A dispute arose out of a contract between the Venezuelan branch of a Latin American engineering company and the Venezuelan subsidiary of a European engineering company relating to work in connection with a development project awarded to a consortium of international companies including the said European engineering company. Following an unsuccessful attempt to reach a settlement, the Latin American engineering company initiated arbitration proceedings against the European engineering company's Venezuelan subsidiary (Respondent 1) and its parent (Respondent 2). The respondents objected that the Latin American engineering company was not the proper party to the proceedings as it had not signed the contract. They also contended that the arbitral tribunal did not have jurisdiction over Respondent 2, as it had not signed the contract containing the arbitration clause. In his final award, the sole arbitrator answered these two objections before dealing with the merits of the case.

'The question of the proper Claimant

The contention of the Respondents to the effect that [Claimant] is not the proper Claimant because the Contract was signed by its branch in Venezuela, is answered in clear terms by the laws of Venezuela.

Under Article 354, paragraph 2, of the Venezuelan Commercial Code, corporations incorporated abroad having branches in Venezuela, or some other type of business, shall keep their nationality and shall be considered domiciled in Venezuela.

This and other Articles contained in Title VII, Section XI, of the Commercial Code make patently clear that such branches are mere extensions of the Parent Corporation. Such corporations and their branches can sue and be sued.

It follows that there is no question that [Claimant] is the proper Claimant in this arbitration.

The question of the proper Respondents

The answer to this other jurisdictional issue is more complex. Rivers of ink have flowed on the question of the liability of corporate groups, parent-subsidiary relationships, and all combinations thereof.1 Different tests have been applied to prove or disprove such connections and their eventual legal consequences.2

The rule on this matter has always been and continues to be that separate legal personalities ought to be respected by judges and arbitrators and that, therefore, the arbitration clause only has effect with respect to the parties to the contract or agreement. However, it is nonetheless true that contemporary business realities have led to the recognition of many exceptions to this rule. Occasionally, and increasingly so, parties not expressly mentioned in the contract or agreement may both avail themselves of rights under it and be bound by it.

Some of these exceptions concern cases in which a separate legal personality is created with an intention to violate the law, public order or good faith, or to frustrate the rights of third parties.3 The need to avoid some form of legal fraud usually underlies these exceptions.4

However, other exceptions have been recognized in contemporary decisions of the courts and arbitral tribunals without a need for any devious purpose. In a number of cases the existence of an intention, even implicit, of all the parties, including the non-signatories, to the effect that such non-signatories be parties to the contract and the arbitration clause is required.5 The role of such non-signatories in the conclusion and performance of the agreement is a crucial test to determine that intention.6 Confusion among the intervening companies, whether real or apparent, has been a source for said recognition.7 The intervention of the parent company in managing the affairs of the subsidiary, even if unrelated to any fraudulent or illicit business, also underlies recent legislative and judicial developments.8

The evidence in this case clearly points in the direction of an intimate and inextricable relationship between [Respondent 2] and [Respondent 1]. First, between the time of the tender in 1993 and the signature of the Contract in 1998, all the working and legal relationships of [Claimant] in connection with the C. . . project were with [Respondent 2]. Second, the negotiations for the Contract were made with [Respondent 2]. Third, payments made under the Contract, at least during its early part, were made by [Respondent 2]. Fourth, the executives of [Respondent 2] and [Respondent 1] responsible for this project were the same. And fifth, most of the relevant meetings in connection with this project were held not in Caracas but in . . ., United Kingdom, where the project headquarters for [Respondent 2] are located.

The Respondents have also explained in the record that [Respondent 1] was organized with the specific purpose of qualifying for an exemption from the Value Added Tax introduced in Venezuela. This is a perfectly lawful and valid business purpose. Contrary to what the Claimant believes, there is nothing devious or fraudulent about it.

However, this step also indicates that for every other purpose the project was still to be managed by [Respondent 2], as in fact it was. All complaints and other relevant correspondence from [Claimant] were addressed to [Respondent 2's] executives in . . . The document of cession to [Respondent 1] of the contract between [E] and [Respondent 2] and related consortium expressly provides for joint and several liability to [E] by [Respondent 2], the companies forming the consortium and [Respondent 1].

The active participation of [Respondent 2] in the negotiation, preparation and execution of the Contract, and in some respects in the performance under it, determines that the intention of the parties can be reasonably inferred as to the extension of said Contract and the arbitration clause to [Respondent 2].

