civil Code concerning, in general, sale and purchase agreements and the guarantees available to buyers for the defects of the goods sold, We have already seen that in Italy the object of an M&A deal and the nature of the W&Is has widely engaged scholars, arbitral tribunals and – to a certain, limited extent – Italian courts. [[12]](#footnote-028) This means that if after closing it emerges that the company or its assets do not have the qualities and characteristics that induced the buyer to negotiate and conclude the deal, the ordinary, legal guarantees provided by Italian law in connection with sale and purchase agreements are not available to the buyer. This process may be altered by certain circumstances – some of which may be brought about by the deceptive conduct of the seller, including fraud and failure to disclose – that may, in principle, entitle the buyer to set aside the agreement. In contrast, in a court case, an Italian judge appoints an expert by choosing one of the professionals in a specific list available at each court; this could result in the appointment of professionals who do not have the necessary level of M&A expertise and knowledge of the underlying technical issues. These very specific characteristics, combined with certain complex and special substantive issues typical of the Italian legal system (which are dealt with below), require that when a dispute arises it has to be carefully scrutinised by a specialist counsel.

Explore the last week