Revista Latinoamericana de Derecho Comercial Internacional / Latin American Journal of International Trade Law Volume 3, Issue 2, Year 2015

ISSN: 2007-7440

© Universidad Nacional Autónoma de México, 2015

CIRCULATION OF THE INTERNATIONAL ARBITRATION CLAUSE: FRENCH AND SWISS CASES1 Laure Burrus* Abstract: Disputing the scope of the arbitration clause in front of national courts is a frequent way to challenge an arbitration award. The purpose of this article is to compare the French and Swiss jurisprudence. It concludes that both the French and Swiss solutions give a central importance to the “appearance” given by the contracting parties to third parties behaviours, but admit with more or less easiness the transfer or extension of the arbitration clause and on different legal foundations. The parties to an arbitration agreement shall keep these divergences in mind. Key Words: international arbitration, arbitration clause, French Law, Swiss Law, extension of the arbitration clause, transfer of the arbitration clause, appearance, legitimate expectation. *IEP, LLM, CAPA, legal counsel Zürich

I.

INTRODUCTION

Arbitration is facing such a growing success in international trade that signing an arbitration clause is qualified as a day management act.2 Post-arbitration litigation is consequently rising. The ratione

personae scope of the arbitration clause is commonly disputed with two objectives: (i) challenging the ratione personae application of the arbitration clause by arguing being a third-party to avoid an award or (ii) extending submission to arbitration to a financially sustainable party. But this trend may damage the legal security of arbitration awards.3 The arbitration clause’s scope is therefore a cornerstone issue, mainly regarding its circulation within parties and third parties.4

1

Aknowledgment to Dr. Nicolas Kuonen who reviewed a previous version of this article. F-X Train, La cour de cassation française consacre une règle matérielle relative au pouvoir du salarié d’engager la société à l’arbitrage, Cah. Arb., 01 jan. 2010, n°1, p. 97. 3 M. Audit, Conference, Arbitrage et Sociétés, organized by the French arbitration committee Paris 16 November 2012, Cah. Arb. 1st jan. 2013, n°1, p. 262. 4 The parties’ will to submit their claim to arbitration is contractually written in the arbitration clause. The arbitration clause is defined in French Law at the article 1442 of the Civil Proceeding Code, as after the decree n°2011- 48 of the 13th January 2011 and in Swiss Law by the article 178 of the Federal Act on Private International Law (PILA), which stipulated the conditions of validity of the arbitration clause in international Law. 2

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The clause, that expresses the parties’ agreement to submit their claims to arbitration, has three components: it is an agreement (contractual component) by which parties choose an arbitration tribunal to settle the potential disputes (jurisdictional component), which may born from a relationship, often a main contract, that bounds them (accessorize component).5 According to the Law applicable to the arbitration clause, which is usually the Law of the arbitration court’ seat, the clause is more or less easily transferred or extended. The arbitration clause can circulate in two circumstances: (i) when contractual duties are transferred, or (ii) when the contract is extended to third parties. In the first assumption (clause’s transfer), the clause is transferred to the transferee when the main contract is assigned, which supposed the existence of an assignee. Once the contract is assigned, two parties are henceforth involved: the initial signatory to the contract and the transferee who took the place of the transferor to become a non-signatory party to the transferred contract. In this case, the arbitration clause is transferred with the containing contract, as any other subjective rights under the contract. The issue is then to determine where the initial party can suit the new contracting party (i.e. the transferee). The second assumption (clause’s extension) is defined as “the clause’s application outside of its normal scope”.6 In this case, the arbitration clause is enforceable by third parties even where the main contract is transferred. In other words, the clause is extended to entities that are assimilated to parties even if they did not expressly agreed to the main contract.7 Typically, such a case occurs where a contract containing an arbitration clause is signed between a company and its contractor, that are the initial parties, but is executed by the mother-company or by a sister company, that is a third party to this contract. Both the French Cour de cassation or the Swiss Federal Tribunal admit the arbitration clause’s transfer or extension. But one of the main differences between the French and the Swiss solutions is the lack of reference to the good faith in the French cases. II.

GOOD FAITH AND LEGITIMATE EXPECTATION IN FRENCH AND SWISS LEGAL ORDERS

5

N. Coipel-Cordonnier, Efficacité internationale de la clause compromissoire et transmission de la convention d’arbitrage, Revue critique de droit international privé, 2002 p. 758. 6 6 P. Mayer, La "circulation" des conventions d'arbitrage, JDI 2005, p. 251. 7 A. Bessis, L’extension ratione personae des conventions d’arbitrage international : vers un retour au droit des obligations ?, Petites affiches, 02 August 2012. 381

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Prior to analysing the Swiss and French solutions, this article defines the concepts of good faith and legitimate expectation that are the main components of “appearance” and explains their role in the French and Swiss legal order. It aim that the Swiss Law give a key importance to good faith and legitimate expectation, and this explains that these concepts are the main foundations to admit the arbitration clause’s transfer and extension. In France, good faith and legitimate expectation plays a less central role. Therefore, the apparent will of the third party is taken into account to admit the arbitration clause’s transfer and extension in some very specific circumstances. Other grounds are more frequently invoked. A.

GOOD FAITH AND LEGITIMATE EXPECTATION: KEY NOTIONS IN THE SWISS LEGAL ORDER

Inspired by the article §242 of the German BGB and by its interpretation, article 2 of the Swiss Civil Code (“CC”) stipulates that every person must act in good faith in the exercise of his and her rights and in the performance of his or her obligation. This rule defines “objective good faith” which is a reference to objectively appreciate behaviours, whereas subjective good faith (art. 3 al. 1 CC) is related to a fact that must be verified.8 Thanks to the good faith rules, every possessor of rights benefits of a higher legal protection.9 Therefore, the Swiss judge shall refer to the objective good faith rules where interpreting an arbitration clause.10 The legitimate expectation rules applies when a person wrongly believes that another person has manifested her or his agreement, because she or he misinterprets her or his declaration or behaviour. The mismatch between the representation of the reality and the reality itself is the emerging point of a belief. The likelihood, which emerges from this mismatch, legitimates an audit exemption.11 Accordingly, each party is presumed to be honest and to say the truth, and therefore the other party can give credit to that words (Treu und Glauben).

