Arbitration Clauses in Share Purchase Agreements

Arbitration Clauses in Share Purchase Agreements

Arbitration Clauses in Share Purchase Agreements

01.03.2012 BE law

Forum Selection vs. Arbitration Clauses

Next to the fundamental clauses regulating among others the sale and purchase of shares, the conditions precedent, the closing or the limitation of the seller’s liability, share purchase agreements usually contain a jurisdiction and choice of law clause in which the competent courts and the law applicable to the agreement are indicated. A basic version of such clause might read:  “This agreement is governed by the laws of Belgium and any dispute shall be finally resolved by the Belgian courts”.

An alternative to a jurisdiction clause is an arbitration clause, which might read as follows: “Any disputes arising out of or in relation with this Agreement shall be finally settled under the CEPANI Rules of Arbitration by one or more arbitrators appointed in accordance with those Rules” or “Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause”.


Arbitration in a nutshell

By opting for arbitration, parties to a share purchase agreement choose to use a private and confidential mechanism for the resolution of any future disputes which may arise out of the share purchase agreement. This procedure takes place outside the national courts, before one or more impartial and independent persons designated by the parties (a “sole arbitrator” or an “arbitral tribunal”).

Parties can choose whether they use ad hoc arbitration or institutional arbitration. While in the latter case parties agree to submit their dispute to an arbitration institution and adhere to the procedural rules of the arbitral institution, in the former case parties must determine by themselves how the arbitral proceedings are to be organised.

The main arbitration institution in Belgium is CEPANI ( On the European level, the arbitration institutions which are most frequently used are the International Chamber of Commerce (ICC - and the London Court of International Arbitration (LCIA- 

In both types of arbitration the parties are entitled to designate who are to be the arbitrator(s). Generally, when the parties opt for arbitration with a sole arbitrator, they jointly select the sole arbitrator. In the event the parties choose to have a three-member arbitral tribunal, each party appoints one arbitrator first, then those two arbitrators agree on a third, presiding arbitrator. When the parties opt for institutional arbitration, the arbitration institution may appoint the sole arbitrator or the presiding arbitrator, possibly following the parties’ suggestion. 

Generally, the decision (the “award”) of the sole arbitrator or arbitral tribunal is binding and final. However, as the parties have an influence on how the proceedings are conducted, they can agree on there being a possibility for either party to appeal against the award. In practice this possibility is hardly used. If the losing party shows real grief for the award, it may still try to have the award quashed by the national courts of the jurisdiction where the seat of the arbitral tribunal is located. The grounds for which an arbitral award may be quashed under Belgian law are limited and do not focus on the merits of the arbitral award. They may relate to the contrariety to public policy, the arbitrability of the dispute, the validity of the arbitration clause, theultra petita character of the award, and the disregard for mandatory formalities by the arbitrators in the proceedings or the award’s drafting. 

Although arbitral awards are final, they are not immediately enforceable. Generally though, the losing party executes the award voluntarily, but when it does not do so, the other party cannot enforce the award without having first obtained the previous exequatur of the award. This is obtained by submitting the award to a national court of the jurisdiction in which the assets of the losing party are situated and against which enforcement is sought. After verifying the absence of a possible appeal, the prima facierespect of public policy by the award, and the absence of any grounds for annulment, the national court will grant the exequatur to the arbitral award, which will be enforceable from then on. Similarly to the annulment procedure under Belgian law, there is no review of the merits of the arbitral award. 

In Belgium, both claims regarding the quashing and the exequatur of an award are brought before the President of the Court of First Instance.


Some Pros and Cons of Arbitration

The inclusion of an arbitration clause in a share purchase agreement has some important advantages when compared to the resolution of disputes before national courts:

  • Arbitration is a contractual dispute resolution mechanism which can be tailored to the requirements of the parties and/or the nature of the dispute. The parties can determine the location of the seat of the arbitral tribunal; the number of arbitrators; the language of the arbitration; the need for certain (technical) skills of the arbitrators; the applicable division of the costs and counsel fees and the possibility for appeal against the arbitral award. Given this procedural flexibility, it is possible to save time and costs through arbitration. 
  • Proceedings before arbitral tribunals as well as the mere existence of the proceedings are held in principle confidentially. 
  • An arbitration award can usually be easier to enforce in more countries than in where a court judgment allows, this is because of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified by 153 countries. Outside Europe (where the recognition and enforcement of judgements in civil and commercial matters is dealt with by the Brussels I Regulation 44/2001) there are indeed few multilateral conventions regulating the enforcement of judgments.  
  • In international agreements, arbitration allows the parties to choose a neutral forum and tribunal, thus avoiding one party to be disadvantaged by unfamiliar language, courts, procedure, or local counsel of a third country.
  • Where one of the parties in the dispute is a State, or State entity, the jurisdiction of foreign courts is often refused as a matter of principle. Arbitration in a neutral venue could be an alternative to litigation in the courts of the State.  However, arbitration could in some cases entail disadvantages, for example: 
  • If the possibility for an appeal of the award has not been given by the parties to each other, the award is final and binding upon the parties. 
  • Court-involvement is necessary in order to render the award enforceable in the event the losing party fails to execute the award voluntarily. 
  • Some types of disputes cannot be resolved by arbitration, for instance, in matters where parties are not allowed to compromise (transiger/ schikken).
  • There can be difficulties where an arbitral tribunal is asked to join third parties to pending arbitral proceedings. This can be a problem with chains of contracts and other situations where interlinked disputes are likely to arise under separate contracts if all the contracts do not contain an arbitration clause.




Arbitrating SPA Disputes

Arbitration is in principle conceivable to all disputes arising from share purchase agreements. For instance, disputes regarding clauses regulating the determination of the price or clauses determining the representations and warranties of the seller are subject to arbitration.

Regarding the former clause, a distinction must be made between purely numerical discussions and those of a more complex nature concerning, for example, the components or the structure of a price determination formula. In the former case where, for example, different assets must be valuatedand inserted into an existing formula, the decision of the designated person for the valuation and final calculation will be a third binding decision1 rather than an arbitral award. 

In the latter case, where parties do not agree on the interpretation to be given to one or more components of the price determination formula, they will revert to arbitration, as different arguments from both parties must be heard in order to determine the sale price.

Arbitration concerning a representations and warranties clause might be chosen for the resolution of disputes arising from alleged inaccurate reps and warranties or in the absence of disclosure by the seller when specific information had to be disclosed.  

In conclusion, the choice for arbitration in the resolution of disputes arising out of share purchase agreements may prove a valid alternative to litigation before national courts. It is a time-efficient and confidential dispute resolution mechanism whereby the parties may choose to have an important influence on the course of the proceedings at the end of which a final and binding decision will be taken.



1.     Third binding decision can be defined as “the referral of a dispute to an independent third party to resolve by using his own expertise” (J.D.M. Lew, L.A. Mistelis and S.M. Kröll, Comparative International Commercial Arbitration, London, Kluwer, 2003, p.10). The decision cannot be directly enforced in the same way as an arbitral award and no appeal from the decision is provided. For further information on third binding decisions, see J.D.M. Lew, L.A.Mistelis and S.M. Kröll, o.c., p.10.

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