Implementation of alternative dispute resolution mechanisms in cross border mergers: International legal study

UNIVERSITÉ DE 7 NOVEMBRE À CARTHAGE

Faculté des Sciences Juridiques, Politiques et

Sociales de Tunis II

Thesis in partial fulfilment of the requirements for the
MASTER'S DEGREE IN COMMON LAW

IMPLEMENTATION OF ALTERNATIVE DISPUTE RESOL UTION MECHANISMS

IN

CROSS-BORDER MERGERS

INTERNATIONAL LEGAL STUDY

Prepared by: Syrine AYADI

Supervised by: Professor Peter SCHRAEDER

ACADEMIC YEAR 2006 / 2007

To My Father ~

The Faculty assumes no responsibility at all for the opinions expressed here.

ACKNOWLEDGMENTS

I would like to express my deepest gratitude to Professor Peter SCHRAEDER, my thesis director, for his advice. I am particularly grateful to his countless supervision, useful suggestions and everlasting support, patience and encouragement.

Special thanks go to my father who worked hard to make my life better, to my sister who helped me to realize this work and to all my friends.

I would like to express my sincere gratitude to the UNIDROIT Institute for having given me this opportunity to be among the scholars' researchers. My time in Rome was a period of academic enrichment and discovery that allowed me to do researches in a delightful atmosphere. I am eternally grateful to the people who generously offered me their academic assistance by sharing their legal points of view on many topics and contributed to the joy of coming to work every day.

Thank you all.

Abbreviation

· DGCL: Delaware General Corporate Law

· TCCC: Tunisian Commercial Companies Code

· AAA: American Arbitration Association

· CBM: Cross-Border Merger

· ADR: Alternative Dispute Resolution

· CM: Conflict Management

· LLC: Limited Liability Company

· ICC :International Chamber of Commercial

· GAAP: generally accepted accounting principles

· US: United States of America

· RMBCA: revised Model Business Corporation ACT

· EC: European Commission

· ECJ: European Court of Justice

· UNIDROIT: International institute for the Unification of Private Law

· UNCITRAL: United Nations Convention on international

Commercial Arbitration

· UAA: Uniform Arbitration Act

· FAA: Federal Arbitration Act

Synopsis

PRELIMINARY CHAPTER

Introducing the cross-border merger process from a legal

approach

Section 1: Cross-border mergers corporate tools

Section 2: Cross-border mergers fundamental requirements

CHAPTER I

Implementation of Alternative Dispute Resolution mechanisms required

Section 1: Necessities of implementing Alternative Dispute Resolution mechanisms

Section 2: Adaptations of alternative dispute resolution mechanisms in merger agreement

CHAPTER II

Implementation of ADR mechanisms challenged

Section1: Challenges to implement ADR in Cross-Border Mergers as it concerns Mediation.

Section 2: Challenges to implement ADR in Cross-Border Mergers as it concerns Arbitration

"By failing to prepare you are preparing to fail ..."

Benjamin Franklin

Introduction

One of the most complex processes in a company^,s first steps toward globalization is the establishment of the overseas marketing base in a local economy. Because the environment is naturally quite different from market to market, a new strategy is required to face the challenges each new situation presents to future success. Taking into consideration the rapidly change and fluid business environment that exists in world markets today, the most efficient and economical way to establish a presence is by merger. Cross-border mergers have been used by a variety of companies as an effective strategy for creating value. However its conduct has been accepted with potential difficulties that may generate disputes.

The integration of firms through a merger requires joining different corporate cultures, management and communication styles, experiences, rules and procedures. This interconnection of cultures could lead to conflict between shareholders and directors. Unresolved conflict during a merger could lead to litigation, and collapse of the merger. In such a situation, businesses and their transactional lawyers¹ should look to options that cultivate and implement² well-organized and friendly dispute resolution mechanisms to resolve these complex business transactions.

In order to cope with the increasing complexity of the modern business world, alternatives to litigation³, has been developed, as a natural and flexible means for resolving disputes that are likely to arise between businesses. The issue is both current and relevant.

In order to prevent potential disputes that might arise during the merger closing negotiations stages between domestic and foreign

¹ "...A transactional lawyer is a lawyer who works primarily on transactions such as...mergers, acquisitions and the like...» Garner, B. A., "Black^,s Law Dictionary", seventh edition, ST PAUL, MINN, 1999 and from Westlaw Data Base, The Black^,s Law Dictionary (8th ed. 2004)

² "...To implement means to apply to anything necessary to perform a task. Implementation means completion, execution, accomplishment, realization, and performance..." Webster's New Thesaurus of the English Language, by MERRIAM-WEBSTER, edition 2002.

³Litigation can be defined to include all adjudication in a government forum, whether that forum is a court or some other government body, such as administrative agency. Litigation is a process of dispute Resolution. The Black's Law Dictionary. Op.cit note 1 page 1

companies, the utilization of Alternatives to litigation would be a significant and resourceful action.

First of all, it is necessary to set forth some basic definitions, considered necessary tools for the analysis of complex phenomena.

The Black^,s Law Dictionary defines merger as "The absorption of one organization (esp. a corporation) that ceases to exist into another that retains its own name and identity and acquires the assets and liabilities of the former... Corporate mergers must conform to statutory formalities and be approved by a majority of the outstanding shares'.

Merger is a type of business combination that needs to be distinguished from acquisition. Acquisition⁴ is a generic term that implies a transfer of ownership, while a merger constitutes a technical term qualifying a particular legal process that would be followed or not by an acquisition. It is more often the case of simple acquisition of companies without being followed by mergers. During an acquisition the deal may be negotiated or hostile. Instead in a merger the deal is negotiated. The differences are to be detected in the legal treatments of these operations in accordance with the national legislation in force"⁵.

⁴ Acquisition (namely Takeover) can be defined as the acquisition of ownership or control of a corporation. A takeover is typically accomplished by a purchase of shares or assets, a tender offer or a merger. Friendly takeover when is approved by the target corporation's board of directors. Hostile takeover when is resisted by the target corporation's board of directors. The black's law Dictionary note & page 1

⁵ Ayadi, R., « Les Fusions et acquisitions dans le secteur bancaire européen : Proposition d'une grille d'analyse des logiques industrielles des fusions et acquisitions pour évaluer leurs impacts sur la performance », PHd présentée à UNIVERSITE PARIS DAUPHINE pour obtenir le titre de DOCTEUR DE L^,UNIVERSITE PARIS DAUPHINE Spécialité : Sciences Economiques, juillet 2006.

Given that ,many elements between European legal systems like in France and Germany which belong to the civil Law tradition⁶ on the one hand and the US legal system which belong to the Common law⁷ tradition ,on the other hand, will increase the divergence in carrying -out cross-border mergers.

From European Company law perspectives, merger is considered as "a corporate transaction that in volves the transfer of all of the acquired company's assets and liabilities to the acquiring company, with the consequence of the disappearance of the acquired company"⁸. In the same way, from the Tunisian Company legislation in force ⁹ merger is defined as the "amalgamation of two or more companies to constitute one" and classified in either a "fusion par absorption" where a company completely absorbs another company (merger by amalgamation or by acquisition) and in a "fusion avec creation d'une société nouvelle" where two companies merge to form a new company (merger by consolidation or formation of new company) ^10.

When reference is made to international mergers, the participating companies are cooperating in different countries¹¹ and are subject to different Company laws.

⁶Civil Law: one of the two prominent legal systems in the western world originally administered in the Roman Empire and still influential in continental Europe, Latin America, Scotland and Louisiana, among other parts of the world. Black's Law Dictionary op.cit page 1 note 1

⁷Common Law: "the body of law derived from judicial decisions, rather then from statutes or constitutions". Id.

⁸ Brussels, 18.11.2003 (2003), Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on cross-border mergers of companies with share capital, (presented by the European Commission) Draft Directive on Cross-Border Mergers

⁹ Law n°2000-93 of 3rd November 2000 outlining promulgation of the Tunisian Commercial companies Code(TCCC) in its articles 411 to 427

¹⁰ Article 411 TCCC a La fusion est la réunion de deux ou plusieurs sociétés pour former une seule société. La fusion peut résulter soit de l^,absorption par une ou plusieurs sociétés des autres sociétés, soit de la création d^,une société nouvelle à partir de celles-ci... » Personal translation. See appendices n°4

¹¹ "Cross-border merger" is a merger transaction involving companies at least two of which are governed by the laws of different Member States". The Black's Law dictionary , Op.cit Page 1, note1

From US perspectives, Delaware¹² Company Law, considered the main source regulating merger law, governs merger regime in accordance with section 251 of the Delaware General Corporation Law as amended on July 1, 1998¹³ and classify it in both a "direct or legal merger" and "triangular merger"¹⁴.

The concept of merger takes place when "one constituent entity merges with and into another "constituent" entity. The latter, "surviving," entity succeeds to all assets and liabilities of the disappearing entity by operation of law¹⁵.

In European and Tunisian Company law, the acquired companies are dissolved without going into liquidation¹⁶; the acquiring companies increase their capital¹⁷. The deal is negotiated and requires the draft of a merger contract that must be recommended by the board of directors of each company and approved by the meeting of shareholders¹⁸.

A merger may occur between same or different types of companies¹⁹. The limited liability company²⁰, considered the most common form of European business entity and the business corporation, considered the most used form of American business entity²¹, tends to facilitate cross-the

¹² Delaware, the second smallest state of the union has emerged as a clear winner in this system attracting over half of the large publicly traded corporations. Because of Delaware's market dominance, the general corporation law of Delaware controls the internal of thousands of the most prominent US corporations. This makes the general corporation law of Delaware the most important corporation law in the United States. Prior to Delaware's leading position, New Jersey was the most popular state for incorporation. Source Forstinger, Christin.M, Take over law in the EU and the USA, A comparative analysis", kluwer Law international , 2002

¹³ But also by Chapter 11. 02 of the Model Business Corporation Act " RMBCA" revised in 1999

¹⁴ Under Delaware law, a merger can be classified under two types of transactions : (1) A direct merger of the target into the acquirer with the target's shareholders receiving in the alternative stock of the acquirer and cash, and (2) a triangular merger in which a wholly-owned subsidiary of the acquirer merges into target with :(a) the target's shareholders receiving, in the alternative, stock of the acquirer or cash, and (b) acquirer ending up as the owner of all of the target's outstanding shares. Delaware General Corporation Law section 251

¹⁵ DGCL section 251 and the Revised Model Business Corporation Act RMBCA chapter 11 § 11.07

¹⁶ Article 411 (2) TCCC and article 2 (2-c) of the EU Directive on cross-border mergers of LLC of October 2005.

¹⁷ Article 411 (3) of the TCCC and article 14 of the EU Directive on cross-border mergers of LLC

¹⁸ Article 99 and 102 of the Code of Commerce and article 291 of the Tunisian Commercial companies' code, article 9 of the EU Directive on cross-border mergers of LLC. Section 251 of the Delaware General Corporate law

¹⁹ Article 412 of the TCCC, merger may occur between business corporations( SA), Limited Liability Company (SARL), and Limited Liability Partnership(Société en commandite par actions) , Article 1 of the cross-border mergers EU Directive covers all companies with shares capital (public limited companies and incorporated private companies. See appendices n°1; section 251 of DGCL: a merger may occur between two or more for- profit, stock corporations, or between one or more such corporations and one or more of the following entities: a. "Joint stock" companies (DGCL § 254), b. "Non-stock" or "non-profit" corporations (DGCL §§ 255, 257 and 258), c. Limited partnerships (DGCL § 263); and d. Limited liability companies (DGCL § 264).

²⁰ Limited liability Company (LLC): company with share capital and having legal personality possessing separate assets which alone serve to cover its debts. Article 2 of the EU Directive on cross-border mergers of LLC. See appendices n°1

²¹ Corporations: -An association of shareholders (or even a single shareholder) created under law & regarded as an artificial person by courts, having a legal entity entirely separate & distinct from the individuals who

border merger transaction. When the deal occurs between companies governed by different national company laws, it is called "cross border merger". Cross-border mergers are frequently straightforward international acquisitions in which the acquiring company purchases shares in the target company in exchange for its own shares. They are subject to different but conflicting company laws²² that may generate inconsistency in the choice of the applicable law from private international law²³ perspectives. The term "merger" will be used in this paper to mean "mergers by acquisition".

The world has witnessed the emergence of ^,Alternative Dispute Resolution^, which refers to the wide range of Legal possibility that use techniques other than trial to settle disputes²⁴. "Resolving a dispute might be defined as ending the dispute in such a way that the claimant is satisfied with a just result or through a fair process..."²⁵ Alternative dispute resolutions can be considered as about all legally permitted, cheaper, more flexible and quicker processes of dispute resolution other than litigation. They also meet some needs of the business community that judicial litigation cannot offer: confidentiality and an expertise on their settlement. Moreover, their tailoring in business transactions demands a great deal of negotiation between drafters in order to avoid the main problems that are likely to arise. Accordingly they might symbolize what American scholars call "the modern technology of the conflict- management system"²⁶, in essence, techniques that could

compose it, with the capacity of continuous existence or succession, & having the capacity, as such legal entity of taking, holding & transmission property, suing & being sued, & exercising such other powers as may be conferred on it by law, just as a natural person may. Id

²² Article 412 of the TCCC , Article 4 (a) of the EU Directive on cross-border mergers of LLC, Chapter 11 of the Re MBCA ( 1999) §11.02 (b)

²³ It is traditional to use the expression « conflict of laws » or « private international law » to describe the body of principle and rules applicable to transborder cases involving private relationships that contain at least on legally relevant foreign element. Private international law or conflict of laws rules result from the existence of different legal systems in the world. The expression conflict of laws will be used here and understood that it has the same meaning as "private international law". Walker and Castels, Choice of law rules, Private /nternational Law, Canadian Conflict of Laws, 4ed , Butterworths, 1997

^'Ware, S., Alternative Dispute Resolution, Law Stamford University Cumberland School of Law, Horn Book Series, ST PAUL. MINN.2001

²⁵ Id page 5

²⁶ Conflict Management: "An approach to conflict whereby parties can develop protocols or arrangements for preventing disputes from occurring and pre-determining the range of appropriate responses to conflict should

significantly improve the practice of dispute resolution in international

business. Alternative methods of dispute resolution will therefore be referred to below by the acronym that is tending to be accepted universally in practice, i.e. ^,ADR^,. The basic

division within ADR is between "Arbitration v everything else"²⁷. The spectrum of available ADR mechanisms in international business area can be divided into two broad categories of procedures: binding techniques such as Arbitration²⁸ and non-binding techniques such as mediation²⁹ sometimes confused with conciliation in many civil law countries³⁰.

Cross-border mergers are of unique importance in this day and age and ADR has become a field of study and an area of practice of enormous magnitude. Over the last decade, we have seen a dramatic increase in such sophisticated combination schemes in international business arena. The leading example is the Daimler Chrysler merger case 1998³¹. In the US and in Europe, continuing harmonization has taken place in many sectors³² in addition to confidence's restoration in the world system and global markets in the field of merger activity³³.

In Europe, after three decades of negotiations³⁴, following the adoption of the European Company Statute ("Societas Europea" or "SE") in 2001 which entered into force in 2003, some company law aspects giving companies, operating in more than one member State the option to

one arise". Pirie, A., "Alternative Dispute Resolution. Skills, Science and the Law", Canadian Legal Skills, Faculty of law, University of Victoria, IRWIN LAW, 2003.

²⁷ /d p5

²⁸ Arbitration: a method of dispute resolution involving one or more neutral third parties who are usu. agreed to by the disputing parties and whose decision is binding. The Black's Law dictionary .Op.cit page 1 note 1

²⁹ Mediation: A method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution. id

³⁰ Report of the secretary General, UNCITRAL, Working group on Arbitration, 33^rd Session, at 28, UN, Doc A/CN/WG.II/WP.110 (2000), at www.uncitral.org , (discussing and defining the term "conciliation" v "mediation".).

³¹ The Daimler/Chrysler merger case (November 1998) in , Horn, N., "Cross border Mergers and Acquisitions and the Law", Kluwer Law International 2001

³² Cross-border mergers are changing the structure of the banking industry. United Nations Conference on Trade and Development World Investment Report 2000 Cross-border Mergers and Acquisitions and Development United Nations New York and Geneva, 2000

³³ ... the move to the International Accounting Standards for all listed companies (IAS) (2005), the Generally Accepted Accounting Principles (GAAP), The reform of the European Merger regulation (may 2004), the European Company Statute (October 2004), which in its turn has inevitably expedite the harmonization of corporate tax laws among the member states...", Beggs. P.F.C , Corporate Acquisitions and Mergers, Volume I, Kluwer Law International 2004

³⁴ In 14 December 1984 the Commission adopted a proposal for a tenth Council Directive on cross-border mergers of companies. In 2001, the Commission withdrew this first proposal for a tenth Directive.

migrate and to establish as a single company under the European Law by way of merger among other member states were finally regulated. Based on the EC treaty and other European Directives³⁵ a proposal³⁶ for a directive designed to facilitate merger transactions between companies incorporated in different EU member states to overcome obstacles created by different national laws, has been approved and adopted on October 2005.

On the other hand, following the 90's , with the emergence of developing countries as important locations for promoting cross-border mergers³⁷, in response to sustained efforts of many emerging countries to create more business friendly environments³⁸, Tunisia, has attracted sizeable amounts of foreign investors in recent years³⁹. In this global movement, supported by its political stability, the Tunisian government has begun during the last decade to modernize its economy with the purpose of integrating the global market.

It has established reforms compatible with the proper functioning of the policy of the top industrialized countries like the US and the European Union countries. In this context, the Tunisian legal system saw a substantial amount of legal reforms since trade protection has been

³⁵ 3rd Company law Directive of 9 October 1978 related to domestic mergers and article 220 of the EEC treaty are legal basis of the proposal of the 10^th Company law Directive of the 14 January 1985 withdrawal in 2001 and replaced by the EU Directive on cross-border mergers of public and private companies adopted in 2005. Katz, D., & Elofson, A.," Proposed EU Directive on Cross-Border Mergers", the M&A lawyer Review , January 2004, West Law data base

³⁶ The proposed Directive would allow companies across the EU to merge cross-border based on the approach taken in the Third Company Law Directive, which applies to domestic company mergers of public limited companies, and the cross-border provisions in the European Company Statute". id

³⁷ ".... While their share in world cross-border M&as remained constant at less than 10 per cent in terms of value almost every year until the mid-1990s, in terms of the number of deals, it increased from 5 per cent in 1987 to 19 per cent in the late 1990sThe value of cross-border M&as undertaken by firms from developing countries rose from $3 billion in 1987 to $41 billion in 1999...". United Nations Conference on Trade and Development World Investment Report 2000 op.cit page 6 note 6

³⁸ Generally in developing Countries, M&A activity has been slow, due partly to the slow pace of privatization and partly for broader reasons related to the investment climate and limited availability of attractive firms for purchase in the private sector The principal acquirers of firms based in developing countries have traditionally been the European Union firms .They became the largest acquirers during 1998-1999, replacing United States firms and accounting for more than two-fifths of all cross-border M&As in developing countries Cross-border M&A purchases by firms based in developing countries nearly doubled in 1999 after dipping in 1998 in response to the Asian financial crisis. UNCTD Id.

³⁹ "...There is also more diversification in terms of both source countries -- with the United States being the most important one, followed by European countries -- and in terms of sectors -- with manufacturing and services gaining in importance over natural resources. id.

removed and tariffs dismantled through the establishment of a Free Trade Zone with Europe⁴⁰. In order to provide Tunisian companies with a wellorganized legal framework favorable to their growth, Tunisia created through its judicial authorities, national legislation that legally permits domestic and cross-border merger.

Legal and economic interests have been confirmed. They are: fortifying the competitive capacity of the Tunisian companies; reorganizing and reducing the number of companies and shareholders; and creating a powerful group that will know how to impose itself on the international market. According to World Bank-European Commission Programme on Private Participation in Mediterranean Infrastructure: "...the most important merger have involved subsidiaries of multinational companies such as Mobil in the petroleum sector, Volvo and Renault in the motor vehicles sector and many merger cases have been investigated during the years 1998-2001...etc⁴¹. Thus the achievement of Company law reforms introduced especially in the Tunisian financial sector was illustrated by the first domestic merger between three Tunisian banks, the Tunisian company of banks (STB)⁴² with the National bank of tourist development (BNDT)⁴³ and the Economic development bank of Tunisia (BDET)⁴⁴ following the reform of 2000⁴⁵ promulgating the Tunisian Commercial Companies Code. In 2002 the Tunisian national business

⁴⁰ Tunisia was the first country of the Mediterranean region having signed the agreement of Euro Mediterranean Association in July 17, 1995 which has entered in force March 01, 1998, an agreement that plan to create a zone of free trade progressively by 2010 and which objectives were to promote the stability, the peace and the prosperity in the region. In addition, Tunisia is member of the United Nations, the WTO, the IMF, the World Bank, the Arab league, the Arab Maghreb Union, as well as the African union. Tunisia has adhered to the GATS/OMC (application limited to some sectors of the economy: communication, finance and tourism) and benefit of the growth programs of the World Bank. Op.cit Ayadi, R. page 2, note 2

⁴¹."...the explosives manufacturing companies, the domestic liquid gas companies, companies manufacture motor lubricants... An important Merger between "Esso Standard Tunisia" and "Mobil Tunisia" was submitted by the two companies to the minister of trade approval, the two multinationals, Esso Standard and Mobil, already got the Merger approval from the American and the EU competition authorities and that they effectively merged in September 1999... Further more in the Tunisian market of trucks another domestic Merger case involving two subsidiaries of two multinational companies, "AB Volvo" and Renault in 2000, a metal manufacturing firm intended to acquire a laboratory firm specialized in metal testing..." UNCTD W.I Report 2000 note 7 page 6

⁴² Société Tunisienne des Banques (translation)

⁴³ Banque Nationale de Développement Touristique (translation)

⁴⁴ Banque de Développement Economique de Tunisie (Translation)

⁴⁵ In the financial sector the recent merger occurred in 2000 of STB Bank with two domestic banks (BNDT and BDET) was the first case that could illustrate the best example of domestic merger in Tunisia...followed by the merger by absorption of Comete Engineering and SOGETA in 2002, and recently the merger of Tunisia Leasing and Amen leases. The Economist www.economist.tn

environment saw its first case of cross border acquisition between a Tunisian bank-"Union Internationale des Banques (UIB)"- with the French bank -"Société Générale (SG)"-⁴⁶.

With the growing cross-border business activity, common law and civil law scholars should take a fresh look at the intersection of dispute resolution and international business.

Civil law countries are now developing an interest in alternatives to litigation methods for the resolution of international business disputes. Growing interest has been shown in ADR in the European Union. Considered as a means of improving general access to justice in everyday life, ADR has received close attention from the EU member states. This specific European context explains the background for the preparation by the European Commission of the "Green Paper on ADR" launched April 2002, to initiate a constructive debate on a number of legal issues that had been raised with regard to ADR in civil and commercial law. the European Commission has published on April 2004, a "Preliminary Draft Proposal for a Directive on Certain Aspects of Mediation in civil and Commercial Matters", as well as a Draft European Code of Conduct for Mediators, which became final at a European Commission Justice Directorate conference in Brussels on July 2, 2004.