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The article 3 al 1 CC stipulates that: “Where the law makes a legal effect conditional on the good faith of a person, there shall be a presumption of good faith” and al. 2 indicates that: “No person may invoke the presumption of good faith if e or she has failed exercise the diligence required by the circumstances”. 9 B. Fauvarque-Cosson, La confiance légitime et l’estoppel, Netherland Comparative Law Association, Electronic Journal of Comparative Law, vol. 11.3, dec. 2007. 10 See: 4A_562/2009, Case of the 27th of January 2010, Ist Civil Law, cons. 2.1. : « Interpretation of an arbitration clause, is made according to the contract’s general interpretation rules. One should first look for the real will of the parties. Where this will cannot be established, one should proceed to an objective interpretation of the arbitration convention in order to determine the meaning that parties should have given, with good faith, according to the circumstances, to their reciprocal manifestation of will”. See also : ATF 130 III 66 consid. 3.2 p. 71 and the quoted cases; 4A_128/2008/ ech, case of the 19th August 2008, X. Ltd c/ Y. S.pa, in ASA Bull. 4/2008. 11 J-L Sourioux, La croyance légitime, J.C.P., Ed. Gén., 1982, I. 3058. 382

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Thus, "no person should be disappointed in his or her legitimate expectation and everyone must also consider what else can be expected of him or she" (i.e. no person should create wrong expectation from his or her behaviour).12 Specifically, the legitimate expectation is established when a person behaves in such a way that a signatory to a contract could believe that this former wants to join the said contract. Thus, a person who made a declaration of intention addressed to others is bound by his or her declaration: the recipient can consequently assign in good faith, given to a body of corroborating evidences.13 Good faith and legitimate expectation are the keystones of the Swiss private law. They play a major role in contract law, and grounds judgements based on equity. The arbitration clause, which is qualified as any other contractual clauses, must be interpreted through these concepts. However, in the French legal order, good faith and legitimate expectation are informal notion, despite their importance to build specific theories in contract law. B.

GOOD FAITH AND LEGITIMATE EXPECTATION IN THE FRENCH LEGAL ORDER: INFORMAL CONCEPTS

In France, the general principle of good faith has never acquired a legislative scope 14 and therefore cannot be formally used by judges to adapt inequitable obligations. However, good faith and legitimate expectation may have in the future a more important place in the French legal order, first under the influence of the EU Law15 on the French contract Law; and secondly due to an expected reform of obligation Law that will amend the article 1134 al. 3 of the Civil Code, which will provides that "contracts must be concluded and executed in good faith”.16 In positive Law, the concept of good faith grounds the praetorian constructions constituting the appearance theory, such as tacit acceptance, legitimate belief, legitimate expectation or loyalty.17 The theory of appearance consists in attaching legal consequences to the belief of those who legitimately 12

H. Deschenaux, Traité de droit civil Suisse. Le titre préliminaire du Code civil, Fribourg, ed. Universitaire, 1969; Ch. Chappuis, Les règles de la bonne foi entre contrat et délit , in Mélanges en l’honneur du professeur Schmidlin, Faculté de droit de Genève, Helbing et Lichtenhahn, 1998, p. 227. 13 B. Berger, F. Kellerhals, International and Domestic Arbitration in Switzerland, Stämpfli, Bern 2010, p.521. 14 F. Ranieri, Bonne foi et exercice du droit dans la tradition du civil Law, in Revue Internationale de droit comparé, Vol. 50 n°4, oct.-dec. 1998, pp. 1055-1092. 15 H. Aubry, Un apport du droit communautaire au droit français des contrats: la notion d’attente légitime , RIDC 3-2005, p. 627. 16 Project of reform of the obligation Law of the Chancellerie of the 23rd Oct. 2013 and project of reform of the obligation Law and prescription Law « Catala » of the 22nd Sept. 2005. 17 F. Ranieri, op. cit. et J-L Sourioux, op. cit. : Houin has, in certain aspect, the same analyze by making a distinction between legitimate expectation and mistake : “in appearance, what matters is the third party protection and the external aspect of facts : what seems to be the truth in the third parties’ eyes.” 383

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believed in a situation of visible facts,18 as expressly decided by the Supreme Court: "pursuant to article 1134 al. 3 of the Civil Code, no person shall [...] deceive the legitimate expectation of the other party”.19 To be protected, the legitimate expectation must meet two cumulative conditions: (i) a material element, namely a visible factual situation and (ii) a mistaken belief.20 The behaviour of the principal or his agent may let other believe that they consent to arbitration, i.e. the circumstances warrant that the third party does not have to confront his belief to the reality.21 Emmanuel Levy was the first author to systematize the idea of protection of legitimate expectation thanks to the appearance theory and to place this principle at the centre of the French legal order. Unfortunately, his thesis had received a weak echo.22 The theory of appearance, and a fortiori the principle of legitimate expectation, has indeed a subsidiary place in the French legal order. Moreover, although the Cour de Cassation is reluctant to use it in international trade Law, the appearance theory is a corrective mechanism regularly used in international arbitration,23 which provokes the hackles of a large part of the doctrine that considers the foundation of the appearance theory to extend the arbitration clause to third party as an "artificial ground" causing a "scandalous damage to the rule of Law".24 Good faith and legitimate expectation have an informal and uncertain place in the French legal order. Consequently, the French jurisdictions will cautiously ground their decisions related to the arbitration clause on these concepts. From this discrepancy, the Swiss jurisdictions, by refereeing to good faith and legitimate expectation, should logically admit more easily than the French courts the circulation of an arbitration clause. However, as the following developments demonstrate, the French solutions are paradoxically

