Contract signed by Claimant and two Stateowned companies / Jurisdiction of the arbitral tribunal over second defendant / Application of the Swiss Intercantonal Concordat and the New York Convention / Interpretation of the contract provisions / Group of companies concept / Absence of any legal basis for it under the Concordat or the New York Convention / Capacity of second defendant to enter into contracts with foreign parties (no)

In this case TX company, formerly TXTX, Claimant, has filed an arbitration request against RZA and RZ-B, Defendants.

'[In 1977], a contract (the Contract) concerning the realization of a plant was signed between TXTX Company [renamed since then TX Company] as contractor, and RZA, a Yugoslav enterprise having its office at A..., on behalf of RZB, a Yugoslav enterprise, having an office at B... hereinafter called "owner".

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[The Request for arbitration was filed by TX Company, formerly TXTX Company, against RZA and RZB. ]

[ In answer to the Request for Arbitration], RZB sent a telex to the ICC denying the existence of an arbitration clause signed by it and consequently the jurisdiction of the arbitral tribunal over it.

[ In its answer], RZA claims that it is the only contracting party on the Yugoslav side, and the only one authorized to conclude international business transactions in its name and on behalf of RZB; and that the latter enterprise does not have such legal capacity. RZA contends that this is stringent Yugoslav Law, which is applicable to that enterprise under Art. 17.1 of the Contract or under Swiss principles of Private International Law.

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As already announced . . ., the arbitral tribunal deems it necessary to decide the issue whether there are two or three parties to the present arbitration prior to going into the merits of the case. If RZB is not a party to the present arbitration, this should be established without undue delay, and there should be no uncertainty as to whether a claim is pending before this arbitral tribunal against RZB.

Law applicable to the jurisdiction issue

The question of jurisdiction of the arbitral tribunal is severable and to be decided by the arbitral tribunal itself.

Whether RZB is a party to the present arbitration, either as a joint defendant or as a several defendant along with RZA is a question primarily governed by the arbitration law of the canton of Zurich, that is the Swiss Intercantonal Concordat, and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

Under these principles of law, the arbitral tribunal has jurisdiction over RZB if it either signed the arbitration clause or acknowledged it in writing.

The question of the capacity of a party to enter into an arbitration agreement is governed by its own law, in the case of RZB, Yugoslav law.

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Contract document

TX takes the position that RZA and RZB should be made jointly (and severally) liable in the award. RZB maintains that it never was a party to the contract. The contract document (see above) is somewhat ambiguous as to who were the parties to the agreement on the RZ side, whether RZA and RZB jointly, RZB alone or RZA alone.

If the intention was to make RZA and RZB joint and several obligors, one would expect the rubrum of the contract to read as follows: "This contract is made between TX on one hand and RZB and RZA jointly and severally on the other", or, alternatively: "This contract is made between TX, RZB and RZA, the latter two as partners".

If, however, the idea was that the contract was made by RZA alone, the idea that it was acting for the economic benefit of RZB would have been more clearly expressed by the words, "acting for the benefit of RZB"-if there was a need to say that at all-and on the signature page, one might have specified that the obligor was RZA, and RZB was signing merely "for approval".

To say that RZB was TX's sole cocontractor there would also have been a more natural way: The parties could have written: "This contract is made between TX and RZB, here represented by its authorized representative, RZA", and on the signature page RZ-B's signature would have been sufficient, or RZA's signature which appears first on the signature page would have been stated to be "for RZB: RZA".

Thus, in order to decide whether RZA and RZB were joint obligors, the arbitral tribunal must look beyond the mere wording of the contract document.

Partnership

Joint liability ofRZA and RZB would exist if both enterprises were partners, and their partnership made the contract with TX. Such a partnership would have been subject to Yugoslav law. TX did not allege any further facts on which a finding could have been based that a partnership existed, nor did it say that its conclusion of law was that such a partnership had existed.

Group of companies

TX's conclusion that RZA and RZB should be held jointly liable was based, on the contrary, on the "group of companies" concept. TX alleged that even if the Contract had been made by just one of the RZ enterprises, they were part of a "group of companies" (even though they were not subsidiaries of one another), and could therefore be made joint defendants in the present arbitration.

TX draws this conclusion not only from the names of the two enterprises, from their respective role in performing the contract, but also from the fact that in many instances either one or both companies acted officially in signing various agreements or protocols or in performing under the contract.

TX adds that it is even sometimes difficult to distinguish personnel of one enterprise from personnel of the other. Individuals were transferred from one company to the other either in the course of performance of the contract or during this arbitration.

TX states the following:

Furthermore, and in conformity with the recent case law in the matter, TX will also refer to the rules concerning groups of companies. When a group of companies exists as it is the case in the present proceedings, the claimant may sue all the companies which have been directly involved in the performance of the contract, even though they may not have signed themselves the contract.

