New types of M&A disputes will drive up international arbitration cases

These disputes will be driven by three main trends: environmental, social and governance (ESG) issues; the growth of artificial intelligence (AI); and misaligned valuations.

Deal-related disputes are commonly referred to international arbitration and frequently arise from issues such as breach of warranty, misrepresentation, and deferred payment mechanisms. Several developing trends in dealmaking in recent years are shaping the landscape of M&A disputes.

ESG issues in M&A

ESG factors remain a focal point for deals across many jurisdictions. This is a result of both growing regulatory scrutiny and the rising political and investor pressure around ESG. In addition to environmental issues, human rights considerations and the social aspect of ESG have moved higher up on the agenda for businesses and their legal teams.

Read more of our report on international arbitration in 2025

• International arbitration: regional, sectoral and industry developments reinforce dispute resolution status
• UAE: recent arbitration reforms while legacy DIFC-LCIA clause debate continues
• Saudi Arabia firmly on the map as key arbitration and dispute resolution hub
• New digital services and legal developments boost international arbitration usage in Qatar
• Egypt a ‘central hub’ for arbitration in the MENA region
• Investment disputes continue to drive international arbitration developments in Africa
• Southern African states form harmonised arbitration framework
• UK arbitration developments continue to enhance position as key dispute resolution jurisdiction
• French arbitration law evolves ahead of 2025 reforms
• Germany to become more attractive for international arbitration proceedings
• Singapore continues to rise as an international dispute resolution hub
• Continued improvements in international arbitration driven by new HKIAC rules and case law
• India continues work to modernise arbitration landscape
• Significant developments in Japan’s arbitration landscape
• South Korea strengthens international arbitration framework
• China continues to improve arbitration process efficiency and effectiveness
• Australian court rulings strengthen pro-arbitration stance and expand scope of arbitration
• Construction projects and contracts must consider sanctions risks
• New types of M&A disputes will drive up international arbitration cases
• Growing demand for expertise in cryptocurrency related arbitration in 2025
• Major changes crystallising in investor-state dispute settlement
• What the future holds for mediation in investor-state dispute settlement

Increasingly, dealmakers are facing a wide range of ESG-related challenges, from ESG claims around sale terms and greenwashing to data privacy and supply chain concerns such as modern slavery legislation. The lack of established ESG metrics and requirements will also deepen dispute exposure. For global businesses, addressing different approaches and standards towards ESG compliance across jurisdictions has created further challenges.

According to recent research conducted by consulting firm Berkeley Research Group on M&A disputes, ESG-related issues are among the main drivers behind an increase in M&A dispute activity, alongside rapid macroeconomic shifts and deepening geopolitical tensions.

The research found that among the respondents citing ESG issues as a factor in M&A dispute activity over the past year, just over half (51%) identified claims relating to sale terms as a culprit. Perceptions of greenwashing and surprise costs associated with later stages of green energy projects tied for the second-ranked factor (43% each). Data privacy issues – falling under the ‘G’, or governance factor – ranked fourth among ESG M&A dispute catalysts. A host of social catalysts followed closely behind, including employee benefits, equal employment opportunities and fair pay or living wages.

ESG-related M&A disputes will continue to emerge from energy transition. In the Middle East, for example, the commitment made during COP 28 in Dubai towards the end of 2023, to accelerate the transition away from fossil fuels and promote renewable energy sources, has set a new benchmark for environmental responsibility.

Energy transition-related disputes are likely to occur more frequently for various reasons, including if the sellers’ representations and warranties about the company’s green practices turn out to be inaccurate - in which case, buyers may accuse sellers of ‘greenwashing’. Shareholder activism might also lead to further disputes, with tensions arising from incoming shareholders and their requirements for the divestment of certain assets or implementing certain policies.

These disputes can escalate to arbitration or other forms of dispute resolution if they cannot be resolved through negotiation. The sensitivity of ESG issues makes arbitration and its privacy an attractive option for resolving these types of disputes. Other features of arbitration are also considered advantageous for resolving ESG disputes, such as the parties’ ability to select specific arbitrators with the most suitable expertise and to tailor the proceedings to the needs of each case. The enforceability of arbitration awards in a large number of jurisdictions and arbitration’s neutrality as a forum makes it well placed for ESG cases which are usually cross-border in nature, for example in cases relating to a company’s supply chains operating across different countries. The availability of expedited injunctive relief in arbitration can offer parties urgent relief in situations such as when a business activity poses imminent risk of serious environmental damage.