18

M. Boudot, Apparence, Répertoire de droit civil, Dalloz, janv. 2009. Cass. Com. 11 March 1997 (inédit, pourvoi n° 95-16.853). On the Relationship between good faith and legitimate expectation see : R. Desgorges, La bonne foi dans le droit des contrats: rôle actuel et perspectives , thèse, Paris II, 1992, p. 113 et s. 20 F-X Train, op. cit.. 21 M. Boudot, op. cit. 22 F. Melleray, La revanche d’Emmanuel Lévy ? L’introduction du principe de protection de la confiance légitime en droit public français, Droit et société, 2004/1 n°56-57, p. 143-149 23 M. Boudot, op cit § 57. 24 V. Heuzé, Arbitrage international : quelle raison à la déraison ?, Recueil Dalloz 2011, p. 2880 ; J. Moury, 19

op.cit. 384

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more liberal than the Swiss solutions regarding the transfer of the clause or its extension within a group of companies.

III.

LEGITIMATE EXPECTATION IS HARDLY ADMIT TO FOUND THE EXTENSION OF THE ARBITRATION CLAUSE

The question that the French and Swiss Supreme Court had to know is whether legitimate expectation can found an action to extend an arbitration agreement in a contractual relationship. The Swiss judge first refers to conclusive acts and the French judge will refer to passive acceptance (A), mainly by identifying the third party interference in the execution of the contract (B). The Swiss Federal Court subsidiary founds its reasoning on legitimate expectation, whereas the French Cour de cassation does not admit legitimate expectation to found the clause’s extension (C). A.

CONCLUSIVE ACTS IN SWISS LAW AND PASSIVE ACCEPTANCE IN FRENCH LAW

The Federal Court came back on its initial position and finally admitted conclusive acts as a foundation of the expansion of an arbitration agreement to non-signatory. The Supreme Court analyses conclusive acts as an indirect expression of a juristic person’s will. A minority segment of the Swiss doctrine25 interpreted formalistically the wording of the article 178 al. 1 PILA,26 which subordinates the validity of the arbitration agreement to its written form, and deduced that the agreement could not be extended to a non-signatory to the contract. However, the Federal Court rejected this reading in favour of a more liberal approach in admitting that the clause is extended to a non-signatory third party, who "through its actions, has clearly expressed his intention to enter the main contract and its clause”.27 Because of the behaviour of the third party, the recipient can legitimately believe in the existence of a will to contract. Consequently, the extension of the arbitration clause is always presumed when a third party creates the appearance of being part of the main contract.28

25

J.-F. Poudret, L'extension de la clause d'arbitrage: approches française et suisse , in J.D.I. 1995 p. 893; see also: J.-F. Poudret, S. Besson, Droit comparé de l'arbitrage international, n. 258 p. 233, n. 260 p. 236 et n. 264 p. 239. 26 Article 178 al. 1 PILA: « The arbitration agreement must be made in writing, by telegram, télex, télécopier or any other means of communication which permets it to be evidence by a text. » (2) : «Furthermore, an

arbitration agreement is valid if it conforms either to the Law chosen by the parties, or to the Law governing the subject-matter of the dispute, in particular the main contract, or to Swiss Law. » 27 ATF 129 III 727, X. S.A.L, Y. S.A.L. and A. vs. Z. Sàrl and Tribunal arbitral CCI . Moreover, it was already judged that, according to the circumstances, a specific behaviour can overpass, because of the good faith rules, the respect of a formal requirement. (ATF 121 III 38 consid. 3 p. 45 confirmed by the case 4P.124/2001, consid. 2c). 28 B. Berger, F.Kellerhals, op. cit. : This solution is the same for any other contractual clauses. 385

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French Law grounds the extension of the arbitration clause on the passive acceptance of the third party that is more or less comparable to the theory of conclusive acts in Swiss Law. The judges review if (i) the third party has interfered in the negotiation and/or execution and/or termination of the contract and (ii) if he is aware of the existence of the clause. This last condition is itself deduced from two circumstances: (i) the involvement of the non-signatory party to the contract and (ii) the usual relationships between the parties to the contract and the third party.29 In other words, the awareness of the clause’s existence by the third party, deduced from his interference in a contract to which he is initially not a party, justifies that the parties to the contract may legitimately believe that the third party wishes to join.30 Passive acceptance in French Law and conclusive acts in Swiss Law contributes to create the appearance of being part of the arbitration clause, and therefore, can ground an arbitration clause’s expansion. Yet, the court may face a formal difficulty: how to objectively identify such passive acceptance or conclusive acts? In both Swiss and French legal cases, the interferences of the third party are the main criteria to determine his passive acceptance or to identify his conclusive acts. B.

INTERFERENCES OF THE THIRD PARTY: REQUIREMENT TO DETERMINE PASSIVE ACCEPTANCE OR CONCLUSIVE ACTS

The Swiss Federal Court considered that interferences of third parties in the implementation of the contract are a criterion of conclusive acts. In a criticized31 decision of the 19th of August 2008,32 the High Jurisdiction reminds its former jurisprudence33 according to which the non –signatory third party, although its name is not mentioned in the contract, which interferes with the negotiation, conclusion, execution or termination of the contract containing the arbitration agreement is deemed to have join it by conclusive acts. The theory of conclusive acts is built on the appearance created by the behaviour of a third, composed of objective factual circumstances as the interferences of third parties. However, these 29

See. CA Paris, 30 nov. 1988 et 14 fév. 1989 : Rev. Arb. 199, p. 691, note P-Y Tschanz, CA Paris, 28 November 1989 : Rev. Arb. 1990, p. 675, note P. Mayer – CA Paris, 11 janv. 1990 : JDI 1991, p. 141, note B. Audit ; Rev. Arb. 1992, p. 95, note D. Cohen. Judgement confirmed by the Supreme Court on the 5th March 1991. 30 J. Moury, Reflexions sur la transmission des clauses de compétence dans les chaines de contrats translatifs , Recueil Dalloz 2002, p. 2744. 31 The Federal Tribunal does not explicit the conditions that allow to understand that interferences imply the will to join the arbitration agreement. It only creates a presumption, which the effects are limited by a condition, without indicating the balance between these two criteria. S. Besson, Réflexions sur la jurisprudence suisse récente rendue en matière d’arbitrage international, ASA Bull. 3/2003. 32 ATF, 19 August 2008 (4A.128/2008). 33 ATF 134 III 565 consid. 3.2. 386

