In our previous post, we discussed the suitability of arbitration as means of resolving post-M&A disputes. Today, we will focus on arbitration clauses and the importance of drafting them carefully and knowledgeably.

Mockingly called the „champagne clauses” or „midnight clauses”, arbitration agreements are often inserted by M&A lawyers into commercial contracts at the very last minute before finalizing deals. Often they receive insufficient attention, which may translate into potential delays in the resolution of disputes and unnecessary costs. A well-drafted arbitration clause precisely describes the scope, arbitration rules to be applied, and the seat of the dispute.

The scope of an arbitration clause defines which legal relationships between parties fall into the jurisdiction of arbitration. It is usually flagged by the words “all disputes arising out of or in connection with this contract”. A clearly defined scope leaves no doubt as to whether a party with a given claim can initiate arbitration or litigation. It also dispels doubts as to the capacity of various actors to bring claims in front of an arbitral tribunal. In the context of post-M&A disputes, the scope usually entails claims that are somehow connected to a transaction, oftentimes relating to representations and warranties.

The availability of various arbitration rules may give a headache. In working out which rules are the best choice for potential disputes, it is crucial to consider the costs and efficiency of an institution in how it administers a case. The ICC Arbitration is one of the most expensive arbitration institutions, but also most commonly used for larger international disputes. Local arbitration courts in CEE may also be a good choice for regional disputes, which do not involve complicated legal issues or very international parties. SCC Arbitration Institute and Vienna International Arbitral Centre of the Austrian Federal Economic Chamber (VIAC) are good alternatives but do not offer award scrutiny as the ICC.

Keeping in mind that arbitration is a one-tier dispute settlement venue, it is important to weigh out the pros and cons of each solution. In our practice, we’ve seen all of the above rules being chosen for the resolution of post-M&A disputes.

The seat of arbitration determines i.a. the applicable procedural law, availability of interim measures, the courts that have supervisory jurisdiction over the arbitration, as well as the applicability of the New York Convention. The seat becomes especially important for challenges against the award. Therefore, it is critical to check in advance the grounds for potential annulment of the award and associated court fees, which sometimes may be prohibitive.

Reach out if you want to learn more about the topic and stay tuned for the upcoming blog posts!

By Karolina Czarnecka