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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1. The extension of arbitration agreements within groups of companies has become a classic question in arbitration law.1 It is about whether a company that has not signed an arbitration clause may nevertheless be obliged to participate as defendant in arbitration proceedings initiated pursuant to that clause if and on the grounds that the clause was entered into by another company in the group to which it belongs. Sometimes the question concerns the opposite situation, namely whether a company that again has not signed the arbitration agreement contracted by another company in the group to which it belongs may initiate arbitration proceedings. In both situations the question may also arise in relation to a natural person who owns all or the greater part of a company's shares.
2. This legal problem has been referred to through such expressions as the transparency of legal personality, piercing of the corporate veil, alter ego (i.e. the company that has signed the agreement is regarded as a double of the company in question). Adopting a more descriptive and neutral expression, we have decided to refer rather to the extension of an arbitration clause to non-signatory parties. This extension is necessarily a matter for the arbitral tribunal, which must decide between the claim of the company targeted as a defendant that it should remain outside the proceedings and its opponent's claim that it should be brought into those proceedings, or between a would-be claimant's request that it be admitted as a party to the proceedings and the defendant's claim that it should remain outside.[Page64:]
3. The question arises with increasing frequency and is important from a legal point of view. It is worth briefly recalling that in international trade most operators are companies belonging to groups of companies. In addition, it is quite common in contractual operations containing arbitration agreements for non-signatory companies belonging to the same group as the company that signed the agreement to be present or involved in various ways. The legal aspects of the question have thus been brought out to such an extent that many arbitral tribunals and courts now readily consider that a company which has not signed the arbitration clause entered into by another company in the same group is bound by that clause, while others take the opposite view. In other words, the question is controversial.
4. That the question should be controversial and lead to widely diverse solutions is due to the fact that it touches on two highly problematic areas: in company law, the question of groups of companies; and in the law of international commercial arbitration, the extension of the arbitration agreement, i.e. the recognition of an obligation to submit to arbitration on the part of a person that has not signed the arbitration clause. The former is encountered on a daily basis across the broad spectrum of law relating to companies2 and leads to a wide range of individual solutions that place varying degrees of emphasis on the autonomy of each company in the group or the unity of the group as a whole. The latter is encountered not just in the context of groups of companies but also in relation to strings and groups of contracts, where there is divergence between a positivist and formal view opposed to the extension of the arbitration agreement, and a position more receptive to its extension, based on a rational and substantive interpretation that takes into consideration the parties' intention. 3
5. The difficulties are all the greater as the question may have important practical implications and reflect radically differing positions. When difficulties arise in connection with a contract, each party tries to bring into the proceedings all those persons whose presence it considers to be in its interest, whether to establish the facts of the case, provide adequate reasons for the decision, or ensure that the award will be enforceable. For instance, the involvement of another company in the group (parent company, sister company, principal shareholder, managing company, subsidiary company, associated company, etc.) could help in proving certain facts, ensuring the admissibility of certain factual or legal arguments, or enforcing the decision to be made.
6. One way of dealing with the problem would be to pretend that it does not exist and to consider only the assets of the company that has signed the arbitration agreement. Accordingly, the arbitration agreement would be attached to these assets alone and any attempt to extend it to another company within the group would be inadmissible. There would appear to be some support for such an approach in company law, with a marked resistance in legal writing and case law to any extension of undertakings within groups of companies. The basic principle is still that each company within a group is legally independent: a parent company cannot sue in the place of its subsidiary; 4 a parent company is in principle not answerable for the undertakings of its subsidiaries, 5 nor vice versa. 6 In arbitration law this analysis could point to the reticence of scholars towards any extension of the arbitration agreement and their insistence on the formal expression of the parties' intention.[Page65:]
7. It is noteworthy, however, that the number of decisions allowing and approving such an extension has been increasing. There are no doubt strong reasons for this, one of these being the parties' legitimate expectations as to the practical effectiveness of the jurisdictional role of arbitration. However, it is only possible to extend the arbitration agreement if the reasons justifying its extension truly exist and are evidenced through specific documentation: the mere fact of belonging to a group of companies is not in itself a ground for extending an arbitration agreement. This article looks at these reasons as recorded in the decisions of arbitral tribunals and State courts. They define the basis on which arbitration agreements may be extended within groups of companies, the criteria for doing so and the limitations to which extension is subject. As a general rule, the solution will depend on a detailed examination of the circumstances of each case. 7
8. The key issue in this great debate is consent to the arbitration clause. In some cases, the extension of the clause is justified by the proximity of consent: although it may appear at first sight to be lacking, it is not far away and the extension of the arbitration clause is in this case justified by a broad interpretation of consent. Although there is here a large measure of creative legal reasoning, the awards are merely implementing proven legal principles that establish a link between the arbitration agreement to be recognized and consent implied, caused, hidden or revealed by certain behaviour. Like Georges Bizet's L'Arlésienne, it may not be visible but is much talked about. The extension of the arbitration agreement on grounds linked to consent will be dealt with in part I below.
9. However, arbitral tribunals are also confronted with situations of a different kind. In contrast to the previous situation, where the arbitration agreement is extended as it were by prolonging consent, here a party is regarded as bound by the arbitration agreement despite having clearly expressed an intention to the contrary or without any reference to consent. These situations will be examined in part II, where it will be seen that the solutions are more diverse and more questionable when not based on consent.
I. Extension on grounds linked to consent
10. The fact that consent to an arbitration clause may not have been formally expressed does not prevent such consent from being recognized at law. To that end, it will be necessary 'to look for the actual and common intention of the parties at the time of the facts or, at the very least, that of the non-signatory third party'. 8 The question is: which facts? Those that determine the formation of the contract (A) or those surrounding its performance (B).
