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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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