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Settlement of Post Closing Disputes: A Different Pace? Warsaw 13 May 2010

Settlement of Post Closing Disputes: A Different Pace? Warsaw 13 May 2010. Moderator: Dr. Karl J. T. Wach, Wach + Meckes LLP, Germany Speakers : Prof. Jesús Almoguera, Partner, Ashurst LLP, Comillas University Madrid, Spain Cyrus Benson, Gibson Dunn & Crutcher LLP, USA

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Settlement of Post Closing Disputes: A Different Pace? Warsaw 13 May 2010

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  1. Settlement of Post Closing Disputes: A Different Pace?Warsaw 13 May 2010 Moderator: Dr. Karl J. T. Wach, Wach + Meckes LLP, Germany Speakers: Prof. Jesús Almoguera, Partner, Ashurst LLP, Comillas University Madrid, Spain Cyrus Benson, Gibson Dunn & Crutcher LLP, USA Justin Michaelson, SJ Berwin LLP, UK Tomasz Wardynski, Wardynski & Partners, Poland Prof. Dr. Irene Welser, CHSH, Austria

  2. Basic Case SPA (2009): Target to be sold and transferred to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Transfer of Shares June 2009 100% 100% Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna Settlement of Post Closing Disputes: A Different Pace? 13 May 2010 2

  3. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Transfer of Shares June 2009 100% 100% Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 3

  4. Case One - Tomasz Wardyński SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Elsing (SchiedsVZ 2004, 88): „If parties agree on an arbitration clause in the SPA, this implies that the arbitration court shall have freedom of decision and not be bound by the decision in the liability proceedings.” Claim for Indemnification (Recourse) • Facts: • After hearing 20 witnesses and analyzing 12 binders of documents the liability panel convicts T to pay to P. • S had declined T’s invitation to support him against P. • In the recourse proceedings S argues that the decision of the liability panel was wrong on the basis of the facts presented to it. • S insists the recourse panel to repeat the full evidence procedure. 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 4

  5. Case Two - Jesús Almoguera SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) • Facts: • Target finds the high volume liability claim merited and wants to settle it to maintain the business relationship with Third Party, who is his preeminent customer. • Seller, being a competitor to Target, disagrees and claims to be allowed to take over the proceedings to defend the claim. SPA Clause (abbreviated): “If Purchaser becomes aware of any claim by a third party, Purchaser shall allow Seller to take over the conduct of all proceedings in connection with the third party claim, if Seller elects so.” 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 5

  6. Case Three - Cyrus Benson SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Facts: Target conducts the litigation under the supervision of Seller. Seller insists that a particular document should not be presented to the liability panel. Target loses the liability proceedings. Who should control the defense and why do we care? Without a regulation in the SPA, does Seller have any right to tell Target or Buyer what to do? Claim for Indemnification (Recourse) SPA Clause (abbreviated): “Purchaser agrees to fully cooperate with Seller in defense of any third party claim and not to acknowledge or settle the third party claim without Seller’s prior written consent that is not to be unreasonably withheld.” 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 6

  7. Case Four - Justin Michaelson SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) SPA Clause (abbreviated): “Seller shall indemnify and hold harmless the Purchaser from all liabilities, reasonable costs and expenses incurred by the Purchaser which arise out of a breach of any warranty, representation, covenant or indemnity of the Seller.” The SPA does not stipulate anything regarding the special circumstances of our case. Claim for Indemnification (Recourse) Facts: Target conducts the litigation and loses the liability proceedings. Buyer subrogates against Seller. Seller did not participate in the liability proceedings and now presents a new statement of defense. Can Seller plead these new defenses? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 7

  8. Case Five - Irene Welser SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) • Facts: • Seller did assist Buyer/ Target in the Liability Proceedings but was not able to present certain arguments • Seller suggested arguments which were disallowed by target or • Target deliberately or grossly negligently did not present arguments • Seller only learnt about this after the liability proceedings Claim for Indemnification (Recourse) SPA Clause (abbreviated): “(…) to the extent information is available to Buyer and not to the Seller, Buyer shall notify Seller to give Seller the opportunity to fully inform Purchaser about the claim.” 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 8

  9. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) ? Should S beboundby an awardrendered in theliabilityproceedings? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 9

  10. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) ? But what, if the decision of the liability panel is wrong? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 10

  11. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) ? What defences could Seller bring against the binding effect of the liability decision? How can Buyer counter those? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 11

  12. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) ? How should the recourse panel deal with this ping pong of arguments? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 12

  13. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) Given this complex structure and its resolution through the principle of co-causation, should the SPA try to provide a detailed procedure on third party claims? ? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 13

  14. Basic Case SPA (2009): Target to be sold and transfered to B Closing: June 2009 Indemnification: S indemnifies T from warranty claims out of pre-closing deliveries German Law/ ICC-Rules / Venue: Warsaw Seller (Madrid) Buyer (Moscow) Claim for Indemnification (Recourse) ? Who should draft the relevant clause and who should act in the actual dispute? 100% Transferred from S in June 2009 Complaint in Arbitration (LiabilityProceedings) Warranty Claim (Liability) Target (Vienna) Third Party (Munich) Contract: T to deliver Car Parts in 10/2008 Warranty for certain quality specifications Austrian Law / Vienna-Rules / Venue: Vienna 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 14

  15. Conclusion • In a third party situation the successful third party claim constitutes the damage Buyer wants to be protected from • The facts giving rise to the claim and the conduct of the liability proceedings form the two potential causes for the damage • While Seller is in principle bound by the decision in the liability proceedings he can raise defences in the recourse proceedings depending on his (possible) involvement in the liability proceedings • The principle of co-causation delivers parameters under which the recourse panel has to allocate the damage • Third party claims clauses should base on this principle which can also be used for interpretation and filling of gaps • (Only) When properly drafted these clauses provide a useful structure for a successful joint defeat of the third party claim 13 May 2010 Settlement of Post Closing Disputes: A Different Pace? 15

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