A. Grounds related to the formation of the contract
11. Arbitration law intersects with the general theory of tacit consent, where a party does not formally express its consent but behaves in such a way that the only [Page66:] explanation for its behaviour is the legal intention one wishes to infer from it. A frequently cited example is Article 1338 of the French Civil Code: the waiver of any right to object to an annullable deed may be inferred from behaviour that can only be seen as a wish to confirm the deed, such as the performance of the contract while knowing that it was flawed. It is the parties' actual intention that should prevail.
12. An arbitral tribunal9 has thus held that 'the arbitration clause expressly accepted by certain of the companies in the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise'. Ruling on this decision, the Paris Court of Appeal10 held that 'the arbitrators, who are exclusively empowered to interpret the aforementioned contracts and the and the documents exchanged when negotiating and terminating them, decided on good, consistent grounds that the common intention of all companies involved was that Dow Chemical France and Dow Chemical Company were parties to the contracts, despite the fact that they had not signed them, and that the arbitration clause was therefore applicable to them'.
13. The Paris Court of Appeal11 likewise approved the decision of an arbitral tribunal whose interpretation of the agreements in question had led it to find that the parties' mutual obligations were closely intertwined and that the two parent companies dominated their respective subsidiaries, which were subject to the parent companies' commercial and financial decisions, and thus to infer that it was the common intention of the parties to make the parent companies liable for any sums due by the subsidiary.
14. A similar reason is found in a decision of the Court of Appeal of Pau: 12 'An arbitration clause that has been expressly accepted by some companies in the group must bind the other companies which, based on the part they played in the conclusion, performance or termination of the contracts containing the said clauses, would appear to have been intended by all the parties in the proceedings to have actually been parties to those contacts or primarily concerned by them or by the disputes arising therefrom.' Moreover, the Court of Appeal introduced this statement with the words: 'it is acknowledged at law that . . .'.
15. Further confirmation of the above is found in an award13 which states that although the existence of a group is the first condition for joining a third party to the arbitration proceedings, it is also necessary to determine the parties' actual intention at the time of the facts or, at the very least, the intention of the non-signatory third party. The award warns against artificially extending the effects of an arbitration clause to a legal entity that has not consented thereto, even tacitly. The arbitral tribunal in this case examined the facts to see whether the parent company was considered as a party to the agreement or particularly concerned by it and found that there was no case for extending the arbitration agreement. 14
16. If the part played by another company in the group or by an executive of the company that signed the clause is not sufficiently substantial, the company or executive cannot be regarded as having consented to the arbitration agreement. 15 Thus, after stating that implied acceptance of the arbitration clause can result from a [Page67:] subsidiary's active participation in the negotiation of the underlying contract containing the arbitration clause, an arbitral tribunal16 found that its detailed examination of the case did not reveal any evidence sufficiently conclusive to show that this had been the case. In its discussion of the case, the arbitral tribunal considered the possibility of a subsidiary being actively involved in the negotiation, performance or termination of the underlying contract. It is indeed possible to take a wider view of a company's conduct in order to show, for example, that there was some confusion between it and the signatory of the arbitration clause.
17. Under company law, courts have held another company in a group (in practice, a solvent company, i.e. the parent company) jointly and severally liable in the event of misconduct, 17 especially when that other company led the creditor to believe that it was contractually obligated towards it, 18 for instance by using the same address for all companies in the group or having the same person sign the commercial documents. 19 A parent company is answerable for the harm caused to the contracting partner of its subsidiary if the latter appeared as an agency of the parent company and if the parent company intervened several times in the management of the contract20 or interfered in the conclusion and the performance of a contract made on behalf of its subsidiary. 21
18. It is logical that this well-established case law should apply to arbitration agreements where the companies in a group have deliberately created confusion at the expense of the other party to the contract (1). It also applies, without any subjective connotation or criticism of conduct, when there are objective reasons for considering the group of companies to be bound by the agreement (2).
19. In the Orri case22 the arbitral tribunal found that all the companies under the principal shareholder and director unquestionably formed a group of companies dependent on said shareholder and director, that the existence of such a group had been recognized in numerous court decisions, that the management and accounting of the various companies had been constantly mixed together, that their leader had created total confusion between the companies in the eyes of outsiders, and that although he had used various tactics to avoid being personally bound by these obligations, such tactics were ineffective upon the claimant.
20. Other factors that have been taken into account23 are 'the inadmissible abuse of the separation of legal entities' and the improper use if a company as a protection against potential liability.
21. Likewise, 'where a company or an individual appears to be the pivot of the contractual relations in a particular case, one should carefully examine whether the parties' legal independence should not, exceptionally, be disregarded in favour of a global judgment'. 24
22. When an award rules against an extension of the arbitration clause, this is often not because it is inadmissible, but because it is justified by the circumstances:
when a parent company's interference does not amount to ratification, 25
when, after a dispute has arisen and noting the involvement of the parent company [Page68:] in the negotiation of the contract, an arbitral tribunal26 finds that 'this involvement, beginning eight years after the Contract was signed, does not reveal any intention to accept either responsibility for the Contract or its arbitration clause',
or when a court rightly27 warns against piercing the corporate too rashly 'even in deference to the positive federal policy towards arbitration'.
23. In such situations, the reason for extending the arbitration agreement is that the company in question has behaved in such a way as to lead its contracting partner to believe that it was contractually bound (the consent is, as it were, supposed, i.e. the other person could justifiably consider it as having been given). Somewhat different, although not unrelated, is the following situation seen in more objective terms.
