Lara Candoğan

Attorney

25.10.2022

Resolving The Disputes Arising From Merger And Acquisition Transactions By Arbitration

I.                ARBITRATION BRIEFLY
Nowadays, with the increase of trade, there has also been an increase in the number of human relations. With the increase in human relations, many commercial disputes have occurred. Thus, to resolve these disputes, arbitration proceedings have emerged.

Arbitration; in short, it is the resolution of disputes arising between the parties by arbitrators, rather than the state court. Just as the decisions made by state courts, decisions made by arbitrators are final. In addition, arbitration decisions are recognized and enforceable in our country and in many parts of the world through the New York Convention of June 10, 1958, to which 145 countries are parties. Today, arbitration is a fairly popular method of judgement. Arbitration is often resorted to, especially for the resolution of commercial disputes that have an element of foreignness. The reason arbitration is so preferred is due to the fact that it has many positive aspects compared to state courts, and these positive aspects will be mentioned in detail in the continuation of our article. In arbitration proceedings, the parties may freely determine the arbitrator or courts that will decide their cases, their number and qualifications, the arbitration agreement and its terms, the place of arbitration, the law applicable to the arbitration process and the arbitration agreement, the procedure and form of the trial, the evidence to be put up, and the language to be used in the trial. 
 
There are two methods of dispute resolution by arbitration, and one of them is chosen:
1-     The corporate arbitration method
2-     The ad hoc arbitration method
 
1-               CORPORATE ARBITRATION
In corporate arbitration, the arbitrators chosen by the parties conduct the proceedings. In order for the parties to apply to corporate arbitration, they must refer to the arbitration institution in the arbitration agreement that they will make. The arbitration board and its arbitrators use the rules which have already been determined and announced to resolve the relevant dispute. In this way, the parties are free to regulate the procedures and rules that will be used to resolve the dispute in advance, unlike ad hoc arbitration. This is an important issue in choosing corporate arbitration centers for dispute resolution. The most important corporate arbitration Centre that is becoming increasingly widespread in Turkey today is the Istanbul Arbitration Centre (ISTAC).
 
 
2-               AD HOC ARBITRATION
In ad hoc arbitration, the procedures and rules that will be used in arbitration proceedings are regulated by the parties. However, the parties can also use the arbitration rules prepared by the UN Commission on International Trade Law (UNCITRAL) if they wish. Corporate arbitration centers can sometimes cause delays and additional costs in arbitration proceedings. Because of such matters, ad hoc arbitration can be preferred by the parties. Currently, we can say that ad hoc arbitration is more common. Especially in commercial arbitration, which has a foreignness element, compared to corporate arbitration.
 
 
II.             WHY IS ARBITRATION PREFERRED?
We mentioned above that today, arbitration is a fairly popular method of judgement. However, it is often observed in practice that arbitration is preferred in dispute resolution in disputes arising from mergers and acquisitions. In this regard, being able to identify and examine the things that cause the parties to prefer arbitration over state courts in dispute resolution will be extremely important for us to fully understand arbitration. 
 
Down below are the elements that may be effective in choosing arbitration;
1-     Confidentiality
2-     Quick Solution
3-     Solving the Dispute by Utilizing Professionals 
4-     Being able to Determine the Trial Procedure
5-     Creating an Amicable and Business-Oriented Solution
6-     Cheapness
7-     Reliability
We will explain and examine these topics in detail down below.
 
 
1-               CONFIDENTIALITY
The parties do not want the shared issues in the merger and acquisition process to be disclosed to third parties. In this regard, it is very important which judicial method is chosen in disputes arising from mergers and acquisitions. Because the parties are concerned that their trade secrets, which may surface during the dispute resolution process, may be found out by their competitors or third parties.
 
Trials in state courts are held publicly, so third parties can easily obtain information. In arbitration proceedings, the aim is to not effect commercial business and relations by the judicial process and that trade secrets are protected. For this reason, arbitration proceedings are not open to the public, so the risk of non-public information being known is also eliminated. In this context, third parties will not even be aware that an arbitration has taken place between the parties of the relevant dispute. However, the information and documents related to the commercial activities submitted by the parties during the trial can not be used outside of the trial and the arbitrator's decisions can not be published (except in exceptional cases). 
 
Confidentiality in arbitration can be ensured by a confidentiality agreement that the parties make between themselves. The parties may or may not have determined the scope of the confidentiality principles in the arbitration agreement they have made. With the confidentiality agreement, the parties determine which information they will accept as confidential, which information they will keep secret, and the obligations they will have if such confidential information is disclosed to third parties. However, in cases where there is no confidentiality agreement, this process is not carried out in confidentiality just because arbitration was preferred. Because there is no such thing as absolute confidentiality in every trial conducted through arbitration. 
 