Equally, extensive experience has been shown in alternative dispute resolution in the US⁴⁷. Many efforts have been made to improve and unify regulation deal with Arbitration and mediation⁴⁸. In 1998, Congress adopted the Alternative Dispute Resolution Act (ADR Act), which requires federal district courts to establish at least one ADR program and to develop procedural rules for its wide and active use.

⁴⁶ In 2002, the privatization of "l'Union Internationale des Banques" (UIB) was lunched. In 5 November 2002, "Société Générale" acquires 52% of the UIB capital. id

⁴⁷ The American Bar Association, the American Arbitration Association, and the Society of Professionals in Dispute Resolution, are organizations providing legal communities with education, research, alternative procedures in the area of ADR and playing an important role in the creation of standards of ethics and professional responsibility for neutral persons in charge of resolving disputes

⁴⁸ In 1998, Congress adopted the Alternative Dispute Resolution Act, which requires federal district courts to establish at least one ADR program and to develop procedural rules for its wide and active use.

The subject of international Arbitration was also addressed in the "Revised Uniform Arbitration Act" (ReUAA). Thus, many US states have based their statutes on the Model Arbitration Law proposed in 1985 by the United Nations Commission on International Trade Law (UNCITRAL).

Other Countries, such as Tunisia have approached international Arbitration in a variety of ways, such as adopting parts of the UNCITRAL Model Law together with provisions taken directly from the 1958 United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (commonly referred to as the New York Convention). At national level, following the promulgation of the Tunisian Arbitration Code⁴⁹ the Tunisian law on arbitration observed an improvement of the knowledge of Tunisian lawyers regarding the Arbitration culture, meanwhile a support of the Arbitration "centers" at national level offering Arbitration services^5°. By contrast, mediation still lacks a well established national legal frame work.

Internationally , although international support, academic and popular literature on ADR methods have proliferated , few studies have been made as regards ADR' s relationships with the Corporate world, particularly in merger law.

The idea proposed in this paper is that a merger can be successful by implementing a problem solving system that deals with dispute at an early stage. The implementation of such problem solving system should , potentially resolve any disputes in a way that gives parties more creative business- orientated solutions and satisfaction, thereby preserving their business relationships, particularly when they are involved in cross- border transaction and subject to differing national company Laws. The tailoring of this system in such intricate transactions will demand a great deal of negotiation between draftsmen, in order to avoid the main problems that are likely to arise. There will be situations when it may be

⁴⁹ Tunisian Arbitration Code promulgated by law n°93-24 dated April 26^th , 1993

^5° The local and international Arbitration Center "AL-INSAF" founded on may 24 1995 in pursuance of the law n° 93/42 dated April 26 1993 which promulgated the Tunisian Code of Arbitration. The center is operated by a highly qualified staff composed of the best lawyers and judges in the countries.

advantageous for the contracting parties to specify different procedures to handle special disputes that arise from the same transaction. The circumstances in which they will be utilized can often be formalized in the merger contract.

All these considerations raise a key question: how implementing alternative dispute resolution mechanisms during a cross-border merger can be a resourceful action? Implementing ADR mechanisms during cross-border mergers is required; however, it could be challenged. Accordingly, an international legal study in view of the American and the European perspectives will be undertaken in the following three chapters:

- Preliminary Chapter: Introducing the cross-border merger process from a legal approach

- Chapter I: Implementation of Alternative Dispute Resolution mechanisms required

- Chapter II: Implementation of Alternative Dispute Resolution mechanisms challenged

Preliminary Chapter

Introducing the cross-border merger

process from a legal approach

Merger is a complex business combination which almost requires for its completion to comply with several stages. This complexity is considerably increased when the transaction crosses national borders.

The process is structured as follows⁵¹: When introducing the deal, it is first necessary to study its corporate tools. In many aspects, cross-border mergers are not like domestic mergers. There are fundamental differences in the transaction process itself, but also one must take into account the diversity of the rules on how to accomplish it from jurisdiction to jurisdiction. It is equally important, when the participating companies are not familiar with the respective legal and business environment, to study the fundamental requirements to carry out the cross border

process, in order to identify the Law which ought to be applicable to the transaction.

In this chapter we will first discuss the corporate tools needed to bring about the deal section (1) and then the fundamental requirements required in the cross-border merger transaction (section 2).

⁵¹ other legal equally important areas like capital market Law, and anti trust Law to identify open problems in cross-border mergers will not be discussed

Section 1: Cross-border mergers corporate tools

While it is simpler to study the merger process in one step, it is advisable to proceed in two steps bringing-out essentially the negotiation and the integration phases. In this section we will first study the working of the cross-border merger process (parg1) and we will examine the feasibility of the cross-border transaction (parg2)

Pargi: the cross-border merger^,s workin

When a company merges with another company the merger process distinguish between the "Closing- Negotiation phase" (A) and the "Postmerger integration" phase (B).

A- The closing-merger negotiation phase

Although the steps leading up to the conclusion of a merger may vary substantially from case to case, from legal system to legal system, it is first customary to initiate the process by the identification of prospective candidate for a merger. Following the identification of the potential candidate for a merger, the respective boards of directors of the merging companies, through their intermediaries, known as investment banks or lawyers⁵² will then confirm their mutual interest by structuring preliminary agreements.

⁵² The role of "Fusion-conseil" is carried out by department of mergers and acquisitions of Investment banks, Lawyers, or public accountants ..." Routier, R. Les Fusions de Sociétés Commerciales, Prolégomènes pour un nouveau droit des rapprochements, bibliothèque de droit privé, tome 237, 2iéme édition, Paris, 1997

Under company law practice these preliminary documents are called "letters of intent"⁵³ or "memorandums of understanding"⁵⁴.These documents generally outline the key points of the proposed merger (objectives, pricing expectations, various descriptions of negotiation agreements etc...). In practice a letter of intent may set forth little more than a brief draft of the principle points of agreement. However, it can serve useful purposes: firstly, although generally not legally binding, it does represent a moral obligation that is normally taken very seriously by the parties' contract in which they agree "to negotiate the negotiations"⁵⁵. Secondly it memorializes the basic terms of the transaction, which helps to prevent subsequent misunderstanding, both intentional and unintentional.

To illustrate, under the American corporate law practice, the parties to a merger may set forth their understandings of the transaction but do not agree to be bound by those understandings, other than certain limited terms such as confidentiality⁵⁶ , assignment of legal auditors⁵⁷ ,information, and obligation to continue negotiating in good faith to reach a definitive agreement. In other words, the letter of intent outlines the nature of the transaction and it is considered an effective tool to "contractualize the merger negotiations"⁵⁸.

⁵³ A letter of intent customarily employed to reduce to writing a preliminary understanding of the parties, this letter is not a contract and it does not constitute a binding agreement. Rather it is an "expression of tentative intentions of the parties and creates no liability as between the parties. It is in essence "an agreement to agree". Gifis, S. H. "Law Dictionary", 3ed, Barron's Edition , US, 1991

⁵⁴ A letter of intent, sometimes called a memorandum of understanding is a preliminary statement used to outline the general terms of a proposed corporate transaction. Hoehn, M., "Letters of Intent, Confidentiality and Standstill Agreements", Practising Law Institute Corporate Law and Practice Course Handbook Series, Drafting Corporate Agreements 2004-2005 Pillsbury Winthrop LLP, 2004

55 « il s'agit de négocier les negotiations » Mousseron, J.M., Techniques Contractuelles, Paris Editions Francis Levèbre, 2005

⁵⁶ Clause to keep confidential specific business information learned during transaction discussions. See articles 253 and 270 of the Tunisian Commercial Companies Code

⁵⁷ An auditor is a person or firm, an accountant that formally examines an entity financial record... In cross- border mergers he is namely called Commissaries à la fusion in French Law, commissaire aux comptes in Tunisian Law. The Black's law dictionary Op.cit note 1 page 1

⁵⁸ Routier, R. Les Fusions de Sociétés Commerciales, Prolégomènes pour un nouveau droit des rapprochements op.cit note 1 page 14

The Letter Of intent discussion process is considered as a precursor to the negotiations of the final agreement to help the parties reaching a definitive agreement. However, there is good reason not to have a letter of intent. Much energy can be wasted in negotiating an agreement in principle that might be better spent in negotiating the definitive agreement. Accordingly, a letter of intent may not be an essential step in a merger involving domestic and foreign companies and may be often skipped in favor of moving directly to the draft of the definitive contract

(Silence of the Tunisian Company law). In other words the boards/management of the

merging companies should start directly by negotiating the merger agreement.

Since the completing of the preliminary agreement, the drafting of the purchase agreement is under way, the management or boards of directors of the acquiring company's will conduct and perform a careful Due Diligence in order to assess the company's economical and financial health. From the absorbed company point of view , an in-depth analysis effectuated by the management 's absorbing company ,of the absorbed company 's economical position will reveal how it has performed in the past and allow the acquirer to estimate how it is expected to perform in the future. The absorbing company must be careful not to base its evaluation of due diligence issues solely on the value system of its own country. It must approach the evaluation process with sensitivity and respect toward the host country's cultural norms and values.

According to Miller, J., the national director of Ernest & Young's corporate finance practice, based in New York, "due diligence process in cross-border mergers should begin long before a specific target has been identified⁵⁹. The absorbing company's lawyers should work closely with a multi-disciplinary team consisting of the absorbing company's accountants, lawyers specializing in various areas of the Law^6°.

⁵⁹ Miller, J., , Mergers & Acquisitions, back to basic techniques for the 90's , Ernest & Young LLP , Financial Advisory Services , second edition, published by John Wiley & Sons, Inc, 1994

^6° Including environmental, real estate, employee benefits, litigation, tax and intellectual property. Id

Cross border transactions present a supplementary set of due diligence issues which do not occur when both parties are in the same country. If the companies are located in different countries, the legal systems of both countries must be well understood. The absorbing company must have an intimate knowledge of the rules which govern the decisions before considering the essential business issues to be addressed. In the cross-border merger context, the absorbing company^,s Lawyer should coordinates due diligence to be conducted in the various countries involved.

In essence, lawyers should prepare a checklist for the operations' absorbed company in the relevant jurisdiction. For example, in Japan and South Korea, Lawyers are seldom used in due diligence. Instead, Japanese business personnel, many of whom have some form of basic legal

training, are considered well qualified to plan and negotiate the deal⁶¹. the principal purpose of merger due diligence is to assist the absorbing

company in understanding, from a legal perspective, the target^,s business in order to give her the necessary information about the target company to allow her to make an informed investment decision with respect to the proposed merger, identify, understand and to the extent possible, quantify risks and liabilities associated with the target^,s business, identify legal impediments to the completion of the proposed merger including required governmental authorizations and approvals.

Due diligence is regarded differently in civil law and common law practice.

⁶¹ Chung, W., "CROSS-BORDER M&A, Avoiding Surprises Through Due Diligence", Business Law Today Review January 1997, the American Bar Association. West Law data base

Under the Due Diligence common law practice⁶², Lawyers and their clients almost uniformly expect comprehensive due diligence to be conducted before the merger is closed or completed. But such practice often raises two common issues with cross-cultural implications: scope and timing of the due diligence. In-depth investigation of the target and its business affairs is accepted practice for lawyers from common law jurisdictions. In U.S. mergers sphere, for example, the common belief is that "the acquiring company can never do enough due diligence". In the US, management is accustomed to giving and receiving detailed documentary due diligence lists which come out of word processors at large Law firms and at investment banks, and which may include 15 pages of intrusive questions. If the US absorbing company presents such

detailed and searching list to a very possible target company located for example in Europe that may be very much misperceived⁶³. In contrast, due diligence in civil law countries may be somewhat more abbreviated. For example, the matters normally covered by a U.S.-style due diligence, however, requests for legal opinions are not so common-place and the acquiring company's Lawyer should consult with local Lawyers before launching a U.S.-style legal opinion request⁶⁴. In addition, jurisdictionslike in Tunisia- where the due diligence process is more limited, therefore, it should be tailored and abbreviated so that the seller will neither be overwhelmed nor offended⁶⁵.

⁶² "...global due diligence practice may be separated into two schools: the Common law practice, which emanates mainly from American and English Lawyers (or, as sometimes referred to by our European colleagues, the "Anglo-Saxon" practice) and the practice by the rest of the world (represented principally by those who practice some form of Civil law). Chung, Op.cit note 1 page 17 id

⁶³ ./n these countries, it may be preferable to the heads of different functions and then cautiously to ask for documents relating to the matters discussed such as litigation. Accounting firms play an important role in a merger. They check a target company's background and financial health..."Id

⁶⁴ Grusson, "Legal Opinions in International Transactions: Foreign Lawyer^,s Response to U.S. Opinion Requests (3d ed. 1994) presented on Oct. 14, 1994 at the International Bar Association 25th Biennial Conference, Melbourne, Australia, as a report of Subcommittee E1, Legal Opinions, of the Committee on Banking Law of the Section on Business Law of the International Bar Association" 1989 Columbia Business Law Review 197 (1989)

65 _Id

Once the merging companies have thoroughly evaluated the economic worth of each others and are comfortable with the respective local rules, they steps forward to evaluate the financial worth of each company. The evaluation process is generally undertaken by an internal accountant, called "expert comptable" or "commissaire aux comptes" in Tunisian Company law and "commissaire à la fusion" in French Law, "certified public accountant' in the US and "independent expert under European law.⁶⁶ During the evaluation process of the merging companies' financial situation the price of the deal , called "parity exchange" ⁶⁷ is determined based on a balance sheet drawn up for the need of both companies and following the national methods of evaluation of the merging companies.

In common law practice when the deal crosses borders, the absorbing company and its Lawyers must recognize early the generally accepted accounting principles (GAAP) ⁶⁸. The absorbing company's accountants will take the lead on accounting and financial matters. Lawyers, however, must also focus on the differences in GAAP in the relevant jurisdictions that may include different rules and treatment. The range of commonly applied evaluation techniques varies from country to country. In countries with relatively well-developed stock market, including US, Japan, UK and Canada valuations methods typically focus on discounted cash flow⁶⁹ techniques, both of which rely on data derived from comparable public companies.

⁶⁶ A "commissaire aux comptes" according to article 413 of the TCCC amended by Law n°2005-65 of the 27 of July , 2005; a « commissaire a la fusion according to the French company Law , Law 1988 ; an " independent expert" under article 8 of the EU Directive on cross-border mergers

⁶⁷ Pari Exchange or " parité d'échange la parité d'échange traduit le nombre d'actions contre lequel seront échangés les actions de la société absorbante. Elle est la conséquence directe du poids financier relatif qui

résulte du rapport entre les deux sociétés. Le poids relatif entre les deux sociétés détermine directement la composition de l'actionnariat de la nouvelle société et donc le pouvoir en son sein. Apoteker (T) « Concentration bancaire et taille critique », banque magazine n°604, juin 1999 p 63

⁶⁸ The closest standard to global GAAP is the initiative sponsored by the London-based International Accounting Standards Committee (the adoption of which is voluntary by each country^,s accounting standards authority).

See generally "International accounting standards," AICPA Professional Standards «All accountants soon may speak the same language," The Wall Street Journal (Aug. 29, 1995).

⁶⁹ "...The discounted cash flow technique takes into account that a dollar received today is worth more than a dollar received a year from now because today's dollar can be invested to earn a return during the intervening time." Miller, J., Mergers and Acquisitions, back to basic techniques for the 90's, op.cit note1, page 16

In contrast, in countries with limited public equity arenas such as Italy, and Spain market based valuation methods are less common. Instead valuations in these countries are determined through other variety of approaches. Thus, in countries such as Germany and Tunisia where debts has traditionally represented the major source of financing, valuations are often based on the company's balance sheet -adjusted⁷⁰ if necessary for differences between book and market values. During due diligence, internal accountants should actively gain an understanding of the target's business and industry, and corporate structure . They also should make sure that each of these areas is investigated thoroughly before a definitive M&A agreement is reached. Internal accountants therefore must become an integral part of the due diligence process.

Under Tunisian company Law practice, according to the legislation in force, a "specialized expert" , appointed by the special meeting of the merging company' s shareholders will drawn up a financial report to be submitted to the approval of the shareholders' meeting in which he will attest the accuracy of the methods of appraisal chosen, based on which , the price of the transaction was calculated⁷¹.

Once due diligence is satisfactory, the board of directors of each company involved enter into the drafting the final agreement namely called the "merger plan"⁷² or "the merger agreement", the outline for which will be found in the companies statutes which must contain

particulars that may vary from country to country:⁷³

⁷⁰"...Book value adjusted for anticipated purchase price accounting adjustments will help to provide an initial estimate of the goodwill to be recorded in the transaction". (Méthode de l'actif net réévalué), Miller, Op.cit note 1 page 16

⁷¹ Article 1 of Law n° 2005-65 dated July 27th 2005 (Official Gazette of the Tunisian Republic n°61, August 2005) amending the Tunisian Commercial company Code

⁷² "Projet ou traité de fusion", Amamou, N., Manuel permanent du Droit des Affaires Tunisien, édition cabinet, July 1994

⁷³ article 413 TCCC, Article 5 of the EU Directive on cross-border mergers 2005, section 251 b DGCL

The merger agreement/plan is the formal, legal version of the sum of all discussions that business people have had about a merger.

It's the articulation of the often over simplified ideas of the parties as to the terms of the transaction. In its purest form it correctly and explicitly sets forth all the rights and obligations of the parties to the agreement. Under company Law practice, a merger agreement is usually required according to the respective corporate Laws of the merging companies.

In the Daimler-Chrysler case⁷⁴ for example, a merger occurred between a US company-Chrysler Corporation- and a German companyDaimler Benz AG- , two agreements were used : one for the German merger of Daimler Benz AG into DaimlerChrysler AG in which the Daimler Benz AG shareholders accept to exchange their shares for the issuance of new Daimler Chrysler shares and by which the Daimler Benz AG became a subsidiary of DaimlerChrysler AG and disappeared and a second agreement for the American merger in which Chrysler Corporation turned into a wholly-owned subsidiary of DaimlerChrysler AG and changed its name into Daimler-Chrysler Corporation. Agreements of this type are rare under German domestic company Law since corporate Law require separate agreements in accordance with the detailed provisions of the legislation in force. In order to ensure the necessary legal certainty for both companies it was necessary to set forth the whole planning in one agreement, namely the "Business Combination Agreement" in accordance with US practice and subject to the Laws of the states of Delaware and the German Law. The parties have agreed to this overall plan for the business combination of Daimler Benz AG and the Chrysler Corporation into the Daimler Chrysler AG. This agreement provided for two operational headquarters in Germany and in the US. However the German headquarter legally became the seat of the corporation.

⁷⁴ The Daimler -Chrysler case study in Horn, N. Cross Border Mergers and Acquisitions and the Law, Kluwer Law International , 2001 Op.cit note 6 page 6

As for the negotiations in essence, it is important to know that negotiating an agreement for a merger is usually a long and complicated task. At each step along the way the parties involved must cooperate to ensure that even as they preserve their own best interests, they preserve the best interest of their negotiating partners. The downside of a lengthy process can be overcome when varied transfer of management, risks and responsibility provisions are inserted in the agreement to provide for the variable concerns of the parties in terms of time and risk. As it was remarkably quoted by Mousseron, the merger contract needs to be balanced to manage the amalgamation and all the risks that may undermine party's interests"⁷⁵. The proposal is to insert problem solving clauses in the merger contract, that preserve the interests of shareholders of the merging companies and to avoid eventual discrepancies while evaluating the parity exchange.

When the merger agreement is drawn-up and signed, a number of posts -completion steps⁷⁶ may continue to involve both parties. Such formalities designed to perfect the operation may vary from country to country. Under US Company Law practice, the closing stage requires the submission of the merger agreement by the boards of directors⁷⁷ to the shareholders meeting approval of each company⁷⁸. When the general meeting of shareholders of each company approves the draft terms of the transaction, the merger agreement is filed with the state Office managing corporate filings of each company participating in the transaction.

⁷⁵ « Il s'agit d'organiser à priori une gestion juridique du risque juridique...la fusion opération juridique génère des risques. C'est au contrat qui les a fait naître qu'il incombe d'en contenir les effets...le contrat va se préoccuper des déviations que l'opération pourrait connaître par rapport au tracé idéal retenu par ses constructeurs » Mousseron, J.M., Techniques Contractuelles op.cit note 3 page 15

⁷⁶ "Specific guidance is provided where the cross-border nature of the transaction creates particular difficulties and/or makes it unclear which Law should apply, sets out the minimum procedural requirements that the EU Member States will be required to implement within their national legislation". DIRECTIVE on Cross-Border Mergers of limited liability companies, Official Journal of the European Union. See appendices n°1

⁷⁷ Section 251 (b) states "the boards of directors of each corporations which desires to merge or consolidate shall adopt a resolution approving an agreement of merger or consolidation and declaring its advisability."

⁷⁸ Section 251 Delaware General Corporate Law, paragraph (c) "the agreement required by subsection (b) of this section shall be submitted to the stockholders of each constituent corporation at an annual or special meeting for the purpose of acting on the agreement..."

If the merger is between corporations in two different states or Countries, care should be taken in drafting the merger agreement to make sure it complies with the requirements of each State/country Company

La w⁷⁹.

After the agreement is filed in each state/country, the state/country in which the surviving/absorbing company is located will have complete authority over the merged company. Each merging company will then publicize the agreement ⁸⁰ via an entry in the appropriate public register. When the deal crosses borders, common draft terms of the cross border merger should be drawn up in the same terms for each of the companies concerned⁸¹.

Another important step for the completion of the deal need to be stressed that focus mainly on cultural dimension of the transaction.

B- The post-merger integration phase

Although it is clear that successful mergers must be based primarily on legal and financial criteria, ignoring a potential clash of cultures can lead to financial failure. Far too often, personal and organizational issues are assigned a low priority during the pre-merger evaluation process. The goal is to maximize human potential in transnational collaboration. It is increasingly understood that what ultimately makes mergers work are the people, and, collectively, the cultures of the merging companies.

Mergers are often crucial moments in a company's history. The failure of Merger is often attributed to disharmony between the corporate cultures of the Merger shareholders, bureaucratic procedures in the new organization and failure to achieve adequate economies of scale. Often, at

⁷⁹ Under American company Law practice the merger agreement will be filed with the Secretary of State or equivalent entity in the other state.

⁸⁰ "The plan of merger will be registered in the "clerk's court' office of the Company's registered office, An extract of this plan will be published in the "JORT", an excerpt containing the name of the firm, the appraisal of asset & liability that will be transfer, the merger bonus, the date of the closing stage (merger plan...)" article 16 of the TCC Code,

⁸¹ Article 5 of the EU Directive on cross border mergers. see appendices 1

both the negotiation and implementation stages, mergers fail due to a failure of leadership.

The absence of real leadership will trouble a merger. Whether it is a deal that falls apart, or one that is completed but fails to achieve the potential the deal-makers envisioned, the result is the same - a lost opportunity to advance the mission. Management is a crucial board task, and especially so in strategic restructuring. Most mergers are predicated on the idea that the target^,s operations will be integrated into the acquiring firm^,s existing lines of business.

