Non-Signatories and Abuse of Corporate Structure in International Commercial Arbitration

Abstract

Modern practice of international business requires companies to structure their corporate form into one which would be advantageous and safe for the management, growth and sustainability of business. However, when corporate structuring is used to avoid obligations of the company, the latter may become and abusive tool in international commerce. One could not deny that corporate structuring, such as mergers and acquisitions, reorganization or liquidation of business may serve as a tool to avoid one’s liability arising from a breach or violation of contract. Such a practice is even more often when it comes to international contracts containing arbitration clauses. Large international companies often use complex networks of subsidiaries to allocate the risk of different international contracts and this often becomes a tool to escape arbitration procedure while claiming that the parent company is not liable for the contracts concluded by its subsidiaries, so the parent company could not be bound by arbitration clause. Similar situations may arise where company is reorganized and the contract containing arbitration clause is allocated to certain newly created company. This article aims to analyze such an abusive practice and to inquire what legal measures and theories could be used against such form of abuse of corporate structuring, as well as means to extend the arbitration clause against such defaulting parties (non-signatories).

Keywords: international arbitration, non-signatories, corporate structure, investment, arbitration clause, group of companies, third party beneficiaries

JEL Classification: F23, K12, K22, K33, K41