24. This situation, although similar to the former insofar as a contracting partner is considered to have justifiably believed that the company in question gave its consent to the arbitration agreement, is slightly different, in that it is based not on the company's behaviour but on an objective set of circumstances. This is the case, for instance, when the arbitral tribunal considers that the agreements 'create a tight network of obligations to be discharged by or for the companies concerned' showing that 'in order to establish a single economic entity . . . the Defendants set up a contractual construction to which their subsidiaries were bound'. 28
25. It is also the case when an arbitral tribunal29 allows an arbitration clause to be extended on the basis of a strict analysis of the contractual relations between the various companies in the group and the lack of any formal determination of the parties to the different contracts. The tribunal held that the claimant had contracted with a group and had no interest in delving into the group's organization, so long as the group was able to ensure that the obligations it had assumed were satisfactorily carried out. Interestingly, the tribunal noted that at different times different companies were chosen within the group to perform the operation and that this showed that for all the parties the choice of company was of secondary importance.
26. What is even more worthy of note is that the arbitral tribunal added that no company within the group could use the wording of a given clause interpreted literally and in isolation from the context of the agreements as a whole, to try to be excluded from a dispute that directly concerned the group. Here, there is a change of perspective: it is as if the norm, upon which a presumption is based, has become that the other companies in the group are bound by the arbitration agreement, and the exception, for which proof to the contrary must be provided, that particular companies are not bound. The awards adds the following proviso: 'unless it is established, in a given case, that a formalistic interpretation is necessary and corresponds to the parties' true intention, interpreted in good faith and in the spirit of the transaction'. These elements-the true intention of the parties, good faith and the spirit of the transaction-reflect a substantive approach to interpreting the arbitration agreement.
27. A similar idea is found in another award, 30 which states that 'it is largely admitted that by virtue of a usage of the international trade, where a contract, including an arbitration clause, is signed by a company which is a party to a group of companies, the other company or companies of the group which are involved in the execution, [Page69:] the performance and/or the termination of the contract are bound by the arbitration clause, provided the common will of the parties does not exclude such an extension'.
B. Grounds related to the performance of the contract
28. A company's involvement in a contractual operation may justify the finding that it is bound by an arbitration agreement. For instance, the Paris Court of Appeal has ruled31 that the validity and effectiveness of an arbitration clause in an international contract are such that the application of the clause must be extended to those parties directly involved in the performance of the contract and any disputes that may arise from it, if it can be assumed from their situation and activities that they were aware of the existence and scope of the arbitration clause even though they did not sign the contract containing it. 32 Arbitration clauses have also been extended33 to persons that have been involved in a project and participated in the performance of a single economic operation through various contracts signed by some or all of them; to a person that has played an active part in the negotiation or performance of a contract; 34 and to a person with which the signatory was closely and inextricably connected. 35
29. The use of such grounds to extend the arbitration clause has attracted criticism. 36 However, that criticism ignores the substantive rules of international commercial arbitration, upon which extension on such grounds is based. Without wishing to go beyond the scope of the present article, we would simply point out that these substantive rules derive their binding character from their nature, content and purpose, and as such, rather than as the expression of-possibly excessive or inadequate-State authority or contractual intentions, they are indispensable to ensuring the effectiveness of arbitral decisions. 37
30. Such grounds for extending the arbitration clause may be likened to a tacit intention, in that involvement in the contractual operations may reveal an implied wish to take part in the method of resolving disputes specially provided for those operations. However, this is not necessarily the case. A company may, for instance, assert that its involvement was short-lasting, or that it was for purely practical purposes and did not give it the legal status of a party to the contract or to the arbitration clause. In this case, it is the fact that the party with which the company contracted had reason to believe that the company was contractually bound that justifies extending the arbitration agreement. Its belief will be explained by the nature and extent of the contractual or practical involvement in the operations.
31. Further, to justify extending an arbitration clause, the non-signatory company's involvement in the operations must be significant. Occasional or accidental intervention should not have such an effect: there must be true involvement. For instance, the corporate veil will not be pierced where the company that signed the clause is in a position to perform the relevant service, 38 or where the company in question intervened merely to provide logistical support where this was inadequate. 39[Page70:]
32. It was stated in the Westland case40 that: 'The question whether the four [non-signatory] States are bound by the arbitration clause concluded by the AOI [organization to which they belonged] in its own name . . . is exactly the same as the substantive law question whether the four States are bound in general by the obligations contracted by the AOI. If the obligations not only of the AOI, but also of the four States, if the locus standi to conduct the defence in relation to those obligations can be attributed not only to the AOI, but also to the four States, then the latter are therefore bound by the arbitration clause, just as they might, had they been summoned before an ordinary Court, have availed themselves of this clause as a ground in their defence.' The award goes on: 'The mandatory force of the arbitration clause cannot be dissociated from that of the substantive contractual commitments; the reply to the question as to whether the four States are bound by the acts of the AOI must always be the same, whether the procedural aspect of the arbitration clause is involved or that of the substantive law concerning the financial obligations of the four States.'. The performance of the contractual operation is here seen to lead indivisibly to fundamental and procedural rights and obligations.
33. This award was set aside by the Swiss Federal Tribunal41 on the grounds that only the signatories could be regarded as parties to the arbitration. Yet, bearing in mind that Swiss law lays great emphasis on the formal, consensual aspect of arbitration and on the independence of companies' assets, one may ask whether the reasons for this decision would be admissible elsewhere?
