The claimant initiated arbitration proceedings in order to resolve a dispute arising out of a contract between a subsidiary (A) of the claimant and a subsidiary (B) of the respondent. The arbitral tribunal was required to decide whether it had jurisdiction to hear the claims brought by the claimant against the respondent.

'B. The relationship between [Respondent], [B], [C] and [D]

11. The Respondent is a holding company established pursuant to Public Business Sector Companies Law [No. . . .]. It is a joint stock company, and its capital is owned by [State X]. It acts as a holding company for more than twenty companies with activities ranging from cement, plastics, pulp and paper, leather, in addition to fertilisers and other chemical industries. The Respondent owns 100% of the shares in [B].

Pursuant to Law [No. . . .], the Respondent succeeded to the rights and obligations of a public sector organisation operating under the supervision of the [State X] Ministry for Industry established in 1983, called [D].

12. The materials filed by the Parties contain considerable discussion of the transfer or assignment of the Contract or at least of some specific or general rights and obligations from another [State X] public sector organisation called [C] to [D] or [B].

[C] played an undisputed role in the early phases of the Project as it issued the first Invitation to Bid. Although a contract was first signed on 22 December 1986 with . . ., an Italian Company, it never came into force and the bidding process was resumed in March 1988 on the basis of the initial Invitation to Bid but, this time, by [D]. Indeed, as a result of Law [No. . . .], the responsibility for the Project had been transferred to [D].

The Claimant argued that ". . . the responsibilities of [C] were transferred to [D] . . .", but at the same time emphatically disclaimed any argument that [Respondent] could be the legal successor of [C] since it never signed the Contract and could not therefore assign it to [B]. Whether such a conclusion may be drawn or not, it would not suffice to dispense the Tribunal from examining [D]'s role in relation to the Contract and to [B] in order to determine whether [Respondent] is bound by the arbitration clause in Article 17 of the Contract.

On the basis of the material presented in evidence, the Tribunal concludes that the actions of [C] do not assist for the determination of the question of whether the Respondent is bound by the arbitration clause in the Contract or by any other arbitration agreement entered into by the Parties.

13. The Claimant, in its Request, alleged that the Respondent must be considered a party to the Contract and to the arbitration agreement between the Claimant and [B] since:

1. The Respondent and its subsidiaries, including [B], form a group of companies in which the Respondent exercises absolute control over all the decisions of its subsidiaries;

2. [D] (the legal predecessor of the Respondent) played an essential role in the negotiation and conclusion of the Contract;

3. The Respondent played an essential role in the performance of the Contract, in particular in the context of the dispute which developed between the Claimant, on the one hand, and the Respondent and [B], on the other hand; and

4. The financial situation of [B], and the recent decision to separate the [T] complex from [B], give rise to a significant risk of [B] not being able to ever pay any amounts which might be awarded to the Claimant in the separate arbitration presently pending between the Claimant and [B] . . .

The Respondent denies that it is a party to the Contract on any of the above grounds and set out in its Answer and its Submission various reasons why this cannot be the case. The Respondent also submits that any award against [Respondent] on the basis that it was a party to the Contract would be contrary to public policy in [State X] and therefore would not be enforceable in [State X].

14. The documentation presented in this matter shows:

1. That none of the Parties had its own business address in Switzerland at the time of the signing of the arbitration clause contained in Article 17 of the Contract;

2. That the city of Geneva (Switzerland) is the seat of this arbitration; and

3. That the Parties at no time expressed any written reservation as to the applicability of Chapter 12 of the PILA.

These considerations lead this Tribunal to conclude that, as far as the issue of its jurisdiction is concerned, the present controversy should be resolved by applying the ICC Rules. Where silent, the provisions of Chapter 12 of the PILA (articles 176 to 199)1 are applicable.

15. In accordance with § 12 of the Terms of Reference and as provided by Article 186 PILA, the Arbitral Tribunal will determine in this award the question of its jurisdiction. For this purpose, the following issues need to be analysed by the Tribunal:

1. The corporate relationship between the Respondent and [B];

2. The Respondent's consent and the requirement that there be an arbitration agreement in writing; and

3. The relevance of international public policy.

This legal analysis will allow the Tribunal to decide:

1. Whether the arbitration clause contained in Article 17 of the Contract is binding on the Parties to the present arbitration;

2. Whether there is evidence of the existence of a consent by the Respondent to be bound by an arbitration agreement and whether such consent has to be in writing; and

3. Whether the Tribunal has jurisdiction to adjudicate the merits of the present case.

The Tribunal notes that the burden of proving that a non-signatory is a party to an arbitration agreement rests on the party that is making that allegation.

