Committee of Experts for the Progressive Codification of International Law REPORT TO THE COUNCIL OF THE LEAGUE OF NATIONS Adopted by the Committee at its Third Session, held in March-April 1927 RECOGNITION OF THE LEGAL PERSONALITY OF FOREIGN COMMERCIAL CORPORATIONS*

The Committee of Experts for the Progressive Codification of International Law was required under its terms of reference:

(1) To prepare a provisional list of the subjects of international law the regulation of which by international agreement would seem to be most desirable and realisable at the present moment;

(2) After communication of the list by the Secretariat to the Governments of States, whether Members of the League or not, for their opinion, to examine the replies received; and,

(3) To report to the Council on the questions which are sufficiently ripe and on the procedure which might be followed with a view to preparing eventually for conferences for their solution.

In execution of these terms of reference, the Committee requested a Sub-Committee:

"To examine, with a view to regulation by international agreement, the question of the recognition of the legal personality of foreign commercial corporations."

The Sub-Committee, which was composed of M. RUNDSTEIN, Rapporteur, and M. M. GUERRERO and SCHÜCKING, submitted to the Committee a report setting out the reasons in support of its conclusion that the subject is one the regulation of which by international agreement is at the present moment desirable and realisable.

M. Schücking has submitted observations on the subject of this report, to which M. Rundstein has replied.

The report, with the observations and the reply, has been examined by the Committee of Experts.

The nature of the general question and of the particular questions involved therein appears from the report. The latter contains a statement of principles to be applied and of the solutions of particular questions which follow from these principles. The Committee regards this statement as indicating the questions to be resolved in order to deal with the matter by way of an international agreement. All these questions are subordinate to the larger question set out above.

* Publications of the League of Nations. V. Legal. 1927. V. 11.

The Committee is informed that this subject has just been placed on the agenda of the Conferences on International Private Law which the Government of the Netherlands proposes to convene, and that a questionnaire dealing with it has already been sent to a certain number of Governments. Considering, in consequence, that, if the Government of the Netherlands proceeds in the near future to follow up this initiative, which it has taken since the last session of the Committee, submission of the subject to the Governments in accordance with the Assembly's resolution of September 22nd, 1924, might be regarded as superfluous, the Committee has resolved to transmit its Sub-Committee's report to the Council, with an expression of the opinion of the Committee that the subject, within the limits indicated by the report, is one which it is desirable and presently realisable to regulate by international agreement, either in the manner contemplated by the Government of the Netherlands or, if this initiative remains without effect in the near future, in such other manner as the Council may deem appropriate.

The Committee feels it desirable to add that it does not pronounce either for or against solutions proposed for special problems by the Sub-Committee. At the present stage of its work, it is not for the Committee to put forward conclusions of this nature. Its task is rather that of directing attention to certain subjects of international law the regulation of which by international agreement appears to be desirable and realisable.

The report of the Sub-Committee, with the observations and remarks bearing on it, is attached to the present communication. Geneva, April 2nd, 1927.

(Signed) Hj. L. HAMMARSKJÖLD, Chairman of the Committee of Experts.

ANNEX

REPORT OF THE SUB-COMMITTEE

Rapporteur: M. RUNDSTEIN.

Members:

M. GUERRERO.

M. SCHÜCKING.

"Is it possible to establish, by way of a convention, international rules concerning the recognition of the legal personality of foreign commercial corporations?"

[Translation]

Having had the honour to be appointed Rapporteur of the Sub-Committee which was directed to examine the question stated above, I must observe, at the outset, that there is a very intimate connection between the problem of recognition, as it is generally conceived, and the question of nationality (eighth question).

For, the very moment one speaks of the recognition of "foreign" commercial corporations, one raises, in so doing, the crucial and really characteristic point of the problem by emphasising the fundamental distinction between bodies which are styled "foreign" and those which are styled "national" corporations. In point of fact, "recognition" implies "legal existence." No such question could be raised in the legislation of any country in respect of corporations constituted under its own laws, since the fact of the corporation having been constituted connotes its recognition. No international tribunal can be competent to decide a question which could not even be raised before a purely national tribunal. Unless we define the distinctive characteristics of the so-called "foreign" corporations, we cannot approach the solution of the problem of recognition, since the latter question possesses no importance from an international point of view, except in relation to foreign corporations.

Having said this, I must also point out that the problem raised in the questionnaire concerning the recognition of the legal personality of foreign commercial corporations is stated in rather restrictive terms. It may appear at first sight that the recognition of commercial corporations which are not invested with a legal personality is a question unsuited for international settlement. But would such corporations not be able to act outside the country in which they were constituted, and would they not require recognition in order to enjoy certain legal rights, even if they were not subjects of law in the strict sense of the term?

Even if they are not invested with a distinct and independent personality, they are nevertheless regarded as entities, capable of exercising certain rights and subject to certain obligations of a collective nature (for instance, the capacity to sue or be sued), without any confusion arising thereby between collective capacity and individual rights and obligations. It would be in conflict with the principle of respect for established rights to argue that a commercial corporation which does not possess legal personality is incapable of receiving recognition outside the frontiers of the country in which its seat is situated.

