The dispute concerned the sale by Respondent 1 to Claimant of businesses held by Respondent 1's subsidiary, Respondent 2. A letter of intent was signed stating that the value of the equity acquired by Claimant at the closing should be no less than USD 10.5 million according to international accounting standards. A pre-acquisition due diligence was undertaken by a firm of auditors, after which a share purchase agreement was executed by the parties. In this agreement, the minimum equity value of the target was lowered to USD 10 million. The parties also entered into a debt purchase agreement, according to which the amount paid by Claimant for the debts would be reduced if the equity of the target was valued at less than USD 10 million. The parties disagreed over whether the target's equity exceeded or fell short of USD 10 million at the closing date. As a result, Claimant refused to pay for the acquisition of the target's debts. Claimant argued that the auditors' valuation of the target's equity at the closing date, using international accounting standards, was over USD 2 million less than the USD 10 million guaranteed by Respondents. Respondents argued that the method used by the auditors' to determine the target's equity value was not that agreed upon by the parties and that if the agreed method had been applied, the valuation would not fall below USD 10 million.

Le différend portait sur la vente à la demanderesse, par la défenderesse 1, d'entreprises détenues par une filiale de cette dernière, la défenderesse 2. Une lettre d'intention avait été signée, indiquant que la valeur nette de la participation acquise par la demanderesse à la date de réalisation ne devait pas être inférieure à 10,5 millions de dollars, conformément aux normes comptables internationales. Après un audit précontractuel effectué par un cabinet d'audit, les parties avaient conclu une convention de cession d'actions aux termes de laquelle la valeur minimum de la cible avait été réduite à 10 millions de dollars. Les parties avaient également conclu un contrat d'achat de créances prévoyant une réduction du montant payé par la demanderesse pour les créances au cas où la valeur de la cible serait estimée à moins de 10 millions de dollars. Les parties se sont trouvées en désaccord sur la question de savoir si la valeur de la cible était inférieure ou supérieure à 10 millions de dollars à la date de réalisation. En conséquence, la demanderesse a refusé de payer pour l'acquisition des créances de la cible, arguant que l'estimation de la valeur nette de la cible à la date de réalisation, effectuée par les auditeurs en appliquant les normes comptables internationales, était inférieure de plus de 2 millions aux 10 millions de dollars garantis par les défenderesses. Ces dernières soutenaient de leur côté que la méthode utilisée par les auditeurs pour déterminer la valeur de la cible n'était pas celle convenue par les parties et que, si la méthode convenue avait été appliquée, l'estimation n'aurait pas été inférieure à 10 millions de dollars.

La controversia se refería a la venta realizada por el demandado 1 al demandante, cuyo objeto eran unos negocios propiedad de la filial del demandado 1, el demandado 2. Se firmó una declaración de intenciones en la que se especificaba que el valor del patrimonio adquirido por el demandante en el cierre no debía ser inferior a 10,5 millones de dólares de conformidad con las normas internacionales de contabilidad. Una empresa de auditoría realizó una evaluación de debida diligencia previa a la adquisición, tras lo cual las partes firmaron un acuerdo de adquisición de acciones. En este acuerdo, el valor patrimonial mínimo de la empresa objetivo se redujo a 10 millones de dólares. Las partes también firmaron un contrato de compra de créditos según el cual la suma pagada por el demandante en concepto de los créditos se vería reducida si el patrimonio de la empresa objetivo se valoraba en menos de 10 millones de dólares. Las partes estaban en desacuerdo sobre si el patrimonio de la empresa objetivo superaba o no alcanzaba los 10 millones de dólares en la fecha de cierre. Por consiguiente, el demandante se negó a pagar por la adquisición de los créditos de la empresa objetivo. El demandante alegó que la valoración de los auditores del patrimonio de la empresa objetivo en la fecha de cierre, basada en las normas internacionales de contabilidad, era inferior en más de 2 millones de dólares a los 10 millones de dólares garantizados por los demandados. Los demandados argumentaron que el método utilizado por los auditores para determinar el valor patrimonial de la empresa objetivo no era el acordado por las partes y que, de haberse aplicado el método acordado, la valoración no habría caído por debajo de 10 millones de dólares.

