The extension of arbitration clauses to third parties, especially parent or affiliated companies, is a kind of “french speciality”. Since the “dow chemical” decision in 1982 which is often quoted to have established a “group of companies” approach in arbitration, there are a number of decisions that extended arbitration clauses to non-signatories of the arbitration clause.
In a most recent decision, the cour d’appel de Paris had again the chance to elaborate on this question. The facts of the case were as follows:
The Korean company Doosan had concluded a contract for the delivery of portal cranes with the Egyptian company DIPCO. DIPCO is the operator of the port of Damietta in Egypt. The parent company of DIPCO is a company from Kuwait by the name KGL. For some reason, the contract between Doosan and DIPCO was not fulfilled and DIPCO started arbitration in Paris under the rules of the ICC against DIPCO and the parent company, KGL.
KGL had not signed the agreement with DIPCO, but participated in the negotiations and conclusion of the contract. For the ICC tribunal, that was sufficient to conclude that KGL was also bound by the arbitration clause. KGL tried to lift the award with the (obvious) argument that KGL was no party to the arbitration clause and thus, could not be bound by arbitration.
This argument failed with the court d’appel in Paris, and in a judgement of 23 November 2021 the court ruled that:
- It is clear from the exchanges produced and from the facts found by the arbitral tribunal that KGL attended the meetings, corresponded on “key points of the execution of the contract without DIPCO being mentioned” (§122 of the award); that its personnel were jointly involved in the project “some of the people involved in the project on behalf of DIPCO simultaneously occupying management positions at KGL”. ( § 118)
- On the other hand, there is no evidence that Doosan and DIPCO had the common intention to exclude KGL from the scope of the clause, and it is irrelevant that the letter of termination of the contract was signed by Doosan and DIPCO.
The court found that it was not important that the letter of termination of the contract was addressed only to DIPCO, given the autonomy of the arbitration clause in relation to the main contract. - The court considers that these elements establish that KGL had a significant and decisive role in the negotiation and monitoring of the supply contract signed by its parent company DIPCO, directly involving it in its performance and in the disputes which might have resulted from it.
- These circumstances demonstrate her knowledge and implicit acceptance of the arbitration clause, the content and scope of which she could not have been unaware.
- It follows that the effects of the clause providing for disputes to be settled by an arbitral tribunal could be extended to KGL although it was not a signatory to the contract.
The full text of the judgement (in French) can be found here. Or if you prefer to read in German, please see our translation below on this page.
Very similiar reasoning has been applied by Russian courts in the already notorious Hartman ./. Eckes saga. The facts were similiar, Mr Hartmann, a German businessman, had concluded a serious of contracts with the German juice manufacturer Eckes-Granini. The cooperation ended with a failure and Mr Hartmann started arbitration against several companies of the Eckes-Granini group in Russia. Eckes invoked all sorts of defences, among others, that not all respondents in arbitration had signed the arbitration clause. That argument did not impress the tribunal, which held several parent companies bound by the arbitration clause as they had participated both in the negotiation of the clause and later the excecution of the contract. The attempt to lift the award in Russia failed in the Moscow Arbitrage court and attempts to overrule this decision failed up to the Russian Supreme Court. Most recently, the Moscow arbitrage court issued the enforcement order for the award and for ease of reference, we also provide a German translation below.
German courts have sofar been more restrictive in this respect, although there are some decisions in which arbitration clauses have been extended to non-signatories. We have provided an overview in a previous post in this blog, which you can find here: https://kdb.legal/en/a-third-party-may-rely-on-an-arbitration-clause-contained-in-a-contract-with-protective-effect-for-that-third-party/
Soon there will be news on this issue, the Hartmann ./. Eckes award is pending for recognition with the Oberlandesgericht in Koblenz, so we will see if the court in Koblenz will join the chorus of international courts who have recognised third party effect of arbitration clauses.