However, the potentially high public interest in ESG matters has led some to argue that such cases should be heard by courts to ensure transparency and public scrutiny.

AI dealmaking

The transformational effect of AI and the hype surrounding it may drive M&A disputes in several ways. While AI can greatly enhance efficiency and accuracy in many aspects of due diligence and financial modelling, increased reliance on AI for dealmaking presents potential risks. For example, AI systems may overlook critical issues or fail to identify red flags that a human expert would catch, and produce flawed financial projections due to poor-quality data or incorrect assumptions. These can lead to disputes if significant risks or problems are discovered after the deal is closed or if the flawed projections cause disagreements over the valuation and performance of the acquired company.

With companies across practically all industries feeling pressure to look at how AI can be used to evolve their business and remain competitive, AI startups are predicted to grow significantly, and to become M&A targets for larger companies. According to GlobalData, AI-related deal activity in the first quarter of 2024 increased by 168% against the same period last year, with deal volume increasing by 27%. The rapid advancement of AI technologies and the surge in AI-related M&A activities will likely result in an increase in disputes.

The rapid growth and evolving nature of AI technology can make it difficult to accurately value AI start-ups. This, along with complex IP issues, post-acquisition performance expectations and integration challenges are likely to be among the main reasons for potential disputes. 

The fast-evolving regulations around the development and use of AI can lead to more disputes within the M&A due diligence process. The speed of new rules coming into force and the difficulties for parties to determine which regulations are applicable and how to achieve compliance can also create challenges for dealmakers in the AI sector. The EU’s AI Act, dubbed the world’s first AI law, entered into force on 1 August 2024, with the majority of the provisions taking effect in August 2026. It is expected to create complications for cross-border transactions involving AI technologies and companies, resulting in disputes.

Where the underlying technology is secret or highly sophisticated, parties to an AI-related M&A deal may want to choose arbitration as the preferred dispute resolution mechanism. In addition to the long-established, traditional benefits that the arbitration process offers – such as the ability to appoint subject-matter experts as adjudicators, the confidentiality of proceedings and global enforceability of awards – arbitral institutions and organisations are perhaps better placed to quickly introduce AI-specific rules. For example, the JAMS ADR centre introduced its ‘Artificial Intelligence Dispute Rules’ in mid-2024, offering parties the ability to opt-in to a specific, AI-focused framework tailored to the sensitivities of AI disputes. The JAMS AI Dispute Rules include, among others, special provisions that aim to guide the disclosure process and safeguard the confidentiality of AI-related discovery materials, such as the details of an AI platform’s internal systems.

While the efficacy of these rules – and whether other institutions will follow suit – remains to be seen, parties to AI-related M&A deals will likely welcome the flexibility that arbitration can provide to their novel and technically complex disputes.

‘Buyer’s remorse’

Incorrect or misaligned valuations are common risk factors for future deal-related disputes. To bridge valuation gaps, and in light of market uncertainties driven by macroeconomic factors and geopolitical instability, earn-out provisions are used more frequently by parties in M&A deals, especially high-value transactions.

An earn-out is a mechanism used in the sale of a company’s shares where part of the purchase price is determined by the post-completion performance of the target. Typically, the earn-out is based on the target’s profits over specific financial periods after completion, but it can also be linked to other benchmarks, such as turnover, net assets or the number of products sold or new customers gained. This allows the buyer to mitigate risk by tying a portion of the purchase price to the company achieving certain financial or operational targets post-acquisition.

While earn-outs can be helpful, they may introduce ambiguity and complexity that may increase the potential for disputes after the deal is closed. For example, there may be disagreements over how performance metrics are defined and measured. In other cases, conflicts could arise over operational decisions that impact the company's ability to meet earn-out targets, as the decisions made by the buyer could be seen by the seller as unfairly hindering performance.

Parties are advised to document the mechanics for calculating and finalising the earn-out and agree on a procedure, such as arbitration, for resolving any disputes in the earn-out schedule of the share purchase agreement.