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Bilateral Approach of “Alter Ego

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Bilateral Approach of “Alter Ego Powered By Docstoc
					Bilateral Approach of “Alter
Ego” Theory – Romanian and
    French Perspectives

   Radu Bogdan Bobei*
 * Ph.D. in private international law, attorney – at – law,
 member of Bucharest Bar Association, Lecturer at the
   Faculty of Law, University of Bucharest, arbitrator,
      Romanian Court of International Commercial
    Arbitration and Slovenian Court of International
                  Commercial Arbitration
I. General preliminary remarks
   I.1. Clarifying the nature of the arbitration
      agreement – legal concept, legal and
           economic concept as well ?

 I.1.1. Characterization of the arbitration agreement as legal concept
    Consequence: owing to the fact that arbitration is consensual in
  nature, the arbitration agreement is binding upon the companies
  who signed the arbitration agreement either in the form of the
  arbitration clause included in the main contract or under the form of
  a separate agreement.
 I.1.2. Characterization of the arbitration agreement as legal and
  economic concept as well
    Consequence: the arbitration agreement is binding upon the
  companies who signed/not signed the arbitration agreement. In the
  latter hypothesis, the companies have established an economic
  cooperation in the business field and they are behaving as signatory
  parties. Legally speaking, they are non-signatory parties.
     I.2. Importance of clarifying the nature of the
                 arbitration agreement
  In Romanian law system, one of the grounds for setting aside an arbitral
  award is the following: the Arbitral Tribunal has settled the dispute in the
  absence of the arbitration agreement(art.364 paragraph b, first thesis of
  Romanian Civil Code Procedure, in force at the date of writing this paper).
 I.2.1. Arbitration agreement - legal concept
     Not signing the arbitration agreement means the lack of the consensual
  nature of the arbitration. Such lack has the following consequence: the
  procedure for setting aside the arbitral award, if any, may start and finish
  successfully. As well, the enforceability of such arbitral award is in danger.
 I.2.2. Arbitration agreement – legal and economic concept as well
      Not signing the arbitration agreement not means the lack of the
  consensual nature of the arbitration, if the companies established an
  economic cooperation for making business. Such consensual nature exists,
  but implicitly. The consequence is the following: the procedure for setting
  aside the arbitral award, if any, may start but not successfully finished for
  such ground invoked (with regards to any other grounds for setting aside
  the arbitral award, see point VI. of this paper). As well, the enforceability of
  such arbitral award is not in danger.
     The non – signatory party of the arbitration agreement didn’t renounced
  to the right of access to the state courts, but made implicitly their choice for
  settling the dispute by means of arbitration.
 I.3. Characterization of the arbitration
 agreement as legal and economic concept
 is more suitable with the nature of
 arbitration – soft procedure for settling the
 disputes arising out of or in connection
 with the contracts concluded by the
 members of the business community.
II. Types of the extension of the
       arbitration agreement
      II.1. Special preliminary remark

