(Slightly edited version of a speech delivered on 8 December 2009).

Just as other contributors to this volume, this author proceeds from the basic premise that the extension of the effect of an arbitration agreement to a non-signatory party does not mean that it is possible to dispense with the need for consent to arbitration. Rather, it means that in certain circumstances the necessary consent can derive from circumstances other than the signature of an arbitration agreement. Another way to put this is to say that the binding force of an arbitration agreement can extend beyond its signatories.

When states or state entities of any sort are involved, are the rules about non-signatories different - or ought they to be different? In my submission, the answer is yes and no. For the most part, the answer is no: the rules for non-signatory states and state entities are the same as for all parties. But in part the answer is yes: there is a discrete spectrum of circumstances calling for the application of different or modified rules.

There are a number of reasons for which states and their entities may be thought to raise special issues and be treated as a case apart:

1. In the first place, the state - any state - is a conglomerate by definition. It is an aggregation of a multitude of bodies: some with legal personality, some without; some more autonomous and some less; some having a public-law status and some the legal cloth of a private law corporation, foundation or other entity. It is in such expanded formation that all states exist and act.

[Page119:]

2. The state is a unitary concept only for the purposes of public international law, which approaches states as monoliths. That is a conception, however, of public international law and only for the purposes of public international law. Indeed, some states (e.g. Poland) do not have legal personality at all in terms of their domestic 'corporate' law: they are simply the sum total of a number of discrete bodies with separate legal personalities.

3. Accordingly, public international law has a number of rules, called 'rules of attribution', which operate to impute to the state the acts of the multitude of discrete bodies that make up the apparatus of the state. These rules are designed precisely to determine for which separate entities the state can be answerable.

4. The rules of attribution acknowledge that, if an entity with a separate legal personality that is not formally an organ of the state has acted (a) under the direction or control of the state or (b) in the furtherance of governmental powers given to it, then that entity's acts may be attributed to the state. 1

In the light of these considerations, it is tempting to think that in reality a state-owned or state-controlled entity ultimately acts for the benefit of the state. When an entity, notwithstanding its discrete and distinct legal personality,

- can be dissolved at will by the state;

- is managed by government appointees;

- is charged with functions for the broader good of the community;

- is subject to special rules different from those that apply to private entities; or

- produces income that is consolidated in a line in the state's budget,

can it not be said that ultimately the benefit and burden of an arbitration agreement with such an entity should be extended to the state?

The answer, in principle, is no.

The reason for this answer is that the rules of attribution operate in the field of international responsibility for breaches of public international law. These rules do not operate on the plane of contract or private law, which is the legal environment in which an arbitration agreement typically produces its effects.

[Page120:]

1. Personal scope of arbitration agreements Co-extensive with substantive law obligations

The principle is, as it should be, that an arbitration agreement will extend to non-signatories when the substantive law rights and obligations in the main agreement also extend to those same non-signatories. 2 In other words, the extension of an arbitration agreement to non-signatories is the jurisdictional aspect or consequence of a substantive law legal bond that extends to non-signatories of the relevant agreement. The substantive law and jurisdictional aspects are in principle co-extensive: one is hard-pressed to see any legal basis for a person to be a party to an arbitration if that person has no rights or obligations in the substantive dispute. special cases of amici curiae apart, innocent bystanders have no place in arbitration proceedings. 3

Naturally, not all legal bonds creating rights and obligations for non-signatories can also create a jurisdictional bond with those persons. A principal can be bound by the agreement concluded by its agent, and this can also be the case for a successor in title, the beneficiary of a cession or subrogation, and so forth. But a guarantor may or may not be bound by an arbitration agreement between the primary debtor and the creditor; and an insurer will in principle not be bound by an arbitration agreement between the insured and its counter-party. The principle is that having substantive law rights and obligations under the main agreement will be a necessary - though not always sufficient - condition for extending the effect of an arbitration agreement to

a non-signatory. That principle applies to states as it applies to all other entities.

