Amy C Kläsener - The Guide to M_A Arbitration

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Hong Kong

Form of dispute resolution

Our general perception is that it is quite common to see arbitration agreements in M&A transactions, especially those involving cross-border elements. From the M&A transactions that we have seen, it is not very common to see parties choose expert determinations or other ADR procedures to settle M&A disputes.

Grounds for M&A arbitrations

From our own Hong Kong caseload, we analyse the relative frequency of the following grounds for M&A arbitrations in Hong Kong as follows:

Fraud and failure to disclose

Fraud

The Hong Kong court has never ventured to lay down, as a general proposition, what constitutes fraud.Actual fraud arises from acts and circumstances of imposition.4

The elements of fraud or deceit may be summarised as follows:

•there must be a representation of fact made by words or conduct;

•the representation must be made with knowledge that it is or may be false. It must be

wilfully false, or at least made in the absence of any genuine belief that it is true;

•the representation must be made with the intention that it should be acted on by the claimant, or by a class of persons that includes the claimant, in the manner that resulted in damage to the claimant;

• it must be proved that the claimant has acted on the false statement; and

•it must be proved that the claimant suffered damage by so doing.5

Fraud, especially, had to be distinctly pleaded with the utmost particularity.6

4Nocton v. Lord Ashburton [1914] AC 932 (Fraud involves dishonesty); Lloyds Bank Ltd v. Marcan [1973] 3 All ER 754 at 760; Pallant v. Morgan [1953] Ch 43; Armitage v. Nurse [1997] Ch 241 at 251.

5See Winfield & Jolowicz on Tort, as cited in Haifa International Finance Co Ltd v. Concord Strategic Investments Ltd

[2009] 4 HKLRD 29 at [15].

6Haifa International Finance Co Ltd v. Concord Strategic Investments Ltd [2009] 4 HKLRD 29; Lipkin Gorman v. Karpnale Ltd [1987] 1 WLR 1340; Liquidator of Wing Fai Construction v.Yip Kwong Robert (HCCW 735 of 2002, G Lam J, 24 November 2017) at [196].

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Failure to disclose

In general, the seller in an M&A transaction is under no duty to disabuse the buyer in pre-contractual negotiations of an error concerning the target, its assets or shares.7 Accordingly, cases involving failure to disclose in an M&A context are rare in Hong Kong.

In Aktieselskabet Dansk Skibsfinansiering v. Brothers,the Hong Kong Court of Final Appeal held that a failure to provide information is not in itself a misrepresentation.8 Therefore in an M&A context, the seller is not required to disclose all information regarding the target.

However, it would be wrong to suppose that a party to negotiations can always refrain from pointing out errors or otherwise engage in artful silence.9 A seller may be liable in the following situations.

Active misrepresentation by a half-truth

The seller in a pre-contractual statement misleadingly discloses only part of the true position:‘the true import of what was said or written is distorted by what is left unsaid, so that even if the representation is literally true in every particular it is nevertheless misleading.’10

Active misrepresentation by misleading conduct

In Spice Girls Ltd v. Aprilia World Service, it was found that deliberate steps taken by the seller to conceal from the buyer the true state of affairs can constitute misrepresentation by conduct.11

Falsification known to representor before contract formed

The buyer may rescind an SPA if the seller has made an initially accurate statement but, before the contract’s formation, the seller discovers a change of situation rendering that statement misleading and the seller fails to notify the buyer of this change.12

7See Smith v. Hughes (1871); affirmed in the House of Lords by Lord Atkin in Bell v. Lever Bros (1932), and endorsed by Lord Hoffmann in the BCCI case (2002), where he commented:‘[T]here is obviously room in the dealings of the market for legitimately taking advantage of the known ignorance of the other party.’ For fuller discussions of this topic see Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at para. 6.25.

8(2000) 3 HKCFAR 70; [2000] 1 HKLRD 568.

9For fuller discussions of this topic see Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at para. 6.25.

