Dispute resolution methods in M&A

In acquisition agreements there is one important provision that fails to draw the attention that it deserves, namely, the provision on the dispute resolution method. According to the author’s experience, in many commercial acquisitions in which disputes arose, the choice of an arbitration institution or a court as the means of dispute resolution was originally made based on a feeling rather than reason. However, whether an effective award rendered by an arbitration institution, or an effective judgment rendered by a court, its realization requires enforcement by a court if the party bearing the obligation of implementing the same fails to do so at its own initiative. This article summarizes the major differences in the course of enforcement.

EXTRATERRITORIAL ENFORCEMENT

With respect to arbitration awards rendered by arbitration institutions, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) was formulated internationally in 1958, with the UK, US, Japan, France, Germany, etc., all being contracting states. China approved accession in 1987. The New York Convention expressly specifies that, “When signing, ratifying or acceding to this convention, or notifying extension under article X hereof, any state may on the basis of reciprocity declare that it will apply the convention to the recognition and enforcement of awards made only in the territory of another contracting state.” That is to say that, as long as the parties select arbitration for the resolution of disputes, an application may be filed in a contracting state for the recognition and enforcement of an effective award rendered by an arbitration institution of the other contracting state.

As for judgments rendered by the courts of different countries, although the Convention on the Recognition and Enforcement of Foreign Judgements in Civil and Commercial Matters was adopted at the Hague Conference on Private International Law in February 1971, to date only a small number of countries have acceded, and China is not a member. The actual effect that it has had is minimal. Currently, the majority of treaties that govern the recognition and enforcement of foreign judgments internationally are bilateral treaties.

Moon Yan is a partner at East & Concord Partners