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objective facts are tempered with elements of subjectivity, as material elements determining "just and reasonable expectations" of the party to the contract.34 In a criticized judgment of the 22 nd of March 1995,35 the Paris Court of Appeal judged by an a

contrario reasoning, that passive agreement grounds the extension of the arbitration clause, and refuted the foundation of the accessory rights theory (infra), which grounds exclusively the transfer of the clause. The Court of Appeal remains cautious and stats that: [a] company (client) who had merely acquired (from a manufacturer) goods, without intervening in the execution of the agreement containing the arbitration clause (passed between the manufacturer and its supplier), of which it was unaware and had never ratified, is not bound by the arbitration clause.

Furthermore, passive acceptance theory is the foundation to the clause’s extension in several heterogeneous cases; the reasoning also applies in the presence of statutory arbitration clause: for instance, where the statutory arbitration clause is extended to non-shareholders of a company who used the prerogatives of shareholders and behaved as if he was a shareholder.36 Regarding to the expansion of the arbitration clause, both Swiss and French solutions give a core place to the interference of the third party to deduce his consent to be part to the clause. Interferences of the third party are the main foundation of the arbitration clause extension. But where no clear conclusion can be deduced from the third party behaviour, the judge can turn to the signatory party side to analyse whether he could had legitimately believe that the third party wanted to be part to the clause. C.

GOOD FAITH AND LEGITIMATE EXPECTATION: A SUBSIDIARY ROLE

Where the main contract is extended to a third party, the criterion of good faith is a subsidiary foundation. The Federal Tribunal, in an important trial, held a two-stage approach:37 the judge must first ascertain the intention of the parties by analysing the facts (conclusive acts). In this specific case,

34

M. Mràz, Extension of an arbitration agreement to non-signatories : some reflections on swiss judicial practice . In the opposite : A. Bessis, op. cit. 35 CA Paris, 22 March 1995, Sté Aquaboulevard and other vs. Sté Statinor ans other, RTD com. 1996, p. 247, obs. Dubarry J-C. et Loquin E. 36 CA Paris, 1ère ch. C., 22 May 2008, Jospeh Abela Family Foundation c/ Albert Abela Family Foundation et autres, Rev. arb. 2008, 730, note F-X Train; Cass. Civ. 1ère, 6 October 2010, Jospeh Abela Family Foundation C/ Albert Abela Family Foundation et autres, Bull. Civ. I, n°185, pourvoi n°08-20563, Rev. arb. 2010, 813, note F-X Train; Cahiers de l’arbitrage 2011-2, p. 443 note J-B. Racine; Rev. crit. DIP 2011, 85, note F-Jault-Seseke; D. 2010, 2943, obs. Th. Clay. 37 ATF, 18 December 2001 (4P. 126/2001). 387

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the conclusive acts consisted in written missives sent out by the master to the contractor during the execution of the contract. Secondly, where those facts are not sufficient in themselves to identify a clear consent to adhere to the clause, the judge examines them in the light of the good faith of the signatory party. Indeed, the signing party could legitimately believe, because of the substantive participation of the third party in carrying out the contract, that he wanted to join. Substantive involvement means the accomplishment of many acts, such as, by example in this specific case: remuneration of the other party, confirmation of financing the contract, confirmation of the rights and obligations associated with the contract signed by another company. Prior to the Soerni case,38 the French Supreme Court had never mentioned the good faith or legitimate expectation as a foundation of the international clause’s extension. However, for the first time, it has issued in this case a new substantive rule implying good faith: [t]he agreement of a company to arbitration is not determinate according to any national Law, but by the implementation of a substantive rule deduced from the principle of the validity of the arbitration agreement based on the common will of the parties, the requirement of good faith and legitimate expectation in the proxy of the signatory to enter into a day management act binding the company.

The question here is whether the will of a third party to join the arbitration clause could be assessed in the light of "legitimate expectation" of a party to the contract. The solution of the French High Court is radically opposed to the one provided by the Swiss Federal Court in the Cartier case. According to the interpretation of the arbitrator, the Soerni company was aware that one of its employee was signing a contract containing an arbitration clause. The Cour de cassation could, by a rule of conflict of Law, have referred to the apparent mandate39 or tacit ratification to reach the same conclusion. But the weight of legitimate expectation in this ruling shall not been overweight. Indeed, the scope of this new material rule based on good faith and legitimate expectation does not apply to the extension of the arbitration clause itself. Instead, the French Supreme Court seems to refer to the legitimate belief in the proxy, and not to the consent to arbitration. Therefore, this case does not challenge the established solutions to admit an arbitration clause extension. 38

Cass., 1ère civ. 8 July 2009, n° 08-16025, Sté de droit français Société d’études et représentations navales industrielles (Soerni) vs. Sté de droit Suisse Air Sea Broker Ltd (ASB), somm. Rev. arb. 2008.829; Cah. Arb. N°2008/3, p. 33; Rev. arb. 2009.529, note D. Cohen; D. 2009.2959, obs. Th. Clay; ibid, p. 2384, obs. L. d’Avout; JCP G 2009, I, 462, obs. J. Ortscheidt. 39 In a major case of the 13th of Dec. 1962, the Cour de cassation referred to legitimate expectation to define the apparent mandate. 388

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In case that the interferences of the third party test does not lead to an acceptable conclusion, the Swiss judges can refer to good faith and legitimate expectation of the signatory party. He can, by this way, “compel” the expansion of the arbitration clause. On the contrary, the French judge does not refer to such reasoning. Both Swiss and French judges can ground their decision to expand an arbitration clause on the interference of the third party. However, the reference to good faith and legitimate expectation of the signatory party is an additional tool in the hands of the Swiss judges. On this specific aspect, the Swiss solutions appear to be more liberal and give a larger room of manoeuvre of the judge’s interpretation. However, this liberality face few exceptions: indeed, Swiss judges admit rarely the transfer and extension of an arbitration clause within a group of companies, whereas the French courts are more liberal.

