Section 2: Challenges to implement ADR in Cross-Border
Mergers as it concerns Arbitration
Given that arbitration is firmly established in international
business, when merging companies and their lawyers refer to Arbitration in
their merger contract by including an Arbitration clause, there are issues that
should be addressed at the drafting stage. A well-drafted Arbitration clause
can alleviate problems relating to the tailoring of the process to the
transaction (pargl) while a poorly drafted Arbitration clause may intensify
problems relating to the type of arbitration and the arbitrability of merger
disputes (parg2).
Parg 1: the skilful-drafted Arbitration clause
In this paragraph we will discuss issues to consider when
drafting the arbitration clause (A) and issues to avoid while drafting the
arbitration clause (B)
A: issues to consider when drafting the Arbitration
clause
Arbitration can be an effective tool for managing potential
disputes that are part of the strategic international business contracts. The
inclusion of this problem solving clause is advisable. A well-written
Arbitration clause in the merger contract that anticipate future legal disputes
requires to take into consideration not only issues relating to skillfulness of
drafters , in choosing the best arbitration clause forms, but also issues
regarded as essential to perform the arbitration clause effect if used.
First drafting an Arbitration agreement requires not only a fair
amount of skill from lawyers but also sophisticated understanding of the
business client,s interests and up-to-date knowledge of this
evolving area of expertise. The contract drafting stage is the right time and
in most cases the only time for transactional lawyers to design the dispute
resolution process in a way that can reduce or eliminate perceived
disadvantages of the process. Experienced lawyers should review a variety of
agreements - those that have been successful and those that have either failed
to get the job done- and then help the client tailor an agreement precisely to
its needs. Drafting the Arbitration clause should be something of a team effort
and include effort from everyone involved, especially from those
who,ve been experts in mergers disputes and understand the dynamics.
While lawyers can provide general guidelines, they cannot provide all the
specifics - and it,s the specifics that will determine how well the
agreement achieves parties' objectives.
The Arbitration clause can be drafted in different ways: short,
standardized or tailor-made for the involved transaction. What would be the
best way to draft an arbitration clause? In this regards, Fouchard has stated
-using the words of Eisemann- that it is easy to draft a "pathologic
arbitration clause" 202, because of clumsiness affecting the
drafting203. The basic rule of drafting Arbitration clauses is to
begin with a standard or model clause. By using the standard clause as starting
point, parties can ensure that their clauses will contain the minimum elements
necessary to render their Arbitration clause effective. These clauses are
readily available from each arbitral institution.
202 Eisemann, F., « la clause d'arbitrage
pathologiques », Arbitrage commercial, Essais in memoriam Eugenio Minoli,
Turin, 1974, p129
203« ...une mauvaise clause compromissoire, c'est
une clause qui ne se suffit pas à elle-même.. » Fouchard,
Ph., « La Rédaction des Conventions d'Arbitrage », in
Colloques, Les entreprises tunisiennes et l'arbitrage commercial international
», du 2 au 4 novembre 1981 à Tunis, CERP, Imprimerie officielle,
Tunis 1983
In merger context, the American Arbitration Association has
provided a standard clause to be included in merger agreement regarding
arbitration: "Any dispute, claim or controversy between
PPPPPPPP [Survivor Corporation] and
PPPPPPPP[Absorbed Corporation] arising out of or relating to the
merger in any manner shall be settled by binding arbitration before a three
person arbitration panel... ,,204.
It is important to consider essential issues relating to the
subject matter dispute of each parties participating in the transaction when
referring to Arbitration in the merger agreement, the appointment of
arbitrators, the place of the Arbitration, the procedures to be followed and
the final definitive character of the Arbitral sentence or "Award" while
drafting the Arbitration clause. First , whatever the legal system that will
govern the merger contract, when parties agreed to refer to an Arbitration
clause, drafters should apply the same reasoned and thoughtful approach as the
careful business attorney negotiating a contract. If the goal is to ensure that
the Arbitration clause governs all disputes arising between the contracting
parties, merging companies have to state that clearly in the contract. If the
merger Agreement indicates that all disputes will be decided by Arbitration,
including the validity of the Arbitration provision itself, it will provide
maximum authority for the arbitrator to decide all the issues of the case,
thereby saving the parties at the court to fight over legal issues. According
to new Italian company Law, creating special set of rules including Arbitration
procedures for
settling company law procedures, arbitrators have reinforced
powers that are denied to them under ordinary rules of
Arbitration205. Second parties must clearly specified the chosen
structure of the arbitration clause if institutional or ad-hoc arbitration,
which will affect the appointment of arbitrator. If institutional rules are
used that provide for arbitrator's selection, no further reference to selection
is necessary. Parties can choose to employ either one arbitrator or a panel of
three arbitrators.