      The extension of the arbitration agreement is not the same thing with
the transmission of the arbitration agreement, especially with the
transmission of the arbitration clause included in the main contract, as
assigned.
      According to the usages of trade (lex mercatoria universalis), if the
main contract is assigned, the arbitration clause is binding the assignee
(see Romanian arbitral award no.145 of 27 September 1996, published in
Babiuc V./Căpăţână O., Arbitral Commercial Jurisprudence Case Law
1953-2000, Bucharest, 2003, at 10), if the parties of the assignment didn’t
decided otherwise.
      Such binding is not representing the consequence of the extension of
the arbitration clause. Such binding is representing the consequence of
applying the principle of efficiency with regard to the arbitration clause (see,
for Romanian literature, Severin A., Key Elements of International Trade
Law, Bucharest, 2004, at 388 ; as well, for French literature, see Loquin É.,
Différences et convergences dans le régime de la transmission et de
l’extension de la clause compromissoire devant les jurisdictions françaises,
in Les Cahiers de l’Arbitrage, 1, 2002, première partie, at 7-25).
    II.2. Extension of the arbitration agreement within the
 group of contracts concluded by the same parties – not all
the contracts are containing arbitral clauses (not hypothesis
                     of Alter Ego Theory)
  II.2.1. Business life is developing more and more. A single contract
  concluded by the parties doesn’t satisfy anymore the needs for fulfilling
  complex economic goals. Therefore, the companies are concluding very
  often manifold contracts for satisfying the same economic need. Those
  contracts being bound each other economically speaking, it was just a
  question of time for promoting the theory of “umbrella contracts“. It exists a
  similar concept in investment arbitration( for the concept of “umbrella-
  clauses” used in such investment arbitration, see Popa C., Crăciunescu I,
  Trends of arbitral jurisprudence in the field of approaching umbrella-clauses
  in the Bilateral Investment Treaties, in Romanian Arbitration Journal, 2,
  2010, at 1-17). As consequence, is representing a reality the extension of
  the arbitral clause - included in the contract concluded by the parties, to the
  other contract concluded by the same parties, but not containing an arbitral
  clause.
 II.2.2. The consent of the parties and their contractual behavior may
  represent sources for the extension of the arbitration agreement within the
  group of contracts concluded by the same parties. Such extension has the
  following background: the arbitration agreement is representing a legal and
  economic concept, as I have stated above. As consequence, the lawyers
  and the arbitrators have the mission to discover and re-discover the
  economic roots of the arbitration procedure.
II.3. Extension of the arbitration agreement
   within the group of companies (hypothesis
   of Alter Ego Theory)
  III. “Alter Ego” Theory –
 philosophical, economic,
legal meaning of the same
             theory
     III.1. Philosophical meaning

    Alter Ego is representing “autre moi-même; personne
    de confiance, ami inséparable” (see Dictionnaire
    Hachette, Édition 2001, at 60).
       III.2. Economic meaning

 Alter Ego is representing the company non-signatory of
  the arbitration agreement, but involved in the economic
  performance or/and negotiation of the contract
  concluded by other parties. The types of the economic
  involvement in such performance may be manifold. For
  instance, the delivery of the goods provided by non –
  signatory company       may represent an economic
  involvement of such company in the performance of the
  contract concluded by other companies.
           III.3. Legal meaning
 The company that has signed the agreement is regarded
  as a double of the non – signatory company. The
  expressions used in the international literature for such
  legal meaning are “the transparency of the legal
  personality”, “piercing of the corporate veil”, “Alter Ego”
  (see Vidal D. , The extension of arbitration agreements
  within the groups of companies: the Alter Ego Theory
  Doctrine in Arbitral and Court Decisions in ICC Bulletin,
  vol.16, second issue, 2005, at 63-76). Alter Ego theory
  is familiar with the corporate groups, parent- subsidiary
  relationships and all combinations thereof. As well, such
  theory is familiar with independent companies which are
  acting doubling each other their contractual behaviour.
 III.4. Such three meanings of the same theory have to be
  promoted by domestic and international arbitral
  jurisprudence. Arbitration is not anymore an ordinary
  legal procedure for settling the disputes, but a cultural
  way for promoting the development of the business
  community. Cultural way of interpreting the legal
  concepts for developing a flexible business life, deep
  legal thinking, but in full accordance with the economic
  thinking of the business people – that’s the core of the
  arbitration. And such core is able to be developed by the
  way of understanding the three meanings of Alter Ego
  Theory.
 IV. Alter Ego Theory-
Romanian perspective
                   IV.1. Facts
 The transaction at issue was a sale of goods, the seller
  being a Dutch company and the buyer being a Marshall
  Islands- based company. Owing to the fact that the latter
  didn't pay the price, the Dutch company commenced the
  arbitration against the Marshall Islands- based company
  (signatory party) as well as against a Romanian
  company (non – signatory party). As consequence, the
  parties involved in arbitration were the Dutch company
  (the Claimant), the Romanian company (the first
  Respondent), the company having its headquarters in
  Marshall Islands (the second Respondent).
          IV.2. Law issues
 IV.2.1. The arbitration agreement is
  binding for a non-signatory party of the
  contract containing an arbitral clause ? ;
 IV.2.2. The extension of the arbitration
  agreement towards non-signatory party –
  possible consequence of the economic
  involvement of Romanian company (non-
  signatory party) in the performance of the
  contract;
        IV.3. The reasoning of the Arbitral Tribunal – the
                   consequence of such reasoning
 The Arbitral Tribunal held that the consent of Romanian company to the
    arbitral agreement was implicitly expressed. This holding was based on the
    following reasons: first, the Romanian Company received the goods and
    promised the partial payment of the price; second, the Romanian company
    was aware of the existence of the contract that was subject matter of the
    dispute. In this respect, the Arbitral Tribunal considered that the arbitral
    agreement was binding for the Romanian company because the latter was
    involved in the performance of the contract (see Interlocutory award, 3
    August 2006, in Romanian Arbitration Journal, 2, 2007, at 52-54; for a brief
    analyze, see Radu Bogdan Bobei, Current Status of International
    Arbitration in Romania (National Report), in Yearbook of Private
    International Law, Lausanne, vol.10, 2008, at 473-491). Such involvement
    wasn’t provided by a branch (subsidiary) of the buyer, but it was provided by
    an independent company (Romanian company).