34. We may conclude at this stage that where there is no explicit and formal undertaking to engage in arbitration, a company may nevertheless find itself bound by an arbitration clause signed by another company in the group to which it belongs in various situations that presuppose its consent, either due to its own conduct or due to the other party's legitimate belief that in the circumstances such consent existed. This reflects a broad conception of consent and a wide application of the contractual basis of arbitration. We shall now consider grounds for extending the arbitration agreement that are not based on consent, but rather on the jurisdictional role of arbitration.
II. Extension on grounds unrelated to consent
35. Appearance? The situations to be considered here involve extending the arbitration agreement against the will of a person that does not wish to be bound by it or where arbitration has not been chosen as the method of dispute resolution, or a mixture of the two. Mention may be made of an original decision by the Paris Court of Appeal, 42 in which it ruled in favour of extending an arbitration agreement on the grounds of appearance. It held that as the circumstances in which the contract was negotiated, concluded and performed had led one of the parties to legitimately believe that a company with which it had dealt in the past was also a party to the contract, despite not having signed it, the arbitration agreement was binding on that company too in accordance with the principle of appearance applicable to international commercial relations. The Swiss Federal Tribunal, although usually rather cautious when it comes to extending arbitration clauses, has likewise accepted the [Page71:] extension of an arbitration clause in very special circumstances that account for a party's having, in good faith, trusted appearances created by the non-signatory company. 43
36. Estoppel? In a similar vein, the principle that one cannot contradict oneself to the detriment of others, deriving from estoppel, 44 has led an arbitral tribunal to extend the arbitration agreement to a company that had stood surety for a signatory company and which, in other proceedings, had pleaded for arbitral jurisdiction. 45
37. These criteria raise difficulties, however. The theory of appearance has given rise to intense and all too familiar controversy over the criteria and consequences that should be allowed. As for the principle of not contradicting oneself to the detriment of others, there is the opposite problem of uncertainty in French law (and to a certain extent, it would seem, in common law estoppel) due to inadequate knowledge of its criteria and consequences. These concepts may be used alongside other criteria such as the parties' conduct in the formation and performance of the contract, but we would suggest that they should not be used as independent means-i.e. without other criteria-of extending arbitration agreements. On the other hand, there are other legal means that can be used in this way. For instance, an extension of the arbitration agreement on the basis of a general principle of law such as the neutralization of fraud or abuse of law can be used to counter an attempt to evade the agreement (A); and an extension of the agreement on the basis of an objective principle such as the unity of the group of companies or the proper administration of arbitral justice can be used in the absence of any intention to submit to arbitration.
A. Extension against a party's will through the application of a general principle of law
38. It is well known that fraud corrupts everything. It was therefore inevitable that attempts to prevent a solvent company naturally concerned by a transaction from being bound by an arbitration agreement signed by another company belonging to the same group should be thwarted on this basis. In an appeal brought before the French Court of Cassation against a decision46 that allowed the extension of an arbitration clause in a group of companies linked as an economic unit, the Court rejected the appeal, but on the grounds that there had been a subterfuge constituting fraud. 47
39. Although fraud is a sufficient criterion in itself, one may ask whether it is a necessary criterion, and could thus be the sole criterion justifying the extension of the clause. Although the question may seem strange, it is relevant insofar as there have been decisions48 stating this to be the case, but in a context that makes it clear that fraud was used in conjunction with other criteria. The extension of the arbitration agreement is not limited to fraud alone.
40. In a Swiss case in 1991, 49 the arbitral tribunal based its decision to lift the corporate veil on the fact that the parent company had full command and control over [Page72:] the wholly-owned subsidiary, that the subsidiary had been created solely for the operation in question, that the subsidiary's capital was insufficient given the nature and the value of the transactions, that the administration, management and assets of the two companies had become mixed up, and that the subsidiary had been wrongly wound up and its assets transferred to the parent company at the expense of the creditors. This is a caricature of abuse of law through the creation and winding-up of a sham company, abuse of legal personality and fraud of the rights of the creditors.
41. Likewise, it has been rightly held50 that in international relations it is 'preferable to apply standards that are geared to conditions in the international market place and that strike a reasonable balance between a corporation's reliance on respect for its separate corporate personality and protection of persons who may be victimized by a corporation's undue manipulation of its control of a subsidiary to deprive a creditor of the benefits it bargained for'. As noted by the commentator, 51 it is important that the fiction of legal personality should not be used to protect wrongful behaviour to the detriment of parties outside the group of companies, as would be the case if an action brought against a subsidiary becomes illusory due to its financial situation, while the parent company played a major part in the conclusion and performance of the contract. It may be noted that this award expressly refers to a principle of lex mercatoria as the basis for lifting the corporate veil. 52
B. Extension without consent
42. It is easy to understand the wariness53 with which the extension of an arbitration agreement based on the idea of a group's economic unity may be met. Although a reference to such an idea may be found in some decisions-such as the decision of the Paris Court of Appeal54 which stated that notwithstanding the separate legal personality of each company within a group of companies, the group is a single economic reality and the courts must take this into consideration as it is acknowledged in international trade-it follows a discussion of the criteria for determining behaviour evidencing a common will. The Paris Court of Appeal decision highlights the nature of the problem: while no one doubts the reality of economic unity within a group of companies (the financial information available on capital markets is sufficient proof of this), is this reality sufficient to justify extending the arbitration agreement? This is by no means certain.