Through this integration, the acquirer aims to achieve some type of "synergy." Properly defined, synergy is "the condition that exists when two activities are worth more together than the sum of their individual values, this concept is often illustrated by the expression, "2 + 2 = 5"⁸². Many synergies, however, may never be realized or may be simply imagined by optimistic managers looking for rationales to grow their companies quickly. Internal accountants can be of tremendous value in helping to develop reasonable estimates of potential synergies, calculating the probability of achieving synergies, and estimating costs of realizing synergies. According to Miller, J. most failed mergers result from permitting opportunity to drive strategy, rather than integrating merger decisions into an overall corporate strategy⁸³.

There is no formula for post merger integration. The reason is: no two mergers are alike! But if there is any axiom for built-up a successful merger, it is that the merger must make sense for the acquirer from the beginning. Before a company can successfully integrate a merger, its leadership must stop and reflect on why it wanted to buy the company in the first place.

⁸²Flanagan, D, "Internal Auditor", Institute of Internal Auditors, Inc August 1, 2004 west law

^8s "...A successful merger program must also be an integral part of a company's largely strategic goals including growth, diversifications, product or market expansion and access to technology Mergers and Acquisitions ..." Miller, J., Mergers and Acquisitions, back to basic techniques for the 90's, op.cit page 16 note 1

International mergers are fundamentally different from domestic ones, and have to be looked in a slightly different manner. They require the fundamental knowledge of cross-cultural communication. The most fundamental areas of difference distinguishing an international merger from a domestic one lie in the cultural and human dimensions of the deal. Not only should the US buyer recognize that Europe is not North America, but also Tunisia is not German and England is not France.

Social structure, political environment, cultural background and historical development all play a part in determining a country identity. With the globalization of the economy the likelihood of cross-border mergers increasing is high. This will create an increased demand on the ability to manage cross-border merger integration well. International mergers are doubly complex, because the differences in national culture (management style, decision-making, expression etc.) and language make it difficult to even have a common framework within which to operate and work out the corporate culture differences.

Many corporate culture⁸⁴ models which work well for domestic merger are inappropriate or insufficient in an international framework.

Increasingly it is clear that cultural differences play a very significant role in this. Whatever the nature of the two cultures to be merged, communication is a key tool in engaging employees - gaining their commitment to, and preparing them to deal successfully with, the changes that will take place. The message should begin on the day the merger is announced and continue throughout the integration period and beyond.

If the merging companies have similar cultures, it obviously makes the job of integration easier. But differences do not necessarily mean incompatibility. For example while one company has highly independent, hard-driving executives, the other may have a slower, more cautious management approach.

⁸⁴ Culture refers to the values, beliefs, symbols, style and practices from national, ethnic, organizational, professional or functional groupings

If these two styles are combined in a merger, the differences must be addressed if a truly combined culture is to be achieved. To give an example, the case study between two banks belonging to two different legal systems and therefore two different cultures: A French bank (Société Générale, SG) and a Tunisian bank (Union Internationale des Banques, UIB). Based on survey made by Tunisian commentators and

researchers⁸⁵, the analysis had lead to the following interesting points: Firstly, UIB bank had attracted the attention of the leaders of the SG because its 74 agencies covering the national territory. The UIB had accepted the Société Generale offer. By this operation, the Société Generale acquires 52% of the capital of UIB. The operation can be considered an acquisition. Second, by following the merger, the corporate culture that has been adopted was essentially a French one. Whereas the management of the UIB didn^,t take into account the cultural and human factor, SG has encouraged it as it constitutes one of the determinants of the success of the merger and guarantees the stability of the transaction. An executive of UIB affirmed that the management of the SG wants to create the best conditions of understanding between employees of the two banks. The management of SG had pushed UIB's management to focus of the human aspect of the deal to avoid possible difficulties generated by the marriage between two different cultures. The French culture of the absorbing company (SG) dominates the one of the UIB. The example

given in the survey was the annual calendar which doesn^,t include the Tunisian religious holidays. Thirdly, some employees of the Tunisian bank complain about the domination of the culture of the SG because it is too severe at work and doesn't tolerate mistakes. An executive of UIB declared that «making mistakes at work is not allowed". They also complain about the conditions of work imposed by the French

management that is «too strict, too difficult ".

⁸⁵ Ben Fadhel, A. , « La culture d'entreprise : Facteur de réussite des alliances stratégiques et des fusions », Tunis, 2004 article published in internet

It is important for the leaders of both companies to manage the cultural gap and to accelerate the integration of the merger, to opt for a permanent channel communication, to establish dialogue between the staffs of the two companies that will constitute a fundamental element of the integration. Meaning that, the cultural clash should be mastered and should not threaten the merger deal. Compatibility need not mean similarity, however. Sometimes merging companies with similar cultures may make the job difficult for integration: the merger case between two domestic Tunisian banks⁸⁶ : due to the absence of corporate culture and divergences in the mentalities, communication between the two banks failed, and conflicts arose rapidly after the merger occurred.

Cultural factors can have a profound impact on the outcome of Merger transactions, and both cultural and financial due diligence are key to ensuring successful integration. But while compatibility between the acquiring company and target along various dimensions is important, some inconsistency between the two companies may help compensate for any differing market and cultural conditions experienced by the combined firm. To support this point of view, Professor Cremades has quoted that: many inexperienced acquirers still ignore their important task in the integration stage: The restoration of the stability of the "4Ps", - purpose, power, People and Projects⁸⁷.

The cross border merger deal requires for its completion to undertake carefully the closing and the integration stages supposing that the deal is feasible.

86 « .... l'absence de la prise en compte du facteur culturel. Par conséquent aucun audit culturel n'a été effectué et de ce fait, les conflits ont fait rapidement leur apparition à cause des différences culturelles et des divergences de mentalités. On a alors rapidement regretté le fait qu'aucun audit culturel n'ait été réalisé.... A ce propos le directeur des filiales de la STB a déclaré On aurait dû étudier cette fusion de point de vue culturel ». Ben Fadhel Op.cit note 1 page 26 id

⁸⁷ Cremades, M.B. "Settlement of Disputes in Cross border Mergers and Acquisitions", Kluwer Law International, (2001) Unidroit Library, Rome , 2001

Parg2: the cross-border merger's feasibility

Cross- border merger transactions tend to be facilitated (B) despite many pitfalls (A).

A: Pitfalls to carrying-out cross-border mergers

Cross-border transactions present all the usual problems of a merger, often intensified because the acquirer is not familiar with the legal system of the country in which the target company is resident which render the deal more complex. Such complexity puts a heavy burden on both inside and outside Lawyers. There are many pitfalls that could impede this activity across border that will be analyzed from the European and the American perspectives.

From European perspectives, cross-border mergers technically cannot exist. For legal reasons it was not possible to merge companies in different jurisdictions. There are different methods by which two companies can engage in a cross-border merger. According to the European Company Law, the mainly used focuses on legal (or direct) mergers. The term "legal merger" means that there are at least two companies, a legal transfer of all assets and liabilities of at least one of the companies, the winding up of at least one of them without liquidation, and one remaining company⁸⁸.Regarding legal (or direct) mergers, three different types can be distinguished: those between member states where cross-border mergers are legally permissible, those involving member states with cross-border merger difficulties and those involving member states where cross-border mergers are not directly permissible⁸⁹.

⁸⁸ Fédération des Experts Comptables Européens, Survey on Business Combinations 6 (March 2002), available at http:// www.iasplus.com/resource/feebcrpt.pdf

⁸⁹ Cornette de Saint-Cyr, A.S, "Cross border Mergers", International Company and Commercial Law Review. (2002) west law

Examples of the first group are France, Spain and Italy. In the case of a merger by way of absorption, these countries accept that a domestic corporation may be either the acquiring or the acquired company. In a number of member states, such as Belgium⁹⁰, there are no specific provisions on cross-border mergers. As academics often disagree about its Lawfulness, a direct cross-border merger would be risky, and due to the lack of cases, there is also no clear judicial authority to allow or forbid cross-border mergers. Furthermore, some countries, such as the U.K, distinguish between different kinds of mergers, while other countries, such as Luxembourg, only permit cross-border mergers if the domestic company will survive and will not be absorbed⁹¹.

Finally, in some member states, such as Germany, cross-border mergers are not possible at all. Legal mergers are only possible between companies which are incorporated in the same jurisdiction. This is explicitly stated in the German corporate Law⁹² . In Germany, mergers are governed by the Umwandlungsgesetz (national Law on transforming companies: 'the UmwG'). Paragraph 1(1) of this Law, which governs transformations, refers only to the merger of companies established in Germany and provides as follows: 'Legal entities established in Germany may be transformed: 1. by means of merger. A German company cannot merge with a company organized under the Laws of another country. Apparently there is neither legal possibility of direct merger under German Law or Case Law supporting the feasibility of the cross-border transaction.

The situation is different in the US.

90 _Id

91 _Id

⁹² the German Transformation Act governs only merger between domestic companies

From the U.S. perspective, mergers are legally permissible and may be divided into "inbound" transactions in which a foreign company acquires a U.S. target and "outbound" transactions in which a U.S. company acquires a foreign company. According to Section 252 of the Delaware general Corporate Law: "any one or more corporations of this state may merge... with one or more other corporations of any other states of the united states, or of the District of Columbia if the Laws of the other state or states, or of the District permit a corporation of such jurisdiction to merger... with a corporation of another jurisdiction" ⁹³. In other words, American companies incorporated in Delaware may acquire or be acquired by companies incorporated in France or Tunisia provided that the French or Tunisian company corporate Law permits the merger across borders.

Equally, under Tunisian corporate Law, merging with foreign is legally permissible. Following the national legislation in force regulating the merger regime, Tunisian companies can merge with a company organized under the Laws of another country. In addition article 412 (3) of the Commercial company Code states that merger of one or more foreign companies with one or more Tunisian companies must lead to the incorporation of a company , the majority of the capital of which must be detained by Tunisian individuals or legal entities" ⁹⁴.

At first glance, the reading of article 412 appears unclear.

The possibility of merging with foreign companies is legally admitted , however , the condition stipulated by this article tends to render more difficult the transaction in practice , because it requires that the majority of the capital of the company that is going to absorb the other company must be detained by Tunisian shareholders. In other words the absorbing

⁹³ Section 252 of the DGCL (a): "Any 1 or more corporations of this State may merge or consolidate with 1 or more other corporations of any other state or states of the United States, or of the District of Columbia if the laws of the other state or states, or of the District permit a corporation of such jurisdiction to merge or consolidate with a corporation of another jurisdiction.

⁹⁴ Article 412 of the TCCC: "La fusion d^,une ou plusieurs sociétés étrangères avec une ou plusieurs sociétés tunisiennes doit aboutir à la constitution d^,une société dont la majorité du capital doit être détenu par des personnes physiques ou morales tunisiennes. (personal translation)

company must be incorporated under the Tunisian legislation and acquire the Tunisian nationality. According to the regulatory provisions in force regulating the nationality of companies in Tunisia⁹⁵, a company will have the Tunisian nationality⁹⁶ provided that its registered place of business is in Tunisia, at least 50% of its capital securities must be held by Tunisian individuals or legal entities; a majority of its directors' board or management or supervisory board must be composed of individuals or legal entities having the Tunisian nationality and their chairman or managing director must be a Tunisian citizen⁹⁷.

Foreign companies which are not resident⁹⁸ in Tunisia must obtain the authorization of the competent authorities (the Central Bank, the High Commission of Investment)⁹⁹ to have the business domicile in Tunisia in order to become shareholders of a Tunisian company. Case studies of cross-border mergers in Tunisia remain to be seen.

It appears from all these considerations that the treatment to carrying out cross-border mergers transactions lack harmonization and coordination between national company Laws. Many attempts towards harmonisation of the Law on cross-border mergers has been made to unify laws enabling companies to make cross-border business merger a feasible and less complex business combination.

⁹⁵ article 4 of Decree-Law n° 14 , issued in 30/6/1961 modified par law n°84 in 11/8/1985 related to the nationality of companies

⁹⁶ The distinction made between « companies having the Tunisian nationality » and « companies of Tunisian Law » shall not be discussed here

⁹⁷ Article 3 of decree-law 1961 Op.cit note 1 page 31

⁹⁸ resident means legal person having established in Tunisia article 5 of the Code of Exchange and Foreign Trade promulgated by law n°76-18, dated January 21^st ,1976 outlining reworking and codification of the legislation of exchange and foreign trade regulating the relations between Tunisia and Foreign Countries

⁹⁹ Article 20 the Code of Exchange and Foreign Trade .id.

B: towards facilitating cross border mergers

It is well-established that the conduct of any international merger is a matter of company Law. No one can deny the various attempts made to harmonize between company Laws and by consequence render cross- border mergers a feasible transaction between states of different legal systems.

The US experience has shown that on the statutory level US corporate Law in matter of merger has become relatively uniform across most states. Starting by the state of New Jersey^,s front and followed by the state of Delaware, all states permit the merger of domestic companies with foreign corporations¹⁰⁰. Although US states may set different procedural requirements, such as the required percentage of shares necessary to approve a merger¹⁰¹ , these variations among state Laws do not present a serious barrier to cross-border business combinations.

The situation was different in Europe.

Until the last few years, US businesses faced significantly fewer regulations abroad than they did at home. There has been no harmonized legislative structure at the European level governing cross-border mergers¹⁰². The national Laws of some EU member states have prevented a merger between a company incorporated in that Member State and a company incorporated outside.

100 Model Business Corp. Act 11.07 (1993) which allows such mergers on essentially the same terms that apply to domestic corporations. It is interesting to note that, in 1946, the freedom of foreign and domestic corporations to merge was not so universal; at that time only twenty-four states explicitly allowed such mergers

101 Del. Code Ann. tit. 8, S 216(2) (1991) (majority of shares present required to approve merger); N.Y. Bus. Corp. Law S 903 (McKinney Supp. 1993) (two-thirds of all outstanding shares required to approve merger)

102 Gowans, A., "The M & A Lawyer September, 2004 The EU Cross-Border Merger Directive: A Move to Facilitate The "M" OF European M&A?" , Glasser Legal Works, 2004

To effect these cross-border transactions, the constituent entities are often required to create complex, costly and potentially reversible transaction structures, typically involving the dissolution of the target company. The merger of the German company "Daimler-Benz" and the American company "Chrysler" was considered an innovative model of an "indirect cross-border merger". It was unclear whether the legal possibility of cross-border mergers exists under German Law. However the transaction was ruled out by the parties with some adaptations to the requirement of German Company Law. Instead of a direct cross-merger, the transaction was operated into two stages: the first stage was entered with setting up the DaimlerChrysler AG in Germany, incorporated and created to take on the businesses of the two American and German partners, the corporate structure of which duplicates that of the German company "Daimler-Benz AG". This corporation then acquired all the shares of Daimler-Benz AG and Chrysler Corp. in exchange for its own shares. In other words, the DaimlerChrysler AG submitted to the Daimler-Benz shareholders an offer to exchange their shares for the issuance of new DaimlerChrysler shares (capital increase by way of contribution in kind, "Daimler-Benz Capital Increase"). Consequently, the Daimler-Benz AG became a subsidiary of DaimlerChrysler AG. Concurrently, the entire interest in the Chrysler Corporation was exchanged for the issuance of further new shares in the DaimlerChrysler AG.

The Chrysler shares had before been acquired by a U.S. exchange agent expressly appointed for this merger by way of a "triangular mergerr/¹⁰³ under Delaware Corporate Law. This form of business combination when the target and the absorbing companies exist under the Laws of different countries, namely "statutory or reorganization" type of merger¹⁰⁴ and called "triangular merger in which the target will merge with a subsidiary of the absorbing company that is newly created for the

¹⁰³"...Triangular merger: A merger in which the target corporation is absorbed into the acquiring corporation's subsidiary, with the target shareholders receiving stock in the parent corporation..." Black's Law dictionary 8th ed. 2004.op.cit. note 1 page 1

104 section 368(a) of the DGCL

purpose is considered an effective solution to circumventing the jurisdictional limitations on cross-border mergers, a key advantage of avoiding a "direct merger" , in which the liabilities of the absorbed company never become the direct liabilities of the absorbing company.

In the second stage, the Daimler-Benz AG that had first been turned into a subsidiary was merged into the DaimlerChrysler AG ("Daimler-Benz merger"). This was the result: Daimler-Benz AG and Daimler/Chrysler AG merged. Daimler-Benz AG disappeared into DaimlerChrysler AG with all shareholders of Daimler-Benz now being shareholders of DaimlerChrysler AG. The Chrysler Corporation was turned into a "wholly-owned subsidiary" of DaimlerChrysler AG and changed its name to "DaimlerChrysler Corporation". Chrysler Corp. still exists in the form of a 100 % subsidiary of Daimler/Chrysler AG.

Any form of merger (triangular) was uncommon in Europe, with the great majority of mergers transactions being structured as some form of acquisition". One of the reasons for this was that there is no EU equivalent to the concept of Section 251 of the Delaware General Corporation Law, which provides for the surviving corporation in a merger to succeed to the assets, rights and obligations of the target company, and for the target company to cease to exist¹⁰⁵.

By contrast, in most European jurisdictions, this sort of "succession" to assets, obligations and rights could only be achieved by contractual transfer and a company could only cease to exist if "dissolution" procedures are adopted. Following the adoption of the European Directive on cross-border mergers, efforts has been made to address some of these barriers to make cross-border mergers involving companies based in the EU a less complicated option. It was stated in the preamble of the Directive that it was necessary to lay down community provisions to facilitate the carrying out of cross-border mergers between various types of limited liability Company governed by the Laws of

¹⁰⁵ Section 251 of the DGCL

different member states".¹⁰⁶ Accordingly, the European environment has observed shifts that should provide an opportunity for US companies with existing EU operations to structure transactions as mergers between an existing European subsidiary and a potential merger partner based in Europe.

Some elements of US mergers style like the provisions of U.S. state corporate Laws authorizing mergers with out-of-state (so-called "foreign") entities¹⁰⁷ and the "triangular" mergers" concept(structure involving newly-created subsidiaries of the parties in interest), should become possible in Europe, and U.S. companies looking for European merger partners should find it easier to structure transactions as "triangular mergers". It's claimed however that the scope of the EU directive is narrower than might first appear. The directive would not apply to transactions between EU member state companies and those organized under non-EU jurisdictions (non EU countries like Tunisia).

Despite the relatively narrow scope of the proposed directive, It may be a significant step towards harmonization (and, in some cases, modernization) of EU Laws governing mergers. It still a necessary step because it will create an appropriate community legal instrument which will enable all types of companies with shares capital to carry out cross- border mergers under the most favourable conditions. With regards to the situation in Tunisia a significant step toward facilitating cross-border mergers remain to be seen. Reforms within national level creating national rules monitoring the procedure of the cross-border transaction under the most favourable conditions and ratifying the necessary agreements to render it more into line with company Laws in Europe and in the US will be crucial in this area.

¹⁰⁶ Preamble of the European Directive on cross border mergers 2005 see appendices 1

107 The Revised MBCA chapter 11.2 states: "One or more domestic corporations may merge with a domestic or foreign corporation or other entity pursuant to a plan of merger".

In the light of this state of affairs and of the fact that mergers of domestic companies with companies organized under the Laws of other jurisdictions, is on a way to become a less complicated operation , it will now be much easier for Europe's and US companies to cooperate and restructure themselves through merging together across borders. As a result mergers should become at topical. The increase of the number of this transaction will therefore increase the number of disputes. It is important to study the fundamental requirements relating to the applicable Law when the deal involves companies that are organized under differing company Laws.

Section 2: Cross-border mergers fundamental requirements

In any legal act carried out in accordance with an international merger, foreign companies must be recognized to legally set up by virtue of merger in any relevant legal system. Because cross border mergers are between companies subject to differing national company Laws, conflicts may arise regarding which Law ought to be applied to the exclusion of the others, the absorbing company corporate Law or the absorbed company corporate Law.

The first paragraph will study the recognition of foreign companies' principle 1 and the second paragraph will explain the need to coordinate between the different company Laws of the companies participating in the merger 2

Pargi: Recognition of foreign companies participating in a merger: European approach

The recognition of foreign companies is based on the freedom of Establishment principle (A), principle with no uniform European legal basis (B)

A- The Principle:

From European perspectives, in order to permit companies to easily engage in transnational transactions in other member states such as cross border mergers ,the European Community, according to the Rome treaty¹⁰⁸ known as the European Community Treaty, has required from their member states "to enter into negotiations regarding equality of protection of persons, the abolition of double taxation within the community , the possibility of mergers between companies or firms governed by the Laws of different countries, and the mutual recognition of companies or firms , inter aliaff.^1°9 Consequently, the European community set out some basis of freedoms. These are the free movement of person, the free movement of service and capital¹¹⁰, and particularly in connection with company Law, the freedom of establishment, contained in articles 52 of 58 of the European Community treaty.

Article 52 requires the EU member states "to abolish restrictions on the freedom of establishments of nationals of a member state in the territory of another member State by progressive stages in the course of the transitional period. The same article adds that such progressive abolition shall also apply to restrictions on the setting up of agencies, branches, or subsidiaries by nationals of any member State established in the territory of any member State"¹¹¹.

In considering the concept of freedom of establishment of companies, article 52, second paragraph states that: "Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Art. 58, under the

108 Rome Teary was signed on 25 march 1957 establishing the European Community (EC) amended by the treaty of Amsterdam in 1997 which essential goal was the harmonization of company Law and the creation of a Common market to eliminate the disparities between national Laws of the member states.

¹⁰⁹ Article 220 of the Rome Treaty See appendices 5

¹¹⁰ Title III "Free movement of persons, services and capital" of the Rome Treaty.

¹¹¹ Article 52 id. see appendices n°5

Conditions laid down for its own nationals by the Law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital". This article must be read in conjunction with article 58 of the Treaty, which provides that "companies or firms formed in accordance with the Law of a member states and having their registered office, central administration or principle place of business within the Community, for the purposes of this chapter, are to be treated in the same way as natural persons who are nationals of member states".¹¹²

The freedom of establishment guarantees the general right to create permanent institutions necessary for the independent operation of business activities and the right to set up companies.

In the broad sense, the freedom of establishment describes the right of business which is based in one member state to move to another member state and set up there, or subsidiary business in another member state. In this regards, a distinction between "secondary establishment" and "primary establishment" need to be made: The right of a company within the meaning of article 58 of the Treaty to freely set up a subsidiary is commonly referred to as freedom of "secondary establishment". In this context branches or subsidiaries are forms of "secondary establishments". The very recent decision of the European Court of justice dated March 9^th, 1999, in the matter of Centro's Ltd v Erhvervs-org Selskabsstyrelsen, illustrates a case Law concerning the rights of secondary establishment. By contrast, little case Law has examined the primary establishment¹¹³. The freedom of establishment Principle does not have, however a uniform international legal basis within the European Union¹¹⁴.

¹¹² Article 58 Rome Treaty id

113 Primary establishment is "the right of a company to establish it self in a member state, other than the one where it is incorporated , by transferring its real seat to this member state while retaining the links and giving its corporate nationality of the first member state, normally be retention of a registered office there..." Forstinger

114 EC Treaty on the Mutual recognition of Companies and Juristic Persons of 29 February 1968 (BGBI, II, 1972, 370) has never come into force for lack of ratification by the Netherlands.

The European community has been divided between what is known on one hand as the "Incorporation theory", and on the other hand as the "Real seat theory". If the first theory connects a company to the jurisdiction in which it has been incorporated, so that the company may develop whatever activities it exercises in other states without losing its original status, the second theory starts from social and economic reality and applies its legal order to all entities that are effectively directed from within its territory.

Where the first theory recognises all foreign legal entities according to the rules applicable in the state of origin, the second theory refuses to recognise companies that claim to belong to another jurisdiction which is not the one in which their real seat is established. The real seat of a

company has been described as the company's head quarters, the brain of the enterprise or the place where the final decisions are made. (Article 10

Tunisian Commercial Companies Code, same position).

The controversy is especially strong where the question of the crossing of the state borders is concerned. This is also the subject of the cross border merger, subject on which harmonisation has not been able to make any progress for several decade.

B- The Debate: Com mon law v Civil law

The divergences between the legal basis recognizing foreign companies to migrate by way of merger in another country without losing their "legal status" have generated an extensive debate between civil law and common law legal systems.

On the one hand, the "real seat" theory, prevailing within Europe, as the case in France¹¹⁵, and in the Tunisian legislation in force (article 10 §1 of the Commercial Companies code stating that: "companies that have

¹¹⁵ Articles 1837 French Civil .code and L-210-3 C-com related to the commercial compagnies states in §1, «les sociétés dont le siége social est situé sur le territoire français sont soumis à la loi française »

their registered office based in the Tunisian territory are governed by the Tunisian Law"¹¹⁶), on the other hand, the incorporation theory is still applicable in Great Britain and in a limited form in Italy.

Consequently in countries which have adopted the real seat theory, companies that have their central administration in a country other than their registered office are non existent as legal entities. They are then subject to the Law of the State where they have their central administration and do not enjoy the benefits of incorporation under the Local Company Law. Therefore, those countries who have applied this theory, wary of possible evasion from their national company law through manipulation of the rule, will deny the legal existence to companies that have their real seat in a country other than where it is registered. It involves that companies of these civil law countries, that want to migrate by way of merger for example, must wind up. The Real seat theory is essentially based on the idea that the company should have a real link with the state of whose legal system it claims application.(real link according to article 39 of the International private law Tunisian Code) If no such link exists, the company

will not be allowed to qualify under its jurisdiction.

By definition, merger transaction involves the dissolution of the acquired company without winding up. Cross border mergers would equally be rendered impossible.The situation is different in common law systems, particularly in the US.

The American Corporate Law which has adopted the incorporation theory analyses the issue in a different way. The Law applicable to the company that wants to migrate from one state to another is the Law which the incorporators have chosen in the articles of incorporation¹¹⁷. However State Corporate Laws are subordinate to the states corporate Law regulations. Cross border mergers in the US are expressly allowed by the corporate Law of Delaware with regards to companies in other US

¹¹⁶ Article 10 of the TCCC " les sociétés dont le siège social est situé sur le territoire tunisien sont soumises à la loi tunisienne... » personal translation

¹¹⁷ Kaplan, F., "foreign Corporations and local Corporate Policy", 1968, Van Law Review , Westlaw data base

States as well as non US companies to the extent that the merger is allowable under the applicable foreign company Law¹¹⁸. Accordingly, in jurisdictions adhering to the incorporation theory, the transfer of the "seat" of the company has no legal meaning. The company remains subject to the jurisdiction of the state in which it was incorporated, in which it has its registered office. The incorporation theory allows the directors of the company to freely choose for the legal system they think most appropriate: once the choice is made, it can be maintained throughout the company's life. The "legal status" of the company can be determined regardless of the state in which its activity is effectively deployed. Other states would therefore have to accept this "foreign" element.

Jurisdictions adhering to the "real seat" theory will refuse these companies, whether by disqualifying them, or by submitting them to their own legal order, when the company is being managed from their own territory. By contrast, in jurisdiction adhering to the "incorporation" theory, a company is free to establish an operational seat in another jurisdiction without incurring dissolution of the company, or any other consequence.

The European Court of Justice has confronted the issue of the real seat rule and company migration in the Daily Mail case ¹¹⁹: In this case a U.K. company wished to transfer its residence to the Netherlands and set up a subsidiary in the United Kingdom as a foreign company. The Treasury had to give permission to make such a transfer; it denied it, and Daily Mail challenged the requirement for permission, arguing that since the transfer constituted a transfer of establishment, the requirement was a restriction on its freedom of establishment.

¹¹⁸ DGCL art 252(a) any 1 or more corporations existing under the laws of this State may merge or consolidate with 1 or more corporations organized under the laws of any jurisdiction other than 1 of the United States if the laws under which the other corporation or corporations are organized permit a corporation of such jurisdiction to merge or consolidate with a corporation of another jurisdiction".

119 The Queen v. H.M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust PLC [hereinafter The dail mail case 1989 ECJ

The European Court of Justice stated that, "unlike natural persons, companies are creatures of the Law and, in the present state of Community Law, creatures of national Law. They exist only by virtue of national legislation which determines their incorporation and functioning"

120_.

However, it appeared from the Daily Mail case that one of the main advantages of the incorporation technique: whatever happens, the company can act according to its original, familiar company Law system.

Even if exclusively operating in a foreign country, the rules of its domestic jurisdiction remain in force. By contrast, companies establishing a seat in a jurisdiction adhering to the incorporation theory - e.g. French or a Tunisian company transferring its seat to the US- will not be affected by the American company Law. According to the incorporation theory a company can subject itself to the jurisdiction of another state.

The company who doesn't have a real link with the state of whose legal system it claims application can be allowed to qualify under its jurisdiction. Cross border mergers are therefore possible.

Divergences regarding the carrying on of cross border mergers may increase when it concerns conflicts of law matters. That's why it is necessary to coordinate between national laws in this regard.

120 The daily mail case Op.cit note 2 page 42 id

Parg2: Necessity to coordinate between national company Laws

The necessary coordination between national company laws is expressed regarding the conflict of Laws level (A) and regarding the substantive Law level (B)

A-Towards harmoni2ation of national conflict of Laws rules

During an international merger, the applicability of national or foreign conflict of Laws rules is at stake.

If many civil law countries tend to have a favourable attitude towards the recognition of a company as it exists in its country of origin which will facilitates the cross border merger transactions, it doesn't mean that this approach is the end of the "real seat" doctrine, as the latter will remain applicable in the domestic context. Its importance will be, however, considerably reduced. From EU perspectives, the application of national conflict of Laws rules was limited in the famous "Centro's" ¹²¹ case based on the freedom of Establishment principle of Articles 52 and 58 of the Treaty of the European Union.

In Centro's the ECJ dealt with an EU member State^,s refuse to register a branch of a company incorporated in another member State where that company^,s intent was to conduct its principal business in the host state and to escape the host state^,s minimum capital regulations¹²².

¹²¹ Case C-212/97, Centro's Ltd. v. Erhvervs-og Selskabsstyrelsen, 1999 E.C.R

122 "....Centros Ltd. had its registered office in the United Kingdom and was seeking to establish a branch in Denmark to carry on its principal business there). Both owners of Centros Ltd. were Danish nationals whose company had never traded in the United Kingdom. When the Danish Trade and Companies Board refused to register a branch in Denmark, the company's owners filed an action claiming that they were entitled to establish a branch pursuant to the Treaty provisions on the freedom of establishment.." Id

Despite the company^,s obvious effort to circumvent more strict corporate rules, the ECJ held that "the host state^,s refuse to register the branch constituted an infringement on the right of establishment and thus violated the EC Treaty"¹²³ . There is no doubt that Centro's severely restricted the scope of the real seat doctrine.

According to Centro's it became possible to incorporate a company under the Laws of a member state which applies the incorporation state doctrine and then subsequently operates the company through a branch in any other member State. It also became irrelevant whether the company carries on any economic activity in the state of incorporation or whether the central administration is located in the state where the branch is established.

From American perspectives, the incorporation theory has been well established in corporate Laws, particularly in the State of California and New York¹²⁴.the given example is the "Western Airlines case"¹²⁵.

Last, there is however no doubt that forum shopping¹²⁶ can occur between the member states which apply the incorporation state doctrine. As it was remarkably quoted by Walker and Castels, with respect to the exercise of jurisdiction, forum shopping may contribute to facilitate "the manipulation of the outcome of disputes through the opportunistic

selection of forum that had little connection with the disputes but that had conflicts of Laws rules or procedural rules that would provide the parties

¹²³ Rothe, N., "Freedom of Establishment of Legal Persons Within The European Union: An Analysis of the European Court of Justice Decision In The ÜBERSEERING case, American University Law Review, June, 2004

¹²⁴ Blackburn, T., and Mason, G. , "The Unification of Corporate Laws: The United States, The European Community and the Race to Laxity ", Independent Law Review, 1994 west law data base

125 Western Airlines v. Sobieski, 191 Cal. App. 2d 399, 719 (1961) (upholding the determination by the California Commissioner of Corporations that a Delaware corporation could not amend its certificate of incorporation to eliminate cumulative voting because California Law required the use of cumulative voting, and because the headquarters, seat of operations and 30% of the shareholders were located in California).

¹²⁶ "....The term "forum shopping" covers the practice of choosing a country for the incorporation or reincorporation of a company on the basis of which country's company Law is the most favourable.." , Walker and Castels, Choice of law rules, Private /nternational Law, Canadian Conflict of Laws, Op.cit note 5 page 5

with advantages that were not available in forum more closely connected with the disputes"¹²⁷.

Let's consider a hypothetical merger between two large companies in different member states that have divergent company Laws. Suppose Rolls Royce, a public limited company incorporated under British Law, enters into a merger agreement with BMW, a German company¹²⁸. The resulting merged entity could take several forms: (1) a legal merger creating a British company incorporated under either British or German Law (RollsBMW UK or Deutsche Rolls); (2) a European company incorporated under the proposed European Community Statute ¹²⁹ (Euro company-RollsBMW); or (3) a group arrangement, under which a holding company incorporated in either the United Kingdom, Germany, or a third country (such as Luxembourg) would own the shares of separately existing Rolls Royce and BMW subsidiaries. The salient aspect of this supposed transaction is that management generally has had little flexibility in selecting the Law applicable to the internal affairs of the corporation. The new availability of the legal merger within Europe, however, gives management discretion to choose the Law applicable to internal corporate affairs, that is, the ability to migrate to a foreign jurisdiction and enter the "race to the bottom."

¹²⁷ Walker, Op.cit note 5 page 5 Id

¹²⁸ In Germany, ("stock society") is the most Common form of business organization for large, publicly traded companies.

¹²⁹ Proposal for a Council Regulation on the Statute for a European Community, Official .Journal. European. Community (1989) [hereinafter ECS]

Many scholars start to talk about this race to the bottom what is known as the «Delaware effect" or the "Delaware syndrome.¹³⁰" These terms have been widely used in the European debate to refer to an undesirable situation in the development in the US where, throughout the twentieth century, U.S. Corporation Law was competitively deregulated by states attempting to attract corporations to their own jurisdictions.

The reason why European legal scholars refer to developments in the US is that the European Union and the US seem to have a lot in common with regard to the regulation of companies.

Firstly, the regulation of corporations in the US is conducted at the state level, so that each state has its own corporate Laws. This is very similar to the situation in the European Union where, in the absence of harmonisation, the power to regulate companies is vested in the member states. The European Union may be compared with the US to some extent, as the harmonisation may be compared with the federal regulation in the US. Whereas there is some harmonisation of company Law in the European Union there are no federal Laws on this subject.

Secondly, In the US, the problems created by the lack of uniformity with respect to company Laws and relating to conflicts in the substantive Laws that may apply to companies that conduct interstate business have been dealt with in part by the adoption of the internal affairs doctrine¹³¹. U.S states apply the internal affairs doctrine, whereby a corporation is

governed by the Law of the state in which it is incorporated; it is immaterial whether the corporation conducts any economic activity there or where it's central administration is located.

¹³⁰ Birkemose, H., "The Fear of the Delaware-Effect--The American Demon, in The Internationalisation of Companies and Company Law, Corporate Migration in the European Union: An Analysis of the Proposed 14th EC Company Law Directive on the Transfer of the Registered Office of a Company from One Member State to Another with a Change of Applicable Law", Columbia Journal Of European Law. Page 181, 186 (2000) West Law

¹³¹ "...the "internal affair doctrine" came to assure that for most issues of corporate procedures , governance and relationships among officers , directors and shareholders , a corporation needs to be concerned only with the Law of its state of incorporation and can ignore the corporation Laws of the other states. Firms choose as their state of incorporation a statutory domicile which is independent of physical presence and can be changed with shareholder approval...." FORSTINGER, Ch.M, Take over Law in the EU and the US, A comparative analysis, Op.cit note page 12

This doctrine adopts a choice of Law system that specifies that the internal affairs of a corporation shall be governed by the Law of the place of incorporation of the company being regulated¹³². According to the Restatement Second of US Conflict of Laws, a corporation's internal affairs are involved "whenever the issue concerns the relations inter se of the corporation, its stockholders, directors, officers or agents..."¹³³ The use of the internal affairs rule will give companies the certainty that in most situations, they will know in advance the standards to which they will be held, and that differing Laws of other states will not be unexpectedly applied to their actions.

This "incorporation state" doctrine is applied in a number of the member states in the European Union, and it has been debated whether the other main doctrine, the real seat doctrine, is incompatible with the Treaty of Rome. If it is, would this mean that the incorporation state doctrine would prevail in the European Union? Even after Centro's, the use of the real seat doctrine continued to impose an actual restriction on competition between legal orders in the European Union. More than anything, the European jurisprudence has increased the pressure on EU member states to harmonize legislation in the area of company Law¹³⁴.

¹³² Approximately twenty states have adopted statutes based on Section 106 of the former draft of the Model Business Corporations Act, which states that the Act does not authorize states to regulate "the organization or internal affairs" of a foreign corporation. Restatement (Second) of Conflict of Laws S 302 and S 302 (1971) The Revised Model Business Corporations Act has essentially carried forward the same concept. Model Business Corp. Act. S 15.05(c) (1993). Id

133 Restatement (Second) of Conflict of Laws S 313 (1971)

¹³⁴ the EU Directive preamble states: "None of the provisions and formalities of national Law, to which reference is made in this Directive, should introduce restrictions on freedom of establishment or on the free movement of capital save where these can be justified in accordance with the case-Law of the Court of Justice and in particular by requirements of the general interest and are both necessary for, and proportionate to, the attainment of such overriding requirements". EU directive on cross border mergers. note 3 p 11

After the Centro's case in 1999, the Europe Court of Justice has again delivered a significant case dealing with the legal situation of EU companies establishing themselves in other member states. Recently, in the Überseering case¹³⁵ dated November 5^th, 2002, the European Court of Justice has considered incompatible with the Treaty freedoms, the German rule, based on the real seat doctrine, whereby foreign companies with a seat on the German territory were refused to appear in German courts unless they proceeded to re-incorporation. This was considered a complete negation of the freedom of establishment. Likewise, foreign companies with a seat in the Tunisia territory must re incorporate in accordance with the legislation in force in the country in order to merge with Tunisian companies! Member states should allow companies that have been incorporated in other member states to freely enter their territory, according to the rules under which they have been formed in their state of origin. The Überseering case constitutes another landmark on the road towards the more free circulation of companies in Europe.

Whether it introduces the incorporation theory as the European rule, is open to doubt, as the Court has exclusively relied on the Treaty rules on free establishment. It seems that the Court has rather developed a new approach that could allow bridging the differences between incorporation and real seat techniques¹³⁶. Member states should agree to a set of minimum standards that companies must follow when doing business in any EU member State and establish those in EU Law.

This harmonization would diminish the roles of the real seat doctrine and incorporation theory as alternative approaches to conflict-of-Laws problems, because the Law of the seat country and the Law of the state of incorporation would be largely equivalent. With the achievement of legal harmonization in the area of company Law, the European Union should devise strategies to control abuses of the freedom of establishment

¹³⁵ ECJ Überseering BV and Nordic Constriction Company Baumanagement (NCC), case 208/00, Judgement of 5 November 2002

¹³⁶ Blackburn, T., and George Mason , "The Unification of Corporate Laws: The United States, The European Community and the Race to Laxity ", op cited note 3 page 45

provisions to circumvent national regulations for the formation of a company. Moreover, member states should ratify convention about the mutual recognition of business forms and negotiate an approach to conflict-of-Laws problems. In order to facilitate cross-border merger operations, each company taking part in a cross-border merger remains subject to the provisions and formalities of the national Law which would be applicable in the case of a national merger. In other words each firm involved in a cross-border merger transaction would generally be governed by its own national Law with respect to the corporate formalities to be observed.

It appears from all these considerations that the relationship between conflict of Laws and cross-border mergers is not limited to the debate about the general differences between the "statutory seat" and the "real seat" doctrine. Additional controversial question may arise regards the substantive Laws governing the cross-border transaction

B-towards coordination of national substantive Laws

There can be no doubt that each company participating in a merger transaction will be governed by its national company Law. In order to understand which Law need to be applied in a merger involving companies from different countries it is first of all necessary to analyze the concept of the Law governing the legal status of each company, generally called "lex societatis" or "statute personnel de la société".

According to AUDIT, B., the "lex societatis" is considered the Law that governs the incorporation, the organization and the dissolution or liquidation of the company¹³⁷.

137 Audit. (B), Droit International Privé, Economica, 4^e ed, 2006, paragraph n°1128

Although consecrated by many legal systems particularly in France by the jurisprudence¹³⁸ , many legal systems disagreed regards the choice of the Law to be applicable. During an international merger , the main conditions required are the necessity of a preliminary documents to negotiate the negotiations, the necessity of a balance sheet assessed and approved by the company' s accountants, the approval by shareholders and boards of directors of the merger contract, the registration and the publication of the contract. Normally these conditions are governed by their own "lex societatis". One can ask a question : what if the absorbed company' lex societatis doesn't consider for example a "letter of intent" necessary and the contrary for the absorbed company? More, what if the lex societatis of the absorbed company doesn't require a balance sheet adjusted to evaluate the worth of the company while it is required under the lex societatis of the absorbing company ? Equally , which "lex societatis" will govern the "transfer of universality"- in other words , the transfer of the assets and liabilities and the transfer of all creditors of the shareholders of the absorbed company to the absorbing company?

According to the doctrine of universal succession the acquiring company is considered the universal successor¹³⁹ of the merged company. In other words all the assets and liabilities of the absorbed company will be transferred automatically upon merger to the acquiring company¹⁴⁰.The universal succession can take place provided that the "lex societatis" of the absorbing company will govern the responsibility generated by the succession, the transfer of shares and the increase capital and the absorbed company' lex societatis will govern the dissolution without winding up. The "lex societatis" of each company may, however, have serious shortcomings. What if the lex societatis of the absorbing company

¹³⁸ Case Royal-Dutch Shell, Cass. Civ 1st , 25 January , 1966, note by Y. Loussouarn

¹³⁹ "...Universal successor is the one who acquire the universality of the patrimony of his author". Dahl's Law
Dictionary , compiled by Henry Saint Dahl, William S.Hein & Co ,Inc. Buffalo , New York , Dalloz , Paris 1995

140 The court held that ... "the doctrine of universal succession provided that assets and liabilities were transferred automatically upon mergermall matters governing the status of a foreign corporation should be determined by reference to the domestic Law of that foreign corporation" Sweet & Maxwell Limited Eurosteel Ltd v Stinnes AG, (QBD (Comm))Queen^,s Bench Division (Commercial Court), 8 December 1999, [2000] 1 All E.R. (Comm) 964, [2000] C.L.C. 470,

disregard the Law of the company that disappears, whereas the lex societatis of the absorbed company disregards the fact that the deal cannot be justified without taking into account the Law of the acquiring company?

The idea proposed and that could be the most appropriate is a
mixed approach . The details of this solution, however, are problematic.

Since the laws of two countries are affected, a comprehensive combination of both national substantive laws might be preferable. However, this can lead to inconsistencies. For that reason, it could be said that the more demanding of the two laws should be applicable. Yet, determining which law is more demanding can be a difficult task. Consequently, it could be argued that the problem is to be solved by a harmonization of the rules on conflict of laws, rather then by the substantive provisions of the corporate law on cross-border mergers. The law on cross-border mergers is closely linked to other fields of corporate law.

For instance, mergers typically require approval at general meetings¹⁴¹ and address questions of creditor protection¹⁴², so all requirements that belong to these sub-areas of law would also have to be embraced. Furthermore, it is too necessary to unify everything that relates to cross-border mergers. To some extent, there is no need to harmonize the substantive law, because it does not create any problems if, for instance, the rules governing the set up of the shareholders^, meetings (at which the shareholders vote on the cross-border merger) stay different. As a result, a mixed theory that distinguishes between different types of rules would be the best solution. This would mean that, firstly, the requirements of a cross-border merger are dealt with by the

¹⁴¹ section 251 of Delaware General Corporation Law, and article 7 Third Council Directive dated October 9, 1978 concerning mergers of public limited liability companies, 1978 Official Journal

¹⁴² This is particularly important, if a legal system requires minimum capital, see, Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, 1977 Official .Journal

law of each company, because it is for each legal system to decide if, and to what extent, cross-border mergers are allowed.

Secondly, the rules of the procedure of a cross-border merger, such as the approval of the shareholders are also based on the law of each company. This can sometimes lead to the application of both laws, because, for instance, the cross-border merger' contract has to fulfill the rules of both countries. Thirdly, the dissolution of one corporation and the transfer of all of its assets and liabilities are to be decided jointly by the law of the absorbed company. Further consequences might also have to be dealt with by the law of the surviving company, because only this company will do business in the future. Under the German private international Law, for example , the Laws applicable to all companies participating in a merger are cumulatively applicable (the so-called "unification theory")¹⁴³. In the Daimler Chrysler case, the German Law was the "governing Law" for the Daimler-Benz Merger (to the extent executed in Germany), for the Daimler-Benz Capital Increase, and for the Chrysler Capital Exchange. In all other respects, the Agreement was governed by the Delaware Law without regard to the principles of conflict of Laws thereof. With regard to the agreement and any of the transactions contemplated by it, the parties consented to submit themselves to any federal court located in the state of Delaware or any Delaware state court.

This question however merits closer examination.

The need for conflict of laws rules could be removed by unifying the substantive law of the various legal systems in which the world is divided in general but it is not the case regarding the substantive law on cross- border mergers. Moreover various institutions have been established to

¹⁴³ Beitzek, G. « les conflits de lois en matière de fusion des sociétés, droit communautaire et droit international privé, doctrine et chronique », Revue critique de droit international privé, librairie Sirey, Paris, 1967

promote the unification of private law. These include the Rome Institute for the Unification of Private Law (UNIDROIT)¹⁴⁴.

At private level, lawyers may avoid conflict of laws problems by resorting to various localization tools such as choice of law, choice of forum or dispute resolution clause.

At jurisdictional level, "forum shopping" and the doctrine of "forum non conveniens" are also very useful tools for avoiding the application of the law of a particular legal system. However, unified substantive laws in the field of cross-border mergers may be not necessary.

Following the adoption of the EU Directive on cross-border mergers the basic principle is that a cross-border merger shall be governed by the rules already applicable to domestic mergers¹⁴⁵. However this does not mean that coordination of domestic laws is not necessary at all. If there are no special provisions in the directive, the existing domestic rules have to step in. For example, it is for the member states to decide whether, for instance, shareholders should be granted an appraisal right because the merger will transform them into shareholders of a different and foreign corporation. It is preferable to coordinate national substantive laws regarding the types of companies that are legally permitted to carry out a cross border merger transaction, to require that the contract of merger must be duly drafted and require a minimum of collaboration between the authorities in charge of filling / registration of the merger contract. By contrast to a situation in which a particular national merger law is applicable to cross-border mergers, unified rules offer a release from complex conflict of laws questions in determining whether cross-border mergers should take place.