IV.

TRANSFER AND EXTENSION OF THE CLAUSE WITHIN A GROUP OF COMPANIES TO PROTECT LEGITIMATE EXPECTATION

The Swiss Federal Court admits restrictively the arbitration clause’s circulation within a group of companies, in very specific circumstances such as an abusive situation or to protect the expectation of the party to the contract (A). Paradoxically, the French Cour de cassation is more liberal: it applies to the extension of the arbitration clause within a group of companies the same criteria as for the extension within a group of contracts (passive acceptance, interference…) (B). A.

RESTRICTIVE APPROACH OF THE SWISS FEDERAL TRIBUNAL

The question that arises in this case is whether the arbitration clause can be extended by a contractor to the mother or a sister company of the signatory company, where the latter did not formally express that it was representing the mother or sister company. Contrary to French Law, Swiss Law was inspired by the German principle of the independence of legal persons: a group of companies has no independent existence; each company has its own legal personality and is consequently independent and autonomous from each other. Therefore, as pointed out by the Federal Court in a judgment Cartier of the 10th of October 1979,40 later confirmed,41 a representative cannot undertake all the companies it controls in the absence of

40

In a judgement of the 10th of October 1979, the Swiss federal court reject the reasoning of the inferior court, that had judged that « because of the ibrication of the companies under the power of a single man, one can understand that Mr. Hocq had incured all the companies of his group ». The federal court decides that « because of the absence of proxy in a confuse situation relating to the parties to arbitration, the cantonal court shall cancel the arbitration award and cannot extend the arbitration to all the companies of the group Cartier. » 389

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power of attorney duly established for each of them, notwithstanding the fact that they all belong to the same group. According to the formalist approach of Poudret, resorting to a subsidiary would create a presumption that the parent or sister companies are not related to the arbitration clause.42 This presumption arises from the lack of reference to the existence of the group on behalf of which the subsidiary acts. Accordingly, the arbitration agreement cannot be extended to companies of the same group. Since then, the jurisprudence of the Swiss Supreme Court has nevertheless judged that the clause can be extended within a group of company on the foundation of the agency theory. In these circumstances, the third party is actually not represented (or is not aware of such a representation) by the company that signed the contract, but the other contracting party could legitimately believe in such a representation.43 Thus, the clause signed by the subsidiary is extended to the parent company in certain specific circumstances, especially where was created a legal appearance that justifies protecting the legitimate expectations of the other signatory party.44 The Tribunal reviews, initially, on whether the third party became a party to the clause by a formal representation. It assesses in a second step if the third party joined to the arbitration clause through an apparent representation of the third company by the signatory company, and last if the contracting parties could believe with good faith in the existence of such representation. The circumstances likely to induce the contracting parties to believe they are dealing with the whole group are proper to an abusive situation, such that in case of "piercing of the corporate veil".45 Two possible cases can reveal such an abusive situation. In the first situation, the "piercing of the

41

In a judgement of 19th July1988, the federal court has very clearly confirmed this position and rejected the theory of companies group as a foundation of the arbitration clause’s extension. 42 J-F Poudret, Extension de la clause d’arbitrage, approche française et suisse, 122 J.Droit Int. (Clunet) 893 (1995) at 909. Swiss federal court, 19 July 1988, Saudi Arabia. 43 T. Zuberbühler, Non-Signatories and the Consensus to arbitrate, Bull. ASA, 1/2008 ( March), p. 20. 44 ATF, 29 January 1996, Saudi Butec Ltd and other vs. Saudi Arabian Saipem Ltd and other, Bull. ASA, 1996, p. 496, RSDIE 1996, p. 581, note F. Knoefler: the federal court judge that the arbitration cause shall not be extended to the mother company on the single grounf that “the subsidiary interfered as a representative in several prospectus”. But the federal court has only reminded that the piercing of the corporate veil does not automatically allow the mother to be part to the arbitration procedding. In the same way: ATF of the 1st September 1993, China National, ASA Bull. 4/1996, 623-629; Poudret/ Besson, N 259, Habegger, Groups of Companies, N. 49. 45 B. Berger et F. Kellerhels, op. cit. about the Saudi Arabian case. See also: ATF 129 III 727 (4P. 115/2003), X S.A.L., Y. S.A.L et A, c. Z SARL, ASA Bull. 2/2004, 364-389, notes Poudret et Habegger; Knooepfler et Schweizer, Jurisprudence Suisse en matière d’arbitrage international, Revue Suisse de droit international et de droit européen, 2005. 390

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corporate veil" does not recognize autonomy to the signatory party of the contract, and therefore it is "replaced" (sic) by the non-signatory third party (echter Durchgriff).46 It happens, for instance, where a subsidiary is undercapitalized or where parent company and subsidiary’s goods are intermixed.47 In the second situation, the parent company though not a signatory of the contract, has by its conduct created a legitimate expectation and regards itself as bound by the contract. It therefore becomes party to the clause in addition to its subsidiary.48 The Federal Court stated in a judgment of the 29th of January 1996 that the theory of Durchgriff should be allowed only to the extent that special circumstances exist. These circumstances shall have been initiated by the third party and shall be likely to mislead the counterparty.49 According to the facts of this case, interferences of the third party are one of these "special circumstances", which can reveal an abusive situation. In principle, the Swiss courts will not allow the extension of an arbitration clause within a group of companies. However, abusive situations may justify to “pierce the corporate veil”, i.e. to admit the circulation of the clause within a group of companies. Such abusive situations can be revealed where the third party (the mother or sister company) has interfered in very specific manners in the execution of the contract. The judge will use cautiously this foundation. The French solution is radically different, mainly because the French legal order recognizes that group of companies have a formal independence. B.