We have already pointed out in our report on the question of nationality that the criterion of nationality or non-nationality cannot be applied to corporations which are not so constituted as to possess a legal personality; we proposed that States which were willing to have the question of nationality settled by a uniform method should be allowed to make an express declaration to the effect that the terms of the convention should not apply to corporations having no legal personality. Even if the idea of such a reservation should find acceptance, it would still be without influence on the question of recognition. If, therefore, in the case presumed by the above reservation, the State in question attached particular importance to the nationality of the partners, quâ partners, in such an association, that would not affect the question of the recognition of the corporation in its relations

with foreign countries. We should not be concerned, in such a case, with the recognition of a legal personality but with the recognition of certain clearly defined obligations and rights, resulting from a contract governed by the laws of another country; the existence and the legal consequences of such a contract would have to be determined according to the provisions of those laws, subject to the necessary reservations in regard to public law (see POULLET, Manuel de droit international privé belge, 1925, page 219). Moreover, it should be noted that when commercial treaties deal with the recognition and legal existence of commercial societies they make no distinction between those which are endowed and those which are not endowed with a legal personality. Such treaties usually say: "Joint-stock companies and other commercial societies . . . shall be recognised" (or else "shall have their legal existence recognized") without any distinction being drawn in regard to the characteristics of these "other" societies.

We therefore hold that, quite apart from the recognition of the legal personality of commercial corporations, it would be possible to regulate the wider question of their international existence, leaving out of consideration the legal character bestowed upon them by the competent territorial legislation.

It is true that general international law contains as yet no written rule on this question of recognition; but practice and jurisprudence alike tend to uphold the general principle stated above, even if there are no explicit rules on the subject. As is known, a clause for the recognition of corporations has become common form" in commercial treaties. But even where there is no special clause of that nature it is generally accepted that a foreign corporation, which is regularly constituted and conforms to the laws of the country where it has its centre of management and control, is to be regarded as existing when, in consequence of its activities, the courts of some other country are seized of a question concerning it for which they are competent. The relevant clauses of the commercial treaties cannot be construed as setting forth a legal principle which had no previous existence, since these clauses are declaratory rather than creative of new law. By rehearsing and explicitly affirming an already existing rule, the contracting parties renounce their right to abrogate it by unilateral action. It would be inconceivable that the tacit acceptance of a rule, sanctioned by use and even regarded as one of the understandings of customary international law should absolutely prevail over the sovereignty of the individual State. The legislation of the country must always remain free to vary the rule; it may make recognition dependent upon a previous (general or special) authorisation, or it may make it subject to reciprocity.

It is sometimes stated that recognition is accepted in practice as a customary rule (see BAR, ASSER). Other authorities have regarded this alleged customary right as a phantasm (LAURENT). We prefer an intermediate opinion, expressed by MAMELOK (Die juristische Person im internationalen

Privatrecht, 1900), who, after making an ingenious distinction between "gemeines Recht" and "gemeinsames Recht," argues for the existence of the customary law, except in so far as it may be expressly restricted by the laws of the country (pages 35 and 36). It therefore appears highly desirable that the above-mentioned rule, prescribing general recognition, should be explicitly confirmed by a multilateral convention, which would overrule special laws on the subject and would sweep away the complicated system of general or special authorisations.

Even in countries in which the recognition of certain foreign corporations is made subject to previous authorisation-it will have been noticed that the exceptions are more frequent than the rule-recognition was affirmed by means of unilateral declarations or of special conventions; similarly, regard must be paid to the working of most-favoured-nation clauses. As a fact, even if the absence of an authorisation for certain classes of corporations were to entail non-recognition (as under the French law of May 30th, 1857), the non-recognition of foreign corporations would not connote their non-existence in law. For instance, it has been agreed that such a corporation though non-existent, is liable to be sued, even if it is refused the right to appear as a plaintiff.

Such a system is really very far removed from the notion of non-existence; for instance, French jurisprudence, while describing unrecognised corporations as corporations de facto, admits that they may sue as plaintiffs in cross-actions. Such an attitude is clearly inconsistent; if it is true that an unrecognised corporation has no existence, that doctrine should hold good in all cases, and the distinction between the status of the corporation as an active and as a passive party to a suit is utterly artificial (see PILLET, Traité II, page 816). The non-recognition which results from the absence of authorisation must be regarded rather as a prohibition restraining such corporations from engaging in business in the country. But this nonrecognition does not imply that they do not exist in law; that would be in conflict with the principle of respect for established rights; and although, in the absence of recognition, a foreign commercial corporation may not be authorised to engage in the regular activities for which it was constituted, it nevertheless exists as a legal personality (PILLET, Traité II, pages 817 and 818). It would therefore be inconsistent to refuse it the capacity to sue or be sued, or, for instance, the capacity to defend rights which it has acquired in its country of origin and which have to be maintained before the foreign Court. Or, again, how could such a corporation be declared incapable of purchasing raw materials in foreign countries for use in its country of origin? And who would contend that it was non-existent if it sought to defend rights arising out of contracts concluded with its purveyors in foreign countries?

We must therefore recognise foreign corporations as subjects of law andif they do not possess legal personality in virtue of the laws under which they