Special and clear rules on conflict of laws inserted in national substantive laws might be preferable, too.

¹⁴⁴ The International Institute for the Unification of Private Law (UNIDROIT) is an independent intergovernmental organization with its seat in Rome. Its purpose is to examine ways of harmonizing and coordinating the private Law of states and of group of states and to prepare gradually for the adoption by states of uniform rules of private Law. Further information's can be found on the website at www.unidroit.org

¹⁴⁵ Article 2 of the EU Directive on cross-border mergers See appendices 1

Conclusion of the preliminary chapter

In this introductive chapter, we have shown that cross-border merger transaction involves complex working process that requires a very careful preparation during the negotiation and the integration phases.

Companies governed by laws of different countries must be recognized to establish by way of merger without constraint. Failing uniform legal basis in civil law and common law countries recognizing freedom of movement of companies, there is a need to coordinate national conflict of law rules and to harmonize national substantive laws. However, the observed harmonization of the law on cross-border mergers at the European level and within the US is likely to lead to a further, dramatic increase of the number of transatlantic mergers transactions, which will intensify the number disputes relating to these transactions.

Implementing ADR mechanisms to resolve disputes arising out of cross border merger transactions is highly required. In other words, European and American scholars need considerably to take a fresh look at the intersection of ADR and international merger business activity.

To the extent this implementation must cope with the potential
challenges concerning theses alternatives to litigation remain to be seen

Chapter I

Implementation of Alternative Dispute

Resolution mechanisms required

While completing the initial transaction, the optimistic visions that guided each of the merging companies are often questioned and uncertainty often follows during the negotiations.

One efficient way to manage the amalgamation is to implement alternative dispute resolution methods that could lessen these

uncertainties. Since international business merger activity generates a huge variety of disputes associated during the merger negotiations and ADR procedures are various, implementing these problem solving mechanisms must be adapted to meet the particularities of the transaction involved.

In the first section we will discuss the necessities of the ADR' implementation (sectionl) and in the second section we will explore its potential adaptation within the merger transaction (section 2)

Section 1: Necessities of implementing Alternative Dispute Resolution mechanisms

The quest for the development of alternatives to litigation to resolve international business disputes is rooted in uncertainties associated with litigation (1) which have brought businesses to seek more confidence in using ADR mechanisms (2)

Pargi: uncertainty of litigating international business disputes: General Abstract

Litigating international business disputes has generates not only legal uncertainties (.A) but also business uncertainties (B)

A- Legal uncertainty

When litigating internationally, several legal systems are involved, which may increase the uncertainties associated with litigation in general. The main elements of uncertainty in transnational litigation are relating to the jurisdiction, the conduct of procedure and to the substantive law.

These issues shall be analyzed from civil law and common law approach.

First, research has demonstrated that rules under which courts assume jurisdiction over a dispute vary from country to country and frequently lead to conflicting results. Since courts can base their jurisdiction on different grounds in particular with respect to business disputes as the corporate headquarters of the defendant, the nationality of the plaintiff, parties often have to choose between numbers of

jurisdictions when deciding where to bring suit.

The choice if often motivated by the desire to take advantage of the particular procedural or substantive rules or simply to get before a neutral forum. Since uniform international standards about the assertion of jurisdiction do not exist, different bases of jurisdiction and different interpretations of the same bases can lead to multiple lawsuits in different jurisdictions. Accordingly, parallel litigation in different countries can cause considerable costs, delays and uncertainty. As was remarkably stated by Lowenflend, A: "one way to prevent this would be though the stipulation of an unambiguous "forum selection clause" ¹⁴⁶. In the United States for example, a forum selection clause is defined as "a provision in a contract providing that all disputes arising out or relating to this agreement shall

be resolved in the Supreme Court of the County or other named forum".

Another way to reduce uncertainties associated with litigating international business disputes would be when the chosen forum may accept the jurisdiction or may refuse to do so on the basis of "forum non conveniens"¹⁴⁷ , theory with the possible consequence of leaving the parties with no forum at all. In other words, when litigants will confront difficulties to find an appropriate forum, the prospect of having to litigate in the home courts of the opponent is perceived as one of the major disadvantages of transnational litigation. The litigation of international business disputes inevitably forces one party (the foreign party) to deal with laws procedures and practices which are unfamiliar to that party and its regular legal lawyers.

¹⁴⁶ Lowenflend, A. , "International litigation and Arbitration", second edition , American case books series , West group , St Paul Minn , 2002, p 281

147 Lowenflend , A. "International litigation and Arbitration"Id

Some distinctive traits that distinguish Common law and civil law procedure might illustrate uncertainties in litigating international business disputes and , be helpful as a background for certain persistent issues in the practice of alternatives to litigation.

Firstly it is well-established that Common law system follows the archetype of adversarial procedure whereas civil law system follows the inquisitorial model. In the adversary system like in the US, the parties present alternative versions of the facts and interpretations of the law to the judge who mainly listens and ultimately chooses one of the two versions. By contrast in the civil law tradition of inquisitorial procedure, like in the majority of the European Countries, particularly in Tunisia, the judge plays a very active role in conducting the proceedings and findings the facts. Secondly civil law rules tend to attach greater importance to documents drafted than oral testimony during the course of the proceedings while common law rules give prevailing importance to oral evidence. Ironically, this does not prevent common law proceedings from giving rise to an often gigantic mountain of paper. Thirdly, in the classical common law procedure the judge has more of an observer role while the actual proceedings are in the hands of the lawyers who in a dialectical process develop the facts in front of the mainly passive judge. For instance in a French or German court the taking of evidence rests under the exclusive control of the judge. By contrast in common law trial the gathering of evidence is conducted by the parties and is very broad in scope. Much more emphasis is placed on the actual hearing and an oral testimony.

It is important to note that the dramatic differences between these two legal systems in the methods and scope of evidence gathering in litigation have led to significant problems in the conduct of transnational litigation which emerged primarily when American courts when they

decided to issue orders for discovery¹⁴⁸ abroad, based on the personal jurisdiction over foreign litigants. In response, many civil law countries have enacted what they call "blocking statutes" ¹⁴⁹ to defend against the excessively intrusive American discovery methods.

Finally, additional source of uncertainty in litigating business disputes is the multiplicity of substantive laws. In the absence of a clear and unmistakable contractual stipulation of the applicable law, particularly during the negotiations and drafting phases, in case of dispute, national courts will apply their own choice of law clauses in order to determine which law to apply. Often this will be a difficult decision because many transnational disputes have connections with several legal systems. Even where the determination of the applicable law has been effectuated by the parties it may be hard to predict any outcome when national courts have to apply foreign law.

Uncertainties of litigating international business disputes are not only of legal nature, but can also deduced from the business practice.

B- Business uncertainty

Litigating international business disputes may not be as satisfactory or optimal alternative for business people. Additional uncertainties may be practically figured out from the control over the process, the deficiency of the decision-maker expertise, delays, the narrowed issues and the limited remedies and sometimes additional indirect costs.

First, based on business practice, it has been argued that in litigation the control of the process is removed from the client and delegated to the lawyer and the court. In many sense that it true. Secondly in most civil

¹⁴⁸ In the United States discovery is a technique by which each party prior to trial seeks to obtain from the

other side information useful in establishing its position or controvert the position of its adversary. Buhring, C. and Uhle., Arbitration and Mediation in /nternational Business: Designing procedures for effective conflict management, International Arbitration Law Library, Kluwer Law International, 1996

¹⁴⁹ French Law n ° 80-538 of July 16, 1980 related to the communication of economic, commercial industrial and financial documents to foreign natural or legal persons. (regarding the French blocking statute)

law and common law courts, judges are generalists. In complex cases such as those involving intricate financial transactions, like in a cross- border merger, the judge will most often be unfamiliar with the details and nuances of the background of the dispute. At worst there is the risks that the judge will become lost in details and render a verdict that is based on a view that is objectively inaccurate though no demonstrable as reversible error. Thirdly in many civil law and common law jurisdictions the time required to bring a matter to trial is measured in years rather than months. In the meantime unresolved issues can cause disorder on the operations of the client's business affairs. The party who is disadvantaged by delay is in a weaker position from which to negotiate a satisfactory settlement.

Moreover, litigation requires that business people's problems is to be translated into legal issues. Yet a decision about those issues does not always respond to the real nature of the underlying problem. Courts are constrained in the range of remedies that can be ordered. Some times that will be sufficient but not always. And very often even if the money remedy is fully compensatory it may still not the best outcome that could be achieved. Dominant features of litigation tends to drive disputing parties further spaced out while effective resolution may require that they come closer together. This is in part attributable to the needs of the "adversary system" itself applied by the majority of civil law countries. Each party is encouraged to state its position in the most self-serving, and often the most argumentative terms¹⁵⁰. Finally, clients who have been involved in litigation experience indirect costs in addition to the direct costs of legal fees and other losses. In some cases these indirect costs can exceed the more visible measured direct expenses. They include the change of the management time. Both time and energy are reallocated, as the defense of the litigation becomes a matter of concern, at the expense of developing the positive potential of the client's business affairs.

150 ~leadings are some time not very good vehicles for conveying conciliatory messages!

The uncertainties associated with litigating international business disputes should bring business people to seek more reliable and predictable means of resolving the controversies that may arise out during the negotiations of their agreement.

Parg 2: Confidence in using Alternative Dispute Resolution mechanisms

Considering that Alternative Dispute Resolution mechanisms have different roots in civil law and common law Legal system (A) it will have different significance in the business milieu (B)

A-The roots: Common law v Civil law experience

Alternative dispute resolution methods have increased not only in many common law jurisdictions like in the US, but also, a confirmed observation is that well-intentioned efforts have been made to introduce ADR into the legal cultures of civil law jurisdictions like in Europe and Tunisia.

On the one hand, the American experience has shown that these techniques have converted an initial unfamiliar field into a standard area of the practice of law. For example, in some US states, lawyers who ignore the possibility of employing ADR techniques in the interest of their clients may find themselves at risk of discipline or malpractice liability and other US states have amended their rules of professional conduct for attorneys to include an obligation to be informed about the various techniques and to consider them when advising their clients¹⁵¹.

¹⁵¹ In a matter involving or expected to involve litigation, a Lawyer should advise the client of alternative forms of dispute resolution which might reasonably to pursue to attempt to resolve the legal dispute or to reach the legal objective sought. Section 2.1 of the Colorado Rules of Professional Conducts, as amended effective 1 January 1993. Same in 1993 the Minnesota Supreme Court promulgated Rule 114 of the General Rules of Civil Practice. This rule requires attorneys throughout Minnesota to become more familiar with ADR and more

Accordingly, ADR has reached a high degree of professionalism reflected not only by a growing number of specialized lawyers but also by the emergence of specific ADR companies providing a variety of services. As it was notably quoted by Goldberg, Sander& Rogers, the origins to the move towards alternatives to litigation in dispute resolution have legal and business dimension:

At the legal level, not only the quest for alternatives simply reflects the desire to improve the quality of processes and solutions in dispute resolution but also it has a dimension of enhancing democracy through community involvement in dispute resolution and through a greater access to justice.¹⁵²

Some have argued that the wide implementation of ADR in the US has been caused by factors predetermined by certain peculiarities of the American legal system, including the

structure of the courts, the types of civil proceedings, and the nature of the legal profession.

Briefly quoted by Stephen J. Ware, "the emergence of ADR was essentially a reaction against and a response to the inadequacies of the litigation process and the resultant heavy backlog of cases that choked the courts from the lowest to the highest levels"¹⁵³. Same, Former Chief Justice Warren E. Burger, who helped generate the burgeoning rise in ADR, has explained in 1984 that "we needed to correct our erroneous dependence on adversarial processes as the primary means of resolving disputes"¹⁵⁴.

The move towards alternative techniques in business disputes and the development of corporate ADR programs was also stimulated by a desire to reduce the enormous transaction costs of litigation and to reach more constructive outcomes to find business solutions for business problems.

Unlike the US, ADR still in its infancy in the majority of civil law countries like in France and Tunisia. Civil law countries are only now

proactive in considering and using ADR. McAdoo, B. and Welsh, N., "Does ADR Really Have A Place on The Lawyer^,s Philosophical Map?", Hamline Journal of Public Law and Policy, Spring, 1997

¹⁵² GOLDBERG, S.B. ; SANDER, .E.A, & ROGERS, N.H, " Dispute Resolution, Negotiation, Mediation and other processes", New York , Aspen Law and business Journal, 1999

153 Ware, Alternative dispute Resolution , Op.cit note page 5

¹⁵⁴ Chief Justice Warren E. Burger, Address at the Annual State of the Judiciary Report to the American Bar Association (Feb. 1984), in 52 U.S.L.W. 2471, (1984)

developing an interest in these methods in the corporate world. Like in most European countries, Tunisia, inspired by the French civil law system which main distinguishing feature is that legislation is the primary source of law. The question that may arise is whether the concept of ADR is contrary to civil law philosophy.

Disputes between people arise irrespective of the legal system existing in their country. In our opinion, ADR should be considered as a legal construction, a certain type of thinking leading to compromise and peaceful resolution. Contemplating the current position of ADR in civil law countries, we cannot say that these alternatives could be applied to any country regardless of local rules. While European policy maker do not always follow the US example, there is widespread admiration within Europe for American ADR in business practices.

Regarding the business level, business people in general often, have a tendency to consider ADR as a better means to resolve cross border business disputes rather than resorting in the first instance to litigation. They not only need expeditious justice at a reasonable cost, but also to be able to maintain a business relationship with the opponent while resolving a particular dispute. Moreover, most disputes between businesses involve a contractual problem. People in business accept that disputes are inevitable. Even when a written contract is drawn carefully, problems will arise over the interpretation of a clause. Once a dispute occurs, most business people prefer to resolve it quickly, privately, inexpensively, and informally.

Often for the first time, parties have the opportunity to experience a capable presentation of the other side^,s case; and they have a window of opportunity to identify common interests and points of agreement, and to build mutually acceptable settlement options to disputed issues.

Maintaining a business relationship while involved in litigation is difficult, if not impossible. ADR seek to produce a negotiated settlement between the parties in a manner that encourages common sense and practical

solutions and preserves business relationships. It gives the parties in a dispute total control over the outcome, removing the uncertainty that comes with a court case. It cannot be denied that when an ADR option is implemented, business people will take advantage of the major benefits of ADR vs. litigation, which include: speed, choice and expertise of impartial neutrals, informality and flexibility. Equally important, lawyers and business managers more and more negotiate across political and cultural boundaries in today's professional environment. Transactional lawyers interested in international business can poorly afford a narrow-minded approach to deal making and problem solving in a world where economic globalization leads to demand effective, non-domestic forums for dispute resolution.

ADR procedures have in the international business milieu differing significance from European and American perspectives

B- The significance : the American approach

ADR mechanisms tend to have different significance within the business practice. This significance can be expressed regarding the existing forms to resolve business disputes, particularly, those created by agreement, on the one hand and regarding how these mechanisms are viewed by businesses.

The most used techniques of dispute resolution that find broad acceptance in practice within the international business context is the one created by agreement of the parties. Dispute resolution mechanisms that are available to business companies could be divided in two categories: binding techniques such as Arbitration by contrast to the non binding techniques such as Mediation. A brief outline of the two category of ADR techniques need to be made before exploring the hypothesis of adjusting these mechanisms in the merger transaction.

Considered the preferred mode of dispute resolution in civil law and common law business practice, and as it was remarkably defined by Motulsky, Arbitration is said to be "a private justice which origin is normally contractual"¹⁵⁵. Arbitration is said to have a number of practical advantages over transnational litigation in regards on how it copes with the problems arising from the lack of coordination between legal systems:

Arbitration can reduce some uncertainties connected with transnational litigation, for example, forum shopping can be avoided through properly drafted arbitration clause inserted in the contract. Forum shopping is eliminated since the arbitral tribunal is selected by request of the parties¹⁵⁶ or failing agreement, by an institution or appointing authority¹⁵⁷, following sort of attempt at negotiating a settlement that

took place . The place of the Arbitration (article 67 Tunisian Arbitration Code) and with

it the applicable procedural law, are specified in the Arbitration clause or will be fixed by the institution or the arbitrators themselves. A strong determination to avoid delays in the constitution of the arbitral tribunal is reflected in the London Court of International Arbitration rules that mandate the appointment of the entire arbitral tribunal "as soon as practicable" after receipt of the response or expiry of 30 days after receipt by the respondent of the request for arbitration¹⁵⁸.

Another available ADR mechanism, mediation, called conciliation outside the US, which is considered the oldest form of structured dispute resolution. It is informal, confidential, non binding and gives the parties control over the process. It is a "structured negotiation process" conducted by an impartial third party selected by the parties who will assist them in settling the dispute by guiding them through each stage of the process. Mediation works well for parties that do not want to submit to a jurisdiction, whether it is the jurisdiction of another state or an arbitral

¹⁵⁵ Motulsky, B. Ecrits 72 : Etudes et notes sur l'Arbitrage, préface de Goldman, B. et Fouchard, Ph., Dalloz 1974

¹⁵⁶ Article 3.2 United Nations UNCITRAL rules

¹⁵⁷ Article 3.1 ICC rules

¹⁵⁸ Article 3.5 LCIA ( London Court of International Arbitration)

tribunal. Contrasting traditional and modern business mediation practice has to be understood. According to Buhring, C.¹⁵⁹ while in modern business mediation, the mediator is simply assisting the parties in developing their own solutions, not being motivated by social pressures, traditional mediation occurs in the context of a coherent social group and is characterized by the dominating role of the third party who is typically a higher respected member of the business or legal community whose suggestions carry great authority with the parties (in Tunisia usually in practice judges play the role of mediators) . Example of traditional mediation can be found in many civil law countries¹⁶⁹, particularly in Tunisia where modern business mediation culture is not very spread within legal and business community. By contrast, in some Arab countries, like in Lebanon and Egypt, ADR techniques are benefiting from a favorable legal environment¹⁶¹. Whether Mediation or Arbitration is preferred by the parties, in business field, depends on the cultural and legal traditions of the parties involved. When parties decide to consider dispute resolution clauses during the negotiation of their contract, their support for conducting these mechanisms may be not viewed in the same way.

From American perspectives, when a dispute arises, business people need to know how their rights and obligations in the contract will be enforced. Without a dispute resolution clause, the parties would have to rely on uncertainties and difficulties of trans-national litigation in foreign courts. Several factors however must be considered, including the nature of the international contract, the cultural differences between the parties and the expectations of the parties involved.

¹⁵⁹ Buhring, C. and Uhle., Arbitration and Mediation in International Business: Designing procedures for effective conflict management, Op.cit note 1 page 60

¹⁶⁹ Buhring , Id

¹⁶¹ Najjar, I., " les Models alternatives de règlement des conflits, arbitrage et médiation, droit libanais", in Tunisian Jurisprudence and legislation Review (RJL), 1999

Ultimately, they should reflect the parties^, explicit intention to anticipate disputes and to resolve them in a manner helpful to preserving the business relationship. There is, however no perfect model dispute resolution provision applicable to the entire range of possible international business contracts, particularly the merger contract.

Section 2: Adaptations of Alternative Dispute Resolution mechanisms in merger agreement

No single procedure exists that would be suitable for any type of
dispute. Alternative Dispute resolution processes have to be adapted to
meet the particularities of the type of the transaction involved. During the
merger negotiations, parties should agree to address the issue of dispute
resolution mechanisms in their contract at the earliest stage of the deal.

Non binding ADR techniques, such mediation must, not only be structured in a way to fit with the transaction's needs (pargl) but also, associated with arbitration (parg2)

Pargi: structuring non binding ADR mechanisms

Negotiation is the primary method of resolution of business disputes. (A) and during the closing of a merger deal, must be facilitated by mediation (B)

A- Negotiation process as conceptual root

Conflicts have become a natural component of business relationships. For this they have to be managed in ways that satisfy parties underlying interests. In merger context, negotiating the deal is crucial particularly when the deal crosses borders.

Mergers are almost never without problems and invariably some unexpected aspect of the deal will surface. No matter how well the due diligence process has been carried out, it is impossible for everything to be taken into account. And, unfortunately in many cases, this can lead to conflict between the parties involved. The most constructive way of resolving conflicts is by reconciling interests through consensus. Consensual solutions are the products of negotiation. According to Raîffa, H., negotiation can be analyzed according to characteristic steps, by distinguishing "a preparation phase, the opening moves, the ensuing negotiation dance, and the end phase of concluding the agreement or breaking off the discussions"¹⁶². In mergers context, international mergers transactions are the product of a negotiation among the parties. Although lawyers like to think that negotiations end when merging companies agree on all the details and sign the contract, this view hardly ever reflects reality. An international deal is a continuing negotiation between the parties to the transaction as they seek to adjust their relationship to the rapidly changing international environment in which they must work. In international business merger, negotiations are generally conducted between companies as the first step before the closing of the deal. The usual model is that of representatives of the two merging companies from different countries sitting across a table in faceto-face discussions to shape the terms of the merger contract. It is vital for each side to understand the particular decision making style of the other company and the various particular interests that have to be satisfied.

Cross border mergers require, in addition to this, services of one or more third parties to facilitate the deal making process. These individuals are not usually referred to as "mediators." They instead carry a variety of other labels: accountants, investment bankers, among others. Their role sometimes resembles that of mediators trying to reconcile

¹⁶² RAIFFA, H., The Art & Science of Negotiation", Cambridge, Harvard University Press, 1982

conflicting positions. However cultural differences tend to create a significant barrier to effective communication because they intensify the potential for misunderstandings and increase the time and attention required for the explanation of issues, positions and interests.

The following are some aspects of negotiation etiquette considered useful to know by Tunisian lawyers representing their clients to negotiate a merger deal with foreign: -don't use first names too soon with French or don't be irritated by moments of silence in conversations with the Japanese; American in a contract negotiation tends to view the goal as coming up with a signed contract, by contrast Japanese view it as establishing a relationship between the two sides; Negotiators from Germany communicates directly , other cultures like French rely of figures of speeches; Americans are said to prefer to approach deals by settling each step one a time, the French are seen as having the top down approach of agreeing on a few general principles that are used to fill in the specific issues; Japanese tend to be risk averse and operate on a team basis whereas Americans , by comparison are risk takers and tend to be organized from the top...&¹⁶³. Another situation in which actions by one side could be interpreted by the other side without taking into account the cultural context in which they occur, in business negotiations is the use of lawyers. In the US, the consultation of lawyers and their presence in negotiations is routine behavior in any dealing of certain significance.

From the perspective of other civil law cultures, the involvement of lawyers could be a signal of distrust. It has to be borne in mind that influence of national cultures on negotiation behavior has to be taken into consideration and may signify a fetter to reach the best deal. Consequently, a more cooperative form of dispute resolution facilitating negotiation, particularly during the negotiation of a cross border merger that places greater emphasis on the parties' interest, is required.

