THE AUTHORS:
Ali Selim Demirel, Partner, Baker McKenzie
Ceyda Sila, Senior Associate, Esin Attorney Partnership
The IBA Arb40 Subcommittee launched a competition to compile and publish poignant stories from this period, forming a distinctive compendium of shared experiences. Exploring the depths of the international arbitration community, the IBA Arb40 Common Heritage of International Arbitration Competition for the Most Meaningful Personal Stories unfolds a tapestry of diverse narratives.
Spanning the globe, these stories capture the human side of international arbitration, showcasing triumphs, challenges, and the interconnectedness that defines our professional journey. Each article in this collection offers a unique lens into our Common Heritage of International Arbitration, underscoring the significance of camaraderie, mentorship, and shared experiences within our global community.
The following article received high commendation in the competition.
This is a story on the consequences of resorting to extreme guerrilla tactics to avoid contractual obligations. The dispute was complex and multifaceted, both in terms of legal issues, with the seat of arbitration, law governing the contracts, and applicable local law necessitating the involvement of four different jurisdictions, and in terms of its dynamic and personal nature, thanks to multiple arbitration cases, numerous local civil and criminal proceedings and hours-long board and general assembly meetings over five years.
Our client was a shareholder (“Client”) together with a three-membered family. All shareholders had a similar percentage of shares – a structure that is prone to disputes and deadlocks by its very nature. One of the family members, who was also the CEO (“X”), started to disregard the provisions of the shareholders’ agreement (“SHA”), and in time, the tension increased, and people started to take sides. Our Client was left alone, with family members (“Y” and “Z”) teaming up against X, but not necessarily working in collaboration with our Client, ultimately creating a three-sided battle.
The disputes began, suspiciously, with our Client becoming eligible to exercise its call option against the family members. The initial arguments were around X’s breach of corporate governance provisions. With X escalating the hostility, the Client decided to exercise its call option, and that was when everything fell apart. X disputed the existence of the SHA, whereas Y and Z disputed the option prices. Over time, Z switched sides and teamed up with X. The family members’ alliances kept changing over the course of the dispute, and so did their lawyers. The only party whose arguments (and lawyer) remained unchanged was the Client.
The first major attack of X was to abuse the high quorums under the SHA to prevent the re-election of the board, and it was an ill-minded act to gain de facto control over the company. Of course, the legal system had solutions for companies which fail to elect their board: a court appointed trustee at the request of a shareholder. However, until the court’s trustee appointment, X de facto ruled over the company, and executed collusive contracts with third parties, and simultaneously filed for the dissolution of the company.
As an initial reaction, we made an emergency arbitrator application to make X abide by the SHA which was partially accepted (i.e., X was ordered to attend board meetings since X was even avoiding showing up at meetings). Soon thereafter, we initiated the first arbitration and asked the tribunal to identify X’s breaches of the SHA, order their cessation and award the Client damages. The tribunal agreed with our claims and awarded damages (which was the first big hit against X). In terms of strategy, we also received all of X’s counterarguments against our call option and used them in the second arbitration, which was filed only a few months later. Meanwhile, we were successful in the dissolution lawsuit – the court decided to dismiss X’s request to dissolve the company.
During all this time, we were unable to get information on the company. We asked the board to convene a general assembly, but X confiscated the board resolution book. Therefore, we had to request a court order to convene a general assembly, which we were again successful at. Subsequently, we convened a thirteen-hour general assembly and asked extensive questions. None of our questions on which we counted on were answered, so we requested the court to appoint a special auditor to inspect the company’s (mis)management. This was crucial as the report demonstrated the extent of X’s mismanagement. All of these successes were constantly being fed into our case as evidence.
During all this, the Client always wanted to settle things amicably. We had nearly five different rounds of settlement negotiations, however, each failed due to one of the family members.
Nevertheless, our Client always kept the amicable settlement door open while always vigorously defending its rights. Finally, we applied for partial awards in the second arbitration and again won every one of them. With that, our Client went to the family for one final offer for the fifth time. Everyone, other than our Client, was exhausted psychologically and financially. We finally settled and finished everything at a price nearly five times lower than the initial call option price offered by the Client five years ago. In short, it was a very unique dispute, which an attorney encounters only a few times, if at all, during his/her career.
ABOUT THE AUTHORS
Ali Selim Demirel is a Partner in the Mergers and Acquisitions, Arbitration and Energy, Mining and Infrastructure Departments of Baker McKenzie‘s Istanbul office. Ali’s experience includes cross-border transactions, mergers and acquisitions, private equity investments/exits, arbitration cases and corporate consultancy. He has over 15 years of experience and worked over 120 deals. He also lead the Istanbul office’s arbitration department between 2016 and 2020. With the M&A boom after COVID 19, he came back to the M&A department in 2020. He focuses on English and Swiss laws, in addition to Turkish. He is recommended in various legal directories and most recently selected as a Next Generation Partner in Corporate/M&A by the Legal 500. Ali also gives lectures as guest in Bilgi and Bilkent Universities.
Ceyda Sila graduated from Bilkent University Faculty of Law and completed her graduate studies at Galatasaray University’s Economic Law Programme. Ceyda has been working in Esin Attorney Partnership for 7 years and focuses on advising clients on managing risk and resolving complex disputes relating to M&A, shareholders’ agreements, FIDIC form of contracts and EMI projects. She represents foreign and local clients before arbitral tribunals and before all levels of domestic courts, mainly in connection with the recognition and enforcement of arbitral awards. In addition to commercial dispute resolution, she regularly advises clients regarding corporate matters and particularly on complex M&A deals. She also advises on investment disputes and acts as tribunal secretary in arbitral proceedings.
This article was first published on the website of the Arbitration Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.
Available at: https://www.ibanet.org/Arb40-Competition