'In the Arbitral Tribunal's opinion, Claimant's claim raises two preliminary issues:

a) what is the appropriate method to calculate Target's equity at Closing; and

b) who has the burden of proof.

III.1.3.1. The appropriate method to calculate Target's equity at Closing

In order to determine the appropriate method to calculate Target's equity at Closing, the Arbitral Tribunal has analyzed the Parties' negotiation process on the two essential elements of the Agreement, i.e. the price and Target's equity.

During the first step, which covers the period from March 19 to May 21, 1999, the Parties merely discussed the value of Target's equity at Closing.

Around May 20, 1999, they proceeded to a second step by including two new elements into the discussion. On the one hand [Mr A of Respondent 1] explained that unforeseeable losses that could occur after December 31, 1998 prevented him from guaranteeing that equity at Closing would reach USD 11.8 million and thus suggested to agree on the equity value at the year-end 1998 . . . On the other hand, [Mr B of Claimant], inclined to accept a value referenced to December 31, 1998, informed [Mr A] that [Claimant] would have discovered if "they sold any assets not in the frame of the ordinary business" . . . The Parties' agreement on these points is reflected in the Letter of Intent . . . which reads:

The equity of the Company at 12-31-1998 was USD $12,800,000 (according to International Accounting Standards). Subsequent to 12-31-1998, no material transfer of fixed assets has occurred. The equity of the Company at Closing shall be at least USD $10,500,000 (according to International Accounting Standards) . . .

As can be seen in the various drafts of the Agreement (July 2, 6, 21, 22, 1999), the Parties did not reconsider the agreed upon method to calculate Target's equity at Closing until the end of July 1999. On July 30, 1999, on the basis of [the auditing firm]'s Limited Due Diligence, [Mr C of Claimant] quoted to [Mr A] [the auditing firm]'s findings and offered, "in the spirit of settling the issues ", to accept Target's equity on December 31, 1998 at US$ 10.2 million "according to IAS as reflected in the [auditing firm's] report at Closing" . . . In his further e-mails of August 4 and 6, [Mr C] will state again "The equity at Closing must be USD 10,200,000 according to IAS as reflected in the [auditing firm]'s report at Closing" . On August 10, 1999, the Parties agreed to reduce this amount to US$ 10 million. Subsequently, the draft Agreement dated August 17, 1999 was modified to include a revised definition of "IAS" which ends with the following additional words: "subject to the assumptions agreed upon by the Parties (listed in Exhibit___ to this Agreement)". "Exhibit ___" will eventually become "Annex I" of the executed Agreement and corresponds (except for Low Value items write off) to the values set forth by [the auditing firm].

The Arbitral Tribunal is of the opinion that the analysis of the negotiations which led to the execution of the Agreement, on the one hand, and of the Debt Purchase Agreement on the other hand, evidences that a specific method to determine Target's equity value at Closing (and accordingly the possible price adjustment) has been progressively worked out by the Parties, in particular in [Mr C]'s e-mail to [Mr A] dated July, 30, 1999, as reflected in Annex I to the Agreement. This method rests on an analysis of [the target's] results between April 1 and the Closing Date. The purpose of this method is to check the continued existence of a net equity as from the beginning of the 1999 fiscal year (which coincides with the net equity as of the closing of the 1998 fiscal year) through the Closing. To that effect, since the net equity on December 31, 1998 was estimated by the Parties (upon [the auditing firm]'s Limited Due Diligence findings) at US$ 10,482.000, losses should not exceed the estimate of the Parties in Annex 1, i.e. US$ 2,662.000, taking into account a debt capitalized for US$ 2,180,000. In substance, this method consists in determining the profit and loss result from April 1 through the Closing Date. No other method was agreed to arrive at a net equity of US$ 10,000,000 at Closing. Annex I to the Agreement stipulates indeed without ambiguity that "The reconciliation of the equity at US $ 10,000,000 at 09.3.99 shall be as follows" (application of the method). . . . In any event the intent of the Parties is clearly to decide a calculation method to be followed for the determination of the Target's net equity at Closing.

