GMR Energy: The Delhi High Court on ‘international’ agreements, and privity of arbitration clauses.

Update 03 12 2019 for a recent example in Switserland: the Swiss SC has confirmed that under Swiss lex arbitri the fact that a party is a state-owned entity is not sufficient per se, to extend an arbitration clause to a non-signatory state: Decision 4A_636/2018 (24.09.2019)

I have reported before on the relevance of lex curia /curial law and other lex causae decisions to be made in the arbitration context. I have also reported on the qualification of ‘international‘ for conflict of law /private international law purposes. And finally of course privity of choice of court and -law is no stranger in my postings either. All these considerations apply in the arbitration context, too.

Thank you Herbert Smith for flagging CS(COMM) 447/2017 GMR Energy, in which all these issues featured in the arbitration context. The judgment would not seem to add anything new (mostly applying precedent) however it is a usual reminder of the principles. As reported by HS (and with further factual background there), GMR Energy argued

  • on the plain reading of the arbitration clauses, Singapore was not the seat of arbitration but only the chosen place or venue for hearings; Not so, the High Court found: reference to SIAC rules and to Singapore  points to Singapore as the curial seat;
  • the parties being Indian, choice of a foreign seat for arbitration would be in contravention of Section 28 of the Indian Contract Act 1872 which provides that agreements which restrain parties’ rights to commence legal proceedings are void (save for those which do so by way of an arbitration agreement) – GMR Energy contended that an agreement between Indian parties to arbitrate offshore would fall foul of this provision. This, too, the High Court rejected: per precedent, offshore arbitration is compatible with the Act. (It is also particularly useful for Indian subsidiaries of foreign companies); and
  • for two Indian parties to choose an overseas seat for their arbitration (thereby disapplying Part I of the Arbitration Act) would amount to a derogation from Indian substantive law, and therefore would not be permissible. This, the High Court ruled, is not a decision to make at the stage of jurisdictional disputes between the parties.

Further, on  the issue of privity, Doosan India ‘contended that GMR Energy should be party to the SIAC Arbitration proceedings by virtue of common family ownership and governance, lack of corporate formalities between the companies, common directorships, logos and letterheads, and GMR Energy’s past conduct in making payments towards GCEL’s debts’ (I am quoting HS’s briefing here). This is referred to as the alter ego doctrine and the High Court upheld it. Liability for affiliated undertakings’ actions is to be discussed on the merits (here: by the arbitral tribunal). But a the level of jurisdiction (including reference to arbitration), Doosan India’s arguments were upheld: the common ownership between the entities; the non-observance of separate corporate formalities and co-mingling of corporate funds; and GMR Energy’s undertaking to discharge liabilities of GCEL (and the fact that it had made part payments towards the same) all conspire to the conclusion that GMR Energy is bound by the arbitration agreement.

An interesting confirmation of precedent and ditto application of the alter ego doctrine.

Geert.

 

Just did not do it. USCA confirms strict attributability test in Ranza v Nike.

Update 21 June 2016 see also application with respect to the extraterritorial impact of the US ‘Rico’ (anti-racketeering) Act in RJR Nabisco, Inc. V European Community.

In Ranza v Nike, the Court of Appeal for the ninth circuit confirmed the high hurdle to establish personal jurisdiction over foreign corporations in the US, following the Supreme Court’s decisions in Kiobel and Bauman /Daimler. Trey Childress has good summary here and I am happy largely to refer.

Loredana Ranza is a US citisen, resident in the EU (first The Netherlands; Germany at the time of the court’s decision). She seeks to sue against her Dutch employer, Nike BV, and its parent corporation, Nike inc. for alleged violation of federal laws prohibiting sex and age discrimination. The Dutch equality Commission had earlier found the allegations unfounded under Dutch law.

Of particular interest are the Court’s views on the attributability test /piercing the corporate veil following Daimler and Kiobel. The Court held (p.15 ff) that prior to Daimler, personal jurisdiction over the mother company could be established using either the agency or the alter ego test, with the former now no longer available following Daimler. Under the Agency test, effectively a type of abus de droit /fraus /fraud, plaintiff needed to show that the subsidiary performed services which were sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation’s own officials would undertake to perform substantially similar services. Daimler, the Court suggested in Ranza, held that the agency test leads to too broad a jurisdictional sweep. That leaves the alter ego test: effectively, whether the actions prima facie carried out by the subsidiary, are in fact carried out by the mother company for it exercises a degree of control over the daughter which renders that daughter the mother’s alter ego. Not so here, on the facts of the case: Nike Inc, established in Oregon, is heavily involved in Nike BV’s macromanagement, but not so ‘enmeshed’ in its routine management of day-to-day operation, that the two companies should be treated as a single enterprise for the purposes of jurisdiction.

For good measure, the Court also confirmed application of dismissal of jurisdiction on the basis of forum non conveniens.

Geert.

%d bloggers like this: