1. Party to an Arbitration Agreement Case of Non Signatory ‘Group of Companies Doctrine’ Mohit Saraf Mohit Saraf Partner Partner Luthra & Luthra Law Offices India

2. 2 Framework Section I : Evolution of the doctrine Section II : Status of the doctrine in different jurisdictions Section III: Submissions

3. 3 Section I The Doctrine A non-signatory may benefit from or be bound by an arbitration agreement signed by a group company because of its role in the transaction A non-signatory may benefit from or be bound by an arbitration agreement signed by a group company because of its role in the transaction Used to justify extending the scope and effects of a tribunal’s jurisdiction to non- signatory companies of the corporate group to which the signatory company belongs Used to justify extending the scope and effects of a tribunal’s jurisdiction to non- signatory companies of the corporate group to which the signatory company belongs

4. 4 Formulation of the Doctrine Dow Chemical v. Isover Saint Gobain (ICC Award, 1982) Dow Chemical v. Isover Saint Gobain (ICC Award, 1982) –Contractual arrangements between two Dow subsidiaries and Saint Gobain –Contracts entered into between the parties permitted any Dow subsidiaries to make deliveries contemplated under the contracts »In practice only one claimant was making deliveries –Claimants were four Dow entities connected with the contracts –Contracts were governed by French law and provided for arbitration under the ICC rules –Contracts silent about law governing arbitration agreement

5. 5 Formulation of the Doctrine Autonomy of arbitration clause - tribunal separated arbitration agreement & main contract Autonomy of arbitration clause - tribunal separated arbitration agreement & main contract Distinguished between ‘merits’ of the dispute & ‘scope & effect’ of arbitration clause Distinguished between ‘merits’ of the dispute & ‘scope & effect’ of arbitration clause Applied French law to merits of the dispute Applied French law to merits of the dispute ICC rules applied to “scope & effect” of arbitration clause ICC rules applied to “scope & effect” of arbitration clause Article 8, 1975 Rules - tribunal can decide upon its own jurisdiction without referring to national law, unless expressly agreed otherwise Article 8, 1975 Rules - tribunal can decide upon its own jurisdiction without referring to national law, unless expressly agreed otherwise

6. 6 Dow Arbitration Award Arbitration clause signed by two of the companies was also intended by the parties to be available to other Dow entities Arbitration clause signed by two of the companies was also intended by the parties to be available to other Dow entities The non-signatory parent exercised absolute power over its signatory subsidiaries and the non signatory subsidiaries “effectively and individually participated in the conclusion, performance and termination of the contracts” The non-signatory parent exercised absolute power over its signatory subsidiaries and the non signatory subsidiaries “effectively and individually participated in the conclusion, performance and termination of the contracts” Even though distinct juridical identity, a group of companies constitutes “one and the same economic reality” Even though distinct juridical identity, a group of companies constitutes “one and the same economic reality”

7. 7 Dow Arbitration Award Tribunal took into account Tribunal took into account –That the contractual relationship could not have been formed without the approval of the parent company –“Common intent of parties”- Law governing Arbitration agreement –French case laws dealing with international arbitration –“Usages conforming to needs of international commerce” –Enforceability of award in France (Article 26- 1975 rules) –International public policy Paris Court of Appeals affirmed Dow Paris Court of Appeals affirmed Dow

8. 8 Section II Status of the Doctrine Not followed consistently in ICC awards Not followed consistently in ICC awards Recognized by French courts Recognized by French courts Rejected in UK in Peterson case Rejected in UK in Peterson case USA follows ‘alter ego’ & also applies other doctrines to achieve similar results USA follows ‘alter ego’ & also applies other doctrines to achieve similar results Indian courts normally guided by common law Indian courts normally guided by common law