43. The reason lies in the fact that this means of extending the arbitration agreement is at odds with the contractual basis of arbitration and, unlike the previous situations, does not involve the violation of a general principle of law. Furthermore, in ordinary company law, there is considerable uncertainty and controversy over the legal representation of the economic unity of a group of companies. Whilst it is true that in the context of the insolvency of the primary debtor, the economic unity of the group could allow the insolvency proceedings to be extended to another company in the group-indeed, although at odds with the technical application of the theory of patrimony ( patrimoine), it would be entirely consistent with its basis and purpose55-the law as it currently stands is opposed to extending insolvency proceedings on this basis, which rules out any influence it might have on arbitration law. 56[Page73:]
44. Case law does not offer any significant examples of the extension of an arbitration agreement on the sole basis of the economic unity of a group. The Paris Court of Appeal57 has held that an arbitration agreement could be extended where there was a group forming a set of companies linked as an economic unit and subject to a single authority. Although, as already noted, this decision was upheld by the Court of Cassation, 58 the reason for its doing so was that there had been a subterfuge amounting to fraud. If we look at arbitral awards, there are several, including latterly, 59 that continue to adhere to the principle that arbitral jurisdiction is determined solely by the parties' arbitration agreement, that the provisions of an arbitration agreement should be applied literally and interpreted strictly, and that a subsidiary's legal personality is distinct from that of the other companies in the group and that the group itself cannot lay claim to any legal personality of its own.
45. Likewise, the US Court of Appeals held in Bridas SAPIC v. Government of Turkmenistan, et al., 60 that although Bridas had shown that Turkmenistan (which had not signed the arbitration clause) was very involved with Turkmenneft (which had signed the arbitration clause), there was 'an insufficient showing of complete domination or extensive control' to warrant a finding that Turkmenneft was the alter ego of Turkmenistan.
46. According to the current state of the law, the fact that a company belongs to a group that constitutes an economic unity would seem to be a sign or factor conducive to extending the arbitration agreement, but is not sufficient in itself. A good illustration is found in an award61 where it is clearly stated that 'without denying the economic reality of a "group of companies", the scope of an arbitration clause may be extended to non-signatory companies with separate legal significance only if they played an active role in the negotiations leading to the agreement containing the clause, or if they are directly implicated in the agreement'. There are in fact quite a number of awards, even in recent times, that refuse to extend an arbitration clause if, in addition to the economic unity of the group, there are no other criteria specifically linked to the behaviour of the parties that are sufficient for this purpose. 62
47. Although this aspect may sound somewhat vague, it is fully justified in view of the jurisdictional nature of arbitration and the legitimate expectations of the parties. There are times when it is described in precise technical terms. An example is the reference to the indivisibility of the dispute in the decision of a US court, 63 which held that when the claims made against a parent company and its subsidiary are based on the same facts and are fundamentally indivisible, a tribunal may decide that the claims made against the parent company should be decided by arbitration even if that company was not formally a party to the arbitration clause.
48. Another US decision64 goes somewhat further. Without requiring indivisibility, it simply points out that there was some connection between the illicit acts of which the parent company was accused and the obligations it assumed under the contract entered into by its subsidiary, which alone signed the arbitration clause. It should be pointed out that in this particular case, it was the claimant that initiated proceedings in the State court and the parent company that objected to the jurisdiction of the court.[Page74:]
49. There is also insistence in some cases on the need for the arbitrators to be presented with all the legal and economic aspects of the dispute. 65 It goes without saying that this is highly important and corresponds to the legitimate expectations of the parties and the needs of international commerce. It was considerations such as these that led the arbitral tribunal in Westland to state in its first interim award that 'Westland is justified in bringing the four States themselves before the arbitrators. Were this not the case, there would be a real denial of justice.'
50. Concern over the administration of arbitral justice can be considered from two viewpoints: the rendering of the decision or its performance. As far as the second is concerned, the reason for extending the arbitration agreement may be to sanction a deliberate intention to avoid the performance of a possible award66 or where the company originally bound by the arbitration agreement is unable to honour its obligations for lack of assets of financial resources. 67
Conclusion
51. In this article, we have focused chiefly on French international commercial arbitration law, in light of which three additional remarks should be made:
The first concerns the sources of international commercial arbitration law. We would simply recall that national laws on international commercial arbitration are attentive and receptive to comparative commercial arbitration law. So too is this article, albeit insufficiently and incompletely.
The second concerns the differences between national laws. Subject to the preceding remark, it is generally accepted that French law, which was a pioneer in extending arbitration clauses, has become a reference, midway between the more static tendency illustrated by English law and even more so by Swiss law, and the dynamic tendency that has recently emerged in the United States. 68
The third concerns the developments that might be expected in the future. We hope that here, as in other areas such as the acceptance of lex mercatoria or the conduct of arbitration proceedings, the different legal traditions will gradually converge. Moreover, some awards regard the extension of the arbitration agreement as the application of a principle of lex mercatoria.
52. At the present time, there is a balance between arbitral awards in favour of extending arbitration agreements and those opposed to doing so. By this, we do not mean that they are equal in number (for this would be meaningless), but that the respective importance of each group is roughly equivalent. The balance should not be thought of as fixed, but variable:
within the context of individual cases, where the general tendency is to adopt a pragmatic approach which both:
- excludes any bias towards extension or non-extension;
- seeks to identify in each individual case the facts that could be used as grounds for extending the arbitration agreement, if necessary;[Page75:]
within the wider context of the development-if such be the case-of a general tendency in the way the problem is dealt with in arbitration.
