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NON-SIGNATORIES AS PARTIES TO THE ARBITRATION AGREEMENT: THE PARTICULAR CASE OF GROUPS OF COMPANIES. Niki K. Kerameus November 5, 2012 Cyprus Arbitration and Mediation Centre. INTRODUCTION.

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Niki K. Kerameus November 5, 2012 Cyprus Arbitration and Mediation Centre


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    1. NON-SIGNATORIES AS PARTIES TO THE ARBITRATION AGREEMENT: THE PARTICULAR CASE OF GROUPS OF COMPANIES Niki K. Kerameus November 5, 2012 Cyprus Arbitration and Mediation Centre

    2. INTRODUCTION • Subject: WHETHER and HOW an arbitration agreement, signed by a company belonging to a company group, may be extended to other companies of the group that have not signed the agreement • Importance of the subject: • (active extension) allow other non-signatory companies of the group to participate in the arbitration • (passive extension) obtain the sentencing of other non-signatory companies of the group • preserve the centralization of the disputes of the group of companies in one forum

    3. OUTLINE OF THE PRESENTATION • THE NOTION OF “GROUP OF COMPANIES” • THE EXTENSION OF AN ARBITRATION AGREEMENT WITHIN A GROUP OF COMPANIES • FRANCE • U.S.A. • SWITZERLAND • ENGLAND • A FEW REMARKS FROM A COMPARATIVE PERSPECTIVE

    4. I) THE NOTION OF “GROUP OF COMPANIES” • Absence of definition of the term in most national legal systems • Notion commonly refers to companies that are legally independent but economically linked • Dichotomy: Economic unity of the group Juridical autonomy of the entities of the group

    5. IΙ) THE EXTENSION OF AN ARBITRATION AGREEMENT WITHIN A GROUP OF COMPANIES • Principle: privity of contracts and, hence, of arbitration agreements  non-extension of the arbitration agreement to other companies of the group • Exception: instances where the arbitration agreement may be extended to other companies of the group depending on the facts of the case • Major impediments to extension: • Juridical independence of corporate entities • Requirement of consent to arbitration • Requirement of written form of the arbitration agreement (in some countries)

    6. IΙ) THE EXTENSION OF AN ARBITRATION AGREEMENT WITHIN A GROUP OF COMPANIES (cont’d) • Classification of grounds of extension in general • Grounds based on contract law principles and quest for true intention of the parties • Grounds based on corporate law-related principles and fraud • Main focus of today’s presentation: Group of companies’ doctrine • What is the implication – if any – of the existence of a group of companies on the extension of an arbitration agreement?

    7. A) FRANCE • Group of companies’ doctrine flourished in France after Dow Chemical award • Dow Chemical arbitral award(1982): • “ the arbitration clause explicitly agreed to by certain of the companies of the group, should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and by the disputes to which they may give rise” • Award upheld by Paris Court of Appeal (1983), more on basis of mutual intention of the parties than on the existence of a group of companies

    8. A) FRANCE (cont’d) • Sponsor AB case (Pau Court of Appeal, 1986)  reinforcement of Dow Chemicalreasoning • Orri case (Paris Court of Appeal, Cour de cassation, 1990-1991)  extension approved by Cour de cassation solely on fraud basis, disregarding group of companies’ doctrine • Ste Laboratoires Besins International case(Cour de cassation, 2006): refusal of extension, emphasizing the principle of strict legal separation of corporate entities • Ste Alcatel Business Systems case(Cour de cassation, 2007): extension on basis of participation in the performance of the contract • Conclusion on France: extension definitely a possibility but largely dependent upon proof of the parties’ true intention

    9. B) U.S.A. • Important pro-arbitration policy • Extension occasionally accepted mostly on principles of contract, agency and corporate-related law principles • Thomson-CSF case(2nd Cir., 1995) • “Arbitration is contractual by nature. […] It does not follow, however, that under the [Federal Arbitration] Act an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision. This court has made clear that a non-signatory may be bound to an arbitration agreement if so dictated by the ‘ordinary principles of contract and agency’.” • No particular attention attributed to the group of companies’ doctrine, but same result reached through other means

    10. B) U.S.A. (cont’d) • Pro-arbitration policy at times seems to override requirement of an intention to be bound by arbitration • J.J. Ryan case (4th Cir., 1988) • “when the charges against a parent company and its subsidiary are based on the same facts and are inherently inseparable, a court may refer claims against the [non-signatory] parent to arbitration… If the parent corporation was forced to try the case [before the regular courts], the arbitration proceedings would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.” • Pro-arbitration policy still as strong? • Sarhank case(2nd Cir., 2005): no extension of an arbitration agreement to a mother company that had not signed the arbitration agreement in the absence of a clear and unmistakable intent to arbitrate

    11. C) SWITZERLAND • Reluctance towards extension of arbitration agreements to other non-signatory companies of a group and great reluctance towards group of companies’ doctrine • But extension may rarely be achieved through other means • Intervention theory • Other grounds (piercing corporate veil, fraud, apparent authority etc) • Swiss requirement for written form of agreement: NOT a real impediment to extension • Conclusion on Switzerland: Principle of juridical independence of corporate entities remains strong

    12. D) ENGLAND • Very reluctant towards group of companies’ doctrine and very protective of consensual nature of arbitration • Peterson Farms Inc. case(Commercial Court, 2004): Group of companies’ doctrine “forms no part of English law” • Extension may be operated through other bases, e.g. apparent authority, estoppel, piercing the corporate veil • Conclusion on England: tendency to only expand arbitration agreement beyond actual signatories in exceptional cases

    13. III) A FEW REMARKS FROM A COMPARATIVE PERSPECTIVE • Extension of an arbitration agreement to other non-signatory companies of a group is rather the exception • Fundamental basis for the extension • The true intention of the parties • Search for true common intention can be guided by both subjective and objective criteria (incl. fraud elements, which can also be viewed as a separate basis for extension) • Review of subjective criteria can be dangerous and source of legal insecurity • Extension is a very fact-based issue resolved on a case-by-case basis  Modern approach to consent: more focused on facts and conduct than on signatures, and more aligned with modern commercial practices

    14. III) A FEW REMARKS FROM A COMPARATIVE PERSPECTIVE (cont’d) • Group of companies’ doctrine • It is not generally accepted • Even when accepted, it cannot in principle alone serve as basis for the extension • At most, simply a factor to take into consideration among others to ascertain true intention of the parties • In reality, the impact of the existence of a group of companies on the question of extension is rather minimal • Extension is not really an exception to the principle of privity of contract nor a danger to the consensual nature of arbitration

    15. III) A FEW REMARKS FROM A COMPARATIVE PERSPECTIVE (cont’d) • Applicable law to the issue of extension of the arbitration agreement. There are two schools of thought: • Conflict-of-law rules  law applicable to the arbitration agreement or law of the seat • Bypass of the conflict-of-law rules  direct ascertainment of the intention of the parties on the basis of general international arbitration principles or the lex mercatoria etc. • Approach of legal systems regarding extension to non-signatory companies of a group • France & U.S.A.: more liberal regarding extension to non-signatories • Switzerland & England: more restrictive • Aside from differences of approach, inevitable that arbitrators and judges arrive at different conclusions even on same facts  Quest for parties’ true intention is a very difficult exercise largely dependent upon the appreciation of facts

    16. THANK YOU • FOR YOUR ATTENTION!