Arab Organization for Industrialization and others v Westland Helicopters Ltd, Swiss Federal Supreme Court (First Civil Court), 19 July 1988, 80 ILR 652
Relevance of the case
The present case deals with the responsibility of states for the acts of an international organization. The decision by the Federal Supreme Court forms part of an appeal brought by the Arab Republic of Egypt (ARE) against an earlier arbitral award against the ARE and five other respondents. In that arbitral award, the Tribunal had held that the member states of the Arab Organization for Industrialization (AOI), including the ARE, had agreed to arbitration by virtue of the AOI constitution. In the present case, the Swiss Federal Supreme Court partly reversed this award by upholding the separate legal personality of the AOI. As a result, AOI member states, in particular the appealing ARE, could not be subjected to international arbitration. The Swiss Federal Supreme Court’s decision thus set the stage for the contemporary view on the question of the responsibility of member states of international organizations: due to the separate legal personality of an international organization, its member states cannot be held responsible for acts of the organization based on their membership alone.
I. Facts of the case
In 1975 the ARE, Saudi Arabia, Qatar, and the United Arab Emirates concluded a treaty establishing the AOI. According to the AOI’s Basic Statute, the organization was endowed with legal personality and exempt from the laws and institutions ofthe 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 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. This request was based on art. 12 of the Shareholders Agreement between the AOI and WHL, which provides as follows:
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. In its interim award of 5 March 1985, the Arbitral Tribunal decided that it was competent to hear the claims against the AOI and all of its four member states.1 While the three Gulf States had rejected to participate in the arbitral proceedings, the ARE (together with the ABH and the AOI) brought an appeal against the interim arbitral award before Swiss courts. The present decision by the Swiss Federal Supreme Court confirms the earlier decision by the Court of Justice in Geneva of 23 October 1987, which annulled the arbitral award. 
II. The legal question
The decision by the Swiss Federal Supreme Court mainly concerned the question whether, despite this absence of an arbitration agreement, the ARE was bound by an arbitration clause in the Shareholders’ Agreement concluded between the AOI and
WHL. The other three AOI member states had not filed an appeal against the interim arbitral award, which remained in force in relation to them.
F. Acting separately, the ARE, ABH, the EAOI and WHL submitted four appeals to the Federal Supreme Court against this decision.
WHL argues for the partial annulment of the decision under appeal, to the extent that it annuls the interim award of 5 March 1984 in so far as the Arbitral Tribunal declared itself competent in respect of the ARE, returns the award to the Tribunal for a decision on the costs and fees of the arbitration relating to this respondent, and awards the ARE costs against WHL. WHL also requests that the proceedings be conducted in accordance with Article 91(2) OJ.
ABH and the EAOI argue in the first place in favour of the decision under appeal and the remission of the arbitral award of 5 March 1984 to the Cantonal Court for annulment; as a fall-back position they seek the annulment of this award. The ARE approves the annulment of the challenged award in so far as it returned the award to the Arbitral Tribunal for a decision on the costs and fees of the arbitration in regard to the ARE.
ABH, the EAOI and the ARE ask for WHL’s appeal to be rejected. WHL argues in the first place for the non-admissibility of the appeals of ABH, the EAOI and the ARE; that failing it seeks their rejection. In the last resort, in the event of a total annulment of the award under appeal, it is in favour of the remission of the case to the Cantonal Court for it to make the necessary investigations. [...]
3. a) An arbitration clause is not opposable to anyone who has not personally signed it, unless that person is bound by the signature of an organ or third party having the authority to act for him in matters including the acceptance of arbitration (Jolidon, Commentaire du concordat Suisse sur Varbitrage, pp. 120 ff. and the decision cited at p. 121), or, again, on the basis of general or particular succession (cf. Jolidon, p. 140) or of special legal provisions within the meaning of Article 17(3) PCF (cf. ATF 102 la 582).