10Atlantic Estates plc v. Ezekiel [1991] 2 EGLR 202, per Mustill LJ (cited in Safehaven Investments Ltd v. Springbok Ltd (1996) 71 P & CR 59 (Ch), at 66, by Jonathan Sumption QC sitting as a deputy High Court judge). Another judicial definition is as follows:‘[a half-truth involves] some active misstatement of fact, or, at all events, such a partial and fragmentary statement of fact, [such] that the withholding of that which is not stated makes that which is stated absolutely false.’ Peek v. Gurney (1873) LR 6 HL 377, 403, per Lord Cairns (cited in the Safehaven case, (1996) 71 P & CR 59 (Ch)).

11(1986) 18 HLR 219, CA (dry rot; defects deliberately covered up in flat; liability for deceit); similarly, Schneider v. Heath (1813) 3 Camp 505; 170 ER 1462 (ship kept afloat to conceal defective bottom and broken keel; active misrepresentation); KBC Bank NV v.Automotive Communications Ltd [2011] HKEC 1174 at paras. 144-145.

12On the controversy whether knowledge is required, see Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at paragraph 6.15.

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Mistake as to terms of deal: other party acquiescing

If the seller knows that the buyer is mistaken regarding the terms of the proposed transaction, the contract cannot be upheld by the seller.13 In such a case, the contract is void (or the buyer might also have the right to insist that the contract proceed on the buyer’s supposed version).14 This scenario could result in the unwinding of an M&A transaction or a rectification of the SPA.

Burden of proof

It is usually incumbent upon the plaintiff to prove what it contends.15

In respect of a particular allegation, the burden lies upon the party for whom the substantiation of that particular allegation is an essential part of his case. Formulations of the incidence of the legal burden of proof are sometimes made on the basis that it rests on the party asserting the affirmative of an issue.16

Statutory burden-switching

Once the claimant shows that the statement is false for the purpose of a claim under Section 3, Misrepresentation Ordinance,17 the burden of proof is on the representor to show it had reasonable grounds for making the statement.

Knowledge sharing

There are no specific legal requirements as to pooling of knowledge of sellers with management or target representatives in Hong Kong.The Securities and Futures Commission’s Codes on Takeovers and Mergers and Share Repurchases for public listed companies and Chapter 19 of the HKEx Listing Rules are silent on such issues.

Remedies

All remedies available under the general Hong Kong contract law are generally available to a successful claimant in an M&A arbitration in Hong Kong, such as action for debt, damages, interest, specific performance, injunction, restitutionary claims, and declarations.18

Damages

Section 3(1) of the Misrepresentation Ordinance19 provides a statutory head of tortious damages. There are at least two main reasons for the claimant to prefer this provision as the potential source of compensation for a pre-contractual misrepresentation (in the

13Hartog v. Colin & Shields (1939).

14For a not dissimilar case, see ING Bank NV v. Ros Roca SA (2011), where estoppel by convention was used to prevent a payor resiling from an implicit consensus concerning the level of the investment bank’s additional fee.

15See, for example Dickinson v. Minister of Pensions [1952] 2 All ER 1031 at 1033.

16 See, for example Robins v. National Trust Co Ltd [1927] AC 515 at 520; Huyton-with-Roby UDC v. Hunter [1955] 2 All ER 398; Talbot v.Von Beris [1911] 1 KB 854 at 863.

17Cap 284.

18See Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at Chapter 12.

19Cap 284.

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absence of a collateral warranty): (1) damages are recoverable for all the consequences of the representation, even if not reasonably foreseeable, subject only to a defence of mitigation; (2) once the representation is shown to have been inaccurate, the defendant bears the burden of showing reasonable grounds for continuing to believe, until formation, the accuracy of the statement.20

Damages under this provision are classified as tortious. Sir Donald Nicholls V-C in Gran Gelato Ltd v. Richliff Ltd made helpful observations on the nature of liability under this provision:

[I]n short, liability . . . is essentially founded on negligence, in the sense that the defendant, the representor, did not have reasonable grounds to believe that the facts represented were true. . . . Stated broadly, the measure of damages payable under [Section 2(1) of the English Misrepresentation Act (1967), the mirror provision of Section 3(1) of the Hong Kong Misrepresentation Ordinance (Cap 284)] is that sum of money which will place the plaintiff in the position he would have been in if the representation had not been made.21

Furthermore, the courts give effect to the so-called ‘fiction of fraud’ contained in Section 3(1).22 The English Court of Appeal held that this dispenses with the general remoteness test applicable to negligence claims in tort (the ‘reasonable foreseeability’ formulation of a remoteness test).23 Instead the representee can recover loss under Section 3(1), however unforeseeable that loss might be, provided this is causally related to the misrepresentation, in other words, provided ‘the chain of causation’ has not been broken. This led Rix J in Avon Insurance v. Swire Fraser 24 to describe the mirror provision in the English legislation as a ‘mighty weapon’. But, earlier, Lords Browne-Wilkinson and Steyn, in Smith New Court Securities v. Scrimgeour Vickers,25 expressed doubt concerning the Royscot case on this point.26

20See Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at paras. 6.18-6.20.