LIBERAL APPROACH OF THE FRENCH COUR DE CASSATION

The concept is defined in French Law as "a group of companies that have a legal existence and formal independence, while forming all together an economic unit under a single authority”.50 This definition tries to explain a protean reality, independent of the existence of capital links between the companies. The substantive rules specific to the extension of the arbitration clause within a group of contracts are also applicable within a group of companies.51 Indeed, the co-contractors of the subsidiary may

46

M. Mràz, op. cit. , refering to B. Berger, F. Kellerhals, 530; W. Wenger, M. Schott, 29; J-F. Poudret, S. Besson, 253. 47 ATF, 120 II 155. 48 T. Zuberbühler, op. cit. p. 26. 49 ASA Bull. 3/1996, p. 496. 50 CA Paris, 11 Jan. 1990, Orri. 51 M. de Boisséson, Le droit français de l’arbitrage interne et international, GLN Joly ed. 1990. 391

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legitimately believe that the mother is also party to the contract, the latter having created the illusion that it takes part in the commitments of its subsidiary, "as if" it were itself signing the contract.52 The jurisprudence of the Paris Court of Appeal has aims that where a subsidiary or a parent company were involved in the execution of a contract that they did not sign, they have implicitly consented to arbitration, as explained in the Korsnas case”53 in echo if the famous Saint Gobain Isover

c / Dow Chemical case of the Court of Appeal of Paris:54 the existence of a group of companies is not in itself sufficient to create a presumption of the arbitration clause’s expansion but is a clue to assume the awareness of the clause’s existence by third parties and their adhesion to the original contract and its clause.55 The consent to compromise is, as usual, deduced from the involvement of the parent company or a subsidiary that did not signed the contract. The solution has not been denied afterwards.56 The French judges admit easily the expansion of an arbitration clause within a group of companies, mainly because the French legal order recognize the existence of a group of companies and denies the corporate veil between the companies of a same group. However, the existence of a group of companies is not sufficient to ground the clause’s expansion. The third party shall also interfere to the conclusion and execution of the contract. The example of the expansion of an arbitration clause within a group of companies reveal that good faith and legitimate expectation, despite their central role in the Swiss legal order, cannot ground the expansion of an arbitration clause in any circumstances. Paradoxically, the French solution indirectly ground the clause’s extension within a group of companies on the legitimate expectation of the signatory party, without expressively naming it, by referring to the interference of the third party. 52

M. Boudot, op. cit. et Cass. Civ. 3ème, 13 Dec. 2006, n° 05-18.707. CA Paris, 30 nov 1988 : rev. Arb. 1989, p. 691, note P-Y Tanzsch, Hascher ; arbitrage du commerce international. 54 CA Paris, 21 oct. 1983, Isover Saint Gobain c. Dow Chemical, rev. arb. 1994, 98, note A. Chappelle, rendu sur recours contre la sentence arbitrale CCI n°4131, Isover St Gobain v. Dow Chemical, JDI 1983, 899, obs. Y. Derains, Rev. arb. 1984, 115 et s. 54 See: Ch. Jarrosson, Conventions d’arbitrage et groupes de sociétés, in Groupes de sociétés : contrats et responsabilités (actes de la journée d’études du 19 novembre 1993 organisée par le Laboratoire d’études et de recherches appliquées en droit privée de l’Université Lille II et l’EDHEC, Paris, L.G.D.J. 1994, p. 59-60 ; I. Fadlallah, Clauses d'arbitrage et groupes de sociétés, travaux comité français de DIP 1984)-1985; CA Paris, 14 février 1989 ett 30 nov 1989, rev. arb. 1990, 690, note Metzger ; Michael Bode, le groupe international de sociétés - le système de conflit de lois en droit comparé français et allemand, ed. Peter Lang, janv. 2010 " pp. 188-190. 55 E.Loquin, op.cit. p. 16. 56 See Kis France c/Société générale et autres : CA Paris, 31 oct. 1989, Kis France c. Sté Générale, Rev. arb. 1992. 90, notes L. Aynes p. 70 et s. et D. Cohen, p. 74 et s. 53

392

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Another example of the paradoxical – yet relative – severity of the Swiss solution: the transfer of the arbitration clause is conditioned on the validity of the main contract transfer, whereas the French court allows the clause transfer in any circumstances.

V.

TRANSFER OF THE MAIN CONTRACT: THE SWISS PRUDENCE VS. THE FRENCH LIBERALISM

Whereas the French Supreme Court has gradually allowed the transfer of the arbitration agreement where the main contract is assigned to a non-signatory, the Swiss jurisprudence admitted such a transfer very early and easily57 and founded its reasoning on the accessory rights theory.58 On the French side, the Supreme Court first had to overcome the principle of privity of contracts.59 Then it has admitted that the arbitration clause60 is necessarily transmitted unless a "reasonable ignorance of the existence of the clause" by the transferee.61 Where, because of customs, the transferee 57

In that way: ATF, 25 Jan. 1977, Müller c. Bossard, ATF 103 II 75; ATF 117 II 94 of the 9th April 1991, Clearstar, rev. arb. 1991, p. 717, note P-Y. Tschanz, ASA Bull. 1991, p. 160; ATF of the 13th October 1992, Transkei c. F.J. Berger and Steyr-Daimler-Puch AG, ASA Bull. 1993, p. 68. And more recently: ATF 134 III 565, 11 April 2007, 4P.32/2007: « the transfer of the debt generated the transfer of accessory rights, as pursuant to the

article 178, al 1 CO. As any other contractual clauses, the arbitration clause is an ancillary agreement, expect contrary clause ». ; or: « in some assumptions, as a debt cession, a contractual relationship transfer, the federal court has allowed for years that an arbitration clause can apply even to person who has not signed it and are not mentioned ». 58 Case of the 7th August 2001 op. cit.: « In case of transfer of a contractual Relationship, the arbitration clause, « as an accessory clause of procédural nature », is also transfered ». 59

