Joint and several liability of the members of a group of companies (yes) / Permanent mingling of the companies belonging to the group in their relationship with the companies of another group / Sole interlocutor for all the companies in the group / The group of companies concept.

(Three European companies, AZ, BZ and CZ (hereafter Group Z), Claimants, were successively created by Mr. X in order to buy, market and convert the phosphated products sold by the group of Tunisian companies E, F, G and H (hereafter the EFGH Group), Defendants. The buyers were unable to meet a number of due dates and since they had some grievances against the sellers, the relations between the groups were broken off. AZ, BZ and CZ then initiated arbitral proceedings against E, F, G and H in order to obtain compensatory damages for breach of contract. Defendants in turn submitted various counterclaims against Claimants. After having ruled on the applicable law (common French and Tunisian laws on obligations and contracts; contractual provisions; trade usages; amiable compositeur powers, where applicable), the jurisdiction of the arbitral tribunal, the claims and counterclaims and the interest, the arbitral tribunal addressed the issue of joint and several liability of the claimant and defendant companies]

'ON JOINT AND SEVERAL LIABILITY

The Arbitral Tribunal was asked the following question (Terms of Reference, page 11): "For each of the awards that could be made on the above claims or counterclaims, to what extent should joint and several liability be imposed on the Claimants/Defendants?"

The joint and several liability of the companies composing the EFGH Group is claimed and supported at great length by AZ, BZ and CZ and accepted without any discussion by the EFGH Group itself in its memorandum of ... The Arbitral Tribunal can therefore only note that the Parties agree on this point, and consequently rule that the claims of E, F, G and H on AZ, BZ and CZ shall be paid to them jointly and severally, while they shall also be jointly and severally liable for their debts.

The joint and several liability of AZ, BZ and CZ is demanded by the EFGH Group, for the same reasons as those justifying the joint and several liability of members of the EFGH Group: "joint interests, sole interlocutor." The EFGH Group explains this argument in its memorandum of ... by pointing out that Mr. X has always been indifferent as to whether he was acting for BZ or CZ, and permanently mixed up their telexes and business papers. As to AZ, it would have been no more than a "technical instrument" of this Group "for the payment of debts owed by BZ and/or CZ."

This argument was not disputed by AZ, BZ and CZ.

The case of invoices payable in dollars in the name of AZ, and of contractual interest charges on unpaid amounts, should be examined first. It is certain that the insertion of AZ had no purpose other than to allow deliveries from 1984 forward to be paid in dollars and did not obscure, in either the letter or the spirit of the agreements between the parties, the identity of the real buyer, who was either BZ or CZ. The Arbitral Tribunal is thus of the opinion that either BZ or CZ is jointly and severally liable for the debts of AZ.

Indeed, the 1984 contracts include the same identification of the "buyer": AZ is mentioned but always with the qualification, as the case may be:

"Acting on behalf of Company BZ"

"Acting on behalf of Company CZ"

Furthermore, the "Payment" clause stipulates in the case of a detailed contract:

"N.B. Important.

As agreed by all Parties, the payment will be made by AZ in London, acting as stated above, it being expressly understood that BZ (or CZ) remains fully liable for the payment and guarantees its execution on the date of maturity."

The telex of BZ to ..., dated ..., removes any ambiguity: AZ intervenes only "to cover our exchange", in the case, however, of "our Tunisian imports in dollars". BZ or CZ are thus not merely guarantors of the debts of AZ, they are the real purchasers of the goods and therefore the real debtors.

Lastly, when signing the pledges dated ..., Mr. X, acting as Chief Executive Officer of BZ or CZ, acknowledged that these companies were indebted "for the payment for various commodities ... via AZ" of the abovementioned sums in dollars, the validity of which is not seriously questioned.

Thus AZ and BZ on the one hand, and AZ and CZ on the other, are really codebtors of the price of the unpaid goods and of the interest charges for overdue payments, as well as cocreditors of the sums granted to them by the Arbitral Tribunal, pursuant to their commercial claims against the companies in the EFGH Group. Their joint and several liability, presumed in commercial relations by Tunisian law (Art. 175 of the Code of Obligations and Contracts) and by French case law, is to be upheld.

The same reasoning applies to BZ and AZ. Both are members of the same group, set up, operated and controlled by a single man, Mr. X, whom the EFGH Group as a whole always considered as its only genuine customer. The confusion between the Group Z companies appeared in the relationship with the EFGH Group when the project to create Company CZ was initiated in 1981, and lasted until the final attempts to reach an arrangement in 1985.

Mr. X, Chief Executive Officer of BZ, is the founder of CZ and he alone was responsible for defining its tasks and financing it, and is also its Chief Executive Officer. The commercial and financial relations and the negotiations between CZ and BZ and the companies in the EFGH Group were conducted entirely by Mr. X, usually without specifying on behalf of which company or in what capacity he was negotiating or committing himself. Such was the case for the telexes he sent to the EFGH Group. The latter did not bother to draw a distinction between these two companies.

Holding itself to citing only a few striking facts and documents, the Tribunal will give examples of the permanent mingling of both companies in their relationship with the EFGH Group:

- a financial statement of the BZ CZ Group on ... 1983, addressed to the EFGH Group, is presented as a "consolidated position of the BZ Group" and reports negative working capital of ... francs; in a report dated ... 1984, addressed to the EFGH Group, the ... auditors analyze in great detail the economic and financial situation of the "group composed of companies BZ and CZ";

- in the minutes of the meeting of ..., Mr. X, sole representative, as C.E.O., of BZ and CZ, reports on the present position of "his company"; that the general amendment to the contract for the purchase of fertilizer from the EFGH Group, signed on ..., bears a special signature and stamp for AZ but only the stamp of BZ and a single signature, that of Mr. X, for BZ and CZ.