21Sir Donald NichollsV-C in Gran Gelato Ltd v. Richliff Ltd [1992] Ch 560, 573, 575.

22‘[I]f the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently’.

23Royscot v. Rogerson [1991] 2 QB 297, CA; cited in LongYear Development Ltd v.Tse Fuk Man [1991] 2 HKC 393.

24Avon Insurance plc v. Swire Fraser Ltd [2000] 1 All ER (Comm) 573; [2000] Lloyd’s Rep IR 535, at [14], [200], [201].

25Smith New Court Securities Ltd v. Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 267 F, 283, HL; followed in Aktieselskabet Dansk Skibsfinansiering v.Wheelock Marden & Co Ltd & Others [1998] 3 HKC 153; considered in Sunchase International Group (China) Ltd v. Chik Wai Wan Stephen [1999] 1 HKC 671; and Sky Heart Ltd v. Lee Hysan Estate Co Ltd (1998) 1 HKCFAR 318; [1999] 1 HKLRD 100; [1999] 1 HKC 18; [1998] CPR 336; [1999] HKCU 1662; and applied in MasterYield Limited v. Ho FoonYung Anesis and Ho Foon Wah, the executrices of the estate of Ho Kan Bau (deceased) [2012] HKCU 521.

26See Andrews Neil andYang Fan, Contract Law in Hong Kong:A Comparative Analysis (Hong Kong University Press 2016), at paras. 6.18-6.20.

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In Yam Seng v. International Trade Corp27 Leggatt J said that he did not consider that the Royscot case’s interpretation of the statute was correct, but he acknowledged that it is binding English Court of Appeal authority on the need to pattern such damages as though fraud had been established.

Measure of damages

Under Hong Kong law, the main aim of compensatory damages is to place the promisee in the position it would have been in if the contract had been properly performed.This is the so-called ‘expectation’ or ‘loss of bargain’ measure.28

What if, in response to a tortious misrepresentation claim, including one under Section 3 of the Misrepresentation Ordinance, the defendant contends that the claimant’s loss is in fact lower than that claimed, or even zero, because if the claimant had placed its money elsewhere those funds would have disappeared down a drain? In Yam Seng v. International Trade Corp Leggatt J held that defendants’ discharge of this onus of proof will be an uphill struggle because they must show ‘with a reasonable degree of certainty . . .

both the fact that the claimant would probably have suffered a loss from entering into an alternative transaction and the amount of that loss’.29

Special substantive issues

For special substantive issues, such as employees, transfer of liabilities, landlords, competition law issues, stamp duty, consent by third parties, as well as relevant issues under Hong Kong Company Ordinance and Listing Rules and Takeovers Code the reader is directed to Alex Que and RhodaYung, Negotiated M&A Guide for Hong Kong (2017).

Special procedural issues

The Hong Kong Arbitration Ordinance30 adopts the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law.

Parties to M&A transactions may choose to opt in Section 2 of the Schedule 2 of the Hong Kong Arbitration Ordinance so as to benefit from the court’s power for consolidation of arbitration.

Furthermore, the Hong Kong International Arbitration Centre’s Administered Arbitration Rules (2013) provide for joinder of additional parties in Article 27 and consolidation of arbitrations in Article 28.

27Yam Seng Pte Ltd v. International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 All ER (Comm) 1321; [2013] 1 Lloyd’s Rep. 526, at [206].

28The classic statement is Parke B’s in Robinson v. Harman, (1848) 1 Exch 850, 855.

29Yam Seng Pte Ltd v. International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 All ER (Comm) 1321; [2013] 1 Lloyd’s Rep. 526, at [206].

