Posts Tagged Corporate veil
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.
Postscript 1 March 2016 I already refered in my initial posting to similar issues being sub judice in Shell. In the appeals judgment on the jurisdiction issue, the Gerechtshof Den Haag, without being definitive on the issue, suggested that applicable law for considering whether merger operations inserting a new mother company were abusive (merely carried out to make Royal Dutch Shell escape its liability), had to be addressed using ‘among others’ the lex incorporationis (at 3.2).
In VTB [ UKSC 5] , the Supreme Court of the United Kingdom revisits in signature erudite fashion a number of extremely relevant conflicts issues. Quite a few of them are tantalizingly held out to the reader, without an answer to them being given.
VTB’s case is that it was induced in London to enter into a Facility Agreement, and an accompanying interest rate swap agreement, by misrepresentations made by one of the defendants, for which it claims the other respondents are jointly and severally liable. Parties are of suitably diverse domicile (appellant incorporated in England however controlled by a State-owned bank in Moscow; defendants two British Virgin Island-based companies owned and controlled by a Moscow-based Russian businessman. Defendants not being EU-based , the Brussels-I Regulation does not apply.
The issues involved were essentially
1. Jurisdiction. Lord Neuberger made the point that settling the presence (or not) of jurisdiction, is an early procedural incident in a trial and ought not to lead to protracted legal argument, costs and time, lest the discussions centre around whether the potential other jurisdiction can guarantee a fair trial or not. In contrast with other in recent high-profile cases before the UK courts, the alternative, Russian forum, would by common agreement have also offered a fair trial. Lord Neuberger also emphasises, with reference to Lord Bingham in Lubbe v Cape, that in forum non conveniens considerations, appeal judges should defer in principle to the trial judge, and that this should be no different in proceedings concerning service out of jurisdiction. The majority therefore opted to defer to Arnold J (at the High Court) and the Court of Appeal in their finding of jurisdiction, in the absence of any error which ought to have made the former change their conclusion.
2. Applicable law for tortious misrepresentation. This the law of the jurisdiction in which they are ultimately received and relied upon (the forum connogati if you like). In the case at issue, this was held to be England.
3. Applicable law for piercing the corporate veil. The Court emphasises the foundation of individual personality of a company established in Salomon and A Salomon and Co Ltd (1897). The presumption must be against piercing. The Supreme Court did not however set out a definitive test for it was not necessary for its resolving of the case, neither did it decide what law should apply to the issue. In theory, Lord Neuberger suggested, the proper law governing the piercing of the corporate veil (may be) the lex incorporationis, the lex fori, or some other law (for example, the lex contractus, where the issue concerns who is considered to be party to a contract entered into by the company in question). However common ground among parties in the case thus far had been to apply English law.
Piercing the corporate veil was also reviewed by the (Dutch) court in Shell. Lord Neuberger’s succinct analysis of the issue in VTB makes one hungry for more.