9. 9 Subsequent ICC Awards ICC case no. 7626 of 1985 ICC case no. 7626 of 1985 –Governing law- Indian law. Refused to apply the doctrine citing English case laws on lifting of corporate veil as Indian position same as in UK. Did not interpret ‘common intent of the parties instead applied proper law. ICC case no. 4504 of 1985 ICC case no. 4504 of 1985 –Tribunal concluded though interference by parent in performance of the agreement, but on facts not enough to construe ratification of arbitration agreement ICC case no. 6519 of 1991 ICC case no. 6519 of 1991 –Only to group entities which effectively took part in the negotiations which led to the contract or those directly concerned by it, to the exclusion of those which were only instruments of a financial transaction in the hands of a majority shareholder

10. 10 Subsequent ICC Awards Extended to companies that participated in negotiation, conclusion, or termination of contract Extended to companies that participated in negotiation, conclusion, or termination of contract Incipient poof required that if signatory to contract it would have accepted the arbitration agreement Incipient poof required that if signatory to contract it would have accepted the arbitration agreement Degree required for proving ‘intention to arbitrate’ is not uniform Degree required for proving ‘intention to arbitrate’ is not uniform Expansive application of ‘common intention of parties’ Expansive application of ‘common intention of parties’

11. 11 France- Terra Firma ‘Group of companies’ recognized under French law ‘Group of companies’ recognized under French law –Where parties directly implicated in the performance of the contract –Provided, it is possible to infer a presumption of awareness of arbitration agreement ‘ Common intention of parties’ for determining law of arbitration agreement as touchstone provided no mandatory provision of French law or international public policy violated ‘ Common intention of parties’ for determining law of arbitration agreement as touchstone provided no mandatory provision of French law or international public policy violated –Liberal interpretation given by French courts –‘Full Autonomy’ of arbitration agreement

12. 12 USA- Alternate Approaches Courts determine ‘party’ Courts determine ‘party’ Doctrine not explicitly recognized Doctrine not explicitly recognized Doctrine of ‘alter ego’ applied with similar results Doctrine of ‘alter ego’ applied with similar results Alternate approach followed in some decisions Alternate approach followed in some decisions –Where the charges against a parent company and its subsidiary are inherently inseparable, the court may refer claims against the non- signatory parent for arbitration –If the parent corporation is forced to try the case in court, the arbitration proceedings would be rendered meaningless –Approach is to further the federal ‘pro-arbitration policy’ Application of other principles Application of other principles –Equitable estoppel –Agency –Third Party Beneficiary etc

13. 13 USA- Doctrine of Alter Ego Ordinary contract law principles for determining alter ego status Ordinary contract law principles for determining alter ego status –Standard extremely difficult to satisfy –Strong presumption of separate legal entity Compelling evidence that one entity dominated another’s day to day actions Compelling evidence that one entity dominated another’s day to day actions This power was exercised to work fraud or gross injustice upon a third party This power was exercised to work fraud or gross injustice upon a third party As a result separate legal personality gets blurred As a result separate legal personality gets blurred

14. 14 United Kingdom Peterson Farms Inc. v. C & M Farming Ltd. (February, 2004) Peterson Farms Inc. v. C & M Farming Ltd. (February, 2004) –Proper law of contract- Arkansas law –ICC Tribunal did not apply Arkansas law principles to determine ‘Law governing arbitration agreement’ –Applied Dow/ French Principle of ‘common intent of parties’ –Tribunal cited ICC ‘precedents’ & applied ‘Group of Companies Doctrine’

15. 15 United Kingdom Peterson Farms Inc. v. C & M Farming Ltd. Peterson Farms Inc. v. C & M Farming Ltd. –S. 2(1),English Arbitration Act applicable – ‘Seat’ –Agreement between parties that as to the applicability of “Group of Companies”, Arkansas law same as English law –In English law, ‘Law governing Arbitration Agreement’ usually follows ‘Proper Law of Contract’ –Court held that the doctrine was not recognized in English law. »Separate legal entity cornerstone of English company law »Limited exceptions recognized