C. Issues to be decided

a. The corporate relationship between Respondent and [B]

16. The Claimant alleges that:

There is absolutely no doubt that [B] is part of a group of companies over which the [Respondent] exercises absolute control, with [B] having no power of decision of its own . . .

Further, the Claimant alleges that [Respondent] and its subsidiaries form a:

Group of companies characterised by the strongest possible degree of centralisation of power and unity in the economic objective . . .

The arbitral awards in which an arbitral agreement signed by some members of a group of companies were found to bind other members of the group are well known; the Claimant in particular referred to ICC Case 4131/1982 (Dow Chemical v. Isover Saint Gobain).

17. The extension of an arbitration agreement to a party that is not a signatory to that agreement is an issue that must be approached with prudence.

The autonomy of the parties is the basis of the law of arbitration and the authority of an arbitral tribunal is derived from a consensual reference. The corollary of the autonomy of the parties is privity of contract. The doctrine of privity of contract is shared by most legal systems, and is explicitly recognised in Article . . . of the [State X] Civil Code which states that a contract does not create obligations binding on third parties. It must also be recognised that in some States, again including [State X], access to State Courts for the determination of rights is recognised and protected in their respective constitutions. Also, the concept of the distinct legal personalities of companies is long established in international commerce, and the legitimacy of a group of companies allocating contractual rights and obligations amongst distinct legal persons must also be respected.

The concepts of a "group of companies" or a "single economic reality" have appeared in many awards and been discussed in scholarly articles, but their analytical usefulness might be questioned. These concepts encourage evidence and argument, as in this case, as to what defines a group of companies or a single economic reality. The extension of an arbitration agreement to a non-signatory is not a mere question of corporate structure or control, but rather one of the non-signatory's participation in the negotiation, execution or performance of the contract, or its conduct (including express or implied representations or bad faith), towards the party that seeks the non-signatory's inclusion in (or exclusion from) the arbitration. It is from this participation in the contract or conduct towards the other party that the Arbitral Tribunal can infer ". . . the mutual intention of all parties . . ." that has been recognised in many awards (including the Dow Chemical case) as justifying the extension of the arbitration agreement to a non-signatory.

18. The Tribunal is confirmed in this view by the decision in the Westland Helicopters Case,2 where the Swiss Federal Tribunal stated that the strict control of a legal entity by another, or the close relationship between the two entities, ". . . is not sufficiently pertinent to overcome the presumption that, when [one entity] has not signed the arbitration clause, the entity which signed it should be regarded as the sole party to the arbitration . . .".

The Arbitral Tribunal in ICC Case No. 5721/1990 stated:

The mere fact that two companies belong to the same group, or that they are dominated by a single shareholder, will not automatically justify lifting the corporate veil. However, where a company or individual appears to be the pivot of the contractual relations in a particular matter, one should carefully examine whether the parties' legal independence ought not, exceptionally, be disregarded in the interests of making a global decision. This exception is acceptable in the case of confusion deliberately maintained by the group or by the majority shareholder . . .3

Accordingly, where a corporate structure is being used in bad faith as an instrument of deliberate concealment or confusion, or to defeat a possible award against the named party to an arbitration agreement, then the Arbitral Tribunal might be justified in lifting the corporate veil. The Claimant has alleged that this is the case here. Specifically, it claims that the separate legal personality of [B] is ". . . a fiction . . .", and that as a result of [Respondent]'s actions [B] is or has been liquidated, has transferred assets to another member of the group, and that ". . . it is clear that there is a very real risk that [Claimant]'s claims against [B] be [...] an illusory recourse . . .".

19. It is not disputed that under Law [No. . . .] the Respondent and [B] have separate and independent legal personalities. The Tribunal also accepts that they have separate and independent financial patrimonies.

The Claimant adduced considerable evidence demonstrative of the exercise of control by the Respondent over [B].

The General Assembly of [B] is composed primarily of representatives of [Respondent], the Chairman and the majority of its board of directors are by law appointed by [Respondent], as is the managing director. Further, the Claimant relied upon shareholders' resolutions of [B] prepared by [Respondent], and also on the common ". . .general orientation . . ." of [Respondent] and its subsidiaries. In the view of the Tribunal, shareholders normally possess such powers of appointment and propose and make resolutions in general meeting, and there is nothing unusual in the kind or level of control exercised by the Respondent over its subsidiary.