This Arbitrator is mindful of the view that the fact that signatories and non-signatories of the contract and the arbitration clause belong to the same group of companies is insufficient in and of itself to justify the extension of the arbitration clause.9

In the present case that fact alone would not be sufficient either, but the evidence supports a conclusion that [Respondent 2] was and still is the mind and soul, and partly the body, of the C. . . project contract. The beneficiary of the project contract is in substance [Respondent 2]. [Respondent 1] is an instrumentality functional to a specific and legitimate purpose.

It is therefore concluded that with respect to the present arbitration both [Respondent 2] and [Respondent 1] are the proper Respondents.

Under ICC Arbitration Rule 6.2 this determination by the Arbitrator would be sufficient to dispose of this jurisdictional question. The Arbitrator, however, has wished to inquire further so as to find out whether this determination might collide with any rule of public order under Venezuelan law. The Arbitrator is satisfied that it does not.

In fact, the Venezuelan Law on Commercial Arbitration of 1998 provides first that an Arbitral Tribunal is empowered to decide about its own jurisdiction, including the existence and validity of the arbitration agreement.10 The Law provides next for arbitration under the auspices of chambers of commerce and other commercial associations, as well as existing international associations, which shall be governed by their own rules and regulations.11 Arbitration conducted under the ICC is accordingly fully compatible with the provisions of the Venezuelan law to the extent that this law applies to international commercial arbitration.12

It is also important to note that under the Venezuelan Law on Private International Law of 1998, in addition to the application of the law chosen by the parties to contractual obligations, the rules, customs and principles of international commercial law shall also be applied when pertinent.13 This connection of the Venezuelan law with lex mercatoria is particularly relevant when the decision must attend to requirements imposed by justice and equity in the solution of a particular case.14

The general rule on corporate personality under Venezuelan law is that of Article 201 of the Commercial Code. This article provides that "Corporations are legal entities with a personality different from that of the partners".

In Venezuela there is no law of general application governing the question of the piercing of the corporate veil or similar mechanisms. This is not unusual in South America and elsewhere since many such legal developments are rather recent. A draft law on Commercial Corporations has, however, followed the approach of the Argentine law allowing for the disregard of corporate personality when the latter is intended to violate the law, public order or good faith, or to frustrate the rights of third parties.15

Exceptions to the general rule have also been gradually introduced in Venezuela. First, under foreign investment legislation the concept of corporate groups and parent-subsidiary connections was introduced in 1986.16 Second, the concept of control of a national corporation by foreign investors also figures prominently in the Andean Community Decision No. 291 of 1991, to which Venezuela is a party.17

Specialized legislation in Venezuela has also relied on similar concepts, with particular reference to corporate control and administration. This is, in particular, the case of the regulations adopted under the Law on Capital Markets,18 of the General Law on Banks and Financial Institutions,19 the Law on the Promotion and Protection of Competition,20 0 and the Law on Financial Emergency.21

The decisions of Venezuelan courts have also begun to develop similar exceptions. The First Court on Family and Minors of Caracas adopted, on 3 March 1994, a decision piercing the corporate veil when the separation of the legal personality of a corporate entity and its members might lead to manifest unjust results contrary to law.22 The Political-Administrative Chamber of the Supreme Court of Venezuela took a similar view on tax matters in a decision of 3 February 1999.23

Venezuelan law and jurisprudence, like that of many other countries, while keeping with a general rule respectful of the separate legal personality of corporate entities, has also allowed for necessary exceptions when the nature of the underlying case or business so justifies.'

1
Phillip I. Blumberg and Kurt A. Strasser: The Law of Corporate Groups. Enterprise Liability, 1998; José Engrácia Antunes: Liability of Corporate Groups, 1994; Carolyn B. Lamm and Jocelyn A. Aqua: "Defining the Party-Who is the Proper Party in an International Arbitration Before the American Arbitration Association and Other International Institutions", ICC, AAA, ICSID: 18th Joint Colloquium on International Arbitration, Paris, 16 November 2001.

2
José Engrácia Antunes, op. cit., supra note 1, Chapter 3: "Intragroup Liability in Comparative Law", particularly at 240-248; Daniel Cohen: Arbitrage et Societé, 1993, at 273-285; Juan M. Dobson: "'Lifting the veil' in four countries: the law of Argentina, England, France and the United States", International and Comparative Law Quarterly, Vol. 35, 1986, 839-863.