One does not always see this kind of analytical clarity in the decided cases. In Zeevi v. Bulgaria, 4 the basis of the tribunal's jurisdiction was to be found in a privatization agreement concluded between Zeevi and Bulgaria's privatization agency. The tribunal held that both the Republic of Bulgaria and the privatization agency were proper respondents to the claim. As for the Republic, the tribunal's reasoning was that it was bound by the arbitration agreement that had been signed by the privatization agency as a 'mere agent' of the Republic. 5 It is difficult to see a compelling ground for regarding both the principal (the Republic) and its 'mere agent' (the privatization agency) as being parties to the arbitration agreement and respondents in the arbitration. Ordinary principles of contract law would suggest that the privatization agency ought to fall out of the picture.

[Page121:]

No more light is shed on this point by the tribunal's conclusion on the question of liability on the merits, where the tribunal held:

"[T]he Tribunal concludes that, on one hand, the actions of both Respondents have to be taken into account in evaluating the conclusion and performance of the contract, because [the privatization agency] acted on behalf and with the authorization of [Bulgaria]. But, on the other hand, should the Tribunal come to conclude a liability in its Award, only [Bulgaria] shall be liable."6

From the tribunal's reasoning and terminology, it is difficult to say whether it characterized the relationship between Bulgaria and the privatization agency as one of private law agency rather than an administrative law delegation of functions. yet this is an important distinction. In principle, administrative law delegation of functions does not create a contractual relationship with the state, for the simple reason that such delegation does not operate on the private law plane. Rather, it concerns matters wholly unrelated to contract, such as supervision by administrative bodies, court jurisdiction, form and procedure prescribed for various kinds of decisions.

The position has recently been stated as follows by the English court of Appeal:

"A government is not to be taken to be a party to an agreement or to have submitted to arbitration simply as a result of the fact that it has put forward a state organisation to contract with a foreign investor. In a case where the state organisation enjoys separate legal personality and the government is not named as a party to the agreement and has not signed it in the capacity of a party, we think it would be difficult to reach any other conclusion." 7

The court's reasoning is difficult to fault on orthodox contractual principles of privity. nevertheless, there are some decisions in the opposite direction. ICC case no. 9762 concerned claims under a suite of contracts of the Ministry of Agriculture and Food of state Z. This ministry was later 'liquidated' by law, its debts transferred to a fund specially created for this purpose and a new Ministry of Agriculture was established as a different legal entity. (A few years later, the new Ministry of Agriculture was merged with another ministry to form the Ministry of Agriculture and Water Management.) The claimant brought suit under the contracts against the latest incarnation of the ministry, the fund, and state Z itself. A primary question in the arbitration was whether state Z was liable for the original ministry's debt - i.e. whether Z was bound, as a non-signatory, by the relevant contracts and by the arbitration agreements [Page122:] therein. 8 The tribunal held that 'the mandatory force of the arbitration clause (or arbitration agreement) cannot be dissociated from that of the substantive contractual commitments'. 9 That conclusion is of course entirely uncontroversial. The tribunal went on to hold that 'no distinction can be made between the [contractual] liability of [the Ministry of Agriculture and Water Management] and [state Z] (if any)'. 10

These two conclusions, both of which are based on ordinary principles of private law, would appear to form a sufficient basis for the tribunal's jurisdictional holding, but the tribunal did not seem to think so. It went on to draw on theories of attribution under public international law, holding that:

"What is important in our case is that the contracts […] were not signed by an entity separate from the State of Z, but by a Ministry, i.e., by an organ of the State, whose acts are undoubtedly performed on behalf and in the interest of the State. […]

[A]s is obvious for any Ministry, particularly in a country where the power is highly centralized in the hand, under the directions, and under the control of the President, [the Ministry of Agriculture and Water Management] was and is in charge of carrying out the agrarian policy of the government of Z. It represents the State, within its competence, and the State is bound by its acts. […]"11

In its conclusion, the tribunal merged the private law concept of agency/representation with notions of attribution in public international law. It formulated the end-result as follows:

"[T]he tribunal decides that it has jurisdiction vis-à-vis [the Ministry of Agriculture and Water Management] as validly representing [state Z] and as far as need be vis-à-vis [state Z] as validly represented by the [same ministry]."12

There are two sets of circumstances where the effects of an arbitration agreement may be extended to a non-signatory state or state entity in the absence of substantive liability on the basis of ordinary private law principles. These circumstances are discussed separately below.

