Mergers and acquisitions are complex processes, with many conflicting interests. And when something goes wrong, resolving it quickly and effectively must be a priority. Which option should you choose: arbitration, court or mediation?
When is it advisable to resolve a conflict through arbitration?
Arbitration is a very useful option when the parties come from different countries, do not trust each other’s judicial systems or simply want to keep the dispute private. It works well because it allows you to choose arbitrators with experience in the subject matter. For example, if the transaction involves a pharmaceutical company, specialists in the sector can be involved, something that rarely happens in court.
Another advantage is that the process is usually faster than a traditional trial. In addition, the arbitral award (the arbitrator’s «judgment») can be easily enforced in other countries, thanks to international treaties such as the New York Convention. And best of all for many companies: the process can be kept completely confidential, with no one knowing about the dispute or the terms of the agreement.
However, it is not cheap. Arbitration involves paying the arbitrators, the centre that organises it and, of course, the lawyers. Therefore, although it is useful in large or highly technical transactions, it may not be worthwhile in smaller acquisitions.
When is it better to go to court?
Resolving an M&A dispute in court is still a valid option. It is usually cheaper than arbitration and, if you disagree with the judge’s decision, you can appeal. That right to a second hearing does not always exist in arbitration.
However, there is one detail to be aware of: first instance judgments can be enforced even if they are appealed. In other words, you may end up paying a significant amount before the case is fully resolved. If the higher court subsequently rules in your favour, you will get your money back… but in the meantime, the damage may already have been done.
Therefore, although the courts offer certain guarantees, they also involve longer timeframes and less control over what happens during the process. If the priority is to settle quickly and without surprises, this may not be the best option.
How mediation helps avoid a trial
Mediation is an increasingly popular way of resolving M&A disputes. Why? Because it allows the parties to sit down with a neutral third party, discuss the problem and seek a solution without going to court. It is faster, cheaper and less aggressive than any other route.
Another key point: everything discussed in mediation remains between the parties. If an agreement is reached, it is legally binding and can be enforced in court if someone does not respect it.
Furthermore, it could soon become a mandatory step. In Spain, a law is being passed that would require parties to attempt to resolve conflicts through means such as mediation before filing a lawsuit in civil or commercial matters. So, in addition to being useful, it could be a necessary preliminary step before going to court.
Of course, mediation only works if both parties are willing to talk. If one party is unwilling to cooperate, there is not much that can be done.
At Confianz, we have been helping companies to close their deals securely and resolve conflicts without turning them into wars for years. Because prevention is also part of a good strategy. If you are in the middle of a negotiation or foresee possible friction, let’s talk before it becomes a problem.