The claimant and the first of the two respondents entered into an exclusive distribution agreement subject to Portuguese law (the Agreement) entitling the former to distribute the latter's products in certain areas of the market. The following year, the first respondent informed the claimant that the second respondent, a company belonging to the same group, would provide the claimant with technical, marketing and operational support. From then on, the claimant's relations were exclusively with the second respondent, which also sold it the products covered by the distribution agreement. Shortly before the termination of the distribution agreement, the second respondent proposed a new non-exclusive agreement (the Draft Agreement), which the claimant found unacceptable. Thereafter, the first respondent gave the claimant notice of the termination of the original distributorship agreement. The claimant alleged that its sales performance had been affected by competing distributors in the market and that the second respondent was enticing its clients away. It initiated arbitration proceedings, claiming compensation for harm suffered as a result of the termination, unfair competition and loss of profit and goodwill. The second respondent objected that it had not agreed to arbitration. The first question addressed by the sole arbitrator was therefore whether he had jurisdiction over the second respondent.

'The jurisdiction of the Sole Arbitrator is accepted with regard to both [Claimant] and [First Respondent].1 Further, it is not in dispute that [Second Respondent] is not a signatory to the Agreement which contains the arbitration clause. Despite this, [Claimant] claims that [Second Respondent] is subject to the jurisdiction of the Sole Arbitrator.

In its Request for Arbitration . . . [Claimant] puts forward that it could be inferred from the Draft Agreement that [Second Respondent] intended to submit to arbitration "any disputes arising from the commercial relations established with [Claimant], thus waiving the jurisdiction of the judicial courts" . . .

In its Reply . . . [Claimant] raises the issue whether [Second Respondent] took over [First Respondent]'s position in the Agreement . . . [Claimant] points out further that [First Respondent] admits having entrusted [Second Respondent] with the task of supporting [Claimant] in relation with both technical marketing and operations. In the following, [Second Respondent] started to perform further activities which were originally undertaken by [First Respondent] . . . Furthermore, [Claimant] relies on the "Dow Chemical" decision . . . and, finally, emphasizes "that the relevance of the arbitration clause foreseen in Exhibit No. 3 of the Arbitration Request [the Draft Agreement] is to demonstrate [Second Respondent]'s wish to avoid the jurisdiction of common courts, this point being sufficient to conclude for the intention to submit to arbitration any and all dispute" . . . "All that remains to be ascertained is which specific arbitration rules did the parties wish to submit to. The answer to this latter question can be found easily in the 'Dow Chemical' case decision doctrine" . . .

In its Statement of Claim . . . [Claimant] states under the heading "Capacity of the Parties" that there are three possibilities of how the relations between the parties might be qualified. According to the first one [First Respondent] is the only company which is liable for the damage alleged. [Second Respondent]'s conduct has to be attributed to [First Respondent] by virtue of the "lifting the corporate veil" doctrine . . . The second possibility would be that [First Respondent] assigned the Agreement to [Second Respondent] . . . The third suggestion is based on the relation between [Second Respondent] and [First Respondent], "their being a part of the . . . Group and their mutual cooperation" which should result in joint and several liability of both Respondents . . .

Under the heading "Jurisdiction and Scope of the Arbitration Clause" [Claimant] makes again reference to the "Dow Chemical" decision. Furthermore, it maintains that [Second Respondent] was deeply involved in the execution of the Agreement and that the Draft Agreement provided for an arbitration clause. According to [Claimant], both facts show that "[Second Respondent] wished to waive the competence of the common courts and is, in itself, enough to conclude that it was the parties' wish that any dispute that may come to arise should be submitted to arbitration".

[Claimant]'s pleadings might be summarized as follows:

· [Second Respondent] has been assigned or has taken over the Agreement including the arbitration clause.

· Or, [Second Respondent] was involved in the performance of the Agreement in whatsoever role and expressed its consent to arbitration by proposing an arbitration clause in the Draft Agreement.

· Or, [Second Respondent] is subject to arbitration by virtue of the "Dow Chemical" doctrine.

[Second Respondent] takes the position that it is not subject to the jurisdiction of the Sole Arbitrator. According to its view the Agreement only binds [Claimant] and [First Respondent]. "[Second Respondent] and [First Respondent] are different legal entities, are not subsidiaries one of another, and are not dependent or subjugated one to another juridically, commercially, financially or in management" . . . [Second Respondent] never assumed formally or informally any obligations within the Agreement and did not act as a party to it. [Second Respondent] never replaced [First Respondent] in its obligations with [Claimant]. There was no assignment.

[First Respondent] denies jurisdiction over [Second Respondent] as well. It maintains that [First Respondent]'s letter of . . . did not lead to an assignment, but entailed a kind of limited agreement between [First Respondent] and [Second Respondent] which sought to manage the relations with [Claimant] in a more effective way.

These arguments have to be considered in detail below.