      The consequence of such reasoning is the following: an arbitral
    agreement may be held to require a non-signatory party to arbitrate
    when consent to the agreement was proved by some circumstances
    such us performing the contract that was subject matter of the
    dispute.
V. Alter Ego Theory –
 French perspective
                   V.1. Facts
 The contract in dispute was concluded between the
  Venezuelan branch of 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). The request for arbitration was
  submitted by the Latin American Engineering company
  against the Venezuelan subsidiary of the European
  engineering company( Respondent 1), on the one side,
  against    the   European       Engineering  company
  (Respondent 2), on the other side.
                           V.2. Law issues

 V.2.1. The question of the proper Claimant (this is not the topic of piercing
    the corporate veil or Alter Ego Theory)
        The answer was provided by art.354, second paragraph of the
    Venezuelan Commercial Code, in force at the date of settling the dispute.
    Corporations incorporated abroad having branches in Venezuela or other
    type of business shall keep their nationality and shall be considered
    domiciled in Venezuela. Such branches are representing extensions of the
    Parent Corporation. As consequence, such corporation and their branches
    can sue and can be sued.

    V.2.2. The question of the proper Respondents (this is the topic of piercing
    the corporate veil or Alter Ego Theory), especially of the Respondent 2 –
    non-signatory party
          Piercing the corporate veil or Alter Ego Theory are representing
    exceptions to the following rule: separate legal personalities ought to be
    respected by the arbitrators. As consequence, the arbitration clause has
    effect only with respect to the parties to the contract (with regard to the link
    between Alter Ego Theory and the group of companies, see Bernard
    Hanotiau, L’arbitrage et les groupes de sociétés, in Lex Cahiers de
    l’Arbitrage, 2, 2002, première partie, at 6-17).
 V.3. The reasoning of the Arbitral Tribunal with regard to the
    question of the proper Respondents – the consequence of such
    reasoning
       The Arbitral Tribunal concluded that both Respondents are the
    proper Respondents (“parties not expressly mentioned in the
    contract or agreement may both avail themselves of rights under it
    and be bound by it”). The reasoning was developed, as follows:
   V.3.1. Between the time of the tender in 1993 and the signature of
    the contract in 1998, all the working and legal relationships of
    Claimant were with Respondent 2;
   V.3.2. the negotiation for concluding the contract was made with
    Respondent 2(parent company);
   V.3.3. some payments were made by Respondent 2;
   V.3.4. the executives of Respondent 1 and 2 in charge for the
    project in dispute were the same;
   V.3.5. important meetings with connection to the project were held
    not at the headquarters of the subsidiary, but at the headquarters of
    the parent company.
 The consequence of such reasoning was the
 following: the extension of said contract and the
 arbitration clause to Respondent 2. The active
 participation of the Respondent 2 in negotiation
 and/or preparation and/or execution of the said
 contract is doubling the contractual behaviour of
 the Respondent 1(see final award in ICC case
 no. 11160/2002, in Extracts form ICC Awards
 Relating to the Extension of Arbitration
 Agreements to Non-Signatories, in ICC
 Bulletin, vol.16, second issue, 2005, at 99-101).
VI. The link between “Alter Ego”
   Theory and the grounds for
setting aside the arbitral award,
    on the one hand, and the
  enforceability of the arbitral
     award on the other hand
VI.1. Special preliminary
        remark
 VI.1.1. Pursuant to art.364 of Romanian Civil Code Procedure, in
  force at the date of presenting this paper, the arbitral award is
  subject matter of the setting aside procedure only for nine grounds -
  not related with the merits of the dispute. Taking into account the
  legal consequence of Alter Ego Theory (the extension of arbitration
