That is the conclusion of the event organised by the International Section of the American Bar Association in Washington D.C., USA, under the title “Same term, different meaning: traps for the unsuspecting who use US documentation as precedents for M&A transactions outside the US”. The meeting was moderated by Eric D. Kuhn (New York) and featured exceptional panelists such as Pablo F. Ferraro-Mila (Argentina), Christopher C. King (Netherlands and Germany), María Bofil (Brazil) and our Partner Sarah J. Schwartz (Spain), who explained the peculiarities of each of the jurisdictions.
Often, when M&A transactions involve multiple jurisdictions, there is some confusion over the drafting style of documents, with numerous legal definitions and standards, as well as imported negotiation process provisions.
If you are an American buyer and you are negotiating a deal in a cross border deal and you insist on using a typical US document outside the US, it is very interesting to know what the main “pitfalls” are, which provisions are superfluous and how to handle the SPA language and adapt it to local legislation.
Some questions that arise
In general, some common concerns or expectations of the parties that are sometimes not met are:
Is the document enforceable in English in foreign courts? If the chosen forum is arbitration, with English expressly mentioned as the language of arbitration, then the parties’ expectations will be fulfilled. But if the chosen forum is the local courts, then expectations may be frustrated. In Argentina and Spain, for example, the courts would require the contested document to be written in the local language. In the Netherlands and Germany, on the other hand, disputes can be agreed and settled in English, but the parties must expressly agree to this, as it is not the standard.
Will a court enforce contractually negotiated US-style pro-sandbagging and anti-sandbagging language? While, in Argentina, the civil and commercial codes allow for the extension of certain warranties and are aligned with the US style, in Spain sellers have a good faith obligation to inform the buyer of defects that may appear in the sales process. The Netherlands and Germany take a more moderate approach to this issue.
Can neither party terminate the Sale and Purchase Agreement and the rights thereunder? In the jurisdictions surveyed, unlike in the US, many local laws provide for termination rights and remedies for breach of contract. Unless the parties expressly exclude these provisions from the local code, their expectations may be frustrated.
Other expectations that are sometimes frustrated because they are taken as such, but are not always the case, are:
- As the duty to act in good faith is interpreted in each jurisdiction and impacts the interpretation of the contract and obligations of the parties, in contrast to the US where the same duty does not exist.
- Whether there is any obligation to comply with a legal and financial audit, and by not doing so, whether the buyer assumes more risk for contingencies.
- Whether all the documents and information in the data room can be incorporated into the Sale and Purchase Agreement through a separate deed rather than by attaching a list of contingencies, and how this may increase the buyer’s risk.
- What elements should be included in the definition of “loss,” as local law usually provides for a definition in line with local legislation and case law.
- The definition of “fraud” and whether exposure to fraud claims can be limited.
- No employee consultation process is required between signing and closing.
In short, when entering into a cross-border deal, it is essential to surround yourself with lawyers who know the small print very well and know how to move in international waters, knowing the ins and outs of the jurisdictions applicable in each case. Otherwise, there can always be surprises.
