Bilateral Approach of

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Bilateral Approach of Alter Ego Theory
Romanian and French PerspectivesRadu 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

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I. General preliminary remarks
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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.

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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 didnt renounced to the right of access
  to the state courts, but made implicitly their
  choice for settling the dispute by means of
  arbitration.

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• 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.

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• II. Types of the extension of the arbitration
  agreement

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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./Capatâna O., Arbitral Commercial Jurisprudence
  Case Law 1953-2000, Bucharest, 2003, at 10), if
  the parties of the assignment didnt 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 lextension de
  la clause compromissoire devant les jurisdictions
  françaises, in Les Cahiers de lArbitrage, 1,
  2002, première partie, at 7-25).

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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
  doesnt 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., Craciunescu 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.

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• II.3. Extension of the arbitration agreement
  within the group of companies (hypothesis of
  Alter Ego Theory)

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III. Alter Ego Theory philosophical,
economic, legal meaning of the same theory
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III.1. Philosophical meaning

• Alter Ego is representing autre moi-même
  personne de confiance, ami inséparable (see
  Dictionnaire Hachette, Édition 2001, at 60).

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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.

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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.

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• 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
  thats 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.

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IV. Alter Ego Theory- Romanian perspective
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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).

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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

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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
  wasnt 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.

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V. Alter Ego Theory French perspective
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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.

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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,
  Larbitrage et les groupes de sociétés, in Lex
  Cahiers de lArbitrage, 2, 2002, première partie,
  at 6-17).

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• 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.

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• 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).

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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
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VI.1. Special preliminary remark
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• 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 (lordre
  public).

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• VI.1.2. Such concept of public order (lordre
  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.

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• 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 lordre 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 lordre public).

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• VI.2.1. The availability of the arbitration
  agreements 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.

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• 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 wasnt 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).

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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.