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Westland Helicopters Ltd v Arab Organization for Industrialization, United Arab Emirates, Kingdom of Saudi Arabia, State of Qatar, Arab Republic of Egypt, and Arab British Helicopter Company, Arbitration, 5 March 1984, 80 ILR 600

Christiane Ahlborn

Relevance of the case

The present case concerns the responsibility of international organizations and their member states. The Westland Helicopters arbitration is the first case in which a dispute settlement body had to decide on the possible responsibility of states for the wrongful acts of an international organization. While the Arbitral Tribunal in Westland Helicopters decided to hold the member states responsible alongside the international organization, Swiss courts later reversed this decision. The Westland Helicopters cases thus foreshadowed the debate, including many of the recurrent arguments, on whether and when the corporate veil of an international organization should be pierced.

I. Facts of the case

In 1975 the Arab Republic of Egypt (ARE), Saudi Arabia, Qatar, and the United Arab Emirates concluded a treaty establishing the Arab Organization for Industrialization (AOI). According to the AOI’s Basic Statute, the organization was endowed with legal personality, exempt from the laws and institutions of the member states. It had its head office in Cairo, and a capital of 1,040 million US dollars. The main organ of the AOI was the Higher Committee of the AOI, which was composed of all four member states. In 1978, the Higher Committee signed a Shareholders’ Agreement with Westland Helicopters Ltd (WHL) creating a joint stock company in Egypt. This joint stock company was later referred to as Arab British Helicopter Company (ABH). The purpose of the joint stock company was the manufacture, assembly, and sale of the Lynx helicopters made by WHL, which the AOI intended to construct in Egypt.

Following the signing of a peace agreement between the ARE and Israel in May 1979, Saudi Arabia, Qatar, and the United Arab Emirates decided to terminate the existence of the AOI from 19 July 1979. They also determined to stop all investments and to charge a committee composed of the four member states with the liquidation of the Organization. Being opposed to this decision, the ARE promulgated a Decree Law on 18 May 1979, providing for the continuing existence of the AOI in the form of a company governed by Egyptian law (EAOI). The Decree Law ensured the continuation of the AOI’s activities and compliance with the commitments of the organization. The ARE replaced the representatives from the three Gulf States with Egyptian members on the Higher Committee.

After the failure of negotiations, WHL gave notice of its decision to claim damages of 126 million GB pounds against the dissolved AOI and its member states.

On 12 May 1980, it filed a request for arbitration with the International Chamber of Commerce (ICC) in Paris, which was directed against the AOI, the four member states of this organization, and ABH. The request was based on art. 12 of the Shareholders Agreement between the AOI and WHL, which provides as follows:

  • 12. Arbitration and law
  • 12.1 Any controversy or dispute which may arise between the parties in connection with the interpretation, application or effect of this Agreement which cannot be resolved amicably shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. Such arbitration shall be held in Geneva and the costs shall be borne as ordered by the arbitration court. Each party recognizes that the enforcement of the arbitration award may be made through any court having jurisdiction.
  • 12.2 This Agreement shall be governed by and construed in accordance with the Laws of Switzerland.
  • 12.3 The clauses of this Agreement and the Annexes hereto have been written in English and Arabic. Both texts shall be deemed equally authentic. Annex A hereto has been written in Arabic and an English translation has also been attached.

The ARE objected that it was not party to any of the agreements invoked by WHL, and the other defendants did not react to the request for arbitration. Nonetheless, the ICC Court of Arbitration set up an Arbitral Tribunal composed of three members on 29 October 1980. Geneva was determined to be the place of arbitration.

II. The legal question

The interim award mainly concerned the competence of the Arbitral Tribunal in relation to all six respondents, the AOI, its four member states, and ABH. In particular, the Tribunal had to answer the question whether art. 12 of the Shareholders Agreement was applicable to the AOI’s four member states that had not signed the agreement explicitly.

III. Excerpts

(A. The existence of an arbitration clause in written form)

The four States never themselves directly signed any contract with Westland. This is not in itself a sufficient argument by which to reject, from the outset, the obligation of the four States to submit themselves to arbitration. [...]