204 See appendices n° 6
205 Article 35 (1) of the Italian decree- Law n°
5/2003 . Op.cit note 1 page 77
Using one arbitrator is usually less expensive and more
expeditious, but a panel increases the likelihood of a fair, well-reasoned
award. Generally, a panel is used for complex disputes or those with a
significant amount of money in dispute. If the amount in controversy is
relatively small and the dispute will involve only a few straightforward
issues, usually one arbitrator can be used effectively. Since Arbitration is
often chosen to avoid the possibility of partiality in transnational litigation
in foreign courts, parties should consider whether to exclude certain
nationalities or agree on one. Often, parties choose to exclude arbitrators of
the same nationality to avoid any perceived or actual favoritism. Furthermore,
parties should consider whether the arbitrator should have special knowledge or
skills in the area(s) covered by the issues and/or the contract. A legal
background and experience can also be desirable attributes since Arbitration is
a legal process. Thirdly, the location and the cost of Arbitration have also to
be specified in the drafting. Laws can vary from jurisdiction to jurisdiction,
so if it,s important that the arbitrator apply the substantive law
of a specific jurisdiction, parties have to state that clearly in the dispute
resolution clause.
Moreover, parties should consider the procedural rules and laws
of the arbitral forum. Parties should avoid jurisdictions that restrict party
autonomy in determining the procedural rules of the Arbitration or that have
mandatory procedural rules for Arbitration that would overrule the
parties, preferences. The procedural rules chosen generally provide
for a selection process. These offer the advantage of an institution having
dayto-day involvement in international Arbitration and an up-to-date list of
qualified persons available as international arbitrators.
Last but not least, parties must specify during the draft of the
arbitration clause that the award must be recognized and enforced
internationally. in the US, American Arbitration law requires that "a written
provision in any . . . contract evidencing a transaction involving commerce to
settle by Arbitration a controversy thereafter arising out of
such contract . . . shall be valid, irrevocable, and
enforceable." (Extract from US
Federal Arbitration Act).
Other elements should also be considered during the drafting
stage such as the applicable law to the dispute in substance and the choice of
language while drafting the arbitration clause. In civil law and Common law
countries, Arbitration law grants high levels of party and tribunal autonomy in
international Arbitration proceedings. It provides for party autonomy in
choosing the governing substantive law and in regards to the arbitral
proceedings. It is essential to the drafting of an Arbitration clause for
parties to specify the governing substantive law of any disputes arising from
the contract. Due to the notion of party autonomy (principle
recognized by Tunisian Arbitration Law, article 75), express
choice of law clauses are
almost universally accepted by arbitrators and courts. However,
in the absence of an express choice of law clause, the arbitrator has several
options. The arbitrator can apply the substantive law of the forum if the
Arbitration clause specifies an arbitral forum, or the Arbitrator can apply the
substantive law based on general principles of conflicts of law of the arbitral
forum. If the proceedings are being administered under the UNCITRAL Rules or
the rules of an arbitral institution, these rules can guide the arbitrator in
choosing the applicable substantive law. Parties could also agree to have the
arbitrator act as an amiable compositeur, meaning the arbitrator may depart
from the strict application of the rules of law, but must do so according to
equity and good conscience (called a decision ex aequo ET bono).
Clearly, parties can save time and expense and avoid the
difficulty of conflicts of law problem by choosing the governing substantive
law in advance.
Regarding the language, choosing a language may not seem
important. However, language differences can cause problems in selecting an
arbitrator, in electing counsel, in communication between the parties and/or
the arbitrator, or by causing considerable translation costs. Therefore, if the
parties speak differing languages, the Arbitration provision should specify the
language of the proceedings. Even if the parties share a common language, it
would still be advisable to include a language clause since the forum could be
in a country with a differing language. Such a clause also helps to ensure the
selection of a capable arbitrator. If the parties do not select a language,
arbitral institution rules usually provide for the application of a
language206.
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