In this case, the appellants have not shown either a power of special representation or a succession to general or particular title. It is necessary also to consider whether the AOI or the persons who signed the arbitration clause on its behalf acted as organs or delegates committing the founding States of the Organization.
b) The Shareholders’ Agreement is a private law contract expressly said to be governed by Swiss law. One can agree with the Cantonal Court and the appellants that the AOI, signatory of this contract, is a legal entity, an organism under public international law. Instead of referring to the domestic law of a State to determine the status and legal structure of this organism it is a matter of looking at the provisions of the instrument or treaty which is at the base of its creation.
The basic treaty, concluded by the four founding States, is the Agreement for Establishing the AOI of 29 April 1975. It provides for the creation of the Organization, which will come into being on signature of its Basic Statute (Art. 6), will have legal personality, will enjoy full administrative and financial independence, will be exempted from laws and institutions of the Member States and will have the right of acquisition and disposal and to engage in litigation (Article 1). It will have a nominal capital of $1040 million divided equally between the Member States (Article 4), a sum which may be increased with the approval of the Governments of the Member States.
The Basic Statute of the AOI of 17 August 1975 confirmed the birth or existence of the Organization (Article 2), its endowment with legal personality and full legal capacity (Article 5) and the applicability to the Organization of the provisions of the Establishment Agreement and all regulations issued in accordance with the Statute (Article 7). Article 59 provides that agreements and contracts concluded by the Organization with those with whom it has business dealings are to include provision for the settlement of any disputes which may arise concerning them.
The personality accorded to the AOI, as well as the autonomy conferred on it at the legal, financial and procedural level, even including a specific provision conferring on it the possibility of concluding arbitration clauses or agreements (Article 59, previously cited), are the obvious and unequivocable signs of the total legal independence of the Organization in relation to the founding States. This autonomy rules out the possibility of the contracts it concludes with third parties, and more particularly the arbitration clauses to which it subscribes, being regarded as acts undertaken by a delegate or an organ engaging the founding States. The predominant role played by these States and the fact that the supreme authority of the AOI is a Higher Committee composed of ministers cannot undermine the independence and personality of the Organization, nor lead to the conclusion that when organs of the AOI deal with third parties they ipso facto bind the founding States. [...]
WHL’s appeal is therefore rejected. [...]
The present decision concerns the appeal against an earlier decision by the Federal Court of Justice in Geneva, which annulled the interim award of 5 March 1984 in the Westland Helicopters arbitration.3 By upholding the decision of the Court of Justice in Geneva, the Swiss Federal Supreme Court reversed the interim arbitral award on its most important point: that the AOI and its member states are one and the same. Although the Arbitral Tribunal had recognized the international legal personality of the AOI, it generally dismissed legal personality as a decisive indicator for the liability of member states. Instead it argued that the extent of member state liability should be based on the constitution of the AOI. Since the AOI constitution did not explicitly exclude member state liability, the Arbitral Tribunal found that member states were liable by default. According to the Tribunal, this conclusion was also confirmed by a Memorandum of Understanding signed by all four AOI member states with the United Kingdom to guarantee that the joint venture companies with a majority of AOI shareholdings would comply with their obligations.
3 See ch. 6.1 of this book.
Following an appeal by the ARE, among others, the Court of Justice in Geneva expressed its disagreement with the decision of the Arbitral Tribunal. Like the Arbitral Tribunal, the Court of Justice emphasized the legal personality of the AOI as laid down in arts. 5 to 9 of the Basic Statute. Unlike the Arbitral Tribunal, however, the Court of Justice did not proceed by comparing the AOI with a general partnership (‘societe en nom collectif’) in which the members intended to remain fully liable (‘membres responsible’). As the Court of Justice noted, ‘[i]t is not clear what legal grounds the Arbitral Tribunal has for accepting that the AOI is a legal entity under international law and then assimilating it to a corporation under private law, recognized by national legislations and subject to the rules of these legislations’. Both the interim arbitral award and the Court of Justice’s decision thus illustrate the struggle to find the appropriate framework to conceptualize international organizations. The Arbitral Tribunal had mainly used analogies with domestic corporate law to conclude that AOI member states have unlimited liability for the acts of the organization. In contrast to the Arbitral Tribunal, the Court of Justice concluded that the obligation to arbitrate arising from the Shareholders Agreement between the AOI and WHL was not opposable to the ARE. The MOU signed between the four AOI member states and the United Kingdom could not be used to support the opposite interpretation, mainly because it was res inter alios acta in relation to the claimant WHL.
