ICC Rules: 1988

Claimants: Pharmaceutical company (1) and its subsidiary (2) (USA)

Defendant: Pharmaceutical company (Taiwan)

The dispute arose in connection with agreements for the importation, processing, sale and distribution of pharmaceuticals in Taiwan and use of the related trademark. Upon termination of the manufacturing and distribution agreement, Defendant was required to return or destroy all information relating to the products and cancel the manufacturing and importation licences. Twenty years after the original agreements were made, Defendant lost its importation permit. Despite renewed negotiations, no new agreements were made. At the same time, Claimant 1 acquired an alternative means of manufacturing its products locally. Defendant allegedly stopped selling Claimants' products and began distributing under alternative brand names, presenting them as the equivalent of the former products. Claimants informed Defendant that the latter was in breach of their agreements and requested it to stop using their trademark and manufacturing and selling the replacement products. Defendant was further requested to arrange for the manufacturing licences to be cancelled and to return Claimants' proprietary formulae processes and know-how. A Request for Arbitration was filed, which Defendant attempted to forestall by introducing proceedings in the Taiwanese courts. Defendant requested the Arbitral Tribunal to dismiss proceedings for lack of jurisdiction or stay them pending the decision of the Taiwanese court. Claimants introduced a claim for interim relief. These issues were dealt with in the first interim award in which the Arbitral Tribunal, satisfied prima facie that there was an agreement to arbitrate between the parties, decided that it had jurisdiction to resolve the disputes between the parties and dealt with the issues indicated below.

With respect to the action in the Taiwanese courts:

'The Tribunal also considered the exercise of its jurisdiction in light of a declaratory action, instituted by Defendant, in the District Court of Taiwan, seeking a stay of this arbitral proceeding and ultimate disposition of the parties' disputes . . . Specifically, Defendant has requested the Tribunal "to defer Claimant 1's Complaint until such time as the Taiwan Courts decide whether Claimant's request was legitimately made" . . . For the reasons indicated below, the Tribunal declines Defendant's request and has set the matter for an early evidentiary hearing.

The governing law applicable to the 1972 Agreement is that of "the U.S.A.". The place of arbitration agreed to by the parties is "Los Angeles, California (U.S.A.)" . . . The law governing the arbitral procedure is to be determined by the Tribunal . . .

The substantive law of "the U.S.A." pertaining to the enforcement of the arbitration agreement is found in the United States Arbitration Act (Title 9, U.S. Code) ("USAA") where, as here, the parties' contract evidences a transaction involving commerce. The USAA strongly favors enforcement by arbitral tribunals, in the first instance, of private arbitration agreements within the context of international commercial transactions. (See Mitsubishi Motors v. Soler 473 U.S. 614 (1985)). Indeed, contrary to Defendant's request herein, the thrust of the USAA is to stay any judicial proceeding upon any issue referable to arbitration under a written arbitration argument (Chapter 1, paragraph 3). In short, the USAA mandates, by court compulsion, enforcement of such agreements as a matter of U.S. public policy.

A similar deference to arbitration is manifested throughout the California International Commercial Disputes Act (Cal. Code of Civil Procedure, Title 9.3, part 3, Section 1297.11 et seq.) which may apply to these proceedings, sited in the State of California, at least to the extent said Act is not pre-empted by the USAA. The California Act not only recognizes the right of the arbitral tribunal to rule on its own jurisdiction (Section 1297.161), but also expressly recognizes the tribunal's right, even after a party has requested a court to determine the matter of tribunal jurisdiction, to "continue with the arbitral proceedings and make an arbitral award" (Section 1297.167).

This approach to so-called "concurrent jurisdiction" in international commercial arbitration also is recognized by the ICC Rules (Act 8(5)), whereby application by a party to a court for interim or conservatory measures "shall not by so doing be held to infringe the agreement to arbitrate or to affect the relevant powers reserved to the arbitrator". In the instant case, Defendant has applied to another national court rather than the courts of California to challenge the Tribunal's jurisdiction. Whatever results in that forum, we choose here to enforce the parties' arbitration contract and proceed, expeditiously, to resolve their several disputes in keeping with that agreement. Accordingly, we decline to stay this proceeding, cognizant of consistent holdings of United States courts that implicit in an agreement to arbitrate pursuant to ICC rules is an agreement to refer questions of jurisdiction to the arbitrators rather than the court (See Apollo Computers Inc. v. Berg, 886 F 2d 469 (1st Cir. 1989).

The Tribunal was informed, subsequent to the hearing, that Defendant's application to the District Court of Taiwan has been dismissed.'

With respect to the participation of Claimant's parent company in arbitral proceedings:

'The Tribunal next addressed Defendant's challenge to the presence of an affiliate of Claimant 2 in the arbitration . . . Defendant asserts only Claimant 2 was a party to the 1972 Agreement containing the arbitration clause sought to be enforced herein.

The several described written agreements between the parties involve affiliated business entities . . . Defendant does not challenge the affiliated nature of these entities nor the continuing business dealings engaged in by Defendant . . . with representatives of both Claimants. . . .

In particular, the Tribunal noted the breadth of the arbitration clause itself touching upon "any dispute or difference arising out of or relating to this contract or any breach thereof". . . and the relationship between the Distribution Agreement and the License Agreement.