[Page123:]

2. Implicit intent to be bound: contract distinguished from administrative supervision

There is considerable authority for the proposition that an arbitration agreement can be extended to a non-signatory on the basis of an implicit intent to be bound. such intent may be inferred from the agreement itself or from the specific circumstances surrounding the performance of the contract containing the arbitration agreement. In all cases of this nature, the question will be whether the indicia available are sufficient evidence of an intent to be bound. Where states or state entities are concerned, the salient point will be whether the indicia demonstrate a contractual intent rather than being part of the process of administrative supervision as a matter of public law.

In the Pyramids case, an ICC tribunal extended an arbitration agreement concluded between a foreign investor (SPP) and an Egyptian state-owned entity for hotel management (EGOTH) to the Tourism Ministry that supervised EGOTH. The ministry's intent to be bound was inferred from the notation 'approved, agreed and ratified' under the ministry's seal, which had been affixed next to the parties' signatures on the contract. The paris court of Appeal disagreed with the tribunal on the proper meaning and effect of the notation. The court set aside the award, stressing the difference between consent to arbitration as a matter of private law and the 'ratification' that had been conferred on the contract as a matter of administrative law:

"[C]ompte tenu des mots employés, de leur place après l'acte et du rapprochement qui s'impose avec la déclaration annexe, il est démontré que la ratification portée après les signatures de la société SPP et de EGOTH constitue, non un engagement solennel de l'Etat de souscrire au contrat, mais précisément la matérialisation de l'approbation de l'autorité de tutelle dont fait état le «statement» [du Ministère];

Que l'existence de cette déclaration permet donc de confirmer sans ambigüité que, si le ministre du Tourisme a bien donné son agrément, l'Etat égyptien n'était pas lui-même partie au contrat."13

Another case where the indicia of putative consent were not sufficient was Dallah v. Pakistan. 14 A contract was concluded between Dallah and a trust created by ordinance of the Pakistan government. The trust was an entity managed by a board of trustees. The secretary of the board was the official holding at any time the post of secretary of the Ministry of Religious Affairs. A few months after the contract was concluded the trust ceased to exist [Page124:] because the government failed to republish the ordinance, which it had to do at regular intervals for the trust to remain in existence. (It was unclear whether the failure to republish the ordinance was by choice or due to oversight.) The government was not described as a party in the contract between Dallah and the trust, nor was it a signatory to that contract.

Shortly after the contract was concluded, there was a change of government in Pakistan. It was not long before relations soured between Dallah, the trust and the government. There then followed a letter, on ministry stationery but signed by the secretary of the board of the trust, giving notice to Dallah that the trust would treat the contract as discharged, on the basis that Dallah had repudiated it. At the time of this letter, the trust had already legally ceased to exist. Ultimately, the dispute that ensued from these events was referred to an ICC tribunal sitting in paris. The tribunal held that the government of Pakistan was a party to the contract with Dallah; that the government, not Dallah, had repudiated the contract; and that the government was to pay damages to Dallah. Pakistan objected to the tribunal's jurisdiction. It reiterated its objections in enforcement proceedings in the English courts. The courts agreed with Pakistan, refusing enforcement of the award. There were on any view indicia of government involvement in the Dallah-trust contract. But the question was whether involvement amounted to consent to be bound by the contract. In material part, the court of Appeal reasoned as follows: 15

"Prior to the establishment of the Trust the Government was the only party with whom Dallah could negotiate and its position was made clear in the Memorandum of Understanding, a document which was drafted in formal terms and clearly intended to be legally binding. In my view, however, the establishment of the Trust and, most importantly, the execution of an Agreement between the Trust and Dallah represented a fundamental change in the position and must have been recognised as such by all parties. Indeed, correspondence which preceded the Agreement shows that Dallah was well aware that it would be contracting with the Trust rather than the Government. The Government was not expressed to be a party to the Agreement, nor did it sign the Agreement in any capacity. It is difficult, therefore, to infer that Dallah , the Trust and the Government each intended (and knew that each of the others intended) that the Government was to be a party to it. If that had been their common intention the Government would surely have been named as a party to the Agreement, or would at least have added its signature in a way that reflected that fact. Other aspects of the Agreement, to which the judge referred, tend to bear out that conclusion. The fact that the Agreement contemplated that the <page nr="125" /> Government would guarantee the Trust's obligations in respect of a loan required to enable it to finance the project is certainly evidence of its continued involvement and support, but the fact that the Agreement does not purport to impose any such obligation on the Government directly is telling when it comes to deciding whether it was intended that it should be a party to it. […]

