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Stretching the Arbitral Clause – Tacit Consent to Arbitration under Serbian Law

Stretching the Arbitral Clause – Tacit Consent to Arbitration under Serbian Law

Serbia
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An issue that has been increasingly raised in international arbitration is whether third parties can be included in arbitration without their explicit consent. 

Serbian law is similar to most legal systems and requires a written form of arbitral clauses. The rigidness of the legislation is a major obstacle to stretching arbitral clauses. 

The situation is different in Serbian litigation practice, where it is easy to involve additional parties to a dispute given the ex lege jurisdiction of the courts. However, this possibility is not available to arbitrators who usually accept jurisdiction only over parties to the arbitration agreement. 

Allowing tacit consent to arbitration is thus still not a common fixture in practice. Instead, most arguments for extending arbitral clauses to non-signatories in international arbitration relate to implied consent or the group of companies doctrine. 

Implied Consent

A recent UNCITRAL case dealt with a situation where only the Claimant and First Respondent were signatories to an arbitration agreement, while the Second Respondent and Third Respondent were not. The Second Respondent actually created and was responsible for the main deal, while the First Respondent was established solely for executing the project – a typical example of an SPV. 

In this case, the tribunal stretched the arbitral clause to cover the Second Respondent – which had carried out most of the activities before the First Responded had even been incorporated – on the basis that it did more than just interfere with the main deal. The Tribunal concluded that the Second Respondent’s active and critical role during negotiations and execution of the main deal might be construed as tacitly expressing its acceptance to be bound by the main agreement, including the arbitration clause.

Swiss courts also recognize the ability to extend arbitral clauses to non-signatories and have indicated that this may be allowed when a claim is assigned, taken over, or when certain behaviour may constitute compliance with formal requirements on the basis of good faith rules. This possibility can also be granted when a third party becomes involved in the performance of a contract containing an arbitral clause in such a way that the intent to submit to the arbitration agreement may be inferred.  

A positive attitude towards stretching an arbitral clause poses a substantial risk to the abundance of SPV-modelled investments, as it means that foreign investors – non-signatories to the main deal and the contested arbitral clause – may be drawn into arbitration. In order to avoid this risk, we recommend that the extension of the arbitral clause to non-signatories is explicitly excluded from agreements.    

Group of Companies Doctrine       

The application of this so-called group of companies doctrine remains uncommon in arbitration practice and the Dow Chemicals case represents one of the rare cases in which the tribunal allowed parent companies to be Claimants despite the fact that the relevant arbitration clause had only been signed between the Respondent and the parent’s subsidiaries. The Tribunal allowed this extension by explaning that the parent companies had exercised absolute control over their subsidiaries by effectively participating in the conclusion, performance, and termination of deals containing the arbitral clause. 

We have not seen the application of the group of companies doctrine before Serbian courts, which rarely expand the strict limits of corporate personality. The local legal test for application of this standard is very strict and narrow, and the Dow Chemicals case would be unlikely to pass this test. 

With this in mind, therefore, parent companies that are significantly involved in the operations of their subsidiaries in Serbia should ensure that they are explicitly included in arbitral clauses to avoid the risk of not being granted the right to be involved in the arbitral proceedings of their subsidiaries. 

To conclude, it is up to tribunals to assess the extent to which they should consult local laws when considering whether to stretch arbitral clauses. It is up to local courts to decide on the recognition and enforcement or annulment of the award and assess whether the arbitral clause is valid according to local law or if local ordre public is breached. 

Tribunals handling arbitrations seated in Serbia or whose awards are to be enforced in Serbia should consult Serbian law in terms of what conduct implies tacit consent to arbitration and what kind of interference of parent companies might trigger the application of the group of companies doctrine.  

By Milan Lazic, Partner, and Milica Savic, Senior Associate, Karanovic & Nikolic

This article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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