(A) Applicable law on the question of jurisdiction

Art. 176 of the Swiss Private International Law Act ("PILA") states that the provisions of chapter 12 of the PILA apply to arbitral tribunals which have their seat in Switzerland, provided at least one of the parties was neither domiciled nor resident in Switzerland at the time of the conclusion of the arbitration agreement. The place of the present arbitration is Switzerland. All parties to the dispute were neither domiciled nor resident in Switzerland when the Agreement was concluded. As a consequence, the rules of chapter 12 of the PILA (Art. 176-198) apply to the present case.

By Art. 186(1) PILA the Sole Arbitrator is empowered to determine the question of jurisdiction himself (the so-called "Kompetenz-Kompetenz"). In so doing, he is bound by the law, i.e. chapter 12 of the PILA. Of primary relevance is Art. 178 PILA which deals with the prerequisites under which the arbitration agreement has to be considered valid. It says in its first paragraph that the arbitration agreement must be done in writing or in another manner allowing the agreement to be evidenced by a text in forms of communication. One might argue that [Second Respondent] has not attached its signature to the Agreement and therefore failed to meet the requirement set out in PILA Art. 178(1), but such a view would not address the issue properly. Rather, [Claimant]'s claim that the arbitration agreement has been extended to [Second Respondent] should be examined primarily in the light of Art. 178(2) PILA which reflects the substantive validity of the arbitration agreement.

Art. 178(2) states that the arbitration agreement is valid in every respect (other than its form) if it conforms either to the law chosen by the parties, or to the law governing the subject matter of the dispute, or to Swiss law. The parties have chosen Portuguese law as the law applicable to the Agreement. Thus, it has to be examined whether Swiss or Portuguese law provides for a basis which would support [Claimant]'s assertion of jurisdiction over [Second Respondent].

(B) The "Dow Chemical" doctrine

[Claimant] repeatedly refers to the Dow Chemical decision. In that case, the arbitrators rejected the request of the respondent, the French company Isover St. Gobain, that claimant Dow Chemical (U.S.), the parent company, and claimant Dow Chemical (France), a subsidiary, be dismissed as parties to the arbitration on the grounds that the contract containing the arbitration clause had been signed between claimant Dow Chemical (Switzerland), another subsidiary, and the respondent. However, the arbitrators accepted Dow Chemical (U.S.) and Dow Chemical (France) as parties to the arbitration.

To reach this decision, they reviewed the record of correspondence between the parties and concluded that it had not made the slightest difference which entity within the Dow group had formally signed the contract; the respondent had maintained correspondence with personnel of both Dow Chemical (U.S.) and Dow Chemical (France), specifically pertaining to the performance of the contract formally signed with Dow Chemical (Switzerland). The tribunal concluded that the respondent had in fact intended to contract with the Dow group as a whole, and that accordingly they could deem Dow Chemical (U.S.) and Dow Chemical (France) to be parties to the contract. 2

The facts of the present case are apparently different. The two Respondents have not acted in such a way that they could have been regarded by [Claimant] as interchangeable. Either played a distinct role. The Agreement was negotiated, concluded, and, at first, solely performed by [First Respondent]. Only after the contractual relationship between [First Respondent] and [Claimant] had gone on for several months [Second Respondent] entered the stage and started to contribute to the performance of the Agreement. Therefore, as opposed to the "Dow Chemical" case, the parties did not intend to sign a contract with a group as a whole or with several subsidiaries of a group.

In this connection, it should also be mentioned that in the "Dow Chemical" case, the non-signatory party was the claiming party and, thus, consenting to arbitration whilst in the case at stake, the non-signatory is the respondent which opposes to arbitration.3

Moreover, French law applied in the Dow Chemical decision. French courts have variously decided that group companies are bound despite the absence of any formal declaration of consent. However, the practice in other countries is considerably more reticent.4

The Dow Chemical decision is based on the so-called "group of companies" doctrine according to which an arbitration agreement concluded by one member of a group extends to other members. This approach has been widely criticized.5 It disregards basic principles of law, which are acknowledged under Swiss and, as it appears, under Portuguese law, such as the principle of the privity of contract and the basic rule that arbitration agreements (representing a waiver of the state courts) must not be interpreted too extensively. It also contradicts the notion of the separate entity of each juristic person. It is a cornerstone of business law and practice that a company which deals exclusively for itself by signing also obliges but itself to the exclusion of others, even if those others are companies affiliated with it within one and the same group. For these reasons, the group of companies doctrine has to be rejected.

(C) Lifting the corporate veil

In its Statement of Claim . . . [Claimant] makes reference to the "lifting the corporate veil" doctrine . . . There, it seems to argue that [First Respondent] might be responsible for [Second Respondent]'s activities in connection with the performance of the Agreement by virtue of the said doctrine.

Therefore, it appears that [Claimant] does not suggest that the jurisdiction of the Sole Arbitrator regarding [Second Respondent] might be derived from the "piercing the corporate veil" doctrine. The facts of the case do indeed not suggest that the Sole Arbitrator might be competent to hear the case regarding [Second Respondent] based on this doctrine. Therefore, one has to deal with it when the case has to be adjudicated on its merits.