16. 16 UK- Alternate Approaches “….any person claiming under or through a party to the agreement” (S. 82 (2), Eng. Arbitration Act, 1996) “….any person claiming under or through a party to the agreement” (S. 82 (2), Eng. Arbitration Act, 1996) »Entities closely related to establish that non-signatory within the purview of arbitration clause Third party beneficiary [Contracts (RTP) Act, 1999] Third party beneficiary [Contracts (RTP) Act, 1999] –S 1(4), (5): third party's right of enforcement is subject to the contract's terms and conditions and the courts may award all the remedies which are available to the parties – S 8: deems a third party to be a party to the arbitration agreement Agency, Assignment, Subrogation, Promissory estoppel etc. Agency, Assignment, Subrogation, Promissory estoppel etc.

17. 17 India- Untested Waters Group of Companies’ not tested in Indian courts yet Group of Companies’ not tested in Indian courts yet ‘Arbitration & Conciliation Act, 1996 ‘Arbitration & Conciliation Act, 1996 –‘ Party’ means party to an arbitration agreement (S. 2.(1) (h) ) –Power of court to refer parties to arbitration (S. 8 ) Sukanya Holdings v. Jayesh Panda (2003 SC) Sukanya Holdings v. Jayesh Panda (2003 SC) –Application by non-signatory for joinder to arbitration –Application by non-signatory for joinder to arbitration proceedings – –The Court held that there is no power conferred on the court to add parties who are not parties to the agreement in the arbitration proceedings

18. 18 India- Untested Waters Indian courts generally not sympathetic to third party rights Indian courts generally not sympathetic to third party rights Strong English common law traditions Strong English common law traditions Decision in ONGC v. SAW Pipes (2003 SC) Decision in ONGC v. SAW Pipes (2003 SC) –Expanded the definition of ‘Public Policy’ under s. 34, A&C Act, 1996 –If award is ‘patently illegal’ it may be set aside –In contravention of the terms of the contract –Decision undermines ‘finality’ of arbitral awards –Applicable to ‘international commercial arbitration’ held in India –Not applicable to awards from New York & Geneva Convention countries

19. 19 Group of Companies: Is it ‘law’? Dow cited previous ICC awards and noted that arbitral awards progressively create ‘case law’ Dow cited previous ICC awards and noted that arbitral awards progressively create ‘case law’ Fouchard’s Test – Autonomy, Consistency & Publication Fouchard’s Test – Autonomy, Consistency & Publication –Applies law determined by parties & limited authority independent of arbitration agreement –Arbitration institutions independent and isolated –Awards often not consistent –Generally not published (exception - ICC) –Full publication goes against requirement of confidentiality Other Considerations Other Considerations –Proceedings being open to public is an essential requirement –Arbitrator’s authority is derived from consent of parties whereas Court’s mandate flows from a constitutional document –A Private body may not set precedent for public body like court –Tribunal becomes ‘functus officio’ after the award is given

20. 20 Section III Submissions ‘ Group of companies’ - fact specific application ‘ Group of companies’ - fact specific application Where ‘Law governing arbitration agreement’ is silent the status of third parties may be determined by reference to proper law of contract Where ‘Law governing arbitration agreement’ is silent the status of third parties may be determined by reference to proper law of contract Expansive interpretation of ‘common intent of parties’ to determine law governing arbitration agreement Expansive interpretation of ‘common intent of parties’ to determine law governing arbitration agreement Implications of the Peterson case Implications of the Peterson case –Parties’ choice of governing law –Parties’ choice of seat of arbitration »May give rise to forum shopping –Implications for ICC governed arbitrations

21. 21 Submissions ‘Consent’ as touchstone to determine third party rights ‘Consent’ as touchstone to determine third party rights Extension to non-signatories may be based on other doctrinally sound principles and rules Extension to non-signatories may be based on other doctrinally sound principles and rules Care should be taken at the time of drafting of contract Care should be taken at the time of drafting of contract –Parties should clearly specify governing law of the arbitration agreement –Foresee potential third parties issues

22. Luthra & Luthra Law Offices New Delhi. Mumbai msaraf@luthra.com