30Cap. 609.

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13

Italy

Alessandro Scagliarini1

Frequency of M&A disputes

While there are no official statistics on the frequency of M&A disputes in Italy, it is possible to identify certain trends by comparing international and domestic official reports and figures concerning M&A volumes and caseload data.

At international level:

•with regard to M&A volumes, it is possible to say that after a steady and unprecedented

rise over a number of years, in 2019 global M&A volumes will slowdown at a rate of 4 to 7 per cent;2 and

•with regard to caseload, although there is no official record of disputes, useful information may be found in the study of claims made under policies for warranty and indem-

nity (W&I) insurance published by AIG, the world’s biggest insurance provider, a source that has now become a very familiar tool for lawyers.This study concludes that roughly 20 per cent of the deals in which AIG provided a W&I policy trigger a claim.3

1Alessandro Scagliarini is a junior partner at Fieldfisher.

2Deloitte, M&A trends report, published on 22 March 2019: www2.deloitte.com/content/dam/Deloitte/ us/Documents/mergers-acqisitions/us-mergers-acquisitions-trends-2019-report.pdf. Iain Macmillan, Deloitte’s Global Leader for M&A and M&A Transaction Services, said:‘The last five years have witnessed an unprecedented bull run in the global M&A markets. However, we might now be entering a late-cycle phase – in 2018 we saw the first year-on-year decline in volumes since 2014.’

3AIG,‘Taxing time for M&A Insurance – AIG Claims Intelligence Series 2019’: www.aig.com/content/dam/ aig/america-canada/us/documents/insights/aig-manda-claimsintelligence-2019-r-and-w.pdf. Mary Duffy, Global Head M&A AIG, said:‘The overall frequency for all deals on a global basis stands at 20 percent, with one in five deals resulting in a notification.This has remained fairly steady over the past few years.’

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At national level:

•with regard to M&A volumes, the same global slowdown affected the Italian market – in the first quarter of 2019 there were 165 transactions with an overall value of €4.2 billion (compared with €10 billion in the same period in 2018);4 and

•with regard to caseload, there are no statistics specifically concerning M&A disputes and we have to base our analysis on more general data concerning corporate matters (a category that includes M&A disputes):

•according to the data released by the Milan Chamber of Arbitration, arbitration has witnessed steady growth since 2007, reaching a constant high of roughly 130 new

cases per year, of which 28 per cent concerned corporate matters in 2018;5 and

•according to official data released by the Ministry of Justice, Italian commercial courts6 have witnessed constant growth in terms of caseload since 2012.7

A comparison of these figures, combined with anecdotal evidence, suggests that M&A disputes have become – even with fluctuations determined by market trends and issues – a very common feature on the global stage and in Italy.

This trend is likely to continue because even the most sophisticated share purchase agreements and the best trained and most highly skilled counsel are not able to avoid possible disputes, considering the very particular nature of the transaction and the manifold factors and assets capable of triggering hidden and undisclosed liabilities.These very specific characteristics, combined with certain complex and special substantive issues typical of the Italian legal system that are dealt with below, require that when a dispute arises, it has to be carefully scrutinised by a specialist counsel.

Form of dispute resolution

Beyond any doubt, parties to international and large-scale M&A transactions opt for arbitration clauses and this is also true in Italy. Scholars hold that there are several reasons for this choice.

Privacy and confidentiality are two of the most attractive characteristics that make arbitration favourable over litigation, and are highly important, considering that entering a dispute involves the disclosure of due diligence reports, business plans, pending litigation, tax assessments and other sensitive issues disclosed and exchanged between the parties during negotiations (which the seller and buyer do not want to disclose).The level of privacy and confidentiality ensured by arbitration cannot be compared with the level granted in proceedings pending before ordinary Italian courts.

4KPMG Report on the Italian M&A market published on 3 April 2019. https://assets.kpmg/content/dam/ kpmg/it/pdf/2019/04/dati-fusioni-primo-trimestre-2019-italia.pdf.

5Statistics available at https://www.camera-arbitrale.it/upload/documenti/statistiche/statistiche-arbitrato-2018. pdf.

6Article 2 of Law Decree No. 1 dated 24 January 2012 set up the ‘Tribunale delle imprese’ and extended the competence of the previously existing specialised sections to almost all litigation related to corporate law.