163 B_uh_ri_ng, C_. and uhle., Arbitration and Mediation in /nternational Business: Designing procedures for effective conflict management op.cit note 1 page 60

B- Mediation process as prototype facilitating negotiations

It is well established that negotiation is the principle activity of lawyers and the primary method for resolution of legal disputes. By virtue of negotiation, many cases settle without the necessity of a complaint being filed with a court. However, even with good faith efforts by all parties, not all business disputes are settled through unassisted negotiation between the parties. When preservation of a business relationship is the priority, which is the case in a merger, what would be the next more powerful process to resolve potential disputes? Although the automatic response is to think "litigation," lawyers and litigants are beginning to recognize alternatives that offer advantages over negotiation and yet stop short of litigation.

From this perspective, the next step should be Mediation. In the public mind, Mediation is often confused with Arbitration. People assume, for example, that mediators are informal judges who will hear the arguments of both sides and render a decision in the matter. This is mistaken. Mediation is best understood as "assisted negotiation." A mediator is a facilitator, a neutral third person who helps the party's move, step by step, through a process intended to help them find and agree upon a mutually acceptable resolution. From this description, it is also easy to see why lawyers sometimes resist the idea of Mediation. Since most lawyers are experienced negotiators, they may feel they do not really need a neutral facilitator to assist them in the negotiation

process. But this misses the point. The purpose of Mediation is not to help the lawyers move toward agreement, but rather to help the parties do so. The Mediation process is non-adversarial and focuses on the parties' resolving the dispute themselves using the skills of a mediator. The key principle of Mediation is that the parties work together to arrive at an agreement that suits both.

This is in contrast to litigation and Arbitration where a judge or arbitrator imposes a decision which may be disappointing for one or both parties. A mediator is appointed by the parties to help establish effective communication and by doing so find a solution which satisfies both their needs and interests. The informal process is speedy and cost effective for on-going business relationships. In other words, the assistance of a thirdparty neutral during negotiations can help bring about successful resolution, even though skillful negotiators may have previously tried and failed

Mediation can be a flexible and powerful tool, particularly welldesigned for the resolution of international business disputes. In particular, the mediator needs to be sensitive to the number of deep differences among countries, cultures, and areas of the world and take

account. Mediation is accepted in the business milieu in many common law countries like in

the US, while in many civil law countries it has not yet achieved a mature acceptance as a viable mean having its established legal framework.

Mediation must be distinguished from other non binding processes such as conciliation. conciliation is: "a process by which a third party, the conciliator, makes recommendations to the parties in order to settle their difference; the mediator, for his part, will simply arrange for the parties to discuss together and will abstain from making them any recommendations.¹⁶⁴" Conciliation is a peaceful way to settle litigations that need the intervention of a third party in charge of trying to reach a solution accepted by parties. Although the two methods (Mediation and Conciliation) have similar aspects¹⁶⁵, they are fundamentally different¹⁶⁶.

¹⁶⁴ Schwartz, E., "La conciliation internationale et la CCI," Bulletin ICC-CCI Vol. 5 No. 2 1994 pages 5-19 and in particular page 6.

165 « ... Mediation is simply a variant of conciliation ... » DE BOISESSESSON, M.,, « Le droit Français de l'Arbitrage », Ed. GLN Joly page 191-186 LGDJ Paris 1987 pp 176 et seq.

¹⁶⁶ Mediation (or Al Wasata) and Conciliation (or Solh) Arabic Translation

The conciliator plays a relatively direct role in the actual resolution of a dispute and even advises the parties on certain solutions by making proposals for settlement. He is usually seen as an authority figure that is responsible for the figuring out the best solution for the parties. In other words, he, not the parties, often develops and proposes the terms of settlement. In this regard, the role of a conciliator is distinct from the role of a mediator. The mediator does not assume sole responsibility for generating solutions. Instead, he works together with the parties as a partner to assist them in finding the best solution to further their interests. Put it differently, his priority is to facilitate the parties' own discussion and representation of their own interests, and guide them to their own suitable solution- a good common solution that is fair, durable, and workable. The parties play an active role in mediation, identifying interests, suggesting possible solutions, and making decisions concerning proposals made by other parties. They come to mediator seeking help in finding their own best solution.

Conciliation and mediation both look to maintain an existing business relationship and to renew a lost balance of power between two parties. These concepts are sometimes used as synonyms, but they do indeed vary substantially in their procedures.

In mediation, the mediator controls the process through different and specific stages: introduction, joint session, caucus, and agreement, while the parties control the outcome. By contrast, in conciliation the conciliator may not follow a structured process, instead administering the conciliation process as a traditional negotiation, which may take different forms depending on the case. Conciliation is used almost preventively, as soon as a dispute or misunderstanding surfaces: a conciliator pushes to stop a substantial conflict from developing.

Mediation is closer to arbitration since it intervenes in a substantial dispute that has already surfaced that is very difficult to resolve without "professional" assistance.

However, the inability to guarantee the finality of the settlement may render the entire process futile, as long as national legal systems have not yet developed the necessary structure to support non binding ADR and coordinate between different jurisdictions on how to treat them. In this regards, Arbitration may offer the best legal frame work to support non binding ADR procedures.

Parg2: Merging non binding ADR with Arbitration

In this paragraph we will discuss the integration of non binding ADR into the frame work of Arbitration (A), and suggest the use of the multi step resolution process (B)

A-Integrating non Binding ADR into the Frame work of Arbitration

Arbitration is a form of binding method to resolve disputes where the parties involved presents their disagreement to one or a panel of private, independent and qualified third party called arbitrators. Arbitrators are generally lawyers or law professors and are chosen in respect to their experience and competences in specific areas of law. To use Arbitration there must be an Arbitration clause already written into contract that exits between the parties and the process of arbitration is concluded by an arbitral award that could be considered an effective legal frame for non binding ADR procedures.

First, Arbitration clause can be drafted in numerous ways: typically it will be a provision in an underlying contract, calling for Arbitration of any future dispute relating to the contract (clause compromissoire) or in an existing dispute where the parties agree to submit that dispute to Arbitration (compromis)¹⁶⁷. Arbitration clause or (clause compromissoire) is frequently used for the disputes in company law¹⁶⁸, and is considered as the preferred mean to resolve conflicts between companies and their shareholders. Practically it may intervene for the following various issues: Transfer of shares, evaluation of registered assets, dissolution of companies, distribution of dividend, liability action against the directors of the companies¹⁶⁹. As it was remarkably quoted by El Ahdab, many common law and civil law legal systems permit the validity of the recourse to Arbitration in Company Law, including Tunisia¹⁷⁰. By including contractual Arbitration clause, parties are agreeing to the resolution of their disputes though a process that consists of very simple proceedings. Arbitration proceedings are private, readily available, less formal, less subject to appellate review, and often less costly. Moreover, competent and qualified arbitrators experienced in the dealings of the business world examine the dispute. The parties choose Arbitration rules applicable to the substantive aspects of the dispute and the procedural mechanisms that facilitate the resolution of all difficulties that may arise during the process of the Arbitration. The majority of civil law and common law on Arbitration has provided a very flexible system to Arbitration whose main objective is to ensure a maximum validity to the Arbitration clause.

¹⁶⁷ Article 2 of the Tunisian Arbitration Code, article 7 of the UNICITRAL model Law. id

168 Kessler, A., "Arbitration of intra-corporate disputes under New York Laws", Arbitration Journal, 1964 vol 19, page 1.

169 Cohen, D., Arbitrage et Société, librairie générale de droit et de jurisprudence, 1993

¹⁷⁹ EL Ahdab, A.H, L'Arbitrage dans les pays arabes, préface de J. ROBERT, Economica 1988, p 751

In Company law field and particularly the law governing merger transaction, many civil law systems (litre in Tunisia for e.g.) lactr special Arbitration rules settling company law disputes procedures that are separate from rules of Arbitration under ordinary law governed by the national legislation on Arbitration, excepting, it Italy.

The Italian experience in this regards can provide a best example that need to be stressed. The Italian legislator has recently adopted special Arbitration procedures settling Company law disputes that are separated from Arbitration rules under ordinary law¹⁷¹.

Article 34 of the Italian decree-law states that "the Arbitration clause included in the instrument of incorporation is to apply to all disputes between the shareholders themselves or between shareholders and the company"¹⁷² as well as "applying to all shareholders, including those whose shareholder status is the subject matter of the dispute"¹⁷³ . According to Ricci, the special arbitration procedure implemented by the company law reform, seem to view arbitration as a mean of dispute resolution within an organized corporate structure¹⁷⁴. Reforms in this matter at national level are required!

When arbitration clause is used, the process of Arbitration generally concludes with a decision called "award"¹⁷⁵. The arbitral award is comparable to a litigated judgment and is enforceable. Arbitration may offer the best legal framewortr for non binding ADR techniques, such as mediation it that it guarantees a resolution of the dispute and serves as incentive to reach a fair solution on agreed terms. The finality of any agreement reached in the ADR procedures can be improved by requesting the arbitral tribunal to issue an "award on agreed terms".

¹⁷¹ Italian decree- Law n° 5/2003 dated on the 17 of January governing company Law disputes that applies to business corporations

¹⁷² Sub section1 of the article 34 of the Decree. Id

¹⁷³ (sub section 3 of the article 34 of the Decree: "The Arbitration clause may also be expressly extended to apply to disputes involving directors, liquidators and management auditors, with the clause becoming binding up on them as soon as they agree to assume their duties

¹⁷⁴ Ricci, E.F , "Il nuovo arbitrato societario", in Rivista Trimestriale Diritto Processuale Civile, unidroit library , Rome , 2003

¹⁷⁵ "sentence arbitral", in French Law and Tunisian law , "lodo arbitrale" in Italian Law (translation)

Such an award will have the same effect as any regular arbitral award. In the event of a failure to reach an agreement, the arbitral tribunal presents a significant advantage in that it is bound by the arbitration clause and will guarantee a decision and will respect the opinion rendered by the mediator in the preceding ADR procedures. Many institutional arbitration procedures and model rules provide for the inclusion on non-binding procedures as preliminary mediation¹⁷⁶.

However, in practice, when arbitration and mediation are combined, this can presents serious disadvantage in that when the two processes are integrated into the framework of a single dispute resolution system, the danger is to confuse two potentially incompatible roles. The most effective way to overcome this danger is to have different persons perform the two tasks. The risk of compromising the procedural integrity of arbitration and challenging the award on the grounds of a confusion of the two roles will be eliminated. This means that mediation and arbitration can be combined to the extent that they are integrated into a single framework, but that they still have to be conducted as separate processes.

Before going further in this issue, another approach, directly inspired by the American business practice, need to be stressed. It is about what American scholars call "the phased dispute resolution process". Companies and their lawyers are more and more considering in their contract the inclusion of a dispute resolution clause that combines nonbinding ADR procedures with arbitration. To what extent this approach could be applied in practice in other legal systems, such as in Tunisia remain to be seen.

¹⁷⁶ Rule 10 (3) American Arbitration Association (AAA)rules

B-towards multi step dispute resolution process (The American Approach)

Based on American practice, many U.S. companies have moved toward the use of what they call "multi-step" or "layered"¹⁷⁷ dispute resolution clause. The inclusion of the "multi-step" or "layered" clause in business-to-business agreements reflects sound legal and business dispute resolution planning that is not easily "exportable" elsewhere.

The philosophical foundation behind the "multi-step" clause is to preserve business relationships while pursuing appropriate conflict resolution. Its main goal is to maximize the opportunities to continue party-controlled resolution processes. The "multi-step" clause provides process stages that will guide the contracting parties through their inevitable future conflict. A multi-step dispute resolution clause provides for sequential stages of dispute resolution. It typically provides for a period when the parties engage in a consensual process such as negotiation or mediation before resorting to Arbitration. It was stated that the rationale underlying such an approach is that the negotiation or mediation stage affords the parties an opportunity to develop creative solutions before investing time and money in adversarial process such as arbitration¹⁷⁸.

A multi-step dispute resolution clause should be included at the time that the parties enter into the agreement that memorializes their business deal. The clause should be drafted by experienced, specialized attorneys and should appoint a specific institute to manage the dispute resolution process.

¹⁷⁷ Dobbins, R., " The Layered Dispute Resolution Clause: From Boilerplate to Business Opportunity ", published in the Hastings Business Law Journal in April 2005. (West Law) the author is a mediator, arbitrator, discovery referee, and facilitator of disputes ranging from domestic and trans-national commercial and business matters.

178 Dobbins, id

In the merger context, what kind of strategies do merging companies develop to ensure that disputes which arise during or after a merger do not ruin the process? What can be done when an already merged company - A discovers that B has given some wrong information during due diligence? We suggest to work-out the following structure of legal framework to facilitate the rapid fusion of the transaction which consist of a merger dispute resolution program (MDRA)¹⁷⁹ that include a MDR Agreement that refers to clauses which parties to a Memorandum of Understanding or merger agreement may insert to instruct disputes that may arise from their contract. Representatives of merging companies should increasingly include these multi-step clauses during the negotiations of the merger agreement.

It remains to be seen whether the multi-step resolution concept will be adopted in practice.

179 See details of the DRP in appendices n°11

Chapter II

Implementation of ADR mechanisms

challenged

The conduct of international mergers has been accepted with potential difficulties that generates disputes. The only efficient way to resolve potential cross border mergers disputes should by including mediation and arbitration clauses during the drafting of the merger contract.

Implementing these ADR procedures separately is challenged

When it concerns Mediation (section 1) and when it concerns Arbitration (section 2)

Sectionl: Challenges to implement ADR in Cross-

Border Mergers as it concerns Mediation

During the negotiation of a merger, merging companies' managements decide to insert problem solving clause that call for the intervention of a neutral third person, called "mediator", this clause is called mediation clause. In this section we will discuss first the mediator's intervention (A) and then we will explore the significance of the mediation clause (B)

Pargi: the mediator intervention

In this paragraph we discuss fundamentals of the mediator intervention (A) and then we will discuss its significance (B)

A-Fundamentals of the mediator intervention: the American experience

The first think that need to be said is that there is no universally accepted definition of mediation. Most commonly, mediation is understood to comprise a form of non binding third party intervention to help the parties negotiate an agreement.

Generally the intervention of the mediator facilitates agreement in the following different ways: first by creating a neutral and safe environment for the parties to get together and discuss the dispute, second by bringing order to the negotiations and serves as a guarantor of the integrity of the process, by clarifying the facts and issues being discussed, third by translating certain statements into non partisanlanguage that reflect the underlying interests and providing the parties with proposals, subject matter expertise, assessment of the situation and decision-making tools; and finally by injecting the necessary realism into the process. In the business merger context, in promoting Mediation as an

alternative to litigation, however, many scholars have largely ignored the transactional area¹⁸⁰. No one has analyzed in depth whether mediators can add value in closing mergers just as they do in litigation. How can a mediator add value to their merger negotiations?

Some are skeptical of Mediation. If one assumes that self-interested actors can generally bargain to efficient agreements, why involve a third party? If a mediator has no authority to bind the parties to a given outcome, then what does the mediators add other than costs--that the parties cannot do for themselves?

Based on the American experience, it is first of all important to define the concept of transactional mediator. Peppet, S., who has used for the first time the term "transactional Mediation," has quoted that when

180 The literature on Mediation and alternative dispute resolution fails to evidence much exploration of the use of mediators in transactions. Several major treatments of the field, for example, contain no discussion of this issue. Moore, Christopher. W., the Mediation Process, Practical strategies for resolving conflicts , San Francisco, Jossey- Bass publications, US, 1996

referring to transactional mediator, it not about the mediator's style or approach but instead it is about the transactional context as opposed to litigation¹⁸¹. Better, Raîffa defines a transactional Mediator as an impartial person or entity that intervenes in a transactional negotiation pre-closing to facilitate the creation of a durable and efficient contract¹⁸². Raîffa 183 was the first one to discuss the possibility of using mediators in mergers. He has assumed an experimental hypothesis in which teams of experienced executives were given detailed information about two simulated companies, then assigned to represent one company or the other and asked to evaluate the companies and negotiate a merger¹⁸⁴.

According to Raiffa, transacting parties fail to "close the deal" because of "strategic exaggeration". He then suggested that a mediator should concentrate on such inefficiencies.

In merger context, any merger often takes characteristics at certain stages of the deal's life cycle. It was stated that problems may arise at any of three stages of a transaction--matching, pricing and closing--but that they are likely to increase in intensity as a transaction progresses towards closing¹⁸⁵.

In the matching stage of the deal, as it was mentioned in the first chapter of this paper, merging companies must often find each other on their own, but sometimes they may need the active assistance of matchmakers in many transactional contexts, in particular in mergers generally named investments banks or lawyers. Would a mediator offer advantages over investment banks? In most case probably not! At this stage there are unlikely to be difficult adverse selection problems for a mediator to resolve. There are however, some situations in which a

¹⁸¹ Peppet, S.R, CONTRACT FORMATION IN IMPERFECT MARKETS: SHOULD WE USE MEDIATORS IN DEALS? Ohio State Journal on Dispute Resolution, 2004

¹⁸² RAIFFA, H., The Art & Science of Negotiation", op.cit. page 60, note 1

¹⁸³ The one major treatment of the topic is in Howard Raiffa's classic text on bargaining, where he discusses the possibility of using mediators in mergers and acquisitions.

¹⁸⁴ Raiffa , Id

¹⁸⁵ Classification inspired by Peppet's analysis regarding the use of mediators in deals see supra note 3 page 83

mediator might add value in the matching stage. Some transactions require that parties share confidential information to determine whether a match is possible. A mediator could help parties in this situation by determining whether a deal is possible or whether further discussions would be worthwhile. As long as the parties trust that the mediator can and will keep such information confidential and so long as the mediator is sufficiently expert to render an opinion on the viability of the deal, the parties might use a mediator to overcome these matching stage strategic difficulties.

In the pricing stage, after finding each other, the companies must set a basic deal price. This often takes place through direct negotiation by the management boards of both companies.

In the closing stage negotiations --the stage at which transactional lawyers are likely to be most involved-- the mediator's intervention is particularly attractive in that stage. Negotiations during the closing stage focus on the contract^,s terms. In a merger, for example, a preliminary price has likely already been set. The parties now attempt to confirm the quality of the assets to be transferred. The absorbing company may conduct due diligence and the parties bargain over discovered information about asset value. This company may try to use such information to exit the deal, sometimes for strategic or economic reasons, or the parties may re-negotiate the closing price to reflect new information. In such complex transactions, lawyers and accountants are generally brought in to assist in the closing stage¹⁸⁶. Lawyers in particular are needed to draft legal language for a merger agreement or other contract. As the closing stage progresses, due diligence may not eliminate all uncertainties about the company or assets in question. Lawyers will therefore negotiate over contract language to modify the risks associated with these remaining uncertainties. One might expect these legal negotiations during closing to

¹⁸⁶ In the merger context, brokers are very Common http://www.chicagofed.org/publications/publicpolicystudies/emergingissues/pdf/S&R-2000-11R.pdf

be fairly collaborative. At least in theory, the parties to a transaction have good reason to share information openly. In a merger, for example, the absorbed company has little motivation to keep back information from the absorbing company about the condition of the absorbed company. If it does so, the absorbing company will likely assume that the absorbed company's information is problematic for the absorbed company, and thus the absorbing company will alter the transaction price if the information cannot be acquired elsewhere.

If the absorbed company, therefore, wants to cooperate in educating the absorbing company. The question is how to do so at the least cost. A mediator might add value in closing stage negotiations by facilitating discussion over such terms while minimizing the downside risk to the parties 'relationships. He should theoretically be able to help merging companies to resolve disagreements for example over "social issues," such as how to name the post- merger company, how to resolve status

and position questions, and where to locate the new company's headquarters or over

"financial issues", such as how to resolve parity exchange terms issues...etc

In this regards, at the start of negotiating, in order to balance their contract to preserve their interests, parties should include a mediation clause calling for the intervention of a mediator at any stage of the deal. If the mediator is appointed to assist contracting parties during the negotiations, he could privately interview each party about its needs, priorities, and perceptions. Then he would lock away that information and the parties are left alone to negotiate the deal, and at the conclusion of their negotiation, prior to closing the deal, a mediator would intervene, after examining the terms of the parties' agreement, and as it was suggested by Raîffa, he will try "to use his private information about the parties' interests to draft a superior deal"¹⁸⁷. It is difficult to believe that Raîffa's mediator drafting a superior deal will succeed in practice!

187 Raîffa see supra note 1 page 67

Internationally, the interventions of an experienced mediator who both respects and understands cultural differences to minimize the parties' potential for misunderstanding throughout the negotiation process remain to be seen¹⁸⁸.

Whether mediators are currently involved in transactions to a greater extent than suggested here is obviously an empirical question deserving additional study and legal framework acceptance.

The mediator intervention may faces obstacles that need to be overcome.

B- Significance of the mediator' intervention

The first think that need to be said here is that sometimes dealmakers may decide to resist the notion of incorporating a mediator into their negotiations or in other words they may not include a mediation clause at the time of the drafting of their contract. This is due to many raisons: the most important is relating to lawyer's resistance to mediator' assistance.

Before analyzing this issue it should not be forgotten the primary barrier to entry for mediators is most likely habit. Dealmakers are accustomed to contracting in a certain way, with lawyers. They may be unenthusiastic to change the status quo process, particularly if the stakes are high, like in a cross border mergers. A contracting party may also fear that suggesting mediator intervention will in itself signal weakness. Mergers, considered as high-stakes transactions are often carried out with a certain audacity. Successful dealmakers may worry that proposing to hire a mediator will be interpreted as an implicit admission of inability or fear. More problematic still, an opposing party might believe that the

¹⁸⁸ Barker, J., «international Mediation - A better alternative for the resolution of commercial disputes, Guideline for a US negotiator involved in an international commercial Mediation with Mexicans», Loyola L.A International Law and Comparative Law Journal 1996 (west Law )

suggestion to bring in a mediator means that the deal is likely to be close to collapse at some point. In addition to this primary lack of enthusiasm to use a mediator, lawyers that currently assist in transactions may resist mediator assistance. The issue needs more examination.

A lawyer may fear that if a mediator can find doubt the lawyer's skills as a negotiator. Lawyers may be particularly reluctant to allow a mediator into their negotiations, given that transactional attorneys often pride--and sell--themselves on their bargaining abilities. More generally, to the

extent that a mediator can help parties to monitor their lawyers, lawyers have an inherent motivation to resist the use of such mediators.

Finally, a lawyer may fear that a client will turn exclusively to using a mediator, completely eliminating lawyers from transactions.

The situation becomes more complex when a lawyer acts as a mediator. The increasing lack of regulation of mediation outside the US and particularly in many civil law countries, such as in Tunisia has created opportunities for many different types of professionals to practice mediation in a variety of settings, for a variety of purposes. Lawyers who practice mediation and law are likely to find themselves in situations where the role of "impartial mediator" may conflicts with the role of "loyal lawyer".

Lawyers who are simply not familiar with Mediation culture, who are very distrustful of it for whatever reasons, who want to get involved with it, they will be advising their client that it is risky. The mediator's role in assisting parties in making decisions about conflict approaches is somehow similar to role decisions faced by lawyers¹⁸⁹, such as collecting the fact, explain how the law applies, analyzes. The task of the mediator is to assist parties in making their own informed decision based on data and knowledge of procedural opportunities available through various approaches outlined by him. However, in circumstances where considerable efforts have been spent negotiating, lawyers may decide that

¹⁸⁹ Hamilton. P, "Counseling and the Legal Profession", American Bar Association Journal, 1972

Mediation would be futile and proceed directly to Arbitration. The attorney^,s role as loyal advocate for clients raises doubts about his or her impartiality in a mediation between a former client and a third party.