This judgment by the Court of Justice in Geneva forms the basis for the present decision by the Federal Supreme Court. While relying on the Court of Justice’s prior arguments, the Supreme Court’s decision is characterized by a more detailed analysis of the separate legal personality of the AOI and its implications. The Federal Supreme Court underlined the provisions in the Basic Statute pertaining to the creation or existence of the AOI (art. 2) and its endowment with legal personality and full capacity (art. 5). More importantly, the Court emphasized the legal, procedural and financial autonomy of the AOI, which also enables the organization to conclude arbitration clauses or agreements on its own behalf (art. 59). According to the Supreme Court, the AOI’s legal personality and autonomy are ‘unequivocable signs of the total legal independence of the Organization in relation to the founding States’. The Supreme Court thus acknowledged the volonte distincte of the AOI from its member states.
While declaring the analogies drawn by the Arbitral Tribunal between partnerships in domestic law and the AOI irrelevant, the Federal Supreme Court itself resorted to corporate law to support its views. More precisely, it used two arbitrations involving state-owned companies to distill principles that might be relevant for determining relationship between the AOI and its member states. In Libya v Wetco, the Swiss Federal Supreme Court had held that Libya was not bound by an arbitration clause concluded between the Libyan National Oil Company and a foreign corporation.9 In a similar vein, the Paris Appeals Court vacated an arbitral award finding that Egypt had not become a party to the contract between S.P.P. and the Egyptian General Organization for Tourism and Hotels, which included the arbitral clause.10 Against this background, the Swiss Federal Supreme Court in Westland Helicopters found that the AOI is not any less independent from its members than those companies. The Court also noted that strict control of a legal person by a state, or the close link between the two entities, does not automatically allow for the conclusion that the state is bound by an arbitration clause without having signed it.“ Such a conclusion is objectively excluded when the entity concerned has legal personality, even if the state partly ‘finances, supervises, controls and imposes on it very detailed rules of conduct'd2
Refining the decision of the Court of Justice in Geneva, the Federal Supreme Court explained that the legal personality and autonomy of an international organization such as the AOI excludes the imposition of the AOI's obligations on its member states. Unlike the Arbitral Tribunal, the Federal Supreme Court made clear that the legal personality of an international organization is decisive in determining the scope of liability of member states. In this context, the Federal Supreme Court also clarified that the approval of a minister of a member state to an arbitration agreement concluded by the organization does not imply a waiver of immunity on the part of the member state, which is not a party to the agreement/3
By discussing the implications of the legal personality and autonomy of the international organization, the Federal Supreme Court's decision set the stage for the subsequent treatment of the topic of the responsibility of member states of international organizations. One year later, the UK House of Lords held that the International Tin Council (ITC) ‘is a separate legal personality distinct from its members', and that its contractual obligations could not be imposed on non-parties such as the ITC member states.14 Both the Westland Helicopters and the ITC cases had a notable influence on the work of the Institut de droit international (IDI) on the topic of ‘The legal consequences for member states of the non-fulfillment by international organizations of their obligations toward third parties'. As the first major codification effort, the IDI generally excluded the liability of member states on the basis of the separate legal personality of the organization. As noted in the Institute's 1995 resolution: there is ‘no general rule of international law whereby States members are, due solely to their membership, liable concurrently or subsidiarily, for the obligations of an international organization of which they are membersT5
ю cf. S.P.P. (Middle East) Ltd And Southern Pacific Properties Ltd v The Arab Republic of Egypt and the Egyptian General Organization for Tourism and Hotels; award published in (1983) 22 ILM 752; the judgment of the Paris Court of Appeal is reprinted in English in (1984) 23 ILM 1048.
