The claimant and defendant, both companies, entered into an agreement, whereby the former would provide services to the latter's Far East subsidiary for the purpose of securing contracts and strategic planning. The contract was closely tied to the person of Mr X, who, on the same day as the agreement was signed, was appointed as managing director of the said subsidiary. The claimant initiated arbitration proceedings in order to recover money it alleges was due to it under the agreement. The defendant raised jurisdictional and procedural objections, asserting that the claimant was a fictitious company and therefore lacked capacity to sue and that Mr X, not the claimant, was the real party to the agreement. This was denied by the claimant, which stated that the parties deliberately decided to structure their relationship through two distinct contracts-the agreement between the claimant and the defendant, and the letter of appointment between the defendant's Far East subsidiary and Mr X-each of which had different governing law and jurisdiction clauses-Swiss law and ICC arbitration in the case of the former, and the law and courts of the Far East country in the case of the latter. The defendant contested this assertion by pointing out that the agreement contained the main rules concerning the employment of Mr X. It further argued that Mr X should be considered the real party in application of the piercing of the corporate veil doctrine. After finding that the claimant was not a fictitious company and had legal capacity to be a party to the arbitration and that there was no proof of any lack of assent, material error or deceit relating to the arbitration agreement, the sole arbitrator ruled as follows on the doctrine of piercing the corporate veil.

'Defendant argues that even if [Claimant] were not a simulated party, Mr [X] would nevertheless be a party to the . . . Agreement due to the doctrine of piercing the corporate veil . . . The Parties agreed that both the . . . Agreement and the Arbitration Agreement are subject to Swiss substantive law (Art. 4 of the Terms of Reference). Claimant states that the doctrine of the piercing of the corporate veil is an institute of substantive law and is, therefore, subject to Swiss law pursuant to Art. 187 SPILA . . . Similarly, Defendant makes arguments in the context with the piercing of the corporate veil under Art. 2 of the Swiss Civil Code ("CC") . . . Both learned legal writers and an Arbitral Tribunal sitting in Switzerland are of the opinion that the extension of arbitration clauses to third parties is-for Arbitral Tribunals sitting in Switzerland-an issue to be resolved under Art. 178 (2) SPILA (Berger, International Economic Arbitration, Deventer and Boston 1993, p. 173, footnote 921; ASA Bulletin 1992, pp. 209-210). Since Defendant wants to extend the reach of the Arbitration Agreement based on the theory of piercing the corporate veil, the issue is one of the substantive validity of the Arbitration Agreement. Thus, the Sole Arbitrator considers it appropriate to apply Swiss substantive law to this issue.

The doctrine of the piercing of the corporate veil can apply in a case when a company is used by an individual as a trustee (Claimant) for certain purposes. If either the trustor (Mr [X]) or the trustee then have signed an agreement, including an arbitration clause, the effect of this agreement may be extended to the respective partner in the trust relationship (O. Sandrock, Extending the Scope of Arbitration Agreements to non-Signatories, ASA Bulletin Special Series, no. 8, December 1994, p. 172). The basic notion of the doctrine of the piercing the corporate veil is that the legal veil which separates the company from its beneficial owner can be disregarded if reliance on the separateness of the entity from the individual would constitute an abuse of law. Under Swiss law, this doctrine is generally considered to be a case of Art. 2 CC.

The typical case for the application of the doctrine of the piercing veil is the one person stock corporation which is economically more or less identical with its shareholders. However, the fact that an individual owns a corporation is as such no reason to apply the doctrine. Swiss law allows the piercing of the corporate veil under exceptional circumstances in cases of clear and flagrant abuses of law (see, e.g., Forstmoser/Meyer-Hayoz/Nobel, Schweizerisches Aktienrecht, Berne 1966, para. 62, Ann. 56; BG 113 II 36, consideration 2c, with further references).

Defendant states that it would be against good faith for Claimant to rely on the Arbitration Agreement of the . . . Agreement because the . . . Agreement was concluded entirely for Mr [X]'s benefit . . . Claimant argues that [Claimant] was not merely introduced for the tax benefit of Mr [X] . . . Defendant's witnesses Messrs. [A] and [B], on the other hand, stated that . . . Agreement was made exclusively for the tax benefit of Mr [X]. However, Mr [A] also conceded that the tax issue was an issue considered during the negotiations of the Old . . . Agreement when he stated the payment of the taxes under the [Letter of Appointment] by Defendant was part of the deal and when he said that Mr [X] was responsible for the tax payments under the . . . Agreement. Mr [C, witness] was even more explicit when stating that the onshore/offshore structure had also advantages for the employer and not only for the employee. Mr [C] also stated that the onshore/offshore structure did not cause any tax problems in [Far East country] and, thereby, implied that the structure was fully within the law.

Considering the interests of the Parties, the negotiation of the . . . Agreement and the other circumstances of the case, the Sole Arbitrator is convinced that it is not abusive of Claimant to rely on the Arbitration Agreement and that Defendant has not shown that the piercing of the corporate veil with regard to the Arbitration Agreement were justified. It should be noted in this context that the separability doctrine applies and that Defendant has not shown that the doctrine of the piercing of the corporate veil would apply here with the effect that only Mr [X] (but not Claimant) could sue Defendant in arbitration or that they could only sue Defendant together.'