3
Argentina, Article 54, paragraph 3, of Law 19.550 on corporate entities, as amended by Law 22.903 (1983); Ricardo Ludovico Gulminelli: Responsabilidad por abuso de la personalidad jurídica, Buenos Aires, 1997.

4
Jorge Angell: "Piercing the Corporate Veil: A Spanish Perspective", The Comparative Law Yearbook of International Business, Vol. 15, 1993, 341-351, at 343-345; ICC Award in Case No. 5730, 1988, Collection of ICC Arbitral Awards 1986-1990, at 410.

5
ICC Award in Case No. 7626, 1995.

6
ICC Award in Case No. 4131, Dow Chemical v. Isover Saint-Gobin, Collection of ICC Arbitral Awards 1974-1985, 146, 465. For a general discussion of decisions see ICC Award in Case No. 6519, 1991, Collection of ICC Arbitral Awards 1991-1995, at 420.

7
ICC Award in Case No. 5103, 1988, Collection of ICC Arbitral Awards 1986-1990, 361.

8
Karl Hofstetter: "Parent responsibility for subsidiary corporations: Evaluating European Trends", International and Comparative Law Quarterly, Vol. 39, 1990, 576-598, with particular reference to German, French and European Community law.

9
ICC, Award in Case No. 5721, 1990, Collection of ICC Arbitral Awards 1986-1990, at 400.

10
Venezuela, Law on Commercial Arbitration, April 7, 1998, Gaceta Oficial, No. 36.430, 7 April 1998, Article 7.

11
Ibid., Article 11.

12
Ricardo Henríquez La Roche: El Arbitraje Comercial en Venezuela, 2000, at 87-98.

13
Venezuela, Law on Private International Law, 6 August 1998, Gaceta Oficial, No. 36.511, 6 August 1998, Articles 29, 31.

14
Ibid., Article 31.

15
Venezuela, Draft Law on Commercial Corporations, 1987, prepared by the Committee on the Amendment of the Commercial Code, as discussed in Alfredo Morles Hernández: Curso de Derecho Mercantil, Vol. II, 2000, 778-782, 811-826, with particular reference to Article 225. For the Argentine Law see supra note 3 and associated text.

16
Venezuela, Decree No. 1200, 16 July 1986, Gaceta Oficial, Special Issue No. 3881, 29 August 1986, Article 22.

17
Andean Community, Decision No. 291 on the Regime for the Common Treatment of Foreign Capital, adopted in Lima on 21 March 1991.

18
Venezuela, National Commission on Values, Rules on Public Offer, Gaceta Oficial, No. 31.205, 29 March 1977; Rules on the Consolidation of Financial Statements, Resolution No. 76-97, 25 March 1997, Gaceta Oficial, No. 36.217, 30 May 1997.

19
Venezuela, Ley General de Bancos y otras Institciones Financieras, Decree-Law No. 3.228, 28 October 1993, Gaceta Oficial, No. 3.228, 28 October 1993, as discussed in Alfredo Morles Hernández: Curso de Derecho Mercantil, Vol. I, 1998, 606-647.

20
Venezuela, Law on the Promotion and Protection of Competition, January 1992, Article 11, as discussed in Claudia Curiel Leindez: "Los Elementos que conforman el régimen de fusiones en Venezuela", in Luis Tineo and Julia Barragán (eds.): Los dilemas de la competencia, 1999, 219-259.

21
Venezuela, Special Law on the Protection of Deposits and Emergency Regulation of Financial Institutions, 8 March 1994, Gaceta Oficial, No. 35. 418, 10 March 1994, Article 26; Law on the Regulation of Financial Emergency, 21 March 1996, Gaceta Oficial, No. 35.941, 17 April 1996, Article 16; Decree-Law on the Tax on Bank Debts, 1999, Article 16, all as discussed in Levis Ignacio Zerpa: "El Abuso de la Personalidad Jurídica en la Sociedad Anónima", August 1999, http:// www. zur2. com /users /fipa / fjcp/116/zerpa. htm

22
Zerpa, loc. cit., supra note 21, note 32 and associated text.

23
Ibid., note 33 and associated text.