Legal Updates

Even if an arbitration clause as to shareholders disputes exists a dispute as to the behavior of the company is not part of such

April 26, 2020

A shareholders agreement in a company managing an event complex established an arbitration mechanism for disputes between the parties and a valuation mechanism in case one of the parties wishes to purchase the other party's shares in accordance with its right under the same agreement. One of the parties requested to purchase the shares of the other party, but the other sought to appoint an arbitrator on the grounds that the value of the company does not reflect its true value due to improper conduct of the company, including concealment of profits, ousting the director appointed by the shareholder, non-payments to suppliers, etc.
The Supreme Court held there was no place to appoint an arbitrator. Where it was agreed in advance by the parties that in the event of a dispute the issue will be decided in arbitration proceedings, the Court may appoint an arbitrator if no arbitrator is appointed under the agreement, but only if the arbitrator's appointment fulfills the intention of the parties as expressed in the agreement and after considering issues of public interest, such as the public importance of the conflict. Here, there is a valuation mechanism in the case of the purchase of one party's shares by the other and therefore the appointment of an arbitrator will subvert the parties' intent. Any dispute as to how the valuation mechanism should be operated is not for arbitration. The company is not a party to the arbitration procedure in the shareholders' agreement and defects regarding the conduct of the company are to be discussed in proceedings against the company and its officers under the appropriate procedure.