Simultaneous representation of a mediation party indicates an undeniable lack of impartiality and invites potential abuse of confidential information learned during mediation. Confidential information is crucial during the negotiations of a merger.

In other words the mediator^,s impartiality is critical to the success of the mediation and the protection of the parties^, rights.

One can ask the following question: when lawyers are acting as mediators, which rules must follow professional rules for lawyers or the standard Code of Conduct for mediators? From American perspectives, some rules have been promulgated by professional organizations, courts, or legislatures govern mediator conduct. In 1994, the American Arbitration Association, American Bar Association, and Society of Professionals in Dispute Resolution proposed a set of comprehensive ethical guidelines for mediators: the Model Standards of Conduct for Mediators (Model Standards)¹⁹⁰. Equally, from European perspectives, as part of the follow-up to the EU Green Paper on ADR, a European Code of Conduct for Mediators has been launched at a European Commission Justice Directorate conference in Brussels on 2 July 2004¹⁹¹. The Code sets out a number of principles to which individual mediators can voluntarily decide to commit. The principles cover all areas of mediation including competence, advertising, impartiality and fees. It is intended to be applicable to all kinds of mediation in civil and commercial matters.

These codes of conducts are all very well particularly when mediators act independently but when lawyers are serving as mediators there must be provisions included in their rules of professional conducts governing such situation. None of the rules adopted in the Europe and in the US adequately address all conflict of interest situations lawyers-mediators may face.

190 US model standards of conduct for mediators. See appendices n°7 ¹⁹¹ EU Code of conduct for Mediators See appendices n°8

Legal communities in both civil law and common law systems should educate parties and their lawyers of the possibility of requiring lawyers to advise transacting clients about the potential benefits of mediators and consequently improve the significance of the mediation clause on the international level.

Parg2: the Mediation clause significance

On efficient way to use the Mediation clause (A) is to draft the clause in a way to fit with particularities of the dispute involved , and to improve the legal framework regarding the settlement agreement enforcement.(B)

A- strong point : the draftin

There are basic issues to consider when drafting a Mediation clause in a merger contract,

First, Mediation should be defined by the parties in order to avoid any cultural misunderstandings. This is important because parties from different countries may have different ideas on the definition, structure, and format of Mediation. The definition can be as easy as "Mediation (as) administered by the name of the Arbitration institution¹⁹² ," or it can be assembled from each party^,s expectations if a more detailed definition is needed. Second, parties should establish a clear obligation to mediate before using other dispute resolution alternatives, such as Arbitration or litigation. A drafter should also design this provision to guard against a party using Mediation to delay Arbitration. One solution would be to use a model clause, modified for the parties^, specific needs, provided by the international organization whose rules have been selected for use by the parties¹⁹³. If parties wish to clarify a model rule, other clauses should be

¹⁹² American Arbitration Association under its Commercial Mediation Rules, the Tunisian Arbitration and Conciliation Centre under its Mediation rules, etc...

¹⁹³ Example of mediation clause inspired from the CPR Institute for Dispute Resolution:

If the dispute has not been resolved by negotiation within [45] days of the disputing party^,s notice, or if the parties failed to meet within [20] days, the parties shall endeavor to settle the dispute by mediation under the

considered, such as a clause to establish a procedure for selecting a mediator. According to Mr. Demeyere, member of the Antwerp Bar and Partner in Allen & Overy LLP, "it is better to use a mediator who has been fully trained and with at least some experience in Mediation..."¹⁹⁴

In other words, it is important to distinct the mediator from other interveners, such as experts. In this regards, Routier quoted that "generally mediators are appointed among experts, and consequently, the mediation clause could overlap the expertise clause..."¹⁹⁵

We don't totally agree with this because, both clauses are necessary and the choice to include both will help the balancing of the contract in case of disagreement. Third, parties should consider whether they want the mediator of their dispute to also serve as the arbitrator if the dispute progresses to Arbitration. Most international institution rules prohibit the mediator from also acting in the capacity of the arbitrator on the same dispute unless the parties explicitly agree¹⁹⁶. Mediator may have difficulty with maintaining the integrity of each separate mechanism. Fourth, parties should consider using one of the international institutions set of rules. Although formulating ad hoc rules creates a process specifically suited to the parties^, needs, drafting the rules can waste time and resources, especially when there are systems that have been used and tested. A successful method is to select an organization^,s model rules and then adapt them to meet the parties^, needs.

In this regards, before Mediation can become a viable mechanism for the resolution of international disputes, it must provide the parties with a sense of comfort with regard to the process. The parties must be able to understand what the Mediation process entails, and they must be

[[then current] CPR Mediation Procedure [in effect on the date of this agreement]. Unless otherwise agreed, the parties will select a mediator from the CPR Panels of Distinguished Neutrals.

¹⁹⁴ Demeyere, L., "Swot Analysis for cross border litigation", International business law Journal , n°4, August 2005,

195 Routier, R. les Fusions de Sociétés Commerciales, Prolégomènes pour un nouveau droit des rapprochements op. Cit note 1 page 14

¹⁹⁶ Tunisian international Centre of Arbitration and Conciliation

convinced that the Mediation process will be governed by rules that will ensure a fair and confidential mechanism for resolving the dispute. This seems to be taken into consideration at the European level.

In October, 22^nd 2004, the European Commission adopted a proposal for a directive of the European Parliament and of the Council, on certain aspects of Mediation in civil and commercial matters. The proposal recognizes that: "Mediation holds an untapped potential as a dispute resolution method and as a means of providing access to justice for individuals and businesses"¹⁹⁷. The proposal contains two types of provisions. Firstly, provisions that aims at ensuring a sound relationship between Mediation and judicial proceedings, by establishing minimum common rules in the Community on a number of key aspects of civil procedure. Secondly, provisions providing the necessary legal tools for the courts of the member states to actively promote the use of Mediation, without making Mediation enforceable or subject to sanctions. The directive is likely to have a significant impact on the promotion of Mediation throughout Europe. This proposal is a follow-up initiative to the Green Paper, the European Code of Conduct for Mediators that contained a study on the existing situation at national, European and International level and launched a consultation on possible measures to be taken.

However, the scope of the proposal is narrower than might first appear in that it doesn't provide anything regarding the enforcement settlement issue of the mediation clause.

The resolution of disputes in business field in Europe should become more flexible and should create a market for the services of mediators as was the case in the US, to assist parties independently of lawyers and other representatives of the companies involved in the deal. In the same way European negotiators and draftsmen of the contract should be

¹⁹⁷ Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on certain aspects of mediation in civil and commercial matters (2004). See appendices n°9

educated to frequently insert dispute resolution clauses during the phase of negotiation¹⁹⁸ of the contract to manage the potential risks associated with the deal in order to establish a permanent relationship of trust and confidence between the parties.

Although there is general interest in Mediation and initiatives are taken both by the US and the EU, there are still many misunderstandings and much amateurism regarding the settlement agreement enforcement of this dispute resolution mechanism. Reforms regarding this matter are particularly important.

B- weak point : the enforceability

Although the near embryonic stage of Mediation internationally, Mediation clause enforcement has been the subject of academic discussions in many common law countries, and particularly in the US¹⁹⁹. Regrettably, there are many arguments against the enforceability of a mediation clause. They are essentially based on the contractual uncertainty of the mediation clause and on public policy point view.

It is generally accepted that contracts need to satisfy a requirement of certainty before they are considered to be valid. The mediation clause is like any other contractual clause and as such is subject to the requirements of validity imposed by the law of contract. An agreement to mediate would be uncertain because it would be difficult for the parties and the court to ascertain when the conciliation or mediation had been properly determined. By contrast, Arbitration is not subject to an uncertainty argument because the arbitral process will inevitably lead to an award. With processes like negotiation, mediation and conciliation, there is no guarantee of resolution, which raises the uncertainty regarding

¹⁹⁸ Another approach should be to enter into Mediation with a written agreement containing a confidentiality clause signed by all present, including signing in their own names and using a standard wording that is used as guidance in the Mediation process

¹⁹⁹MELNYK, T., "the Enforceability of Multi-Tiered Dispute Resolution Clauses: The English Law Position", International Arbitration. Law. Review. (2002)

termination of these processes²⁰⁰. Where ADR lead to an agreement between the parties, one might question the scope of such an agreement. However, the variety of names used for agreements arising from ADR mechanisms makes the picture particularly complex. ADR can only lead to a simple contractual transaction. (Conciliation and Arbitration Center of Tunis rules, article 6 )

In the US a Maryland court based its denial of the enforcement request on its view that the requesting party failed to show that there were contractual issues in need of Mediation. This court's approach does not augur well for Mediation clause enforcement. "As a matter of fairness and practicality," it deduced, "the court cannot enforce a Mediation clause after determining, with the benefit of perception, that Mediation would have been futile"²⁰¹. What can be deduced from the example herein is that State and federal courts in the US are unwilling to enforce properly Mediation clauses.

In other jurisdictions such as the United Kingdom, arguments against the enforceability of a mediation clause are essentially based on public policy point of view.

In countries where Mediation is firmly well-established or promoted as part of the status quo on the basis of public policy, the intention is to justify the existence and enforcement on a public policy or public interest point of view and proceed beyond that area of argument. As a result, it is first necessary to find out into the reasons to accept or promote Mediation in national systems so as to enforce it. First compared to Arbitration which in nearly all civil law and common law jurisdictions has its own statutes, fewer civil law and common law countries have statutes that govern or regulate Mediation. No statute exists to provide for the non-enforceability of an earlier agreement to seek Mediation in resolving present or future disputes. It is reasonable to enforce the

200 New Brunswick & Canada Railway & Land Co v Muggeridge (1859)

201 Hillock v. Wyman, at (Maryland. Supreme. Court. 2003)

Arbitration clause when it is made after a dispute has arisen than before it. There may therefore be reasons not to enforce a "Mediation clause^, made before a dispute has arisen.

It appears from all these considerations that using mediation process, through the intervention of a transactional mediator during the negotiations of a merger, by virtue of a mediation clause is an attractive idea, however it lack a firmly well-established international legal frame work in civil and common law countries to be completely considered a resourceful action in the resolution of potential merger disputes. The situation is different when it concerns Arbitration.

Section 2: Challenges to implement ADR in Cross-Border Mergers as it concerns Arbitration

Given that arbitration is firmly established in international business, when merging companies and their lawyers refer to Arbitration in their merger contract by including an Arbitration clause, there are issues that should be addressed at the drafting stage. A well-drafted Arbitration clause can alleviate problems relating to the tailoring of the process to the transaction (pargl) while a poorly drafted Arbitration clause may intensify problems relating to the type of arbitration and the arbitrability of merger disputes (parg2).

Parg 1: the skilful-drafted Arbitration clause

In this paragraph we will discuss issues to consider when drafting the arbitration clause (A) and issues to avoid while drafting the arbitration clause (B)

A: issues to consider when drafting the Arbitration clause

Arbitration can be an effective tool for managing potential disputes that are part of the strategic international business contracts. The inclusion of this problem solving clause is advisable. A well-written Arbitration clause in the merger contract that anticipate future legal disputes requires to take into consideration not only issues relating to skillfulness of drafters , in choosing the best arbitration clause forms, but also issues regarded as essential to perform the arbitration clause effect if used.

First drafting an Arbitration agreement requires not only a fair amount of skill from lawyers but also sophisticated understanding of the business client^,s interests and up-to-date knowledge of this evolving area of expertise. The contract drafting stage is the right time and in most cases the only time for transactional lawyers to design the dispute resolution process in a way that can reduce or eliminate perceived disadvantages of the process. Experienced lawyers should review a variety of agreements - those that have been successful and those that have either failed to get the job done- and then help the client tailor an agreement precisely to its needs. Drafting the Arbitration clause should be something of a team effort and include effort from everyone involved, especially from those who^,ve been experts in mergers disputes and understand the dynamics. While lawyers can provide general guidelines, they cannot provide all the specifics - and it^,s the specifics that will determine how well the agreement achieves parties' objectives.

The Arbitration clause can be drafted in different ways: short, standardized or tailor-made for the involved transaction. What would be the best way to draft an arbitration clause? In this regards, Fouchard has stated -using the words of Eisemann- that it is easy to draft a "pathologic arbitration clause" ²⁰², because of clumsiness affecting the drafting²⁰³. The basic rule of drafting Arbitration clauses is to begin with a standard or model clause. By using the standard clause as starting point, parties can ensure that their clauses will contain the minimum elements necessary to render their Arbitration clause effective. These clauses are readily available from each arbitral institution.

²⁰² Eisemann, F., « la clause d'arbitrage pathologiques », Arbitrage commercial, Essais in memoriam Eugenio Minoli, Turin, 1974, p129

²⁰³« ...une mauvaise clause compromissoire, c'est une clause qui ne se suffit pas à elle-même.. » Fouchard, Ph., « La Rédaction des Conventions d'Arbitrage », in Colloques, Les entreprises tunisiennes et l'arbitrage commercial international », du 2 au 4 novembre 1981 à Tunis, CERP, Imprimerie officielle, Tunis 1983

In merger context, the American Arbitration Association has provided a standard clause to be included in merger agreement regarding arbitration: "Any dispute, claim or controversy between _PPPPPPPP [Survivor Corporation] and _PPPPPPPP[Absorbed Corporation] arising out of or relating to the merger in any manner shall be settled by binding arbitration before a three person arbitration panel... ^,,204.

It is important to consider essential issues relating to the subject matter dispute of each parties participating in the transaction when referring to Arbitration in the merger agreement, the appointment of arbitrators, the place of the Arbitration, the procedures to be followed and the final definitive character of the Arbitral sentence or "Award" while drafting the Arbitration clause. First , whatever the legal system that will govern the merger contract, when parties agreed to refer to an Arbitration clause, drafters should apply the same reasoned and thoughtful approach as the careful business attorney negotiating a contract. If the goal is to ensure that the Arbitration clause governs all disputes arising between the contracting parties, merging companies have to state that clearly in the contract. If the merger Agreement indicates that all disputes will be decided by Arbitration, including the validity of the Arbitration provision itself, it will provide maximum authority for the arbitrator to decide all the issues of the case, thereby saving the parties at the court to fight over legal issues. According to new Italian company Law, creating special set of rules including Arbitration procedures for

settling company law procedures, arbitrators have reinforced powers that are denied to them under ordinary rules of Arbitration²⁰⁵. Second parties must clearly specified the chosen structure of the arbitration clause if institutional or ad-hoc arbitration, which will affect the appointment of arbitrator. If institutional rules are used that provide for arbitrator's selection, no further reference to selection is necessary. Parties can choose to employ either one arbitrator or a panel of three arbitrators.

204 See appendices n° 6

²⁰⁵ Article 35 (1) of the Italian decree- Law n° 5/2003 . Op.cit note 1 page 77

Using one arbitrator is usually less expensive and more expeditious, but a panel increases the likelihood of a fair, well-reasoned award. Generally, a panel is used for complex disputes or those with a significant amount of money in dispute. If the amount in controversy is relatively small and the dispute will involve only a few straightforward issues, usually one arbitrator can be used effectively. Since Arbitration is often chosen to avoid the possibility of partiality in transnational litigation in foreign courts, parties should consider whether to exclude certain nationalities or agree on one. Often, parties choose to exclude arbitrators of the same nationality to avoid any perceived or actual favoritism. Furthermore, parties should consider whether the arbitrator should have special knowledge or skills in the area(s) covered by the issues and/or the contract. A legal background and experience can also be desirable attributes since Arbitration is a legal process. Thirdly, the location and the cost of Arbitration have also to be specified in the drafting. Laws can vary from jurisdiction to jurisdiction, so if it^,s important that the arbitrator apply the substantive law of a specific jurisdiction, parties have to state that clearly in the dispute resolution clause.

Moreover, parties should consider the procedural rules and laws of the arbitral forum. Parties should avoid jurisdictions that restrict party autonomy in determining the procedural rules of the Arbitration or that have mandatory procedural rules for Arbitration that would overrule the parties^, preferences. The procedural rules chosen generally provide for a selection process. These offer the advantage of an institution having dayto-day involvement in international Arbitration and an up-to-date list of qualified persons available as international arbitrators.

Last but not least, parties must specify during the draft of the arbitration clause that the award must be recognized and enforced internationally. in the US, American Arbitration law requires that "a written provision in any . . . contract evidencing a transaction involving commerce to settle by Arbitration a controversy thereafter arising out of

such contract . . . shall be valid, irrevocable, and enforceable." (Extract from US

Federal Arbitration Act).

Other elements should also be considered during the drafting stage such as the applicable law to the dispute in substance and the choice of language while drafting the arbitration clause. In civil law and Common law countries, Arbitration law grants high levels of party and tribunal autonomy in international Arbitration proceedings. It provides for party autonomy in choosing the governing substantive law and in regards to the arbitral proceedings. It is essential to the drafting of an Arbitration clause for parties to specify the governing substantive law of any disputes arising from the contract. Due to the notion of party autonomy (principle

recognized by Tunisian Arbitration Law, article 75), express choice of law clauses are

almost universally accepted by arbitrators and courts. However, in the absence of an express choice of law clause, the arbitrator has several options. The arbitrator can apply the substantive law of the forum if the Arbitration clause specifies an arbitral forum, or the Arbitrator can apply the substantive law based on general principles of conflicts of law of the arbitral forum. If the proceedings are being administered under the UNCITRAL Rules or the rules of an arbitral institution, these rules can guide the arbitrator in choosing the applicable substantive law. Parties could also agree to have the arbitrator act as an amiable compositeur, meaning the arbitrator may depart from the strict application of the rules of law, but must do so according to equity and good conscience (called a decision ex aequo ET bono).

Clearly, parties can save time and expense and avoid the difficulty of conflicts of law problem by choosing the governing substantive law in advance.

Regarding the language, choosing a language may not seem important. However, language differences can cause problems in selecting an arbitrator, in electing counsel, in communication between the parties and/or the arbitrator, or by causing considerable translation costs. Therefore, if the parties speak differing languages, the Arbitration provision should specify the language of the proceedings. Even if the parties share a common language, it would still be advisable to include a language clause since the forum could be in a country with a differing language. Such a clause also helps to ensure the selection of a capable arbitrator. If the parties do not select a language, arbitral institution rules usually provide for the application of a language²⁰⁶.

B: issues to avoid when drafting the Arbitration clause

There are issues to avoid when drafting the Arbitration clause inserted in the merger contract. The most important are figured out from business practice: there are equivocation, on the one hand and inattention, on the other hand.

First, if drafters of the merger contract fail to state clearly that they have agreed to bind Arbitration. The result may be the following: "in case of dispute, the parties undertake to submit to Arbitration, but in case of litigation the Tribunal of Tunis have exclusive jurisdiction". What this clause commits the parties to, is nothing other than years of litigation about how to resolve any dispute that may arise! The principal goal of the drafter of an Arbitration clause should be to draft a provision that if a

206 The ICC and UNCITRAL Rules provide for the arbitrator to choose the language, while the AAA stipulates that the language of the Arbitration agreement will be used in the proceedings.

dispute arises, will help the parties obtain an Arbitration award without detour through the court system. For an international lawyer, the touch stone of Arbitration drafting is article 2 (1) of the UN Convention of the Recognition and enforcement of foreign arbitral awards (the New York Convention), which provide that: "each contracting state shall recognize an agreement in writing under which the parties undertake to submit to Arbitration all or any differences which may arise between them...concerning a subject matter capable of settlement by Arbitration"²⁰⁷. Many civil law countries, including Tunisia have signed the New York Convention, which should render the drafting of an arbitration clause less complicated operation foe Tunisian lawyers negotiating an Arbitration clause before the drafting.

Second, practitioners who regularly deals with Arbitration has no doubt heard that " no none really paid any attention to the Arbitration clause", explaining that the drafters decided at 3 am on the morning on the day of the closing that they should provide for Arbitration and pasted in a copy of the nearest clause available. This describes the inattention: drafting an Arbitration clause with insufficient attention to the transaction to which it relates may increase misunderstandings; An Arbitration clause should be designed to fit the circumstances of the transaction and the party's needs. The drafters may well select a standard clause prepared by one of the well-known Arbitrations institutions, such as the American Arbitration Association or other Arbitration Centers"²⁰⁸ but the clause should be selected because it is right for the deal. The inattention to drafting a dispute resolution clause not only dissipates the opportunity offered by alternative dispute resolution techniques to exert party control over the process and to enhance the predictability of the process. An astonishing number of dispute resolution clauses in international contracts are inadequate or defective because the drafters fail to begin the drafting process by consulting and using readily available standard forms.

²⁰⁷ article 2 (1) of the UN Convention of the Recognition and enforcement of foreign arbitral awards (the New York Convention),

²⁰⁸ Local and International Arbitration Center a AL INSAF » at the Conciliation and arbitration Center of Tunis.

Given the wide spread availability of standard forms and suggested clause tested at Law and refined by experience, there can be no excuse for clauses that fail even the few elements necessary to an effective dispute resolution clause. When deciding on the type of clause to use, the drafter, should ask the following questions: what type of dispute resolution process is best suited to the transaction? Arbitration is not the only option; there are many alternative dispute resolutions processes; if Arbitration is selected do the parties understand that the Arbitration clause will commit them to a binding process? The drafter should be cautious about agreeing to arbitrate some types of disputes and go to court for others. This may be inevitable in some countries that do not allow certain types of disputes to be arbitrated; have the parties considered providing for steps preceding Arbitration, especially if the relationship between the parties is an ongoing one, like is the case in a merger? The parties should agree to mediate or negotiate before heading to Arbitration. They can always arbitrate if less adversarial techniques are unsuccessful.

A multi step clause can be drafted in the merger agreement; have the parties considered where they may want to enforce an arbitral award. This is particularly important in an international contract. The New York convention make Arbitration awards enforceable in most countries involved in international business transactions, as long as the country where the Arbitration takes place and the country where the award is to be enforced are parties to the same Convention. The key is to pay sufficient attention to the underlying transaction so that the Arbitration clause can be tailored to the transaction particular requirements and to possible disputes that may be anticipated.

There are just as many dispute resolution clauses that fail precisely because the drafters doesn't consider the range of options available to contracting parties. Many companies ' management participating in a cross-border merger seem to have difficulty in the fairly simple task of drafting an Arbitration clause or even replicating a standard form Arbitration clause.

This will create problems if the arbitration clause is used. The more effective the Arbitration clause that is negotiated the less likely it is that it will ever be used.

Parg2: the poorly-drafted Arbitration clause

If poorly drafted, the Arbitration clause contained in the merger agreement may generate problems relating to the type of Arbitration (A) and to the arbitrability disputes relating to the merger contract (B)

A: problems regarding the type of Arbitration

The interest by the international business community for Arbitration is attributable to the perception that Arbitration is quicker; more specialized more confidential and cheaper than litigation. In a cross- border merger transaction, it is strongly advisable that lawyers do their Arbitration-related work at the negotiation stage. For this they have to state clearly during the drafting stage of the merger agreement that they agree on Arbitration rules because the local law usually does not contain detailed procedures for conducting the Arbitration. the purpose of designating a certain set of rules of procedure is to inform the parties involved in the transaction on how to activate the Arbitration, terms, witnesses and expertise, cross-examination and many other important

issues, including the calculation of the arbitrators^, fees. Whether or not to modify or negotiate the set of Arbitration rules chosen will depend on the type of Arbitration finally selected by the parties.