In addition, on September 6, 1999, [Mr B] wrote to [the auditing firm]: "… [Respondent 1] guaranteed the equity in the amount of $ 10,000,000 according to IAS on September 3, 1999. [Claimant] and [Respondent 1] agreed on the following assumptions". These "assumptions" obviously refer to Annex I to the Stock Purchase Agreement. In each case, reference is made to IAS, as interpreted by Respondents and accepted by the Claimant as stated in the various exchanges of e-mails i.e. Target's "equity of USD 10,200,000 according to IAS as reflected in the [auditing firm]'s report at Closing" . . . Accordingly, when in Section 1 (Definitions) of the Agreement it is provided that: "IAS means international accounting standards as in effect from time to time, subject to the assumptions agreed upon by the Parties (listed in Annex I to this Agreement)" the Parties refer without qualification to [the auditing firm]'s findings and agreed upon adjustments.

Also, pursuant to the Letter of Intent . . ., [Claimant] was meant to have "a full opportunity to examine the Company's books and records, and [Claimant] shall be satisfied with the results of its due diligence investigation in [Claimant]'s sole and absolute discretion". If [Claimant] had been deprived of such opportunity it could and should have complained at that time and/or refused to proceed with the acquisition. The failure to do so is considered to be a waiver. Moreover, while [the auditing firm] specified in its letter to [Claimant] dated May 27, 1999 that "we shall not express an audit opinion as to whether the financial information presented fully complies with the United States Generally Accepted Accounting Principles", the same document indicates in its "AGREED UPON PROCEDURES" (Attachment I) that [the auditing firm] will "Identify areas which may require further consideration by [Claimant] including potential further adjustments to conform with [Claimant] accounting policies and potential acquisition accounting issues" . . . On June 12, 1999, [the auditing firm] proposed to [Mr B] to convert Target's Russian Financial statements to an IAS format, since [Respondent 1] applied Belgian GAAP and, at the end of June 1999, [Mr B] wanted to have explicit confirmation from [the auditing firm] that Target's equity "according to IAS" reached US$ 10.5 million . . . and was apparently satisfied that [the auditing firm]'s result at the end of July found a net equity "at June 30, 1999 - $ 10.356 M (very close to expected $ 10.5 M)" . . .

In the Arbitral Tribunal's opinion, the above proves that (i) the Parties' progressively included in their agreements elements such as Target's equity at December 31, 1998 and the non-transfer of material assets; (ii) the reference to Target's equity at December 31, 1998 was meant to help the Parties to calculate the value at Closing taking into consideration the instability of the Russian economy and the likeliness of potential losses; (iii) Claimant had the right, and thus the opportunity, to perform a satisfactory due diligence on [the Target's] assets; (iv) [the auditing firm] did not seemingly identify in July 1999 any area that would require further adjustment to conform with [Claimant's] accounting policies, but on the contrary, converted Russian financial statements into IAS and did not raise any issue; (v) the Parties reached a final agreement on the value of Target's equity based on December 31, 1998 results, [the auditing firm]'s findings and adjustments with one last reservation.

As a consequence, Annex I constitutes a binding agreement between the Parties that establishes the method to calculate Target's equity at the Closing Date under which only the April-August 1999 loss shall be added.