  agreement to non-signatory parties), two grounds for setting aside
  the arbitral award may be mainly invoked : the Arbitral Tribunal has
  settled the dispute in the absence of an arbitration
  agreement(art.364 b) first thesis of Romanian Civil Code
  Procedure), the arbitral award contains provisions which cannot be
  complied with public order, (…), mandatory provisions of law
  (art.364 i) of Romanian Civil Code Procedure). With regard to
  art.364 b) first thesis of Romanian Civil Code Procedure, such
  ground for setting aside the arbitral award is easy to remove taking
  into account the nature of arbitration agreement, as established (see
  point I.2.2. of this paper). With regard to art.364 b) first thesis of
  Romanian Civil Code Procedure, we may ask ourselves if the
  requirement “that arbitration agreements have to be made in written
  and signed“ is an integral part of public policy (l’ordre public).
 VI.1.2. Such concept of public order (l’ordre
  public) is used not only by Romanian Civil Code
  Procedure, but is used by art.168 second point
  first thesis of Law no.105/1992 on the settlement
  of private international relations, art. V, second
  paragraph, b) of Convention of New York, 1958
  (Romania is part of such international document
  since 1961). Therefore, the enforceability of the
  arbitral award depends by the meaning of the
  concept of public policy, as regulated by the
  state whose territory would be enforced such
  arbitral award.
 VI.2. The following links “Alter Ego Theory –
  grounds for setting aside the arbitral award”,
  “Alter Ego Theory- the enforceability of arbitral
  award” can be settled by explaining the concept
  of “public policy”. All around Europe , a huge
  debate started for defining “l’ordre public” (see
  Babiuc V., Public order of private international
  law in arbitral jurisprudence, in Romanian
  Arbitration Journal, 3, 2007, at 1-7, Romanian
  Arbitration Journal, 4, 2007, at 1-7, Derruppé J.,
  Droit international privé, Dalloz, Paris, 1995, at
  46). The core of such concept is represented by
  the fundamental principles of law (vaguely
  manner of defining “l’ordre public”).
 VI.2.1. The availability     of the arbitration
  agreement’s extension to non-signatory party
  (Alter Ego Theory) means the following: it is not
  mandatory the requirement “the arbitration
  agreement has to be made in written and
  signed”. Does a state court understands that ? If
  the state court understands that such
  requirement is mandatory (being part of public
  policy), and the Arbitral Tribunal extended the
  arbitration agreement to non-signatory party, the
  arbitral award is subject matter of the
  annullement.
 VI.2.2. It is contrary to public policy - for the purposes of New York
   Convention(1958), the extension of the arbitration agreement to
   non-signatory party ? Taking into account that nature of the right
   (constitutional right) of the access to state courts – the constitutional
   rights being part of public policy, the Arbitral Tribunal may not
   extend the arbitration agreement to non-signatory party. In fact,
   pursuant to art.35 of ICC Rules of Arbitration, the Arbitral Tribunal
   “(…) shall make any effort to make sure that the Award is
   enforceable”. In case no.10758/2000(ICC arbitration), the Arbitral
   Tribunal decided that there wasn’t arbitration agreement between
   the Claimant and the Respondent. One of the reasonings invoked
   by Respondent was the following: “the extension of the arbitration
   agreement 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” (see final award in ICC case
   no.10758/2000,in Extracts from ICC Awards Relating to the
   Extension of Arbitration Agreements to Non-Signatories, in ICC
   Bulletin, vol.16, second issue, 2005, at 87-94).
      VII. Brief Conclusions
 Serving in international arbitration means
 mainly to adapt the legal concepts to the
 needs of economic background. Such
 adaptation requires        not only legal
 knowledge, but to be in the middle of the
 business life. As well, such adaptation
 requires to adapt the meaning of the
 bindness of the arbitration agreement and,
 why not ?, to adapt yourself.

				
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