The law of International Arbitration provides two types of Arbitration: ad hoc Arbitration and institutional Arbitration²⁰⁹. What would be the best choice of the type of arbitration in case of merger?

If the parties to a cross-border merger transaction have a good relationship and are confident that, should a dispute arise, they would be capable of maintaining an ongoing and constructive communication then it may be advisable to design ad-hoc procedures themselves. Ad hoc Arbitration may result from the procedures which the parties intend to follow at the negotiating table or from specifying that one or another set of rules shall serve as the gap-fillers in the event that eventuality for which no procedures have been specified arise. The stated goals of an ad hoc system include the quick resolution of disputes, as well as the avoidance of costs in the form of administrative and arbitrators^, fees specified in the rules of many of the institutional bodies. However, since ad hoc Arbitration is not institutionally supervised its main disadvantage is the lack of established procedures?

The parties and the arbitrators are "on their own" for all aspects of the case. They must either develop their own rules in their Arbitration clause or at the time of the Arbitration, or use standard rules that have been promulgated to assist parties in ad hoc Arbitration- i.e., UNCITRAL Arbitration Rules. Moreover, the parties must arrange to appoint arbitrators. Cremades has observed that in cross-border merger transactions institutional Arbitration may be preferable to ad hoc Arbitration disputed because the parties involved are more comfortable with institutional Arbitration²¹⁰.

²⁰⁹ Article 13 of the Tunisian Arbitration code " l'Arbitrage peut être ad hoc ou institutionnel...

210210 CREMADES, M.B, "Settlement of Disputes in Cross border Mergers and Acquisitions. Op.cit. note 2 page 27

In merger transactions a record of money is at risk, due to the specialization and multiplicity of the parties and the sophistication of their business. Thus, Arbitration institutions worldwide provide important administrative services and assistance with the appointment of arbitrators. These institutions maintain updated of qualified lawyers in various fields and different nationalities with experienced arbitrators. Additionally, these institutions have the necessary administrative infrastructure go fix the amount of and arrange for the arbitrator s fees, determining the place of Arbitration, if necessary, secure deposits from the parties and arrange hearings. They provide the parties with sets of rules on the basis of a longstanding and specialized practice.

the International Chamber of Commerce, considered the leading Arbitration Institution (ICC) in the world, has recently provided a model mergers &and acquisitions contract²¹¹, the first of series of agreements covering a variety of contracts such as share purchase agreements or a sale of assets²¹², made to assist parties and lawyers who are not specialized in the field of Mergers contracts to draft a simple contract covering the most common and important issues involved. The structure and content of this model contract are strongly influenced by the models and forms developed within common law jurisdictions and it contains dispute resolution clauses that chose Arbitration for the settlement of any dispute arising out or in connection with the agreement in accordance with the ICC ADR rules²¹³. When deciding the applicable law, it should however be considered that, since the model has been drafted independently of any particular national law, with the purpose of establishing a truly international standard, parties will need to check if and to what extent this model contract conforms to the domestic law they wish to apply. If it appears impossible to determine the content of the rules which would apply under the domestic law of the absorbed company, parties have alternatives proposed by this model contract: 1-another

²¹¹ ICC model Mergers & Acquisitions Contract, I - share purchase agreement, Publication CCI n° 656E, 2004.

²¹² see appendices n°10

²¹³ ICC ADR rules can be found on the web site www.iccadr.org

domestic law or 2-the principles of law generally recognized in international trade, called "lex mercatoria". In our opinion, the second alternative has the advantage of being more appropriate for a contract like this model, which reflects international contract practice without being based on a particular domestic law. At the same time, this solution gives wider autonomy for Arbitration, since it based on very general principles.

In this regards, the incorporation of the UNIDROIT principles in this model contract should become an essential tool in creating a secure and balanced legal frame work for cross border merger contract.

A persistent question regarding Arbitration is relating to dispute that is or not open to Arbitration.

B- Problems regarding Arbitrability of cross border merger disputes

Arbitrability of cross border merger disputes is a classic sensitive area that raises issues relating to competition and antitrust law which are complex matters, not discussed in this paper. If the merger involves competition and antitrust law topics, mandatory provisions of the domestic law of the place in these areas, if any, must be carefully studied before deciding the seat of arbitration. The following is a brief comparative outline addressing the state of affairs of arbitrability of cross border mergers disputes in some European countries like in France, in Tunisia and in the US.

To start, the French civil law on Arbitration considers Arbitration as a creature of contract and that, the contractual recourse to Arbitration is limited to those areas in which rights fall within the domain of contractual freedom (droits disponibles)²¹⁴. In terms of basic principles, civil law system recognizes a clear distinction between contractual and statutory claims, between the jurisdictional domain of Arbitration and the public

²¹⁴ French Civil Code article 2059

authority and adjudicatory duties of the judiciary. Carbonneau quoted that Arbitrability establishes a dividing line between the transactional pursuit of private rights and the courts' role as custodians and interpreters of the public interest"²¹⁵.

Contractual disputes ordinarily involve matters relating to the formation, the governing law, and the performance (e.g., timeliness of payment, delivery, conformity to specifications), as well as the impossibility of performance, while statutory disputes involves matters relating s to commercial competition, sale of securities, mergers and normally fall outside the contractual mandate of arbitration²¹⁶.

The arbitrability regime under the Tunisian Law on Arbitration is governed by the provisions of article 7 of the Tunisian code of Arbitration²¹⁷, while under French law the arbitrability regime is regulated by articles 2059/2060 of the French civil Code. The reading of the these articles show that are excluded from Arbitration, the disputes, mentioned by article 2060 of the French civil Code and article 7 of the Tunisian Arbitration Code, relating to public interests reserved to the court as well as disputes linked to the Public order , and not available at the disposal of the parties.

In the US, after the Congress enactment of the Federal Arbitration Act (FAA), which legitimized the contractual recourse to Arbitration²¹⁸, the elaboration of a federal court doctrine on international commercial litigation and Arbitration, disputes that could not be submitted to Arbitration under domestic law (securities, mergers and anti-trust matters) could be submitted to Arbitration in the international context.

²¹⁵ CARBONNEAU, Th E. ," Cartesian Logic and Frontier Politics: French and American Concepts of Arbitrability", Tulane Journal of International and Comparative Law, Spring, 1994

²¹⁶ French Law Decree No. 85-1387 of Dec. 27, 1985, art. 174, 1986 D.S.L. 1 (Fr.)

217 Promulgated by Law n°93-42 dated April 26th , 1993

218 United States Arbitration Act, chapter 213, 43 Stat. 883-86 (1925) (codified at 9 U.S.C. §§ 1-16 (1993) [hereinafter FAA]. § 2 of the Federal Arbitration Act provides: A written provision in any. . . contract evidencing a transaction invoiving commerce to settie by Arbitration a controversy thereafter arising out of such contract or transaction, or the refusai to perform the whoie or any part thereof, or an agreement in writing to submit to Arbitration an existing controversy arising out of such a contract, transaction or refusai shaii be vaiid, irrevocabie, and enforceabie, save upon such grounds as exist at Law or in equity for the revocation of any contract

This radical development in the US Arbitration law coincided with the spectacular rise of the alternative dispute resolution ADR movement and the associated paralysis of federal judicial system²¹⁹ .

The US law of Arbitration has demonstrated acceptance of arbitrability without restriction regarding antitrust disputes, particularly cross-border merger disputes. The Mitsubishi Motors Corp. y. Soler Chrysler-Plymouth, /nc. rulings²²⁰ recognizes the Arbitrability of antitrust disputes. In other words, statutory claims based upon the securities acts²²¹, antitrust laws, and even civil rights legislation could be submitted to Arbitration in a domestic settings. By contrast, the tendency noted in European countries such as France has indicated that there is an increased acceptance of the arbitrable issues that may arise in these transactions with some limits. One can ask the following question: do cross border mergers disputes must be limited to contractual issues and therefore not be extended to issues including abuses of dominant position or monopoly power?

It remain to be seen whether the arbitrability without restriction regarding cross border mergers disputes will gain uniform international acceptance, which will increase the use of Arbitration clause.

²¹⁹ CARBONNEAU, T., "Arbitration and the U.S. Supreme Court: A Plea for Statutory Reform", Ohio State Journal on Dispute Resolution. (1990)

220 The Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc) 473 U.S. 614, 617-23 (1985)

²²¹ Securities Acts Popular name given to the two major federal statutes regulating the issuing of and market trading in corporate securities. Law Dictionary, 2003 by Barron^,s Educational Series, Inc

CONCLUSION

The issues that have been analyzed above are only a small representation of all the topics that can be addressed regarding the implementation of Alternative dispute resolution mechanisms in cross- border mergers area, however limited by space constraints.

Sorry to say that each of the topics dealt with in this work could be an entire thesis on its own.

Any merger introduces benefits and confusion at the same time.

International Mergers are almost never without problems and invariably some unexpected aspect of the deal will surface.

No matter how well the due diligence process has been carried out, it is impossible for everything to be taken into account. And, unfortunately in many cases, this can lead to litigation between the parties involved. However, if a problem arises post merger, the acquiring company can often find itself at the mercy of an unfamiliar and sometimes

unsympathetic judicial system. Given these circumstances, it is judicious to plan for problems. In the normal course of events the process involves due diligence, agreeing a price, the drawing up of contracts and so on.

It is best to actually start the merger or acquisition discussions with discussion and agreement on problem solving and dispute resolution mechanisms. While this may appear a rather pessimistic approach at first sight, it can in reality be very positive.

By taking the time at an early stage to agree the dispute resolution mechanism and process, many problems can be averted before they arise.

By agreeing this process at the earliest possible stage, companies can save themselves a lot of trouble later on. Not only will this ensure that they do not have to deal with an unfamiliar legal system in a country thousands of miles away from their home base but it can also mean that fewer problems actually arise.

Failing to give due attention to a dispute resolution mechanism at an early stage in merger and acquisition negotiations can prove fatal to the long-term success of the deal.

To conclude, it remains to be seen whether the Tunisian law will follow its European and American counterparts' path in matter of implementing ADR techniques in mergers transactions.

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· Gowans, A., " The EU Cross-Border Merger Directive: A Move to Facilitate the "M" OF European M&A?", Glasser Legal Works, the M & A Lawyer Journal , September, 2004

· Guillemin, J-F. » Les Médiateurs contractuels » in "les médiateurs en France et à l'étranger", Colloque du 17 novembre 2000, organisé par le centre français de droit compare avec le Centre Français du Commerce extérieur, 2000

· Gaillet, A.M., « Arbitration procedures under the new Italian Company Law », International business law Journal n°6, 2005

· Gaines, M. D.,"A Proposed Conflict of Interest Rule for Attorneys-Mediators, Washington Law Review, July,1998 Washington Law Review Association

· Goldberg, S.B. ; SANDER, .E.A, & ROGERS, N.H, " Dispute Resolution, Negotiation, Mediation and other processes", New York , Aspen Law and business Journal, 1999

· Husson, B. « quelle méthodologie d'évaluation ? » Analyse financière Magazine, n° 118, mars 1999

· Hamilton. P, "Counselling and the Legal Profession", American Bar Association Journal, 1972

· Kemicha, F., "Tunisie, L^,Emergence d^,une Place d^,Arbitrage International » Revue de la Jurisprudence et de la Législation, Mai 1999, 41iéme année, N°5

· Katz, D. A., "A Proposed EU Directive on cross-Border mergers", The M & A Lawyer Review , January 2004

· Kessler, R. , "Arbitration of intra Corporate Disputes under New York Laws" , Arbitration Journal 19

· Kaplan, F., "foreign Corporations and local Corporate Policy", 1968, Van Law Review , Westlaw data base

· Lowenflend, A. , "International litigation and Arbitration", second edition , American case books series , West group , St Paul Minn , 2002

· Loussouarn Y., «les conflits de lois en matière de sociétés », librairie du recueil Sirey, 1949

· Melnyk, T., "the Enforceability of Multi-Tiered Dispute Resolution Clauses: The English Law Position", International Arbitration. Law. Review. (2002)

· Hager, M. & Pritchard, R., "Deal Mediation: How ADR Techniques Can Help Achieve Durable Agreements in the Global Markets", ICSID Review .Foreign Investment Law Journal. (1999)

· Menkel, M., « toward another view of legal negotiation: the structure of problem-solving", 31 UCLA. Law. Revue, (1984)

· Naimark, R.W. And E. KEER, S.: "What do Parties really want from International Commercial Arbitration?" Dispute Resolution Journal, 2004

· Najjar, I., " les Models alternatives de reglement des conflits, arbitrage et médiation, droit libanais", in Tunisian Jurisprudence and legislation Review (RJL), 1999

· O'Neill PhD. JR. "International Arbitral Jurisdiction: When taking Control goes out of Contract, by Relative Satisfaction with ADR: Some Empirical Evidence", Dispute Resolution Journal, 2003

· Peppet, S.R, "Contract Formation In Imperfect Market: SHOULD WE USE MEDIATORS IN DEALS?", Ohio State Journal on Dispute Resolution, 2004

· Phillips, P., "The Paradox in Arbitration Law: Compulsion as Applied to a Voluntary Proceeding", Harvard Law Review, 2003

· Rosengard, Lee A. , "Learning from law firms: Using CoMediation to Train new Mediators", Dispute Resolution Journal, 2004

· Ricci, E.F , "Il nuovo arbitrato societario", in Rivista Trimestriale Diritto Processuale Civile, unidroit library , Rome , 2003

· Redfern, A., "Having Confidence in International Arbitration", Dispute Resolution Journal, 200

· Rome, D. l, «A guide to business to business Mediation", article adapted from chapter 31 of "the Mediation practice book": critical tools, techniques and forms, Harry mazadorian Ed, Dispute Resolution Journal, 2004

· Rothe, N., "Freedom of Establishment of Legal Persons Within The European Union: An Analysis of the European Court of Justice Decision In The ÜBERSEERING case, American University Law Review, June, 2004

· Riskin, L., "Understanding Mediator's , Orientations, Strategies, And Techniques: A Grid for the Perplexed" , Spring 1 Harvard law Review, 1996

· Ronald, J. G., "Value Creation by Business Lawyers: Legal Skills and Asset Pricing", Yale Law .Journal. (1984)

· Redfern & HUNTER, "Law and Practice of International Commercial Arbitration", Arbitration Journal , 2d ed, 1991

· Shelling, T.C, " the strategy of Conflict", Cambridge: Harvard University Press, 1960

· Shavit, M. "Developing Mechanisms for the Resolution of International Disputes: The UNCITRAL Model Law on International Commercial Conciliation", in International Commercial Arbitration: Important Contemporary Questions", International Council For Commercial Arbitration, Kluwer Law International, 2003

· Schwartz, M., "From Star to Supernova to Dark, Cold Neutron Star: The Early Life, the Explosion and the Collapse of Arbitration", W. St. U. L. Rev. 1 (1994)

· Stipanowich, Thomas J., "the Multi-Door Contract and Other Possibilities", Ohio State. Journal. On Dispute. Resolution. (1998)

· Trendelenburg, H., "Cross-border mergers, Problems and Solutions", in the International Business Lawyer, February 2002.

· Zakine, I., "Mediation & Conciliation», Symposium on Arbitration and Investment, April 2000, Tunisian Arbitration journal, 2001

Mémoires

· Majoul, F., " Fusions des Sociétés Anonymes en Droit Communautaire et en Droit Tunisien", sous la direction de Madame Sylvaine Peruzzetto-Poillot, DEA Droit Communautaire, FSJPST, 2000

· Omrane, N., "les Fusions Bancaires", encadré par Melle Amel Mamlouk, FSJPST, 2002

LÉGISLATION Tunisian Law

· Tunisian Code of Contracts and Obligations" promulgated by decree in December 1^st 1906

· Tunisian Arbitration Code promulgated by law n°93-24 dated April 26^th , 1993

· Tunisian Private International Law Code promulgated in 1998

· Incentive Investment Code 1993 promulgated by law n°93- 120 dated December 27, 1997 IIC

· Decree n° 14 , issued in 30/6/1961 modified par law n°84 in 11/8/1985 related to the nationality of companies

· Débats parlementaires du 31 octobre 2000 concernant la loi n°2000-93 du 3 novembre 2000 portant promulgation du code des sociétés commerciales.

· Code of Exchange and Foreign Trade promulgated by law n°76-18, dated January 21^st ,1976 outlining reworking and codification of the legislation of exchange and foreign trade regulating the relations between Tunisia and Foreign Countries

European Law

· DIRECTIVE 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on Cross-Border Mergers of limited liability companies, Official Journal of the European Union

· Council regulation EC n°2157/2001 of 8 October 2001 on the Statute for a European Company (SE), Official Journal of the European Communities, 2001

· Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on certain aspects of mediation in civil and commercial matters (2004)

French Law

· French Company law , Law of 24jully 1966 modified by Law n° 17/88 5/01/1988

· French Civil Code Italian Law

· Decree law n° 40 dated on 2/2/2006 entered in force mars 2006, ( Gazetta Ufficiale, n°38 dated on 15/2/2006) modifying some provisions of the "code of procedure civil Italian " (articles 20 to 28 of the ) related to arbitration ( articles 806 & s CPC)

American Law

· Delaware General Corporate Law Section 251 , 252 ... DGCL

· The Revised Model Business Corporation Act (ReMBCA) chapter 11

· Section 2.1 of the Colorado Rules of Professional Conducts , as amended effective 1 January 1993

· Federal Arbitration Act, (2001) FAA

JURISPRUDENCE

· Case C-212/97, Centros Ltd. v. Erhvervs-og Selskabsstyrelsen, 1999 E.C.R

· ECJ Überseering BV and Nordic Constriction Company Baumanagement (NCC), case 208/00, Judgement of 5 November 2002

·

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc) 473 U.S. 614617-23 (1985)

· Western Airlines v. Sobieski, 191 Cal. App. 2d 399, 719 (1961)

Dictionaries

· Dahl's Law Dictionary , compiled by Henry Saint Dahl, William S.Hein & Co ,Inc. Buffalo , New York , Dalloz , Paris 1995

· GIFIS, S. H. "Law Dictionary", 3ed, Barron's Edition , USA, 1991

· GARNER, B. A., "Black^,s Law Dictionary", seventh edition, ST PAUL, MINN, 1999 and from Westlaw Data Base, The Black^,s Law Dictionary (8th ed. 2004)

· Columbia Electronic Encyclopaedia, Sixth Edition, 2003, Columbia University Press. www.cc.columbia.edu/cu/cup/

Websites

· www.mediate.com

· www.findlaw.com

· www.westlaw.com

· www.abanet.org

· www.adr.org

· www.europa.org

· www.iccadr.org

Miscellaneous references

· American Bar Association, What You Need to Know About Dispute Resolution: The Guide to Dispute Resolution Processes, available at www.abanet.org/dispute

· UNIDROIT principles, New developments and Applications » International Court of Arbitration , ICC, 2005 , special supplement

· United Nations Conference on Trade and Development World Investment Report 2000 Cross-border Mergers and Acquisitions and Development United Nations New York and Geneva, 2000 www.unctdwir.org

· IMF COMMITTEE ON BALANCE OF PAYMENTS STATISTICS AND OECD WORKSHOP ON INTERNATIONAL INVESTMENT STATISTICS: MERGERS AND ACQUISITIONS , Prepared by the Direction Balance of Payments, Central Bank of Tunisia , the Direct Investment Technical Expert Group(DITEG) Transactions associated with Mergers and Acquisitions, June 2004

TABLE OF CONTENTS

· INTRODUCTION p1-p12

· PRELIMINARY CHAPTER

Introducing the cross-border merger process from a legal a pproach p13-p55

Section 1: Cross-border mergers corporate tools

Parg1: the cross-border merger's workin

A- The closing-merger negotiation phase

B- The post-merger integration phase

Parg2: the cross-border merger's feasibility

A: Pitfalls to carrying-on cross-border mergers

B: towards facilitation of cross border mergers

Section 2: Cross-border mergers fundamental requirements Parg1: Recognition of foreign companies participating in a merger

A- The principle:

B- The debate: Common law v Civil law

Parg2: Necessity to coordinate between national company laws

A- towards harmonization of national conflict of laws rules

B- towards coordination of national substantive laws

Implementation of Alternative Dispute Resolution mechanisms required p56-p80

Section 1 Necessities of implementing Alternative Dispute Resolution mechanisms

Parg1: uncertainty in litigating international business disputes

A- Legal uncertainty

B- Business uncertainty

Parg 2: confidence in using Alternative Dispute Resolution mechanisms

A- The roots: Common law v Civil law experience

B- The significance: the American approach Section 2: Adaptations of alternative dispute resolution mechanisms in merger agreement

Parg1: Structuring non binding ADR mechanisms

A- Negotiation process as conceptual root

B- Mediation as prototype facilitating negotiations Parg2: Merging non binding ADR with Arbitration

A- Integrating non binding ADR into the Frame work of Arbitration

B- towards multi step dispute resolution process: the American Approach

Implementation of ADR mechanisms challenged p81-p109

Section1: Challenges to implement ADR in Cross-Border Mergers as it concerns Mediation.

Parg1: the mediator's intervention

A- Fundamentals of the mediator's intervention: the American experience

B- Significance the mediator's intervention

Parg2: the significance of the mediation clause

A- Strong points: the drafting

B- Weak point: the enforceability

Section 2: Challenges to implement ADR in Cross-Border Mergers as it concerns Arbitration

Parg 1: the skilful-drafted Arbitration clause

A: issues to consider when drafting the arbitration clause

B: issues to avoid when drafting the arbitration clause

Parg2: the poorly-drafted Arbitration clause

A: problems regarding the type of arbitration

B: problems regarding the arbitrability of disputes in the

merger agreement

1. DIRECTIVE 2005/56 of the European Parliament dated on 26 October 2005 on Cross-Border Mergers of limited liability companies, Official Journal of the European Union

2. Extract Section 252 of the Delaware General Corporate law , relating to Merger of Domestic and Foreign Corporations

3. Preparatory Works of the Tunisian Chamber of Deputies held on October 31st, 2000 regarding article 412 of the Tunisian Commercial Companies Code, relating to merger with foreign companies

4. Article , 411, 412 of the Tunisian commercial Companies Code , promulgated by law n°2000-93 dated November 3rd, 2000 relatin to cross border merger

5. Rome Treaty, March 25^th , 1957 Title III "Free Movement of Persons, Services and Capital" , Chapter 2 "Rights of Establishment", Articles 52, 58 and 220

6. Model of Standard Clause in merger agreement regarding Arbitration provided by the American Arbitration Association

7. American Model Standards of Conduct for Mediators prepared and approved by the American Arbitration Association in 1994 in the US

8. Proposal for an European Code of conducts For Mediators launched by the European Commission in Brussels on July 2nd , 2004

9. Proposal for a Directive of The European Parliament And Of The Council on certain aspects of mediation in civil and commercial matters, Brussels, 22.10.2004, COMMISSION OF THE EUROPEAN COMMUNITIES

10. ICC model Mergers & Acquisitions Contract, I - share purchase agreement, Publication International Chamber of Commerce (ICC) n° 656E , 2004

11. The Proposed Frame Work :The Merger Dispute Resolution Agreement (MDRA)