The issue of whether Claimant 1 may also join as a party to this arbitration due to its status as a party to the related Trademark License Agreement is a matter properly reserved for decision by the Tribunal. (See Daiei, Inc. v. United States Shoe Corp, 755 F. Supp. 299 (D. Hawaii 1991); ADM Investor Services Inc. v. Investors Equity Life Ins. Co., 904 F. Supp. 816 (N.D. Ill. 1995). We do not conclude "the moment a company signs an agreement containing an arbitration clause, all entities it may control are also bound by that clause". However "such a signature constitutes incipient proof the controlled companies are subject to arbitral jurisdiction, and may be confirmed by the effective participation of such companies in the performance of the contract. Only those companies of the group that played a part in the negotiation, conclusion, or termination of the contract may thus find themselves bound by the arbitration clause, which, at the time of the signature of the contract, virtually bound the economic entity constituted by the group". (Craig et al., International Chamber of Commerce Arbitration, Part II, Section 5.09 (1990). We have noted the case of Hinson, 868 F. Supp. at 149 which held that the Defendants who were non-signatories to the arbitration agreement nonetheless could be "included in the arbitration because of their parental status, an integral role in the events underlying these claims". Furthermore, in J.J. Ryan 863 F. 2d at 320-21 it was stated "when the charges against a parent company and its subsidiary are based on the same facts and are inherently inseparable, a court may refer claims against the parent to arbitration even though the parent is not formally a party to the arbitration agreement (see also Moses H. Cone, cited supra). We have also noted the further point made in Craig et al. namely that there is a distinction between cases where the party whose participation is at issue wishes to be included from cases where it resists being joined, and the learned authors note that common sense suggests that the former request is more likely to succeed than the latter. The authors also note that "an analysis of ICC precedents confirms that common sense presumption".

Having considered all these arguments, we are satisfied that Claimant 1 is a proper party to these proceedings. Whether it is entitled to any and, if so, what relief is a matter which will be considered by the Tribunal at the . . . hearing.'

With respect to Claimants' request for interim relief:

'Claimants move for immediate relief in the form of an order from this Tribunal requiring Defendant to comply promptly with Sections 16 and 18 of the . . . Distribution Agreement by:

a) petitioning the Health Administration and the Government Organization of the Republic of China "immediately and unconditionally to cancel the manufacturing license . . . for processing [product names] issued and registered" in Defendant's favor (. . . Section 18); and

b) ceasing using, and returning or destroying, Claimants' formulae and processing information that they transferred to Defendant under the . . . Distribution Agreement for Defendant's use pursuant to that Agreement (Section 16).

Following extended argument by counsel, the Tribunal concluded to grant Claimants' request regarding the Manufacturing License (Section 18), and deny, subject to further proof at the evidentiary hearing, Claimants' request regarding the Proprietary Material (Section 16).

The Tribunal requested witnesses not be called to the preliminary hearing. Accordingly, absent witnesses and the opportunity by counsel to cross-examine, any Tribunal appraisal of Claimants' request must be addressed "on the papers" and its finding reached on the basis of the absence of any genuine issue of material fact concerning Defendant's obligations under Sections 16 and 18. Further, the usual equitable considerations underlying such request will apply: irreparable harm to Claimants if the relief is not granted immediately.

The starting point for analysis is the . . . Distribution Agreement itself. Both Sections 16 and 18 expressly state that they apply after termination of that Agreement. There is no dispute the Agreement is terminated or that Claimants seek to enforce only obligations of the Defendant coming into effect after termination. The circumstances relating to that termination or the precise time it occurred are irrelevant here. What is relevant however, is the undenied fact that Claimants . . . demanded Defendant immediately apply to the relevant government authorities for cancellation of the Manufacturing License and return Claimants' Proprietary Material, all as required by the . . . Agreement. The record clearly indicates Defendant not only failed to respond to Claimants' letter request and discharge its post-termination obligations, but with regard to the Manufacturing License, instead of applying for cancellation as required, it petitioned the Taiwanese government to change the product names on the existing Manufacturing License from . . . to . . .

Again, the reasons underlying Defendant's failure to meet its described obligation are irrelevant. Nor is it necessary, now, to determine the nature and extent of any harm to Claimants resulting from Defendant's refusal to cancel the Manufacturing License. At the preliminary hearing the Tribunal was shown a video of certain advertising and marketing campaigns made by Defendant which, the Claimants allege, was a deliberate attempt to export the . . . name and reputation for the benefit of . . .

The facts underlying Claimants' request for interim relief pertaining to Section 16 of the . . . Agreement do not permit the Tribunal, at this time, to grant such relief. Discussion at the preliminary hearing evidenced considerable confusion and uncertainty regarding the identification and characterization of the "formulae, processes, trade secrets, or other information" with regard to which Defendant is obligated under that Section, post termination of the Agreement. We perceive at least some genuine issues of material fact will appear in the presentation of proof underlying Claimants' request for equitable relief in support of its Section 16 rights. Accordingly, we leave determination of this matter for reconsideration at the evidentiary hearing.

Subsequent to the preliminary hearing, under date . . ., Defendant submitted a Declaration from Taiwanese counsel purporting to introduce genuine issues of material fact regarding the "cancellation" of the manufacturing licenses required by Section 18. We concur with the conclusion reached in Claimants' . . . response letter: the Declaration "substantiates the absence of any genuine issue of material fact standing in the way of an immediate direction that Defendant cancel the . . . manufacturing licenses and the licenses Defendant obtained on the back of those . . . licenses by having them reissued under the . . . name". Defendant's . . . letter does not persuade us to the contrary.

Apart from the Tribunal's declaration that it has jurisdiction under the . . . Agreement to deal with the disputes presented to it, and apart from making an order in the terms of Section 18 of the . . . Agreement, all other issues between the parties will be dealt with at the hearing in Los Angeles on . . .

The Tribunal orders that, pursuant to Section 18 of the . . . Agreement, Defendant do forthwith petition the Health Administration and the Government Organizations concerned to cancel the manufacturing license and importing registration of raw materials for processing . . . and . . . registered in its favor and which are now referred to as . . . and . . .'