The question whether the four States are bound by the arbitration clause concluded by the AOI in its own name (Shareholders Agreement contracted with Westland, Clause 12.1) is exactly the same as the substantive law question whether the four States are bound in general by the obligations contracted by the AOI. If the obligations under substantive law flowing from the Shareholders Agreement are obligations not only of the AOI, but also of the four States, if the locus standi to conduct the defence in relation to those obligations can be attributed not only to the AOI, but also to the four States, then the latter are therefore bound by the arbitration clause, just as they might, had they been summoned before an ordinary court, have availed themselves of this clause as a ground in their defence. The mandatory force of the arbitration clause cannot be dissociated from that of the substantive contractual commitments; the reply to the question as to whether the four States are bound by the acts of the AOI must always be the same, whether the procedural aspect of the arbitration clause is involved or that of the substantive law concerning the financial obligations of the four States.

[20] (B. The supranational status of the AOI)[...]

In the opinions submitted by the ARE it is maintained that no legal person may exist without a legal foundation within a national legal order. This confuses the legal position of legal persons created by individuals within the framework of private law with the position of the AOI, created by States. Whereas it is true that an individual cannot set up a legal entity without the authorization of a State or a State law, sovereign States may themselves dispense with such a basis. Their acts have the force of law, and if a State alone can create by its acts (even without recourse to its legislation previously in force) a legal person, several States clearly have the same power when they act together and with common intent, as the four States did in the present circumstances. [...]

The later unilateral acts by Egypt, the aim of which was to ‘nationalize’ the AOI (see Decree Law No 30 of 1979 of the Arab Republic of Egypt of 18 May 1979, Exhibit 6), cannot in any way change the situation set out. The sovereignty of the ARE carries the possibility to exert its imperium over its own territory, but that sovereignty does not include a power to change the legal status of the AOI as set up by these treaties with the other States without the agreement of those States themselves, even if the ‘seat’ (in whatever sense of the word) was situate [sic] within Egyptian territory.

[23] (C. The consequence of the possible attribution of personality to the AOI as regards the liability of the four States)

One may be tempted to reduce the question of whether the four States are bound by the acts of the AOI to one of whether the AOI has legal personality or not. A widespread theory, deriving moreover from Roman law (‘Si quid universitati debetur, singulis non debetur, nec quod debet universitas singuli debent’ Dig. 3,4; 7,1), excludes cumulative liability of a legal person and of the individuals which constitute it, these latter being party to none of the legal relations of the legal person. This notion, which could be deemed ‘strict’, cannot however be applied in the present case. Nowhere is it accepted or given effect without limitation. [...]

One must therefore disregard any question relating to the personality of the AOI. The possible liability of the four States must be determined by directly examining the founding documents of the AOI in relation to this problem.

[25] (D. The liability of the four States in the light of the constitution of the AOI)

Neither the Treaty nor the Basic Statute of AOI states the effects, as regards the four States, of obligations undertaken by the AOI vis-a-vis third parties. As to the liability of the four States, concurrent with that of the AOI, there are no provisions which either expressly stipulate it or exclude it. The fact that the AOI ‘has the juridical personality’, ‘enjoys full administrative and financial independence’ and ‘has the right of ownership, disposition and litigation as mentioned in its statute’ (Treaty, Article 1; in the same vein, see Basic Statute, Article 5), that is to say the express attribution of legal personality, of administrative independence and of the right to sue in the courts, does not in any respect allow one, as has been shown, to deduce an exclusion of the liability of the four States.

The same is true of the provision which states that AOI has a specified sum of capital (Basic Statute, Article 17); in the absence of any rule restricting liability to such capital, one cannot deduce therefrom any obstacle to an action against the four States. The provisions setting out capital are primarily internal to the AOI, determining the funds which its organs have at their disposal. One could perhaps infer that the four States’ liability is secondary, in that they could not be proceeded against so long as the AOI performed its obligations whilst using the funds which had been granted to it; but it does not follow that the four States would have no liability whatsoever for obligations entered into by the AOI.

[26] In the absence of any rule of applicable law [‘regle de droit positif’], what is to be deduced from the silence of the founding documents of the AOI as to the liability of the four States? In the absence of any provision expressly or impliedly excluding the liability of the four States, this liability subsists since, as a general rule, those who engage in transactions of an economic nature are deemed liable for the obligations which flow therefrom. In default by the four States of formal exclusion of their liability, third parties which have contracted with the AOI could legitimately count on their liability. This rule flows from general principles of law and from good faith. It can be supported if one likens the given situation to that which existed during the last century, where commercial organizations were formed without a clear legal basis (whether or not they could be considered as possessing personality).