TX cites no case under the Swiss Intercantonal Concordat in support of the "group of companies" theory. In support of its position, TX cites the Dow Chemical (ICCA Yearbook 1984 page 131) and the Mobil (ICCA Yearbook 1979 page 317) awards, the RousselUclaf decision (ICCA Yearbook 1982, page 151) and ICC award No. 2375, (Clunet 1976, page 973 ff), see also Derains/Schaf in 1985 Journal de droit des affaires internationales , pages 231 to 238 .

...RZB answered that the RZ companies were "legally and economically totally independent".

The arbitral tribunal finds that the RZ enterprises in question are legally independent from each other, but there is ample evidence of a close economic link. However, as a matter of Zurich arbitration law, it hesitates to accept the "group of companies" concept in the instant case.

Both in the Dow Chemical and in Mobil case multiple claimants were suing a sole defendant. The question arose whether only one of the claimants was a proper claimant, or and whether the other claimants' claims could come within the fold of the arbitration clause signed by only one of the claimants. Substantial practical reasons militated in favor of letting the multiple claimant's claims be decided by a same arbitral tribunal, while there were countervailing considerations of little weight on the side of the defendant who was not much burdened by having to defend himself in one forum against multiple claims and appeared to gain an unfair advantage from requiring the multiple claimants to sue in different fora.

In the RousselUclaf case, an arbitration was already pending between one of the defendants and the plaintiff, and both defendants moved for a stay of proceedings because of lis alibi pendens under the Arbitration Act 1979. The plea was upheld, essentially on the ground that the same dispute between economically the same parties was pending elsewhere, and plaintiff should not be allowed to harass defendants in the English courts while arbitration with at least one of them was pending in Sweden.

All these three cases share the following idea: Where an arbitration is pending between some parties it would be expedient to have all disputes in the same matter between all members of their group adjudicated in the same forum rather than having scattered claims in various fora, to the inconvenience of the multiple claimants or the multiple defendants and with the risk of conflicting decisions in the various fora.

In ICC arbitration 2375 , decided in Paris in 1975, an arbitration clause had been concluded between plaintiffs former parent company and the second defendant which was the parent company of the first defendant. The arbitration agreement had been signed by its signers "tant pour ellesmêmes que pour leurs filiales respectives" (Clunet 1976, page 974 two thirds down the page).

The commentator of award 2375 remarked: "C'est la participation effective à la réalisation de l'opération économique qui lie définitivement les membres au même titre que les véritables signataires des accords."

Even though in the present case the "group of company" concept would be particularly appropriate in view of the very purpose of the agreement, and the attitude of all parties involved in its implementation and performance, the arbitral tribunal does not find any basis in the Concordat or the New York Convention to introduce the concept, as a matter of law, nor does it find the awards and the English case quite in point: The instant case is not a case where multiple plaintiffs wished to avail themselves of an arbitration clause signed by one of them, it is a case where a plaintiff seeks to join multiple defendants. This is not a case where one of the multiple defendants was the other multiple defendant's parent company and signed an arbitration clause "for its subsidiaries" as well as for itself. As shall be explained in the remainder of the present award, even though RZB's signature appears on the signature page, RZA was the only RZ enterprise that was a party to the arbitration agreement because RZB lacked the capacity to enter into such an agreement in the first place.

Capacity to do foreign business

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Under Yugoslav law, it is clear that RZB lacks the capacity to make contracts with foreign parties. This is mandatory law, and this is the very reason why a company such as RZA was used to make the contract since that company has the power to make contracts with foreign parties.

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Internal relationship between the RZ enterprises

For the arbitral tribunal, only the external relationship with TX counts, the question of representation (Stellvertretung ). It is not important to decide what internal relationship existed between the two RZ enterprises, contractual or otherwise. The internal relationship would appear to have been governed by Yugoslav law, not Swiss law in any event.

What the arbitral tribunal must take from RZB's position that RZA was acting as a commissionnaire similar to a commissionaire under Swiss law is the allegation that RZA entered into the Contract with TX as a principal party that would in the relationship to TX be bound itself. RZA, this is the allegation, was not an agent for another party, RZB, which would be the party that would be bound to TX to the exclusion of the party acting as its mere representative, RZA.

Conclusion

Accordingly, the arbitral tribunal has no jurisdiction over RZB. The rubrum of the present arbitration must be amended accordingly. The arbitration between TX and RZA which may now proceed.

In these proceedings this arbitral tribunal will not ignore the economic link between RZA and RZB. On the contrary, it will consider the acts or failures to act by RZB as acts or failures to act by RZA and vice versa, and any damage suffered by RZB as damage suffered by RZA.

In that respect TX which in entering into the contract has accepted to deal with RZA for building a plant which it knew was for the benefit of RZB should not complain that the same principle applies also in the settlement of disputes arising out of such contract.

For this arbitral tribunal it is sufficient to say that claimant seeks to join multiple defendants one of which lacks the capacity to enter into an arbitration agreement with a foreign party and do business abroad.'