2-                QUICK SOLUTION
The parties would want the dispute to be resolved as soon as possible. In state courts, the dispute resolution process is prolonged because of their workload. This situation is detrimental to the parties. Disputes in arbitration are resolved in a much shorter time compared to state courts. For this reason, it is often observed in practice that the parties resort to arbitration in dispute resolution. However, there are also situations when arbitration cannot reach a faster solution than state courts, so before choosing a judicial path, it is necessary to determine the factors that contribute to a quick solution. 
 
There are provisions in the law that an arbitration proceeding may be concluded within a certain period of time. In the relevant dispute resolution case, issues such as whether the period can be extended if the trial does not end within the specified time and how long this period will be if it is extended should be determined. Time periods and the outcome should be compared with the average trial time in state courts. When making this comparison, what should be taken into account is "with which way of judgement will the dispute will be carried out quicker?" 
 
3-               SOLVING THE DISPUTE BY UTILIZING PROFESSIONALS 
Merger and acquisition transactions have a complex structure. Thus, a more accurate and high-quality decision arises if it is left to a person with knowledge of disputes arising from mergers and acquisitions. For this reason, the parties may prefer an arbitration method in merger and acquisition transactions. It is not possible to choose the judge who will conduct the trial in state courts, but the parties of the arbitration can choose an arbitrator who has the necessary information about their dispute. In particular, it is important that disputes arising from a conflict over the price that requires financial calculations and technical accounting information be resolved by arbitrators who have knowledge of these issues. 
 
4-               BEING ABLE TO DETERMINE THE TRIAL PROCEDURE 
As we mentioned earlier in this article, the parties may determine the rules of arbitration proceedings. This is especially important when it comes to international mergers and acquisitions. State courts can not conduct proceedings in any other language other than the language of the country they are located in or the languages established by law. In this regard, translation will be required since a foreign language will be used in state courts, which will result in a considerable loss of time and money. However, in arbitration proceedings, the parties are not obliged to have a trial in the language of the place of arbitration. In this regard, they can choose a language that can be more effective in resolving the dispute, and thus they can ensure that the dispute is resolved by judges who know the language of their choice. This situation is very appealing to the parties, which is one of the advantages that arbitration has compared to state courts.
 
 
 
5-               CREATING AN AMICABLE and BUSINESS-ORIENTED SOLUTION
The parties may prefer arbitration for the settlement of the dispute by amicable or commercial-oriented methods. In this way, the parties can cooperate and the dispute can be resolved in a way that is in the best interests of both parties. 
 
6-               CHEAPNESS 
It is controversial whether arbitration is cheaper than state courts. In this regard, there are elements that we need to consider such as the cost of the dispute, the price that will be paid to the arbitrator. In addition, even which of the ad hoc or corporate arbitration is chosen and applied will affect the cost of the expense. We have said that arbitration is a quick trial under normal circumstances. However, it is natural for the costs to increase when the trial is prolonged. 
 
In our opinion, it is wrong to evaluate only in terms of cheapness. The main issue we need to focus on here is determining which way of judgement will be more profitable in the relevant dispute. Because the value of disputes arising from merger and acquisition transactions is high, but despite this, arbitration allows the dispute to be resolved in a short time. Therefore, it seems that arbitration is much more profitable in disputes arising from merger and acquisition transactions. 
 
7-               RELIABILITY 
The reason why arbitration is a reliable jurisdiction, as said before, is that the parties can determine their own arbitrators. This leads to a fair and reliable judicial remedy.  
 
 
III.           ALTERNATIVE DISPUTE RESOLUTION METHODS
In mergers and acquisitions, arbitration or state courts are not the only dispute resolution methods. As we will explain below, there are alternative settlement methods, which can sometimes be much more advantageous than resorting to arbitration. That is why it is just as important to know these alternative dispute resolution methods as it is to know arbitration. 
 
Alternative resolution methods that can be used in mergers and acquisitions are;
1-     Negotiation
2-     Reconciliation
3-     Mediation
We will explain and examine these topics in detail down below.
 
1-               NEGOTIATION 
Negotiation is the most used, most well-known and least formal alternative dispute resolution method. It's purpose is to reach a joint decision on conflict resolution, directly conducted by the parties or their attorneys. In Negotiation, the parties of the dispute determine their own rules of procedure and resolve their own disputes together. In this regard, the most essential element of Negotiation is proper communication. The solution of the Negotiation is binding for the parties. 
 
2-               RECONCILIATION 
Reconciliation is an alternative dispute resolution method in which a dispute between the parties is resolved with the participation of an impartial third party. The main thing is that the parties resolve their disputes on their own, so the conciliator encourages the parties only to find their own solutions. The parties of the dispute can reconcile in state courts through the judge's decision as well. The settlement obtained as a result of the Reconciliation is not binding for the parties. 
 
3-               MEDIATION 
Mediation is an alternative dispute resolution method that is voluntarily chosen. Made with the participation of a neutral third person, where they only facilitate the communication and leave the final decision to the parties. In Mediation, as in Reconciliation, a mutual solution that will satisfy both sides of the dispute is tried to be reached. One of the most important features of Mediation is the absence of a strict set of rules. The mediator must be independent and impartial. 
 