Nonetheless, it is significant that the IDI acknowledged certain exceptions to this general rule. A state member of an international organization may incur liability to a third party ‘through undertakings by the State’.16 Indeed, the arbitral award’s finding of member state liability seemed to place decisive weight on the MOU signed between the four AOI member states and the United Kingdom, which was intended to guarantee the AOI’s compliance with its commitments. Like the Court of Justice in Geneva, however, the Federal Supreme Court found this MOU was res inter alios acta in relation to WHL. Although WHL might have relied on the MOU, it was not a party to it. Alternatively, the arbitral award might also be interpreted in light of another one of the exceptions provided for by the 1995 IDI resolution. It could be argued that ‘the international organization has acted as the agent of the State, in law or in fact?7 However, both Swiss courts, when finding that the AOI and its members were not one and the same, at least implicitly rejected the possibility of agency by the international organization.
While setting the stage for the contemporary debate on the responsibility of international organizations and their members, the Westland Helicopters decisions addressed the quite unique situation of the disappearance or liquidation of an international organization.^ Although the legal status of the AOI remained unclear during the arbitration, the three Gulf States had pronounced their intention to dissolve the organization/9 The only well-known comparable example is the collapse of the ITC.20 Modern cases regarding the responsibility of member states of international organizations such as Behrami and Saramati v France, Germany, and Norway or Nuhanovic and Mustafic v The Netherlands rather focus on the attribution of conduct to the international organization and/or its member states.21 Nonetheless, notable parallels between the Swiss Westland Helicopters decision and these modern cases exist. The question of whether or not the AOI had legal personality separate from its member states, thus shielding its members from the obligations to arbitrate, is ultimately also a question of attribution of conduct. Only by virtue of its legal personality is the international organization a ‘centre of attribution’ for the acts of its member states.22 Since international organizations typically have immunity before domestic courts and are not subject to the jurisdiction of international tribunals, the outcome in such recent cases is also strikingly similar to that in the Swiss Westland Helicopters decisions: the injured party (in casu WHL) is left without a remedy/3
‘6 cf. art. 5 (c)(i) of the 1995 IDI Resolution. ^ Ibid.
!8 On the dissolution of international organizations see R. Wessel, ‘Dissolution and Succession: The Transmigration of the Soul of International Organizations’, in J. Klabbers and A. Wallendahl (eds), Research Handbook on International Organizations (Cheltenham/and Northampton, Edward Elgar 2011), p. 342.
‘9 See the commentary on the Westland Helicopters arbitration in this book.
In view of this bleak outcome of the Swiss appeals procedure, it is not surprising that the Arbitral Tribunal had previously invoked concerns of equity when deciding that AOI member states were bound by the arbitral clause in the Shareholders Agreement. As the Tribunal stated, ‘[e]quity, 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’. However, the Swiss Federal Supreme Court did not take up this argument. Not all situations that are to the detriment of injured parties can lead to a lifting of the corporate veil. The Federal Supreme Court rather pointed to the existence of objective criteria to decide when the actions of a member can be equated with those of the international organization. As discussed above, the crucial criterion for the Supreme Court was the attribution of legal personality to the organization in the AOI constitution.
Nevertheless, the mere provision of legal personality in the constituent instruments of an international organization appears to be an insufficient criterion. Member states could abuse the legal personality of the international organization by de facto depriving it of its autonomy, and thus degrading it to a mere sham or alter ego of themselves.2 While explicit provision of legal personality is certainly an important indicator for the autonomy of an international organization, further criteria are needed to determine whether an international organization exists separately from its member states.
With its Westland Helicopters decision, the Swiss Federal Supreme Court opened the on-going debate on the responsibility of member states for the acts of an international organization. The most recent attempt to codify a rule on the piercing of the corporate veil of an international organization was made by the ILC’s ARIO. However, art. 61 of the ARIO on ‘circumvention of international obligations of a State member of an international organization’ has not been very positively received in international legal practice and scholarship” Following the decision of the Swiss Supreme Court, the Westland Helicopters arbitration ended with an award in favour of WHL in 1993.2® In line with the Swiss decision and the predominant view in legal doctrine, the responsible party was the AOI and not its member states.