In recent ICC arbitration proceedings in The Netherlands, the respondent company attempted to dispute the jurisdiction of the Arbitral Tribunal. The proceedings raised some interesting issues and the decision of the Tribunal will have far-reaching consequences for future arbitration proceedings.
We set out below a brief summary of the facts and the Tribunal’s ultimate decision.
In 2003, a Moroccan company (“T”) concluded two contracts with a large steel company in Liechtenstein (“M”), for the delivery of two cargos of iron with a total value of approximately US $1 million (the “Contracts”). The parties agreed that M would deliver the goods within a period of 120 days from the date of signature. However, M did not meet its obligations under the Contracts and despite several demands from T the cargo was never delivered. In March 2005, T filed a request for arbitration against M pursuant to the arbitration clause of the Contracts which stated:
“All disputes arising out of or in connection with this contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators to be appointed in accordance with said Rules (...). Place of arbitration will be THE HAGUE, The Netherlands (…)”
M claimed that the Tribunal lacked jurisdiction on the basis that no valid agreement had been concluded between T and M. M stated that the Contracts had not been signed by M, but by a person who was not authorised by M to represent, bind or act on its behalf – and therefore no arbitration agreement existed.
II. Jurisdiction of the Arbitral Tribunal and applicable law
The issue to be determined by the Arbitral Tribunal was whether it had jurisdiction over the dispute brought before it. The answer to this depended upon whether T and M concluded a valid arbitration agreement.
The Arbitral Tribunal decided that the question as to whether the parties concluded a valid arbitration agreement must be separated from the question of the validity of the underlying agreements as the arbitration agreement formed an independent agreement.
The Arbitral Tribunal therefore had to assess which law applied to the arbitration agreement.
According to the Contracts, all legal issues relating to the Contracts were to be governed by the United Nations Convention on the Contracts for the International Sale of Goods (“CISG”), or alternatively, the law of the country where M has its principal place of business (i.e. Liechtenstein).
The Arbitral Tribunal determined that, as a result of the concept of separability, the law applicable to the arbitration clause was not necessarily the same as the substantive law of the Contracts. The Rome Convention of 1980 on the applicable law of contracts did not apply here as arbitration agreements are excluded from the scope of the Convention.
The Arbitral Tribunal decided that the law applicable to the arbitration agreement must be determined in accordance with rules of private international law. Since the Contracts were silent as to their applicable law, the Arbitral Tribunal assessed (a) whether the parties had made an implicit choice of law; or – in the absence thereof – (b) which law had the closest connection with the arbitration agreement.
The Arbitral Tribunal decided that as the two international parties had expressly chosen The Hague, The Netherlands, as the arbitration seat, they had deliberately constructed a relationship between their arbitration clause and The Netherlands. Therefore, the question as to whether or not the parties concluded a valid arbitration agreement had to be assessed in accordance with the lex arbitrationis, (i.e. Dutch law).
III. Validity of an arbitration agreement under Dutch law
As set out above, M did not consider itself to be a party to the arbitration agreement, as it was of the opinion that it was not bound by the Contracts.
Book 4 of the Dutch Code of Civil Procedure (the “CCP”), contains the Netherlands Arbitration Act 1986, article 1022-1076 CCP. Article 1021 CCP reads as follows:
“the Arbitration agreement shall be proven by an instrument in writing. For this purpose an instrument in writing which provides for arbitration or which refers standard conditions providing for arbitration is sufficient, provided that this instrument is expressly or impliedly accepted by or on behalf of the other party (..)”
Accordingly, in principle, third parties who have not accepted a written arbitration clause should not be considered to be bound by the arbitration agreement.
However, there are a few exceptions to this principle:
- Exception based on the law. Here, the consent of the third party to be bound to the contract is presupposed. Examples of contractual legal relationships in which third parties can be bound to an arbitration agreement are assignment, solitary debtors and contracts of guarantee.
- Exception based on case law. For example where an interest group is acting on behalf of others through a class action (possible ex art. 3:305a and 3:305b of the Dutch Civil Code), the interest group is considered to be bound to arbitration agreements which have been concluded by the members of the interest group and their contracting parties.
IV. Assessment of the validity of the arbitration agreement between T and M
The objections of M to the arbitration agreement can – according to Dutch procedural law – only be proven by a written document. As follows from 1021 CCP, the written document can also be accepted by a third party on behalf of a contracting party.
The doctrine of representation requires that an intermediary is authorised to perform legal acts on behalf of its principal. If the intermediary lacks authorisation, the principal will still be bound if the counterparty has good reasons to believe that the intermediary was authorised to act on behalf of the principal due to the circumstances which fall within the control of the principal.
Whist M maintained that the signatory who signed the Contracts was not authorised to act on behalf of M, T claimed the signatory was the proper representative of M in Morocco. The Court held that M was bound by both the Contracts and the arbitration agreements therein on the basis that T believed that the Signatory was authorised by M.
Whether the intermediary was, in fact, authorised to act on behalf of M was immaterial.
The Arbitral Tribunal therefore decided it had jurisdiction over the dispute brought before it by T and decided to proceed with the case based on the merits.