53. It should be stressed that one can only look for tendencies in arbitration and clearly cannot talk of developments in arbitral case law in an institutional sense. Each arbitral tribunal has full exercise of its powers and its responsibility to pronounce the law. The present article therefore has the modest purpose of simply pointing out trends. We would venture to suggest that the trend is towards applying the substantive conception of international commercial arbitration to the issue of alter ego:
It is noteworthy that some decisions regard the extension of the arbitration agreement as natural and a priori possible and they examine the grounds upon which the company in question could or could not avoid being bound by it. Although such an approach remains something of an exception, it points to a change of method: formal contractual positivism, i.e. the formal expression of the parties' intention, is not-or not always-the first method (chronologically and logically) used when judging the situation.
More generally, the use of the 'substantive' approach-which looks above all at the economic operation, for which the contract is an implementing instrument, rather than at the instrument itself-echoes other uses of the same approach in French international commercial arbitration law, especially in connection with the extension of the arbitration agreement in groups of contracts.
Other uses of the substantive approach, peculiar to company law, may have a direct bearing on the alter ego question and thereby lead to an extension of the arbitration agreement. Just as a contract is an instrument reflecting a given concrete operation (technical, economic, etc.), so the contract establishing a company is the instrument that reflects its organization. In French law, a company is created 'in the common interest of the partners'. 69 The latter make contributions to 'a common enterprise'. 70 Although the contract establishing a company has all the consequences its nature entails within the meaning of Article 1135 of the Civil Code, it cannot be applied or interpreted without taking into account the interest, existence and nature of the undertaking. In concrete terms and in the present context, it will be noted that some arbitral awards take account of the fact that a company was newly created for the matter in question and lacks any operational independence. They infer that the arbitration agreement should be extended as there is no real enterprise. On the other hand, when a subsidiary has an independent economic existence evidenced by its duration and true operational independence, i.e. is an actual undertaking, then other criteria are required before the arbitration agreement can be extended.
54. The question we have been considering is marked by its eclectic nature, both as far as the methods of reasoning and their practical implementation are concerned. This does not facilitate the task of an arbitration institution such as the ICC International Court of Arbitration, especially at the start of proceedings:
The arbitration institution is clearly not empowered to rule on the question of extending the arbitration agreement.
After its prima facie review of the arbitration agreement, the institution may have cause to join to the proceedings a company which a party wishes to implicate on [Page76:] grounds that it is an alter ego, if only to allow that company to defend itself before the arbitral tribunal.
Some might consider this argument to be fallacious and preconceived. However, this would be to overlook the fact that the criteria for determining an alter ego necessitate an examination of the case to an extent incompatible with the limits of a prima facie review.
1 J. El-Ahdab, La clause compromissoire et les tiers (Presses universitaires d'Aix-Marseille) [forthcoming]; R. Alford, 'Binding Sovereign Non-Signatories' (2004) 19:3 Mealy's International Arbitration Report 27; M. de Boisséson, 'Effets d'une convention d'arbitrage à l'intérieur d'un groupe de sociétés' Bull. Joly 1990, p. 999; G.B. Born, International Commercial Arbitration, Commentary and Materials, 2d ed. (Transnational/Kluwer Law International, 2001) at 653-72; A. Chapelle, 'L'arbitrage et les tiers : le droit des personnes morales (Groupes de sociétés, Interventions d'Etats)' Rev. arb. 1988.475; Y. Derains & S. Schaf, 'Clauses d'arbitrage et groupes de sociétés' RDAI/IBLJ.1985.231; I. Fadlallah, 'Clauses d'arbitrage et groupes de sociétés' Trav. Comité fr. DIP 1984-1985.105; E. Gaillard & J. Savage, eds., Fouchard, Gaillard, Goldman On Internatinoal Commercial Arbitration (Kluwer Law International, 1999) at para. 500ff.; B.Hanotiau, 'L'arbitrage et les groupes de sociétés' Gaz. Pal. (18/19 December 2002) 5; Ch. Jarrosson, contribution to discussion in L'arbitrage et les tiers Rev. arb. 1988.494 at 498-99; idem, 'Conventions d'arbitrage et groupes de sociétés' in Groupes de sociétés : contrats et responsabilités (LGDJ, 1994); S. Jarvin, 'La validité de la clause arbitrale vis-à-vis de tiers non signataires de la clause - Examen de la doctrine de groupe de sociétés dans l'arbitrage CCI' RDAI/IBLJ 1995.730; Ph. Leboulanger, 'Groupe d'Etat(s) et arbitrage' Rev. arb. 1989.415; M.R. Pimm, 'Jurisdiction over Non-Signatories to the Arbitration Agreement - Can Arbitrators Pierce the Corporate Veil?' [2003] Asian DR 5; JF. Poudret, 'L'extension de la clause d'arbitrage : approches française et suisse' J.D.I. 1995.893; idem, 'Trois remarques au sujet de la théorie des groupes de sociétés' ASA Bull. 1995.125; A. Redfern & M. Hunter, Law and Practice of International Arbitration, 4th ed. (Sweet & Maxwell, 2004) at 148-52; O. Sandrock, 'Arbitration Agreements and Groups of Companies' in Etudes de droit international en l'honneur de Pierre Lalive (Helbing & Lichtenhahn, 1993) 625; J.J. Sentner Jr, 'Who is Bound by Arbitration Agreements? Enforcement by and Against NonSignatories' Business Law International vol. 6/no. 1 (January 2005).
2 e.g. D.Vidal, Manuel de droit des sociétés, 4th ed. (LGDJ, 2003) at paras. 195-261.