THE ALTERNATIVE SOLUTION METHODS IN QUESTION IN GENERAL 
In practice, the parties often use mediation, reconciliation or negotiation methods before resorting to arbitration in order to resolve disputes arising from mergers and acquisitions. Due to the use of these alternative methods, the parties can resolve their disputes faster, more efficiently and at a lower cost, and also maintain business relations.  If the parties resolve their disputes by alternative methods, they will not need to apply for arbitration. 
 
There is no definite guarantee that the dispute will be resolved by these alternative methods. However, despite all the possibilities, we still recommend that these alternative settlement methods be tried before resorting to arbitration. Even if these methods end in failure in the proceedings in which the parties' partnerships will continue, the impact on the parties' relations will not be as devastating as in arbitration. 
 
In normal circumstances, the parties (even if they do not use mediation, reconciliation or negotiation methods) may refer to arbitration proceedings for dispute resolution if they have a valid arbitration agreement concluded between them. However, in a number of agreements, the exhaustion of mediation and reconciliation methods may be set as a prerequisite for applying to an arbitration court. In this regard, it is important to determine whether there are such prerequisites in the agreements of the parties in terms of determining whether they have the right to apply for arbitration. In contrast to all this, there are also authors who argue that it is mandatory to resort to mediation, reconciliation or negotiation methods before arbitration in the doctrine; this issue is controversial. 
 
 
IV.           THE REQUIREMENT FOR ARBITRATION
In order for the parties to resolve their disputes that arose or will arise from their legal relations through arbitration, they must either set an arbitration requirement in their prime contract or agree on applying for arbitration in a separate contract. Upon conclusion of this arbitration agreement by the parties, the parties agree not to go to state courts to resolve disputes that arose or will arise from their legal relations, but to refer them to arbitrators.
 
If it is preferred to resolve disputes arising from mergers and acquisitions through arbitration, it is important to determine whether the dispute is suitable for resolution through arbitration or not. 
 
V.              TAKING TEMPORARY PROTECTION MEASURES IN ARBITRATION
In merger and acquisition transactions, one of the parties may request that temporary protection measures be taken in order to ensure that its interests are not harmed by the actions of the other party, or in order for the given verdict to be applied. In this regard, the parties can request temporary protection measures from the arbitrator for purposes such as; protecting the assets from misconduct in pre-closing, preserving the important evidence in post-closing and forcing the party which did not fulfil a prerequisite for no reason to fulfill it. Arbitrators, on the other hand, may decide on temporary protection measures in the event of an agreement between the parties. This authority can be directly agreed on in the arbitration agreement, as well as by the law applied to arbitration. However, the arbitrators' authority to rule on temporary legal protection measures is more limited than the authority of judges in state courts. For this reason, the arbitrators should take the conditions of Turkish law into account when deciding on these measures. 
 
VI.           SPEEDY TRIALS IN ARBITRATION
In an arbitration agreement or a subsequent agreement, the parties may decide to make an arrangement for faster processing of transactions to be performed during the trial process in order for the arbitration proceedings to be concluded more quickly. Thus, certain time limits are set for the performance of procedural actions, and the rules of the proceedings are also determined accordingly. 
 
Delays in resolving disputes are not welcomed by the parties. When opting for a summary procedure, issues such as whether a quick arbitration decision should be taken, and whether it is appropriate to resolve the dispute by summary procedure should be taken into account. 
 
In general, the merger and acquisition process is divided into three periods: the pre-signature period, the post-signature/pre-closing period and the post-closing period. A speedy trial in disputes arising prior to the signing of the merger and acquisition agreement will also prevent missing opportunities. From the signing of the merger and acquisition agreement until the closing date, the purpose of using a summary procedure in resolving disputes arising between the parties is to ensure that the closure occurs as soon as possible. Disputes that may arise between the parties after the closing are mostly caused by the cost of the merger and acquisition process and the declared and undertaken issues during the merger and acquisition process. When a dispute arises out of declarations and undertakings, it is not preferable that the dispute be resolved in accordance with the summary procedures. If it is desired to resolve the disputes by arbitration, it should be determined in which of the time periods mentioned above has the dispute taken place and a path should be set accordingly. 
 
 
VII.         CONCLUSION
In this study, the advantages and disadvantages of arbitration and whether it is convenient to resolve disputes arising from mergers and acquisitions by arbitration or not were explained and evaluated. As a result of all the evaluations we have made above, we can say that arbitration is the most convenient method for resolving disputes arising from mergers and acquisitions. 

Since the resolution of disputes arising from mergers and acquisitions is a very comprehensive and difficult process, it is advantageous for the parties to use fast, fair and reliable ways such as arbitration to resolve disputes. Especially in cases involving large companies and large sums of money, it is important to resolve these disputes through arbitration for the reasons explained in this article. This article also sheds light on the types of arbitration and the details of arbitration practice.