[28] (E. Limitation on the scope of the personality of the AOI by its constitution)

  • a) The foregoing is all the more true given that the personality conferred upon the AOI by the founding States was expressly limited, both by Article I of the Treaty and by Article 5 of the Basic Statute, solely to operational needs, as is provided in the articles of many international organizations.
  • b) The AOI was designated by its founders as an ‘organization’ and as a ‘body’, as opposed to the ‘joint-stock company’ ABH, and the legal status of such a joint interstate enterprise [‘entreprise commune interetatique’]—to the extent that it can exist at all—cannot be relied upon in order to eliminate the liability of the States which are partners therein.
  • c) Finally, one must admit that in reality, in the circumstances of this case, the AOI is one with the States. At the same time as establishing the AOI, the Treaty set up the Higher Committee (‘joint Ministerial Higher Committee’) composed of the competent Ministers of the four States, charged with the responsibility not only to approve the Basic Statute, and to set up a provisional Directorate, but furthermore to direct the general policy of the AOI, and Article 23 of the Basic Statute describes this Committee as the ‘dominating authority’.

[29] This Committee thus played a double role, both as organ of the AOI and as a grouping of States [‘reunion d’Etats’]. In fact, in its role as organ of the AOI, it had under its control the operations of the AOI and, as a grouping of States [‘reunion d’Etats’], it signed the MOU (Exhibit 3). [...]

(G. Equity; abuse of law)[...]

It would be wrong if the disagreement which arose between the four States, in May 1979, were to be prejudicial to Westland, rendering all the guarantees worthless. It matters little whether the AOI had disappeared or not. Whether faced with either an Egyptian company which makes itself out as the successor of an international organization [‘societe internationale’]—contrary to what had been stipulated—or a liquidation committee, which remains mute, Westland is justified in bringing the four States themselves before the Arbitrators. Were this not the case, there would be a real denial of justice.

[32] Equity, in common with the principles of international law, allows the corporate veil to be lifted, in order to protect third parties against an abuse which would be to their detriment (International Court of Justice, 5 February 1970, Barcelona Traction). [2] [...]

VII Immunity of the Four States [...]

[37] According to a view accepted in Switzerland, as elsewhere, the signing of an arbitration clause implies the waiver of this ground. The four States, in creating the AOI, whose obligations were binding on themselves, could not have overlooked the possibility of being proceeded against at law in respect of these obligations. The creation of the AOI therefore implies a waiver of immunity in respect of obligations entered into by the AOI.

IV. Commentary

The present case concerns the question whether states could potentially be held responsible for the acts of an international organization of which they are members. The arbitral award was limited to examining the competence of the Tribunal, and did thus not determine the actual liability of and possible remedies against AOI member states. Nonetheless, it addressed one of the central questions in the debate on the responsibility of international organizations: can the corporate veil of an international organization be pierced, and if so, under which conditions? The Arbitral Tribunal answered this question affirmatively. Noting that AOI member states had not explicitly excluded the liability of the organization in its constitution, the tribunal declared itself competent to arbitrate the case brought by WHL against all four respondent states (in addition to the AOI and ABH).

Since the Westland Helicopters arbitration was the first notable case concerning member state responsibility, the Tribunal had hardly any scholarly or judicial guidance in drafting its award. Until the 1980s, only a few scholars had discussed the responsibility of international organizations and their member states.[1] The arbitral award in Westland Helicopters is therefore characterized by a search for the right methodology or framework to describe international organizations. Due to the lack of rules of international law on member state responsibility, the Arbitral Tribunal looked for an adequate comparator for international organizations. In this context, it was decisive for the outcome of the case that the Tribunal in Westland Helicopters settled on drawing analogies between international organizations and certain private business associations. As the later appeal against this arbitral award before the Swiss Federal Supreme Court illustrates, the outcome of the case would have been a different one if a different comparator had been chosen.

