Mergers and acquisitions are highly complex transactions that in the worst case can lead to disputes between the parties. There are many possibilities for discrepancies to arise: the determination of the price, the breach of representations and warranties, the coverage of risks by insurance…
Business disputes can be resolved either in the ordinary courts, in arbitration proceedings or through mediation. In this article we will review the pros and cons of each of these possibilities.
Advantages of the arbitration procedure
The arbitration procedure is particularly advisable in these situations:
- In international transactions. Because arbitration can provide a neutral forum for the parties, it overcomes potential disputes over jurisdiction and facilitates enforcement of the award in different countries.
- When the parties wish to maintain confidentiality. Because the arbitration procedure allows for confidentiality to be agreed. In this way it is possible to avoid publicising the terms of the contract or the very existence of the dispute. In ordinary jurisdiction, on the other hand, awards are always public.
- In transactions of particular technical complexity. If the object of the transaction is a company in a particularly complex sector, such as pharmaceuticals or banking, arbitration allows specialists to resolve the dispute.
Ordinary jurisdiction in the resolution of disputes over the sale and purchase of companies
In M&A litigation, going to the ordinary courts has two clear advantages:
- It is less costly in terms of time and money. The main disadvantage of arbitration is its high costs. For this reason, in relatively small transactions and where the contingencies are not expected to be high, it is more advisable to resort to ordinary jurisdiction.
- It allows for a second instance appeal. In ordinary courts, it is possible to lodge an appeal to a second instance. On the other hand, this possibility is very rare in arbitration, although it is provided for in some arbitration rules. In any case, it should be borne in mind that first instance awards usually have to be provisionally enforced. This means that, irrespective of whether an appeal can be lodged against it, the affected party must make the relevant disbursements at the time the award is rendered. Later, if the first instance judgment is overturned at second instance, the party who received the money will have to pay it back. But this does not eliminate the risk incurred by the party who had to make the payment in the first instance.
Mediation: a solution beyond litigation
The third way to resolve disputes arising from M&A transactions is the mediation process, which stands out for its efficiency and agility. These are its strengths:
- It is the least costly option both in terms of time and money.
- Maintains confidentiality.
- The result is an agreement that is binding on the parties and enforceable in court.
To all these advantages we may soon have to add one more. Because the Draft Law on Procedural Efficiency Measures for the Public Service of Justice envisages making it compulsory to resort to an appropriate means of conflict resolution before resorting to judicial proceedings in civil and commercial matters. If the rule is finally approved in these terms, going to mediation will serve as a prerequisite before being able to file the corresponding legal action.
The most important thing in an M&A operation is not to have to resort to any of these dispute resolution channels between the parties. To avoid this, and to have the best legal advice in the event of going to a process of ordinary jurisdiction, arbitration or mediation, it is best to have a team of experts in mergers and acquisitions such as the one at Confianz.