3 e.g. D.Vidal, Manuel de droit français de l'arbitrage commercial international (Gualino, 2004) at paras.116-95
4 Cass. com, 18 May 1999, Dr. soc. August 1999, no. 1287.
5 Cass. com., 24 May 1982, Rev. soc. 1983.361 (Annot. J. Béguin); Cass com, 2 May 2001 and Paris, 12 June 2001, Bull. Joly 2001, nos. 246 and 247, p. 1097 (Annot. P. Scholer); Cass. com. 28 May 1991; Bull. civ. 1991.IV, no. 182, p. 129; Paris, 9 November 2001, Bull. Joly 2002, no. 45, p. 218 (Annot. H. Le Nabasque); concerning a 'personal' group: Cass. com., 5 November 1974, Rev. soc. 1974.492 (Annot. Y. Guyon).
6 Paris, 26 October 2000, Dr. soc. 2001, no. 115 (Annot. F.-X. Lucas): as third-party debtor, a company does not have to declare the amounts of money held by a foreign subsidiary.
7 See e.g. Ch. Jarrosson, 'Conventions d'arbitrage et groupes de sociétés', supra note 1; Fouchard, Gaillard, Goldman On International Commercial Arbitration, supra note 1 at para. 500ff.
8 Award in ICC cases 7604 and 7610, J.D.I. 1998.1027 at 1029 (Annot. D. Hascher), J.-J. Arnaldez, Y. Derains, D. Hascher, Collection of ICC Arbitral Awards 1996-2000 (Kluwer Law International/ICC Publishing, 2003) 510.
9 ICC case 4131, award of 23 September 1982, Dow Chemical: Rev. arb. 1984.137 at 148; J.D.I. 1983.899 at 904 (Annot. Y Derains); see also Fouchard, Gaillard, Goldman On International Commercial Arbitration, supra note 1, para. 503.
10 Paris, 21 October 1983, Société Isover-Saint-Gobain v. Sociétés Dow Chemical France et autres, Rev. arb. 1984.98 at 100 (Annot. A. Chapelle).
11 Paris, 31 October 1989, Société Kis France et autres v. Société Générale et autres, Rev. arb. 1992.90 at 93.
12 Pau, 26 November 1986, Société Sponsor A.B. v. Lestrade, Rev. arb. 1988.153 (Annot. A. Chapelle).
13 ICC cases 7604 and 7610, supra note 8.
14 See also ICC cases 7604 and 7610, supra note 8, J.D.I. 1998.1053 (Annot. J-J Arnaldez).
15 ICC case 4504, J.D.I. 1986.1118 (Annot. S. Jarvin), S. Jarvin, Y. Derains, J.-J. Arnaldez, Collection of ICC Arbitral Awards 1986-1991 (Kluwer Law & Taxation, 1994) 279; ICC case 4979, J.D.I. 1989.1100 (Annot. G. Aguilar-Alvarez), S. Jarvin, Y. Derains, J.-J. Arnaldez, Collection of ICC Arbitral Awards 1986-1991 (Kluwer Law & Taxation, 1994) 380.
16 Interim award in ICC case 9873, see hereinafter p. 85.
17 Aix, 18 June 1975, Rev. jur. com., 1976.95 (Annot. J. Calais-Auloy); RTDCom 1976, 370 (Annot. C. Champaud).
18 Versailles, 17 September 1986, Rev. jur. com. 1987.149 (Annot. P. de Fontbressin); Cass. com., 5 February 1991, D. 1992.27 (Annot. Y. Chartier), Rev. soc. 1991.545 (Annot. Ch. Bolze).
19 Cass. com., 19 October 1993, Bull. Joly 1993, no. 369, p. 1239 (Annot. J.-J. Daigre).
20 Versailles, 21 April 2000, Dr. soc. juin 2000, no. 93 (Annot. D. Vidal), Bull. Joly 2000, no. 234, p. 914 (Annot. M. Pariente).
21 Cass. com., 15 June 1993, Ate Spécialités chimiques v. Sté Lymo; Paris, 19 October 1994, Rev. soc. 1995.85 (Annot. M. Pariente).
22 ICC case 5730, award of 24 August 1988, J.D.I. 1990.1029, S. Jarvin, Y. Derains, J.-J. Arnaldez, Collection of ICC Arbitral Awards 1986-1991 (Kluwer Law & Taxation, 1994) 410; Cass civ 1re, 11 June 1991, Rev. arb. 1992.73 (Annot. D. Cohen).
23 Award of 9 September 1983, (1987) XII Y.B. Comm. Arb. 63, cited by B. Hanotiau, supra note 1 at para. 25.
24 ICC case 5721, J.D.I. 1990.1020, S. Jarvin, Y. Derains & J.-J. Arnaldez, Collection of ICC Arbitral Awards 1986-1990 (Kluwer Law & Taxation, 1994) 400, cited by B. Hanotiau, supra note 1 at para. 23.
25 ICC case 4504, supra note 15, cited by B. Hanotiau, supra note 1 at para. 45.
26 ICC case 10758, see hereinafter p. 87, J.D.I. 2001.1171 (Annot. JJ Arnaldez).
27 Court of Appeals, 10th Circuit, 76 F.3d 393, 1996, W.L. 55 627, cited by B. Hanotiau, supra note 1 at para. 46.
28 ICC case 5894, (1991) 2:2 ICC ICArb. Bull. 25 at 27
29 ICC case 1434, J.D.I. 1976.978, S. Jarvin & Y. Derains, Collection of ICC Arbitral Awards 1974-1985 (Kluwer Law & Taxation, 1990) 262.