The fact that the letter was written on the headed stationery of the Ministry of Religious Affairs also loses much of its significance when it is appreciated that the Trust did not possess its own headed stationery. Equally, the fact that the letter was written by a Government official counts for little when one realises that the Ministry of Religious Affairs had routinely dealt with correspondence and carried out similar functions on behalf of the Trust and that the writer was (or had been) its secretary. Such evidence no doubt demonstrates that the Government continued to be closely involved in the project and was behind the scenes pulling the strings, but it is not evidence that the Government, the Trust and Dallah shared a common intention that the Government was to be a party to the Agreement. […]"

One of the points raised by Dallah is the scope of the enforcement forum's review of an arbitral tribunal's jurisdictional findings. (An appeal is pending before the supreme court.) here, however, the point is that at the very least as a matter of English law it will be almost impossible to overturn the presumption that an entity with separate legal personality - though owned, controlled or supervised by the state - will be taken to have concluded an arbitration agreement for its own account and not for the state. That, it seems, will be the case whenever the arbitration agreement has been concluded in a formal document bearing the signatures of the parties: the non-inclusion of a party will be regarded as a deliberate, emphatic choice to exclude that party from the contractual relationship.

On that basis, it seems that nothing short of explicit evidence of an intent to be bound will suffice to extend the arbitration agreement to a non-signatory state. One case where such evidence did exist was Svenska. There, the relevant contract was concluded by a Swedish company and a Lithuanian stateowned company, Geonafta. The contract concerned a joint venture between the two signatories to develop hydrocarbons resources. Nevertheless, there were two important factors which led to the conclusion that Lithuania was to be regarded as being party to the ontract with Svenska. Firstly, the contract specifically dealt with the rights and obligations of the state (in addition to those of Geonafta); and, secondly, it explicitly provided that '[t]he government of the Republic of Lithuania hereby approves the above [Page126:] agreement and acknowledges itself to be legally and contractually bound as if the government were a signatory to the Agreement'. 16 The high court had little difficulty concluding that Lithuania was a party to the arbitration agreement.

Based on the first of the two considerations in Svenska, a similar result obtained in the first of the two parallel Bridas arbitrations involving Turkmenistan in the late 1990s. 17 Bridas, an Argentine hydrocarbons company, had concluded agreements with a state-owned entity in Turkmenistan, Turkmenneft, to exploit oil and gas resources in the country. The tribunal held Turkmenistan to be bound by the Bridas-Turkmenneft joint venture agreement on the ground that the agreement set forth obligations that could be fulfilled only by the state itself - such as tax arrangements, stabilization clauses and terms regarding the use of state infrastructure. These provisions demonstrate the 'significant involvement of government powers and interests in the contractual relationship. […] [They] are integral to the effective operation of the project. They all reflect the direct hand of the government.' The tribunal concluded on this basis that Bridas had a legitimate expectation that these obligations in the joint venture agreement would be fulfilled by Turkmenistan, this legitimate expectation meant that there were representations by Turkmenistan embedded in the agreement, and '[t]he legitimate expectation of a party can translate into intention'. 18 There is no question that the tribunal's assessment of the relevant indicia called for delicate judgement. As is well-known, only days earlier a different tribunal had reached the opposite conclusion in the second Bridas case, namely that there was no intention on Turkmenistan's part to be bound by joint venture agreements concluded by a state-owned entity in similar circumstances. 19

These notions of legitimate expectation and justified reliance bring us to the second special case that falls to be examined here.

3. Piercing the veil: abuse of legal personality

The doctrine of corporate-veil piercing can work as an exception to privity of contract, but it covers a broader ground than the personal scope of contractual relations. In matters of contract, the doctrine operates to prevent a non-signatory from relying on privity when permitting it to do so would work out intolerable injustice, frustrate justified reliance or - worse - amount to toleration of fraud. There is no reason to suppose that those basic notions [Page127:] operate in a different way, or call for different standards, where state entities are concerned.

Nevertheless, the context may well be different from a straightforward manipulation of corporate personality by private law entities.