- in his letter dated ..., under the heading of CZ, Mr. X presents a consolidated balance sheet of BZ and CZ ... as being that of the "BZ / CZ Group";

- in a report submitted by him to the Tunisian Prime Minister, he proposes ... "to specify the exact amount of the claim of the Chemical Group on our group".

Similarly, numerous contracts evidence the confusion between BZ and CZ:

- contracts signed by BZ and invoices charged to BZ (or BZ via AZ) concern goods delivered to CZ,

or the sales contract mentions as buyer "BZ and/or CZ",

- or contracts where the buyer was CZ (via AZ) were signed by BZ with its stamp.

Furthermore, claims or demand notes concerning the quality or quantity of goods are sometimes established by one company in the group while the buyer is another one (e.g. a debit note by CZ ... though the corresponding contract was in the name of BZ).

Or, AZ invoices BZ for a delivery while the notice of delivery and verification of ... is in the name of CZ.

Or, the shipment of ... is invoiced to CZ and the demurrage bill is charged to BZ. Conversely, the demurrage bill of... is charge to BZ while the debit note for missing and/or inadequate contents is issued by CZ.

BZ frequently requests an analysis of goods bought by CZ ..., and it is BZ that submits claims on behalf of the Group, even for goods delivered to CZ ...

Finally, it is generally at the headquarters of BZ that the Board of Directors of CZ meets. These meetings show that CZ considers itself to be a subsidiary of BZ, even though this parent company apparently holds no more than 40% of its shares and even though Mr. X manages it entirely.

There is a further reason for holding BZ and CZ jointly and severally liable for paying the overdue invoices for delivered goods. Not having obtained adequate financing for the construction of the factory in ..., Mr. X, Chief Executive Officer of BZ, made the latter grant substantial loans to its subsidiary CZ. In his letter to BZ dated ..., Mr. ..., auditor of the companies BZ and CZ, estimates the size of these loans at ...francs.

On ..., at a meeting of the Board of Directors of CZ, its president, Mr. X, "estimates the debt of the company and the debt of BZ to the Tunisians to be some ... francs".

"This sum, he adds, was used in the following way:

Construction of the factory and purchase of the equipment: ...francs."

It is therefore easy to infer (...) that the payment facilities obtained from the Tunisian suppliers in ..., and then their nonpayment, essentially financed CZ's factory, and, in particular, the debts of BZ to the EFGH Group are directly attributable to the loans this company granted to CZ. As the latter was the beneficiary of a group policy aimed at financing its investments, it is legitimate to hold it liable for the debts this policy has caused and from which it has directly profited.

Thus, in spite of BZ and CZ being separate legal entities, it seems correct to use, as applied by the Claimants themselves to the other party, the "group of companies concept", even more so because Group Z is indeed, and rather more so than the EFGH Group, an "economic and legal whole formed by a parent company and its subsidiaries". As expressed by the Claimants:

"arbitrators widely accept joint and several liability in international relations where considerations of general interest (such as the reliability of international commercial transactions) demand that debtors, being wellinformed parties, be held jointly and severally liable."

The Arbitral Tribunal furthermore notes that the joint and several liability claimed by Group Z against its opponent is not denied as applied to itself (and could not be denied without serious contradiction).

The three claimant companies appear to have been at the time of the conclusion, execution, nonexecution and renegotiation of their contractual links with the EFGH Group, genuine partners to all these contracts, by the common will of all the parties to the proceedings. This analysis is supported, in letter and in spirit, by a tendency noted and approved in "arbitral case law" in favour of recognizing in similar circumstances, the unity of the group (cf. ICC award rendered in Paris on 22 September 1982, the Dow

Chemical case, Rev. arb. 1984 p. 137 and ref.; decision of the Paris Cour d'Appel of 21 October 1983 upholding this award, Rev. arb. 1984, note Chapelle; I. Fadlallah, "Clauses d'arbitrage et groupe de sociétés," a presentation to the French P.I.L. Committee on April 24, 1985, Travaux du Comité, ed. CNRS, 1987, p. 105 and seq.; and lastly Pau, Nov. 26, 86, Sté Sponsor AB v. Lestrade, to be published in Rev. arb. 1988, No. l, note Chapelle, a decision of the Court repeating exactly the wording of the Dow Chemical ) award.

The Arbitral Tribunal is of the opinion that in the present case the conditions for recognizing the unity of the group are fulfilled, as the companies forming the group have all taken part, in a mingling both genuine and apparent, in a complex international contractual relationship in which the overall interests of the group prevailed over the individual interests of each of them. The reliability of international commercial relations demands that this economic reality be taken into account and that all the companies in the group be held jointly and severally liable for the debts from which they have directly or indirectly profited.

Moreover, this imposition of joint and several liability on companies belonging to the same group, the EFGH Group on the one hand, and the Group managed by Mr. X on the other, is consistent with the positions expressly or implicitly taken by all Claimants and all Defendants as well as with equity, and is not contrary to any rule of public policy in the French or Tunisian legal systems.'