7The most recently updated available data show that in 2015 there were 6,074 new cases filed before Italian commercial courts and in the first six months of 2016 there were 3,277 new cases.

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Perceived neutrality also plays an important role in the prevalence of arbitration over litigation, which is understandable if one considers that in international deals a party may not trust the court system in the counterparty’s country or may simply be unfamiliar with the procedural rules of a certain country.

Moreover, flexibility allows the parties, together with the arbitral tribunal, to schedule a case timetable.This is not possible before a court and the Italian Civil Procedure Code sets tight and mandatory deadlines.8

However, the main reason that arbitral proceedings are favoured over court cases is the robust M&A expertise of the arbitrators and experts.

The opportunity for parties and the arbitral institution to appoint members of the arbitral tribunal, ensures that the dispute will be decided by professionals who are familiar with the topics under discussion, although Italian judges also have a high level of expertise, particularly in the commercial courts.

In that regard, the distinctive feature of arbitration lies in the quality of the expert appointed to assess the technical matters at stake; only in an arbitration is it possible to ensure that the expert appointed has the appropriate training and skills, and suitable M&A expertise. In contrast, in a court case, an Italian judge appoints an expert by choosing one of the professionals in a specific list available at each court; this could result in the appointment of professionals who do not have the necessary level of M&A expertise and knowledge of the underlying technical issues.9

The other reason for arbitration prevailing over litigation is that, with the exception of some important decisions of the Italian Supreme Court, the ordinary courts rarely have the chance to issue decisions on these topics, which prevents the development of case law (although the confidentiality of arbitration awards also inhibits the development of precedent).

Grounds for M&A arbitrations

There are no official statistics on the grounds for M&A arbitrations in Italy, which means there can be no reliable analysis or assessment.The confidential nature of arbitration – one of its most appealing traits – does not make the task easier. It is possible to state, however, that the most frequent claims are based on breaches of representations and warranties.10

M&A arbitration often arises from price-adjustment and earn-out issues. It is very rare for arbitration to arise from failure to complete the transaction.

8Article 183, Paragraph 6 of the Italian Civil Procedure Code.

9The issues an arbitral tribunal has to address and cope with are not only related to legal aspects, but also concern substantive, sophisticated and technical issues.This is very clear in cases involving price adjustment issues (when an accounting firm is usually appointed) or, in particular, in cases involving breaches of representations and warranties when it is necessary to investigate the underlying substantial issue.The AIG 2019 Report on W&I Claims (see footnote 3) clarifies that major breaches concern financial statements, taxes, compliance with laws, material contracts, employees, intellectual property, litigation, operations, environment and fundamentals.

10This is based on the author’s own professional experience and the AIG report cited at footnote 3.

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Fraud and failure to disclose

In broad terms, parties that are in the process of negotiating a contract are requested to act in good faith; in an M&A deal, the seller has to give the buyer a fair representation of the most relevant characteristics of the target company.This process may be altered by certain circumstances – some of which may be brought about by the deceptive conduct of the seller, including fraud and failure to disclose – that may, in principle, entitle the buyer to set aside the agreement.

Nevertheless, whatever the factors – including the conduct of the parties to an M&A deal – that may potentially influence the validity of the agreement, the liability arising out of any of these elements requires unambiguity on an essential and cardinal point: the object of the M&A deal.

Italian case law and scholars unquestionably affirm that the object of an M&A deal is represented by the shares11 and not by the assets and the goods belonging to the company sold.12 This means that if after closing it emerges that the company or its assets do not have the qualities and characteristics that induced the buyer to negotiate and conclude the deal, the ordinary, legal guarantees provided by Italian law in connection with sale and purchase agreements are not available to the buyer.13

This is the first principle to be considered when approaching these topics under Italian law: legal guarantees available to the buyer in the case of defective goods sold – namely, the guarantees provided for by the Italian Civil Code – provide coverage only in the case of defects concerning the object of the sale (the shares) and not if they are related to the assets of the company sold (and represented by the shares).

This is the reason why it is essential to include in the M&A deal an accurate and comprehensive core of business representations and warranties; only in this way, can the buyer obtain protection against a mismatch between representation and reality.