At the outset of its decision, however, the Arbitral Tribunal made clear that the AOI itself was not a private company but an entity created by virtue of international law. The consideration of the international legal personality of the AOI was necessary due to its unclear legal status. Although Saudi Arabia, Qatar, and the United Arab Emirates had expressed their intention to dissolve the organization, the ARE objected to this decision. In its submissions to the Arbitral Tribunal, the ARE argued that the AOI had not ceased to exist.2 The ARE claimed that the three Gulf States could not unilaterally terminate the existence of the AOI, and in any case, the AOI continued to exist by virtue of Decree Law No. 30 in the form of the Egyptian AOI. Considering these claims, the Arbitral Tribunal decided that neither of the member states could change the status of the AOI unilaterally. As a result, it declined the ARE’s first claim but agreed with its second submission. In other words, it objected to the ARE’s argument that the AOI continued to exist as an Egyptian private company. However, it found that the AOI had legal personality under international law for purposes of the arbitration regardless of the Gulf States’ decision to dissolve the organization.3

Although the Tribunal acknowledged that the AOI had legal personality, it underlined that this separate legal personality could not limit the liability of the member states of the organization. The Arbitral Tribunal thereby explicitly rejected the principle ‘[i]f something is owed to the whole, it is not owed each to each, nor do each individually owe what the whole owes’.4 In justifying its conclusions, the Tribunal put decisive emphasis on analogies with certain forms of business associations in domestic law. According to the Tribunal, a Swiss co-operative (‘societe cooperative’) or a limited partnership with share capital (‘societe en commandite par actions’) could be endowed with legal personality without limiting the personal liability of its members.5 internationaler Organisationen gegenuber Drittstaaten (Vienna/New York, Springer 1969); J.A. Salmon, ‘Les accords Spaak-U Thant du 20 fevrier 1965’, (1965) 11 Annuaire frangais de droit international 468).

  • 2 cf. Interim Arbitral Award (5 March 1984), p. 597.
  • 3 In its award of 5 March 1984, the Arbitral Tribunal found that it was competent to hear the claims brought against all four member states, the AOI, and ABH. On 28 June 1993, an arbitral tribunal decided the case in favour of WHL and against the AOI. The award has remained unpublished (see decision on the enforcement of the award in Arab Organization for Industrialization and others v Westland Helicopters Ltd v. Arab Organization for Industrialization, English High Court, Queen’s Bench Division, 3 August 1994, 108 ILR 564).
  • 4 cf. A.X. Fellmeth and M. Horwitz, Guide to Latin in International Law (Oxford, Oxford University Press 2011) [online version], ‘Si quid universitati debetur singulis non debetur, nec quod debet universi- tas singuli debent’.
  • 5 cf. Interim Arbitral Award (5 March 1984), p. 612.

In a similar vein, the members of a German co-operative and the partners in a French limited partnership (‘societe en nom collectif’) could be held jointly and severally liable for the obligations of the partnership.[2] Against the background of these analogies, the Tribunal rejected the separate legal personality of the AOI as an indicator for the extent of the liability of its member states.

Instead, the Tribunal decided to base its award on the provisions of the constituent instruments of the AOI, noting that the AOI constitution neither explicitly excluded nor stipulated the liability of its member states. Although the Tribunal could have interpreted the silence of the constituent instruments either way, it opted for the liability of member states as a default rule. However, this finding of liability was not derived from the fact that the organization depended on its member states for financial resources, which might lead to secondary or subsidiary liability on the part of the member states. Rather, the Tribunal referred to the development of ‘commercial organizations’ whose members were by default liable unless they excluded liability explicitly. It explained that AOI member states never intended to disappear behind the corporate veil of the organizations but were ‘members with liability’ (‘membres responsables’).[3] Consequently, the Tribunal concluded that the AOI is more comparable to a general partnership or cooperative than to a joint stock company with limited liability.[4]

