New Zeland Dispute Resolution Centre
Some jurisdictions appear to be more open to piercing the corporate veil, while other jurisdictions appear to be less willing to do so. For instance, U.S. Courts appear to have been more prepared than courts in other jurisdictions to apply an alter ego analysis, so as to subject a non-signatory to an arbitration agreement to the arbitration proceedings.
In contrast, the English Courts appear to have been more hesitant to apply the alter ego doctrine in a similar context. This difference was recognised in the U.S. case of FR 8 Singapore Pte Ltd v Albacore Maritime Inc and others 794 F. Supp. 2d 449 where the plaintiff, FR 8 Singapore Pte Ltd (FR 8), commenced an action against the defendant, Albacore Maritime, and three other non-signatories to the arbitration agreement, to compel the non-signatories to arbitrate FR 8's claim in London as alter egos of Albacore Maritime.
In deciding whether to grant FR 8's motion, the District Court of New York noted that the U.S. federal common law of piercing the corporate veil is more favourable compared to English law. Nonetheless, the Court found that U.S. federal common law was not applicable as the contract between FR 8 and Albacore Maritime expressly provided for English law as the choice of law. Ultimately, the Court decided that based on English law, there were no grounds for the corporate veil to be pierced so as to compel the non-parties to arbitrate the FR 8's claim as alter egos of the Albacore Maritime. FR 8's motion was dismissed accordingly.
B. Joining a company under Group of Companies doctrine
Parties may also attempt to join an associated company that is a non-signatory to the arbitration agreement under the group of companies doctrine.
It is common for corporate organizations to structure their business by incorporating numerous subsidiary companies that share a common source of control. In such cases, it may be possible to argue that the companies function as a "group of companies" or a "single economic entity". While arbitral tribunals seem to have the power to pierce the corporate veil so as to join shareholders to the arbitration, such powers do not extend to situations involving a group of companies thought to be a single economic entity.
Unlike the situation of piercing the corporate veil, the Singapore Courts do not recognise that arbitral tribunals have the jurisdiction to join associated companies to the arbitration agreement. In Manuchar Steel Hong Kong Ltd v Star Pacific Line Pte Ltd [2014] 4 SLR 832, the Singapore High Court found that the single economic entity concept has very little traction in the international arbitration community, especially outside jurisdictional issues (such as whether a company within the group is part of the group for the purposes of jurisdiction). Similarly, in the English case of Peterson Farms Inc v C & M Farming Ltd [2004] EWHC 121 (Comm), the English Court rejected the "group of companies" doctrine, and found that the tribunal had no jurisdiction to award damages suffered by the group companies who were not parties to the arbitration agreement.
One of the possible explanations why the courts hesitate to join associated companies under the doctrine of group of companies may be because the doctrine requires the arbitral tribunal to discern the subjective intentions of the parties, and enquire as to whether parties intended for the scope of the arbitration agreement to extend to the associated company. This seems to be stretching the notion that an arbitral tribunal has the power to decide its own jurisdiction a step too far.
C. Will Singapore courts ultimately set aside awards against a non-signatory party?
Singapore is seen as a pro-arbitration jurisdiction. As such, party autonomy plays a central role in any tribunal or court's consideration. The starting point of all arbitrations is an agreement to arbitrate, and a party cannot be forced to arbitrate against its will or without its consent. In fact, this was recently affirmed by the Singapore Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373, where the Court held that an arbitral tribunal's jurisdiction is based on the consent of the parties, as manifested in the arbitration agreement.
While it has been well-established that Singapore courts are deferential to the courts of the place of the seat of arbitration when enforcing an award, it remains to be seen whether Singapore courts will take a different approach when deciding on whether the arbitral tribunal should pierce the corporate veil so as to join a non-signatory party to the arbitration, when Singapore is the seat of the arbitration.
D. Implications for Businesses
If you are being joined as a party to the arbitration agreement, please seek legal advice. This is to ascertain your rights and position and address the issue of whether the arbitral tribunal indeed has jurisdiction to allow such joinder, despite the lack of your express consent. As explained above, whether the arbitrator has jurisdiction to pierce the corporate veil will depend on the laws of incorporation of the signatory company. This may in turn raise complex choice of law issues. If an award has already been rendered against you even though you are a non-signatory to the arbitration agreement, it may be possible to set aside the award or challenge the enforcement of the arbitration award.
If you intend to join a party to an arbitration that has not explicitly signed the arbitration agreement, it is prudent to consider whether (a) the laws of incorporation of the company being joined would support such a position and (b) whether the laws of the seat of arbitration support the position that arbitral tribunals have the jurisdiction to pierce the corporate veil.
21 ReSolution | Nov 2017
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