(D) Tacit consent to arbitration by [Second Respondent]

[Claimant] appears to put forward that [Second Respondent] tacitly consented to arbitration. In order to support this argument it relies basically upon two facts: [Second Respondent] was involved in the performance of the Agreement and [Second Respondent] incorporated an arbitration clause in the Draft Agreement . . .

According to Art. 178(1) of the PILA the arbitration agreement must be in writing, by telegram, telex, telefax or in some other form of communication allowing the agreement to be evidenced by a text. A tacit agreement to arbitrate based on conduct by the parties is therefore valid under Swiss law only to a very limited extent. The Swiss Federal Court has indicated in a decision of 1995 that, by virtue of the principle of good faith, certain conduct by parties can result in having the formal requirement of evidence in writing disregarded.6 In that case however, not Art. 178(1) of the PILA did apply, but Art. II(2) of the New York Arbitration Convention. Furthermore, the facts of the present case do not allow the conclusion that [Second Respondent] has expressed a will of being subject to arbitration. It is true that the Draft Agreement makes provision for arbitration but this draft has not been signed and, accordingly, represents only a proposal by [Second Respondent] which was not yet binding. Furthermore, the mere fact that [Second Respondent] was active in the performance of the Agreement is not sufficient to suggest that [Second Respondent] waived any rights of appealing to state courts. Therefore, there was no conduct by [Second Respondent] upon which [Claimant] could rely when initiating the arbitration proceedings.

The position seems to be similar under Portuguese law. Moreover, it is highly questionable whether the latter even applies. It seems that the issue relates to the form of the arbitration agreement and is thus exclusively covered by the first paragraph of Art. 178 PILA. The second paragraph of this provision, which brings the Portuguese law into play, deals with the substantive validity of the arbitration agreement only.

(E) Assignment of the Agreement from [First Respondent] to [Second Respondent]

[Claimant] alleges that an assignment has been effected between [First Respondent] and [Second Respondent] and refers to [First Respondent]'s letter to [Claimant] of . . . The said letter reads . . ., as far as it is material, as follows:

[…] the new Business Development group in [town X] for which I work is entrusting [Respondent group]'s support of [Claimant] both in technical, marketing and in operations, to [Second Respondent].

[Second Respondent] has an experienced and enthusiastic team covering the [territory], working out of a modern . . . plant at [town Y] We are convinced that as your business grows the optimal way to ensure support for [Claimant]'s . . . operations is to make available high quality, competitive products from the nearest plant, and also to provide you with marketing and technical support on a more regular and comprehensive manner. […]

[First Respondent] alleges that the background of this course of action was the opening of a new plant in [town Y]. Previously, the deliveries were made ex-[town Z], [First Respondent]'s plant in [country]. This reasoning is consistent with the one given in the letter.

It is not disputed that in the following marketing relations were established between [Second Respondent] and [Claimant] on an "almost exclusive" basis. The relations were not limited to a mere technical support since [Second Respondent] started to sell [Respondent group] products directly to [Claimant]. [Second Respondent] replaced [First Respondent] as seller and supplier and delivered to [Claimant] until the mutual business relationship was terminated.

[Claimant]'s claim that the said letter should be considered as an assignment has to be rejected. On the one hand, an assignment which would transfer contractual rights from [First Respondent] to [Second Respondent] would have to be made between these two companies. The letter allegedly constituting the assignment was sent from [First Respondent] to [Claimant] however. It can therefore not constitute an assignment between the two respondents. On the other hand, it is not disputed that the Agreement was terminated by [First Respondent] on . . . However, [First Respondent] would not have been entitled to terminate the Agreement if it had previously assigned it to [Second Respondent]. This shows that no assignment of the Agreement has been effected under Portuguese Law. For the same reason, it is not possible that a novation (i.e. the substitution of [First Respondent] through [Second Respondent] as a party to the Agreement) has occurred.

(F) Conclusion

The claim by [Claimant] that the Sole Arbitrator has jurisdiction over [Second Respondent] is unfounded. Therefore the Sole Arbitrator declines its jurisdiction with respect to the claims raised against and by [Second Respondent].'

1
[First Respondent] calls into question, however, that the present dispute would fall within the scope of the arbitration clause . . .

2
This summary of the case is from Craig/Park/Paulsson, International Chamber of Commerce Arbitration, 3rd edition, § 5.09, p. 77.

3
See Craig/Park/Paulsson, § 5.09, p. 76.

4
See Werner Wenger, International Arbitration in Switzerland, edited by Stephen V. Berti, Article 178 N. 57.

5
Otto Sandrock in: The Arbitration Agreement - Its Multifold Critical Aspects, ASA Special Series No 8, p. 166; Aaron X. Fellmeth, Strangers in a strange Forum: Nonsignatories in International Commercial Arbitration, in: The International Arbitration News, Winter 2000/2001, p. 15.

6
BGE/ATF 121 III 38.