This evidence falls short of establishing that the separate legal personality of [B] is a ". . . fiction . . ." or that the Respondent ". . . exercises absolute control over all the decisions . . ." of [B].

20. The Claimant, referring to the "doctrine of Piercing the Corporate Veil", further submitted that the extension of the arbitration clause contained under Article 17 of the Contract to the Respondent is justified by the financial situation of the signatory (i.e. [B]) and the ". . . very serious risk . . ." that its claims against [B] will prove an illusory recourse which [Respondent] would have caused to the detriment of Claimant. It referred to a transaction by which [B] would have transferred a substantial part of its assets (and, according to the Claimant, the more profitable part) to another subsidiary of the Respondent, which Claimant asserts has left the legal status and viability of [B] in some doubt, this other subsidiary not being a party to the arbitration.

The Respondent, in its Submission, characterised the Claimant's concerns, regarding the financial creditworthiness of [B] as ". . . imaginary . . ." and ". . . fictitious . . .".

21. The agreement produced as evidence by the Claimant fails to support its assertions.

This "Agreement Concerning the Legal Consequences Arising from the Division of [B]", (hereafter referred to as Exhibit C-51) does effect a transfer of assets by [B] to an affiliate but also appears to represent a bona fide corporate restructuring. We note in particular:

1. Exhibit C-51 involves not simply a transfer of assets, but of assets and related liabilities;

2. The net assets transferred amounted to only 12% of the pre-existing net assets of [B];

3. It appears from the documents filed that the transfer has been effected with proper legal formalities and respect for the corporate personality of all parties. The transfer followed an investigation and report of a committee formed pursuant to a directors' resolution of the Respondent, the committee's recommendations were approved by both the directors of the Respondent and by an Extraordinary General Meeting of [B], classes of assets and liabilities have been valued, apparently by a committee formed for that purpose and on the basis of audited accounts, and there are indications that the valuations have received Ministerial approval; and

4. Such restructuring of subsidiaries is one of the stated objectives of the Respondent in its Statutes of Incorporation.4

On the evidence before us, Exhibit C-51 represents a legitimate corporate transaction. There is no evidence of concealment, or of a deliberate intention to avoid the enforcement of a contingent award against [B], that might justify piercing the corporate veil.

22. Accordingly, the Tribunal finds no justification in the corporate structure or transactions of the Respondent and its subsidiaries to hold that the Respondent is to be considered a party to the Contract. Likewise, the Tribunal finds no justification to pierce the corporate veil so as to make Respondent liable under the Contract.

Hence, the Tribunal must turn to analyse the possible existence of an arbitration agreement, concerning the dispute at hand, that is binding on the parties to the present arbitration.

b. The consent of the Respondent and the requirement of an agreement in writing

23. In an international commercial arbitration, the arbitration agreement fulfils several important functions. The most vital of these in the present context is that it shows that the parties have consented to resolve their disputes by arbitration. This element of consent is essential, as an arbitral tribunal is entrusted by the parties with a power of reaching a decision that will be binding upon the parties.

Further, the form of an arbitration agreement must meet the mandatory requirements of the law at the seat of arbitration or of the law of the country where the award is to be rendered. In the case at hand, Switzerland is both the seat of arbitration and the country where this award is to be rendered.5 PILA provisions are therefore applicable.6

The Swiss doctrine and case law conclude that the formal validity of an arbitration agreement must be analysed based on Article 178.1 PILA; a mandatory provision according to which,

1. As regards its form, an arbitration agreement shall be valid if made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text. footnote_7>

24. In light of this provision, the arbitration clause invoked by the Claimant to file the Request - Article 17 of the Contract - is formally valid, as it complies with both the mandatory requirements of Article 178.1 PILA and with those requirements commonly observed in international commercial arbitration. In particular, it has been made in writing, it forms part of the Contract and it has been signed by the parties to the Contract, that is to say, [A] and [B].

However, in this case, the signatories to the arbitration clause contained in Article 17 of the Contract ([A] and [B]) differ from the Parties to the present arbitration ([Claimant] and [Respondent]).

Nevertheless, the Claimant alleges that the Respondent is bound by this arbitration clause through its involvement in the negotiation, conclusion and performance of the Contract whilst the Respondent expressly denies either its involvement in the Contract and/or being bound by its arbitration clause.8

Accordingly, this Tribunal turns to consider the Respondent's role in the negotiation and performance of the Contract, in order to determine whether the Respondent's actions suggest an intention to be a party to the Contract and/or being bound by its arbitration clause. We note that when it is alleged, as here, that a non-signatory intended and consented to be a party to the arbitration agreement, then that intention or consent must be evidenced in writing. 9

This writing requirement might be satisfied in a number of ways, each of which will now be analysed.

25. The Claimant has referred to considerable correspondence and other documents (Exhibits C4-C30) which it alleges establishes that [Respondent] played an essential role in the negotiation and conclusion of the Contract, and in its performance. The Claimant alleges that at the time of the negotiation of the Contract the interests of [D] ([Respondent]'s predecessor in title as mentioned in § 11 above), and [B]'s interests were ". . . completely intermingled . . .".

It appears from the documents provided that [D] involved itself in the negotiation of the Contract: bids were submitted at [D]'s offices, meetings concerning contract details were held with [D] representatives, and [D] informed the Claimant of the success of its bid. This correspondence indicates that [D] assisted, even perhaps controlled, the final stages of negotiations of the Contract. However at no point in the communications relied on by the Claimant is it suggested that [D] accepted its arbitration clause. Further, and most importantly, the Contract itself signed shortly after these pre-contractual communications was signed with [B] only. As the Respondent argued in its final submission, the Claimant signed this Contract with [B] without reservation. If the Claimant had intended [D] to be a party to either the Contract or its arbitration clause it could have so insisted at that time.

Claimants points out that it was a standard practice in the [State X] public sector to have the negotiation and execution of a contract done by general organisations for industrialisation, such as [C], and its implementation by an operating company; in accordance with such practice, both the organisation and the company would sign the contract with the organisation thereupon assigning its rights and obligations to the operating company. Even if this argument - developed by the Claimant in the context of the issue of assignment - was found to be correct, it nonetheless indicates that by not signing the Contract, [D] intended to respect the legal independence of [B]'s legal personality and to be in harmony with the privity of contrat principle, that is to say precisely not to become a party to the Contract nor to its arbitration clause.

26. When we turn to the performance of the Contract it is important to bear in mind that this is a contract for the design, supply and erection of an industrial plant. Its performance involved a complex relationship over a number of years. It was a contract where the Claimant had obligations of design, supervision of the erection, and personnel training. [B] was responsible for the erection itself, and of course its staff were trained to run the plant.

This relationship is quite different from cases involving the supply of goods where the identity of the particular company in a group that actually supplies the product may be of little concern to either buyer or seller. In contrast, a high degree of cooperation and communication between the Parties was required to perform the Contract. However, the Claimant produced no evidence between the signing of the Contract in December 1988 and September 1996 of the Respondent's involvement in the performance or implementation of the Contract. There could not, in our view, be a clearer indication that [Respondent] was not a party to the Contract.

27. The Claimant produced further evidence of [Respondent] involving itself in the Contract once a dispute had arisen.

The Tribunal considers that this involvement, beginning eight years after the Contract was signed, does not reveal any intention to accept either responsibility for the Contract or its arbitration clause. A parent company can assist a wholly-owned subsidiary in resolving a dispute regarding a major project that the latter is involved with, especially when it is mandated by law to supervise its subsidiaries as in the instant case, without thereby taking over the project; otherwise, it could retrospectively assume liabilities it did not contract for in the first place or become itself a party to the dispute or the ensuing arbitration.

We note at this point that the Obergericht [Court of Appeal] of Basel-Land10 has stated that:

By requiring the written form, Article II of the New York Convention means to exclude arbitration agreements concluded orally or tacitly.

28. Based on the evaluation power of the arbitrators with respect to evidence,11 the Tribunal concludes that no documents were produced from which it could be established:

1. The existence of a written proposal to arbitrate from one Party and a written acceptance communicated to the other Party; or

2. An express acceptance by [Respondent] of the arbitration clause contained in Article 17 of the Contract; or

3. Any arbitration agreement signed by [Claimant] and [Respondent] or contained in an exchange of letters or telegrams between [Claimant] and [Respondent] or in other written communications,

made in accordance with the formal requirements provided for by Article 178.1 PILA.

29. This conclusion is sufficient for this Tribunal to decline its jurisdiction. But, nevertheless, we would note, in deference to the arguments presented by the Parties based on [State X] Law, that the question of jurisdiction must be exclusively determined under Swiss Law. Moreover, since the parties to these proceedings expressly excluded any reference to [State X] Law as lex arbitrii in §12 of the Terms of Reference,12 their arguments based on [State X] Law in their subsequent pleadings must be considered as additional claims, unauthorised by this Tribunal and therefore, they must be ignored in accordance with Article 19 of the ICC Rules.