Cass. Civ. 1ère, n° 88-12.132, 88-12.247, 88-12.270, 88-12.633, 88-14.477, 6 Nov. 1990, Case Frazer, Bull 1984, I, n°310, p. 263; Rev. arb. 1991.73 ; Cf. Ph. Delebecque, La transmission de la clause compromissoire, Rev. arb. 1991.19 : In case if successive sell of a contract, the arbitration clause is not opposable to the final buyer, because

the clause is not contractually transfered. 60

Cass.1ere civ., 8 Feb. 2000, n° 95-14.330, Sté Taurus Films c/Les films du jeudi, Rev. arb. 2000. 280, note P.-Y. Gautier, Defrénois 2000. 721, obs. P. Delebecque, Rev. crit. DIP 2000. 763, note N. Coipel-Cordonnier, JCP 2001. II. 10570, note D. Ammar, RTD com. 2000. 596, obs. É. Loquin et Cass. 1ere civ. 5 Jan. 1999, n° 9620.202, Banque Worms c/Bellot, Rev. arb. 2000. 85, 1re esp., note D. Cohen, JDI 1999. 787, note S. PoillotPeruzzetto, 1re esp., Rev. crit. DIP 1999. 536, note E. Pataut, 2e arrêt, Defrénois 1999. 752, obs. P. Delebecque :

The debt is transferred to the transferee as it exists between the initial parties and the international arbitration clause is valid by the will of the parties. 61 Cass. 1ere civ., 6 Feb. 2001, n° 98-20.776, Peavey Co c/Organisme général pour les fourrages et autres , Bull. civ. 2001 I, n° 22 ; JCP G 2001, II, 10567, note C. Legros ; D. 2001, somm. p. 1135, obs. Ph. Delebecque ; Rev. crit. DIP 2001, p. 522, note F. Jault-Seseke ; RTD com. 2001, p. 413, obs. E. Loquin ; préc. p. 754, obs. B. Bouloc ; Rev. arb. 2001, p. 765, note D. Cohen ; Dr. et patrimoine 2001, n° 95, obs. P. Mousseron ; Defrénois 2001, p. 708, note R. Libchaber ; JCP E 2001, n° 29, note D. Mainguy et J.-B. Seube ; Contrats, conc., consom. 2001, comm. 82, note L. Leveneur, RTD com. 2001. 413, obs. É. Loquin ; C. SERAGLINI, Le transfert de la clause compromissoire dans les chaînes de contrat après l’arrêt Peavy, Gaz. Pal. juill. 2002, Cah. arbitrage p. 87. V. en outre, Ch. Seraglini, Le transfert de la clause compromissoire dans les chaînes de contrats après l'arrêt Peavey , Gaz. Pal. 15 nov. 2001, p. 6 ; J. Moury, Réflexions sur la transmission des clauses de compétence dans les chaînes de contrats translatifs, D. 2002, doctr. p. 2744 ; E. Loquin, Différences et convergences dans le régime de la transmission et de l'extension de la clause compromissoire devant les juridictions françaises, Gaz. Pal. 6 juin 2002, p. 7 ; Niboyet-Hoegy, Trois arrêts importants sur la portée des clauses d'arbitrage et de juridiction à l'égard des parties non signataires, Cah. arb., Gaz. Pal. July. 2002, p. 96. 393

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of the main contract is said to be necessarily aware of the existence of the clause, his silence creates an appearance that he agrees to compromise. Such a situation operates a reversal of the burden of proof: if the third party wants to prevent the effect of the appearances, he must demonstrate that he was not aware of the existence of the clause. This evidence is hardly returnable.62 In a final act, the Supreme Court allowed the automatic transfer of the arbitration agreement in homogeneous and heterogeneous chains of contracts. It explicitly grounded its ruling on the accessory rights theory.63 It indicates that the right to arbitrate is "a second degree right of action, itself transmitted with the substantive rights associated with the contract”.64 Since then, the Cour de

Cassation, as long admits the Swiss Federal Tribunal, makes no reference to the awareness by the third party of the existence of the arbitration clause to admit that its transfer. Some differences between Swiss rules and French Law remain: while according to the Cour de

Cassation, the arbitration agreement is sent with the contract regardless of the validity of the transmission of the substantive rights,65 the Federal Court holds that the validity of the assignment of the contract is a key element of the transfer of the arbitration clause. Thus, in several decisions of the Helvetian jurisdiction66 and according to the understanding of the Swiss doctrine,67 the transfer of the

62

M. Boudot, op. cit. and Cass. Civ. 3ème, 18 July 1995, n° 93-17.278. 63 J. Moury, op. cit. : « the automatic transfer of the arbitration clause would be, despite all legal grounds, an

application of the accessory rights theory of Aubry and Rau according to which the succeeding party in a legal Relationship must benefit from all the rights and action acquired by its predecessor » 64 Cass. 1re civ., 27 March 2007, n° 04-20.842, Alcatel ABS c. Amkor, JurisData n° 2007-038210 ; Bull. civ. 2007 I, n° 129 ; LPA 2007, chron. p. 12 ; JDI 2007, p. 968, note C. Legros ; JCP 2007, II, 10118, note C. Golhen ; D. 2007, jurispr. p. 2077, note S. Bollee ; Contrats, conc. consom. 2007, comm.166, obs. L. Leveneur ; JCP G 2007, I, 168, § 11, obs. C. Seraglini et 200, § 11, obs. Y.-M. Serinet ; Gaz. Pal., Cah. arb., 21-22 nov. 2007, note F.-X. Train ; D. 2008, pan., p. 184, obs. T. Clay : «the arbitration clause is automatically transferred as an accessory of