III.1.3.2. Burden of proof concerning Claimant's claim

The Agreement does not specify who shall determine Target's equity at Closing, it merely indicates:

Section 2(e) Payment of the Intercompany Receivable. Upon determination of the equity of the Target, to be completed as soon as practicable after the Closing, Buyer agrees to purchase from the Seller, no later than October 31, 1999, the accounts receivable due to the Seller from the Subsidiaries under certain supply contracts. ([Emphasis added] by the Tribunal)

As chosen by the Parties in the Agreement, French laws apply to the merits . . . The Arbitral Tribunal shall therefore apply the general principle of Article 1315 of the French Civil Code according to which the one who requests the performance of an obligation shall prove its existence. Accordingly, it belonged to the Claimant to prove that Target's equity at Closing fell below US$ 10 million. However, as it has been established here above, the Parties agreed upon a method to calculate such equity. This method could have been changed or altered by a common agreement of the Parties on or after the Closing. Nevertheless, Claimant unilaterally and without discussions with or disclosure to Respondents determined to apply a new method, while being fully aware that it was departing from the contractually agreed method. This is evidenced by [the auditing firm]'s letter of engagement to [Claimant] . . ., in which [the auditing firm] proposed to ignore both Parties' agreed upon method and Target's prior financial statements (because they considered [sic] to have been made "on the basis of fairly simplistic submissions") and to apply "International Standards on Auditing applicable to agreed upon procedures engagements". Though [Mr B]'s answer to [the auditing firm] is unknown, there is no doubt that a method other than the contractual one has been applied by [the auditing firm] in the post-acquisition due diligence. The draft AUP Report [the auditing firm's report on agreed upon procedures] dated October 1999 indicates (page 3) that "Net assets calculated from the trial balances (adjusted to meet United States Generally-Accepted Accounting Principles) amount to $ 7.69 million compared with US $ 10,000,000 at 31 August 1999", and note 4 on the same page states: "We have not compiled the profit and loss account for the period 1 January until 31 August. As a result, we are unable to fully explain the difference of $ 2.31 million, which may be partly due to more losses (denominated in US dollars) realised by the entities in the period 1 January-31 August than was envisaged in the Stock Purchase Agreement". This was confirmed at the meeting held . . . in the offices of [the auditing firm] . . .: "[Mr D of the auditing firm] also mentioned that [the auditing firm] did not compile a US dollar P&L. [Mr B] replied that this would be useful so as to compare the representations made by [Respondent 2] and compare them to the actual results". This is a clear acknowledgement that the contractual method was totally ignored in the drawing up of the AUP Report and unilaterally replaced by another method agreed by and between [the auditing firm] and Claimant.

There is no indication that the method used by [the auditing firm] was expressly agreed by the Respondents. On the contrary, in his witness statement dated November 14, 2001, [Mr A] only says that [Mr D] "explained the valuation methods used by [the auditing firm]" during the first of the two meetings held in November 1999 and adds: "I have not signed them as a proof of my consent" . . . He also indicates: "However, it should be noted that were (sic) the minutes state that I understood [the auditing firm] valuation methods, this does not mean that I expressly agreed with such methods". Actually, these minutes, drafted by [the auditing firm], indicate that [Mr A] informed Claimant "that he is only attending the meeting to get a good understanding of the figures presented and that he currently was not in a position to make any decisions" . . .

In addition, despite a careful examination of Claimant's submissions, the Arbitral Tribunal was unable to find any element that could have helped in establishing the extent of April-August 1999 loss. The only element in this respect consists in an "assumed loss" for the period July 1 to August 31 1999, stated by [the auditing firm] with reservations, which thus does not constitute a sound basis for any conclusion.

The Arbitral Tribunal does not challenge the appropriateness of this change of method nor the quality of the work performed by [the auditing firm]. It only points out that, in order to obtain a reduction of the agreed price, Claimant should establish, by applying the contractually agreed method, that losses incurred from April 1, 1999 until Closing were in excess of the losses contemplated in the Annex I to the Agreement. Because [the auditing firm]'s AUP Report ignored the Parties' agreed upon method, the Arbitral Tribunal does not consider the findings and results of the AUP Report an appropriate evidence for the determination of Target's equity under the Agreement. Therefore, concerning Claimant's claim based on the alleged lower value of Target's equity, the Arbitral Tribunal decides that Claimant did not fulfill appropriately its burden of proof and thus failed to evidence that, under the agreed upon method, Target's equity at Closing was inferior to US$ 10 million. Accordingly, Claimant does not prove its case and its claim is to be dismissed.'