30 ICC case 6000, (1991) 2:2 ICC ICArb. Bull. 31 at 34.
31 Paris, 22 March 1995, SMABTP et autre v. société Statinor et autres, Rev. arb. 1997.550 (Annot. D. Cohen).
32 See also Paris, 30 November 1988, Rev. soc. 1989.88, Rev. arb. 1989.691 (Annot. P.-Y. Tschanz).
33 ICC case 5113, J.D.I. 1988.1207 (Annot. G. Aguilar-Alvarez), S. Jarvin, Y. Derains, J.-J. Arnaldez, Collection of ICC Arbitral Awards 1986-1991 (Kluwer Law & Taxation, 1994) 361.
34 Paris, 31 October 1989, Rev. arb. 1992.90 and Paris, 11 January 1990, Rev. arb. 1992.95 (Annot. D. Cohen).
35 ICC case 11160, see hereinafter p. 99.
36 J.-F. Poudret, supra note 1.
37 D. Vidal, supra note 3.
38 ICC case 6610, (1994) XIX Y.B. Comm. Arb. 162, J.-J. Arnaldez, Y. Derains & D. Hascher, Collection of ICC Arbitral Awards 1991-1995 (Kluwer Law International/ICC Publishing, 1997) 277.
39 ICC case 10818, see hereinafter p. 94.
40 ICC case 3879, interim award of 5 March 1984, cited by B. Hanotiau, supra note 1 at para. 17.
41 Decision of 29 June 1988, Rev. arb. 1989.52.
42 Paris, 7 October 1999, Rev. arb 2000.288 (Annot. D. Bureau).
43 Swiss Federal Tribunal, 1 September 1993, ASA Bull. 1996.623.
44 E. Gaillard, 'L'interdiction de se contredire au détriment d'autrui comme principe général du droit du commerce international' Rev. arb. 1985.241.
45 ICC cases 7604 and 7610, supra note 8.
46 Paris, 11 January 1990, Orri, Rev. arb 1990.95 (Annot. D. Cohen), J.D.I. 1991.141 (Annot. B. Audit), RTDCom. 1992.586 (Annot. J.C. Dubarry and E. Loquin).
47 Cass civ. 1re, 11 June 1991, Rev. arb. 1992.73 (Annot. D. Cohen).
48 US District Court of the Southern District of New York, 30 December 2002.
49 ASA Bull. 1992.202, cited by B. Hanotiau, supra note 1 at para. 37.
50 ICC case 8385, J.-J. Arnaldez, Y. Derains & D. Hascher, Collection of ICC Arbitral Awards 1991-1995 (Kluwer Law International/ICC Publishing, 1997) 474 at 479 (Annot. Y. Derains).
51 Ibid. at 484.
52 cf. E. Jolivet, 'The UNIDROIT Principles in ICC Arbitration', ICC ICArb. Bull., 2005 Special Supplement, 65.
53 cf. Fouchard, Gaillard, Goldman On International Commercial Arbitration, supra note 1 at para. 505, p. 304
54 Paris, 26 November 1986, Rev. arb. 1988.154 (Annot. A. Chapelle).
55 Aubry & Rau, Cours de droit civil français, 4th ed., vol. VI, 1873, § 573, p. 229: 'the objects over which man may be entitled to exercise rights, in that they form the subject matter of the rights of a given person, are nonetheless subject to the free expression of a single will or the action of a single legal power and as such form a legal whole'. Is it not the very fact that a person's property rights and obligations (patrimoine) are subject to a single, economic or legal power that explains why they are regarded as a unique and indivisible whole?
56 Cass com, 20 February 2001, RTDCom 2001.921, Dr. soc. 2001, No. 113 (Annot. J-P Legros).
57 Paris, 11 January 1990, Orri, Rev. arb 1990.95 (Annot. D. Cohen), J.D.I. 1991.141 (Annot. B. Audit), RTDCom 1992.586 (Annot. J.C. Dubarry and E. Loquin).
58 Cass civ 1re, 11 juin 1991, Rev. arb. 1992.73 (Annot. D.Cohen).
59 ICC case 5891, (1991) 2:2 ICC ICArb. Bull. 23 at 23-24.
60 Court of Appeals, Fifth Circuit, 9 September 2003, Bridas SAPIC v. Government of Turkmenistan, [2004] Int.A.L.R. 55; (2004) 19:10 Mealey's International Arbitration Report 6 at 8.
61 ICC case 6519, (1991) 2:2 Bull. CIArb. CCI 34, J.D.I. 1991.1065.
62 ICC cases 11209, 9517, 9719, see hereinafter pp. 102, 80, 83.
63 Court of Appeals, 4th Circuit, 863 F. 2d 315, 1988, Ryan, cited by B. Hanotiau, supra note 1 at para. 41 and note 39.
64 Court of Appeals, 11th Circuit, 10 F. 3d 753, 1993, Sunkist, cited by B. Hanotiau, supra note 1 at para. 40 and note 38.
65 Paris, 7 December 1994, Jaguar, Rev. arb. 1996.245 (Annot. Ch. Jarrosson), upheld by Cass civ 1re, 21 May 1997, Rev. arb. 1997.537 (Annot. E. Gaillard).
66 ICC case 10758, supra note 26.
67 ICC case 8163, see hereinafter p. 77.
68 See Thompson CSF v. American Arbitration Association, 64 F. 3rd 773, 776 (2nd Cir. 1995); Bel-Ray Co. v. Chemrite (PTY) Ltd., 181 F.3rd 435 (3rd Cir.1999).
69 Art. 1833 C. civ.
70 Art. 1832, para. 1, C. civ.