The Tribunal’s choice of comparators shows the difficulties in applying domestic law analogies to international organizations. In most jurisdictions, limited liability is a privilege granted by a central state authority. The Tribunal’s stance for unlimited member liability seems to take account of the lack of such recognition of limited liability in international law. Since limited liability was not expressly stated in the AOI constitution, third parties might have relied on the unlimited liability of the AOI’s member states. This rationale behind the Tribunal’s view becomes evident in its discussion on the scope of the legal personality of the AOI. In this regard, the Tribunal pointed out that the High Committee, composed of the four member states, signed a memorandum of understanding (MOU) with the United Kingdom to ‘effective[ly] guarantee’ that the AOI and the companies it controlled ‘will properly execute their obligations to all the British companies participating under the provisions of this Memorandum’.[5] The MOU might thus have led third parties to rely on the four AOI member states’ willingness to stand in for the organization if it could not fulfill its commitments. Considering that third parties such as WHL relied on the guarantees given by AOI member states, the Tribunal concluded that ‘the AOI is one with the States’.[6]

Indeed, the law of international responsibility has long recognized that guarantees can lead to the attribution of conduct by one actor to another.11 At the time of

Westland Helicopter arbitration, the ILC had also just finalized its Draft Articles on the Law of Treaties between International Organizations and States, which allowed for the possibility of member states being bound by the obligations of an international organization as a result of reliance by third parties.12 However, the finding that the AOI was one with its members is at least partly inconsistent with the Tribunal’s previous recognition of the AOI’s legal personality. What would be the added value of legal personality if the organization and its members were one and the same? It is a decisive characteristic of an international organization that it has volonte distincte separate from its member states/3 Interestingly, the Tribunal acknowledged that members act in a ‘double role’ in relation to the organization: as an organ of the AOI and as a grouping of states. In the former capacity, the states were acting on behalf of the organization, in the latter capacity they were acting on their own behalf.

The Arbitral Tribunal attempted to address this inconsistency by arguing that the member states had intended to limit the legal personality of the organization, as evidenced by their signing of the Memorandum of Understanting with the United Kingdom. However, this argument seems unconvincing in light of the explicit attribution of legal personality to the AOI in art. 5 of the AOI constitution. It is true that the functions of international organizations are generally restricted/4 Nonetheless, the conclusion that limited functions of international organizations also lead to limited legal personality is controversial. It could be argued that legal personality—as opposed to legal capacity—is a binary concept: an entity has or does not have legal personality/5 Assuming arguendo that the legal personality of the AOI was functionally limited, the obligations concerning the dispute settlement owed to WHL still clearly fell within the functions of the organization. Art. 59 of the Shareholders Agreement explicitly allowed the AOI to enter into arbitration agreements. As the Swiss Federal Supreme Court pointed out in the later appeals decision, art. 59 of the Shareholders Agreement spoke towards the ‘total legal independence of the Organization in relation to the founding States’/6

Bruylant 1998), pp. 596-8; and the Institut de Droit International, Institut de Droit International, ‘The Legal Consequences for Member States of the Non-Fulfillment by International Organizations of their Obligations toward Third Parties’, (1995) 66 Annuaire de l’Institut de Droit International 415 (para. 112), suggesting that member states might gives guarantees by their implicit conduct.

  • 12 See Draft Articles on the Law of Treaties between States and International Organizations or between International Organizations, with Commentaries, ILC Yearbook 1982, vol. II, Part Two, p. 43, Article 36 b is on ‘obligations and rights arising for States members of an international organization from a treaty to which it is a party’. On this provision see C. Brolmann, The Institutional Veil in Public International Law: International Organisations and the Law of Treaties (Oxford, Hart 2007), p. 212 ff.
  • 13 For example, N.D. White, The Law of International Organizations (Manchester, Manchester University Press, 2005), pp. 30-1.
  • 14 These functional limitations are generally described in terms of the principle of speciality. As the ICJ stated in its Advisory Opinion on the Legality of the Use by a State of Nuclear Weapons in Armed Conflict: ‘International organizations are governed by the “principle of speciality”, that is to say, they are invested by the States which create them with powers, the limits of which are a function of the common interests whose promotion those States entrust to them.’ [1996] ICJ Rep 66, 78 (para. 25).
  • 15 cf. T. Gazzini, ‘Personality of International Organizations’, in J. Klabbers and A. Wallendahl (eds), Research Handbook on the Law of International Organizations (Cheltenham/Northampton, Edward Elgar 2011), p. 43.
  • 16 cf. Arab Organization for Industrialization and others v Westland Helicopters Ltd, Swiss Federal Supreme Court (First Civil Court), 19 July 1988, 80 ILR 652.