the action right, itself being an accessory of the transferred substantial right, without incidence of the homogeneous or heterogeneous character of the chain ». The solution of the Alcatel case has been exactly repeated in more recent cases : Cass. 1ère civ., 17 Nov. 2010, n° 09-12.442, Sté Refcom SpA, Bull ; D. 2010.2829, obs. X. Delpech. See also : Cass. 1re civ., 6 Feb. 2001, Defrénois 2001, art. 37365, P. Mayer, op. cit. ; S. Bollee, La clause compromissoire et le droit commun des conventions, Rev. arb. 2005, p. 917. 65 Cass. 1ere civ. 28 May 2002, n°00-12.144, Cimat c. Société des Ciments d’Abidjan, d. 2003, p. 2471, obs. T. Clay ; RTS.com 2002, p.667, obs E. Loquin : “In international Law, the arbitration clause, legally independent of the main contract, is transferred with it, whatever the validity of the substantial rights transfer”. In this case, the contract was intuitu personae and its transfer was not valid. 66 ATF du 09 mai 2001, Nextrom Hoding SA c. Watkins International SA, ASA Bull. 1/2002, p. 80 ; ATF du 7 aout 2001, ASA Bull. 1/2002, p. 88. 67 M. Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfer of Arbitration Agreements, ASA Bull. I (mars 2002), pp. 109 – 119. 394

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arbitration clause to the transferee is denied when the contract provides a restriction to the possibility of being transferred.68 Moreover, the Swiss case also differs from French solutions by admitting the protection of the assignee’s legitimate expectation to facilitate the automatic transfer of the clause. Indeed, obstacles that invalidate the contract’s assignment can be bypassed when the co-signatory behaves like if he has agreed to such transfer of the contract.69 Such reasoning does not seem necessary in French Law, since the automatic transfer of the arbitration clause knows no limits: "whatever if its existence is known or not known, the arbitration clause circulates automatically and nothing seems able to stop it”.70 Yet the Swiss courts add an additional condition to allow the arbitration clause transfer, i.e. the validity of the main contract assignment, one again, the judge can compel the transfer on the ground of the protection of the legitimate expectation of the signatory party. It apparent severity, compared to the French solutions, must be put into perspective.

VI.

CONCLUSION

The foregoing developments demonstrate that the Swiss and French solutions have a liberal approach of international arbitration. These solutions facilitate the circulation of the arbitration clause. They are grounded on the theory of appearance in order to identify the common intention of the parties by using criteria such as the interference of third parties in the negotiation, conclusion and execution of the main contract in French Law or the accomplishment of conclusive acts in Swiss Law. Regarding the circulation of the arbitration agreement within a group of contracts, the Swiss and French solutions conclude to the approximately the same result. In Switzerland, the judges first review whether it is possible to determine the parties' consent through their conclusive acts. Secondly, they refer to the concept of legitimate expectation to protect the good faith of the signatory. In France, according to the analysis made by the doctrine, the theory

68

ATF, 16 Oct. 2001, ASA Bull. 1/2002, p. 97, se référant à ATF 117 II 94: the clause explicitly stipulated that X shall not sell the contract, which is strictly personal; or in the same way : ATF 28 Feb. 1997, Thomson C.S.F. c. Frontier AG et Brunner Sociedade: a clause stipulated that the contract cannot be sold without the agreement of the co-contracting party. 69 M. Scherer, op. cit. 70 T. Clay, La circulation de la clause compromissoire, Arbitrage et mode alternatifs de règlements des litiges , R.D. 2010, p. 2933 . 395

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of appearance allowed the judges to abandon the reference to the parties’ consent, as the mere believe of one of the parties is sufficient to extend the arbitration agreement.71 When the third party has prevented himself from any interference, the theory of appearance cannot found the clause extension any more: the French jurisprudence shall refer to other foundation as stipulation for others, apparent mandate (e.g. when the clause is extended to a corporation that is the purpose of the main contract).72 In the presence of group of companies, the Swiss Law is paradoxically more conservative than the French jurisprudence, and does not allow the arbitration clause’s circulation within a group of companies, except abusive situation leading to a piercing of the corporate veil. The French solution, more liberal despite the less important role of good faith and legitimate expectation in the national legal order, took meanwhile the criterion of interference of the company to justify the arbitration agreement’s extension. These differences point that, despite the similarities that may exist, there are no transnational rules in the matter and that each legal order retains its legal subtleties, which practice should pay attention.

Contract transfer

Solutions françaises

Solutions suisses

Accessory rights theory: automatic transfer of the arbitration clause.

Accessory rights theory: automatic transfer of the arbitration clause only where the main contract’s transfer is valid. Validity of the transfer is admitted to protect the legitimate expectation in some circumstances.

Power to consent to an arbitration clause

Common consensus, protection of good faith and legitimate expectation

Contract extension

Appearance theory: passive acceptance through interference of the third party in the negotiation, execution and conclusion of the main

71

Requirement of a proxy – Protection of the legitimate expectation in specific circumstances.

1.

2.

Common consensus of the parties (conclusive acts as interference of the third party). Protection of the legitimate

A. Pinna, La reconnaissance de l’extension de la clause compromissoire à l’entité objet du contrat, Les Cahiers de l’Arbitrage, 2013-1. 72 Cass. 1ère civ., 10th of October 2012, Monsieur Vincent Bartin c/ Société JAB et Véolia Propreté , not published, n° 10-20797, Dalloz 2012, 2995, obs. Th. Clay, Bull. Joly société 2013.18, note A. Couret; Gaz. Pal. 6 janv. 2013, p. 18. D. Bensaude. See also: Cass. 1ère civ. 9 July 2014, n°13-17495. 396

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contract. Extension within a group of companies

1. 2.

expectation of the signatory. Interference of the third party The existence of the group of companies is a simple but insufficient presumption of the third party’s agreement to the arbitration clause.

397

No extension of the arbitration clause within a group of companies, except piercing of the corporate veil. The third party’s interference is an indication of an abusive situation, but is not sufficient by itself.