The US court cases that dealt with the setting-aside of the first Bridas award (which was rendered by a tribunal sitting in Texas) illustrate the exceptional circumstances in which veil-piercing (or the alter ego doctrine) operate. Bridas obtained a favourable award against Turkmenistan (inter alios) in 2001. The district court upheld the award but the court of Appeals remanded the case for further consideration. 20 The district court confirmed again, and the matter went up to the court of Appeals for a second time. In a 2006 decision, the court confirmed the award on the basis that Turkmenneft was indeed the alter ego of Turkmenistan and that, in the circumstances, the corporate veil should be lifted. The court found that 'the government "did not really deal with Turkmenneft at arm's length"', 21 as it had 'manipulated Turkmenneft legally and economically to repudiate the contract with Bridas and then render it impossible for Bridas to collect damages'. 22 The court stressed Turkmenneft's lack of financial independence and the government's manipulation of this lack of financial separateness to 'commit a fraud or another wrong on [Bridas]'. The central holding of the court was as follows:

"[T]he reality was that when the Government's export ban forced Bridas out of the joint venture, the Government then exercised its power as a parent entity to deprive Bridas of a contractual remedy. Intentionally bleeding a subsidiary to thwart creditors is a classic ground for piercing the corporate veil. It is true that the standard for this equitable remedy should be more stringent in breach of contract cases, because the creditor has willingly transacted business with a subsidiary and, as here, forewent the opportunity to obtain a guarantee of Turkmenneft's debts by the Government. The standard is met in this case, however, because […] [t]he Government, as Turkmenneft's owner, made it impossible for the objectives of the joint venture to be carried out […]. In this rare case we […] conclude that the Government acted as the alter ego of Turkmenneft in regard to this Joint Venture Agreement with Bridas."23

[Page128:]

1
On these matters, see generally G. Petrochilos, 'Attribution', in K. Yannaca-Small (ed.), Arbitration under International Investment Agreements: A guide to the Key Issues (2010) Ch 13.

2
See Westland Helicopters Ltd v. Arab Organization for Industrialization, ICC case no. 3879, Interim Award (1984), YCA 11 (1986) p. 127, para. 7.

3
For a critical view on this point, see Mourre, 'l'intervention des tiers à l'arbitrage', 1 Cahiers de l'Arbitrage (2001) p. 100.

4
Zeevi Holdings v. Bulgaria and the Privatization Agency of Bulgaria, Final Award, 25 October 2006, available at <http://www.investmentclaims.com>.

5
Ibid., at para. 169.

6
Ibid., at para. 172.

7
Svenska Petroleum Exploration AB v. Lithuania [2006] EWCA civ. 755, para. 81.

8
Cf. Société des Grands Travaux de Marseille v. République populaire du Bangladesh et Bangladesh Industrial Development Corporation (1976) ATF 102 Ia 574, ycA 5 (1980) p. 217; and see the critical case note by Lalive, 34 Annuaire Suisse de Droit International (1978) p. 387.

9
Final Award in ICC case no. 9762, YCA 29 (2004) p. 26, para. 49.

10
Ibid., at para. 57.

11
Ibid., at paras. 50-51.

12
Ibid., at para. 56.

13
CA Paris, 12 July 1984, République Arabe d'Egypte v. Southern Pacific Properties (SPP) [1986] Rev. Arb. 75.

14
Dallah Estate and Tourism Holding co. v. Ministry of Religious Affairs, Pakistan [2009] EWCA civ. 1529.

15
Ibid., at paras. 32 and 36.

16
Svenska, see above n. 7, at para. 4.

17
See Bridas SAPIC and ors v. Turkmenistan and ors, ICC case no. 9058, partial Award, 24 June 1999, Mealey publications doc. no. 05-011026-012A.

18
Ibid., at pp. 17-19.

19
See Joint Venture Yashlar and Bridas SAPIC v. Turkmenistan, ICC case no. 9151, Interim Award, 8 June 1999, Mealey publications doc. no. 05-011026-020A. On the two Bridas cases, see Derains and Schwartz, A Guide to the ICC Rules of Arbitration, 2nd edn. (2005) p. 96 et seq.

20
See Bridas v. Turkmenistan (Bridas I), 345 F.3d 347 (5th cir., 2003).

21
Bridas SAPIC et al. v. Turkmenistan et al (Bridas II), 447 F.3d 411 (5th cir., 2006) para. 26.

22
Ibid., at para. 27.

23
Ibid., at paras. 29-30.