In view of the difficulties in reconciling the AOI’s legal personality with the unlimited liability of its member states, it is not surprising that the Arbitral Tribunal considered the piercing of the corporate veil of the AOI as an alternative argument towards the end of its award. As opposed to limited liability, the piercing of the corporate veil is a remedy, which allows creditors to hold shareholders of a corporation liable. A piercing of the corporate veil would thus only be necessary when the international organization has legal personality, which might unduly shield its members from liability. As a result of the separate legal personality of an international organization, its acts are usually not attributable to its member states (the same is true vice versa).17 In exceptional circumstances, however, courts might pierce the corporate veil and hold member states responsible for the acts of the organization. As the Arbitral Tribunal noted with reference to the Barcelona Traction judgment of the International Court of Justice, such a piercing of the corporate veil might be warranted in case of a denial of justice or abuse of rights/8

The Westland Helicopters arbitration illustrates the challenges in holding international organizations and/or their members liable and raises many questions in this regard: can member states exclude their liability by virtue of the constituent instruments of the organization? How is the silence of the constituent instruments to be interpreted, in favour or against member state liability? In which situations do member states create reliance on their default liability in relation to third parties? The Tribunal in Westland Helicopters only partly found satisfactory answers to these questions, mainly on the basis of analogies with domestic corporate law. While the arbitral award on the competence of the Tribunal provided WHL with a procedural remedy for its damages, it also shook the foundations of the legal personality of international organizations. By holding that AOI member states had also waived their sovereign immunity by creating the AOI, the Tribunal certainly went a step too far. The far- reaching implications of the interim arbitral award were one of the reasons why the Federal Court of Justice in Geneva and the Federal Supreme Court annulled the award on appeal.19 Nonetheless, the Westland Helicopters arbitration remains one of the few cases in which a tribunal has allowed for the possibility of holding member states responsible for the acts of an international organization.

!7 See Application of the Interim Accord of 13 September 1995 (The Former Yugoslav Republic of Macedonia v Greece), Judgment, [2011] ICJ Rep 644, as discussed in ch. 1.6.

!8 cf. Barcelona Traction, Light and Power Company, Limited (Belgium v Spain), Judgment, [1970] ICJ Rep 3, 39 (para. 56).

!9 See ch. 6.2.

  • [1] Writing in 1950, Clyde Eagleton first addressed the responsibility of international organizationson the basis of hypothetical case scenarios. See C. Eagleton, ‘International Organization and the Law ofResponsibility’, (1950) 76 Recueil des cours 319. As one of the first authors, Ignaz Seidl-Hohenfeldern distinguished between the responsibility of international organizations and its members in ‘Die volkerrech-tliche Haftung fur Handlungen internationaler Organisationen im Verhaltnis zu Nichtmitgliedstaaten’,(1961) 11 Osterreichische Zeitschrift fur offentliches Recht 497. Other authors focused on specific topics such as space law (C.Q. Christol, ‘International liability for damage caused by space objects’,(1980) 74 American Journal of International Law 346; A. Bueckling, ‘Die volkerrechtliche Haftung furSchaden, die durch Weltraumgegenstande verursacht werden’, (1972) 21 Zeitschrift fur Luftrecht undWeltraumrechtsfragen 213) or peace operations (K. Ginther, Die volkerrechtliche Verantwortlichkeit
  • [2] cf. Interim Arbitral Award (5 March 1984), p. 612. 7 Ibid., p. 614. 8 Ibid.
  • [3] 9 Ibid., p. 615. io Ibid., p. 614.
  • [4] ii The commentary to the rules on the attribution of conduct in the Articles on State Responsibilityexplains: ‘These rules are cumulative but they are also limitative. In the absence of a specific undertakingor guarantee (which would be a lex specialis), a State is not responsible for the conduct of persons or entities
  • [5] in circumstances not covered by this chapter.’ Draft articles on Responsibility of States for InternationallyWrongful Acts, with commentaries, ILC Yearbook, 2001, vol. II, Part Two, p. 39 (para. 9). For a discus
  • [6] sion of reliance in relation to member states of international organizations see P. Klein, La responsa-bilite des organisations internationales dans les ordres juridiques internes et en droit des gens (Brussels,
 
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