After a very passionate and long debate that involved – and is still involving – scholars, arbitral tribunals and ordinary courts, it seems clear, after a decision issued by the Supreme Court in 2014,14 that the business warranties do not have anything to do with the legal warranties set forth by Italian law and are covenants through which the seller undertakes to indemnify the buyer upon occurrence of a breach of one or all of the W&Is indicated in the agreement, and they are not related to the breach of the obligation to sell the shares.

11Quotas if we are speaking about limited liability companies.

12In other words, there is a mismatch between (1) the form (the legal point of view), for which the object of the sale is represented by the shares and (2) the substance, considering that the buyer’s real intention – through the purchase of the shares – is to purchase the assets and the company.

13We make reference to Article 1490 and following of the Italian Civil Code.

14This leading case was welcomed with approval by the Italian community of arbitrators and practitioners in the M&A world, because it marked a robust endorsement by ordinary courts of the interpretation usually given by arbitral tribunals and scholars on the topics under discussion. During the past decades, the decisions released by the Supreme Court on this subject have had huge importance, firstly because of their always enlightening contribution and secondly owing to the fact that the Supreme Court has not had so many chances to be involved on these topics (because of the overwhelming prevalence of arbitration clauses). See also an old Supreme Court decision (338/1967), which was the very antithesis of the 2014 decision and a very recent one (13 March 2019, n. 7183) which is on the same track as the 2014 decision.

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This is the second principle to be considered when approaching these topics under Italian law: the W&Is set forth in an M&A agreement are not related to the object of the agreement and do not widen its scope, which remains limited to the shares.

Furthermore, M&A deals regularly provide for sole remedy clauses limiting the buyer’s right to an indemnity to be awarded according to a detailed procedure.

In this scenario, the spectrum of circumstances theoretically able in an M&A agreement to alter the negotiation process (such as the deceptive conduct of the seller or other causes) and to trigger consequences for the validity of the agreement appears more limited than in any other agreement.

Accordingly, if the buyer discovers that the company and its assets do not have the characteristics guaranteed, it cannot invoke nullity on the grounds of an error, since under Italian law the error must not only be significant (i.e., of such importance as to have induced the buyer to execute the agreement15 and distinguishable by the other party),16 but also related to the object of the agreement (namely, it must be related to the shares – and not to the assets and their value).

On the contrary – and for the same reasons seen from the opposite angle – the buyer should be in principle entitled to invoke the wilful misconduct of the seller,17 the ‘underlying condition’18 and the aliud pro alio,19 as based on grounds that are not strictly related to the object of the agreement. However, although these remedies are theoretically available, they are hardly applicable in the case of a M&A agreement.

15Article 1429 Italian Civil Code.

16Article 1431 Italian Civil Code.

17Moreover, it is possible that the error has been induced by the wilful misconduct of the counterparty and the erring party is required to prove that the error has been essential to conclude the contract.The difference with a self-induced error is that the error causing the misrepresentation is owing to the deceptive conduct of the seller; the major commentators hold that not only an active deception but even a deception through silence or reticence on relevant circumstances may be considered as wilful misconduct; so not only a deliberate and intentional fraudulent action, but also a voluntary failure to disclose relevant circumstances.

18Furthermore, although not strictly connected to a fraudulent or deceitful action by the seller, it seems useful to widen the scope of this discussion by briefly making reference to the ‘implied condition or underlying purpose’, an interesting theory often linked with M&A deals, even if so far – leaving aside a not so recent decision issued by the Supreme Court and some other decisions – without great success. (Cass. 3 December 1991/1292 – App. Cagliari, 26 January 1996). Some prominent commentators hold that this theory could help in balancing the contractual mechanics in a deal that, though not characterised by deception (active or omissive) could nonetheless be unfair on the grounds of common and implied assumptions that represented the real core and the pivotal element of the deal (both for the buyer and the seller) and that later resulted in being incorrect.

19A Tina, Il contratto di acquisizione di partecipazioni societarie, Milano 2007, pages 266–267. Even with the

uncertainties typical of a legal principle that does not find its origin in a formal source, it is possible to say that it occurs when there is a substantial difference between the negotiated deal and the one that has then been executed, so that what the buyer receives does not meet needs and expectations expressed before.

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