30. Accordingly, the Tribunal decides that:

1. the Claimant has failed to establish its allegation concerning that [Respondent] was a party to the Contract or to an arbitration agreement with [Claimant];

2. there is also no other basis from which to derive any power for this Tribunal to adjudicate the merits of the present dispute; and

3. therefore, the Tribunal has no jurisdiction.

c. Public policy

31. The Respondent argued that any finding by the Tribunal that it was a party to the arbitration clause or to an agreement would be incompatible with [State X] public policy. It stated that the requirement that arbitration agreements be in writing and signed ". . . is an integral part of the 'ordre public' in [State X]. Any disregard of such [a] fundamental rule would invalidate any award and ensure its non-enforceability in [State X]. . .". It provided an expert opinion that supported, in not so absolute terms, this view.

We accept that in making an award an arbitral tribunal should have regard to the question of its enforceability in the jurisdiction where enforcement will most probably ultimately be sought. Indeed, the Tribunal is required by Article 35 of the ICC Rules to ". . . make every effort to make sure that the Award is enforceable at law". However, the likely law of enforcement - in this case, [State X] - must not assume an unwarranted primacy in the Tribunal's reasoning. The autonomy of the arbitration agreement, and the fact that it is often subject to a different law than the lex contractus - here [of State X] - are well established principles of international commercial arbitration, and must be respected.

The Respondent seemed at times to rely on a concept of public policy that was indistinguishable from the general law of arbitration of [State X]. Such a generous construction of ". . . public policy . . ." does not accord with the international understanding of its meaning for the purposes of Article V 2 (b) of the 1958 New York Convention; in particular local arbitration statutes do not constitute mandatory rules or lois de police for the purposes of public policy.

32. The Respondent also argued that extension of the arbitration clause to a non-signatory would be contrary to public policy for the purposes of the 1958 New York Convention because it would contravene the right, guaranteed by Article . . . of the Constitution of [State X], of access to the Courts. In view of our conclusion that [Respondent] is not bound by the arbitration clause contained in Article 17 and signed by [B], thus the Arbitral Tribunal do not need to investigate this issue further.

Award

In the light of the foregoing, this Arbitral Tribunal decides that there is no arbitration agreement between the Claimant and the Respondent and therefore the Tribunal is obliged to decline jurisdiction over any dispute between the Parties in relation to the Contract.'

1
Ficantieri-Cantieri Navali ltaliani SpA v. Oto Melara, SpA in [1993] Rev. arb. 692; [1993] Bulletin ASA 61.

2
See 28 (1989) I.L.M. 687. See also the passage relied upon by the Respondent from Fouchard, Gaillard & Goldman On International Commercial Arbitration. Kluwer. 1999. p 283: "Clearly, however, it is not so much the existence of a group that results in the various companies of the group being bound by the agreement signed by only one of them, but rather the fact that such was the true intention of the parties."

3
117 J.D.I. 1024

4
See Statutes of Incorporation Articles 3 (d) and (e) that state the Respondent must carry out the following: "d. Analyse, assess and develop the performance of the affiliated companies in which the [Respondent] companies participate, in order to realise the ideal exploration of the resources it owns; e. Re-structuring by all means, the affiliated companies, which ensure its work with aneconomical efficiency and seek the widening of its scope of ownership . . ."

5
Article 25.3 of the ICC Rules: "The award shall be deemed to be made at the place of the arbitration . . ."

6
See § 14 above.

7
Article 1031 of 1997 German Arbitration Act (Law of December 22, 1997); Articles 5 and 6.2 of the 1996 English Arbitration Act; Article 1021 of the 1986 Dutch Arbitration Act (Law of July 2, 1986).

8
. . . See § 11 of the Terms of Reference "For its part, in its Answer to the Request for Arbitration dated February 8, 2000, the Respondent submits that no valid arbitration agreement exists between the Parties […], inter alia, […] [Respondent] did not sign the Contract and there is no evidence of its intention to accept the arbitration clause in the Contract . . .".

9
The expression ". . . .in writing . . .", as construed under Article II (2) of the 1958 New York Convention, includes an arbitration clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams.

10
Obergericht [Court of Appeal], Basel-Land, 5 July 1994 DIETF Ltd. (nationality not indicated) v. RF AG (nationality not indicated) in 5 (1995) Basler Juristische Mitteilungen 254.

11
Article 19.2 of the 1985 Model Law.

12
"The Arbitral Tribunal shall decide on its own jurisdiction pursuant to Article 186 of the Swiss Statute on Private International Law (1987) . . ." See § 14 above, concerning PILA as the lex arbitrii.