Disclaimer: This essay has been written by a law student and not by our expert law writers. View examples of our professional work here.

Any opinions, findings, conclusions, or recommendations expressed in this material are those of the authors and do not reflect the views of LawTeacher.net. You should not treat any information in this essay as being authoritative.

Group of Companies Doctrine

Info: 5413 words (22 pages) Law Essay
Published: 17th Jul 2019

Reference this

Jurisdiction(s): EU Law

In practice :

There are different jurisdiction that have accepted what is known as the “group of companies doctrine”. France, for example, applied the “group of companies doctrine” only if two conditions are met. The first one is that the company that did not sign the arbitration agreement or was not apart in the arbitration clause has played a role in concluding, performing or terminating the contract that contains the arbitration agreement. On the other hand, to apply this doctrine, it was also required to have a common will of the parties that have signed the arbitration agreement, that the non signatory parties are bound by the contract and as a consequences they are bound to arbitrate in case a dispute connected to that contract comes into the existence. [2]

The importance of this doctrines lies on the possibility to extend the application of the arbitration agreement to other companies of the same group that did not sign the arbitration agreement. [3]

In Dow chemical group v. Isover- Saint- Gobain case [4] , several companies from a group of companies was known as Dow chemical group have brought a claim against Isover. although, some of these companies, which are the parent company of the companies that have signed the arbitration agreement and another French subsidiary that belongs to the same group, did not signed any arbitration agreement. They were brought into arbitration which was commenced to resolve dispute that have arisen in relation to several distribution agreement which were signed by two companies only. Conversely, the parties to the arbitration were not exclusive to these two companies as each of Dow Chemical Venezuela, Dow Chemical AG, Dow Chemical Europe and Dow Chemical France, which all of them were controlled and owned by the Dow Chemical Company incorporated which has its main branches in the United states . This can be an example in which the arbitration agreement was extended to include parties did not intended to be a part of arbitration. though, according to the fact of this case, the concluded contract gave permission to any subsidiary of the Dow Chemical group to participate in the performance of the contract by making deliveries were agreed on the contract. when it came to the performance of the contract, Isover Saint Gobain was not satisfied about the products and as a result it started court proceedings against Dow Subsidiaries before the French court. By doing so, Dow chemical believed that Isover has ignored the arbitration clause that was a part of the contract related to its allegation. Thus, Dow Chemical group has requested for an ICC arbitration against Isover Saint Gobain. The request was filled by Dow Chemical Co, the parent company, Dow Chemical AG and Dow Chemical Europe, the last two were the signatories parties as well as another subsidiaries of that group which is Dow Chemical France. By identifying the claimants, Isover has objected on the participating of the subsidiaries and the parent company as they did not sign the distribution agreement that included an arbitration clause. Thus, they did not intended to arbitrate any claim against it. The tribunal refused the objection, by rendering an interim award, on the bases that the non-signatories companies which initiated the arbitration had an effective role in the performance of the distribution agreement, as all deliveries were made by these companies not by the signatory parties. As well as, the conduct of the non signatory company may be justified by the fact it was the parent company of one of the signatory parties, and this will lead to the conclusion that the signatory company was controlled and directed by the parent company. For these reasons, an implied consent may be the legal bases for having a non signatory parties in the aforementioned arbitration.

However, this was not the followed doctrine in all cases that were dealt with by the ICC. For example, in one of the ICC cases [5] the arbitral tribunal decision was not in favour of the “group of companies” doctrine. The arbitrators decided that the arbitration agreement should be extended to any other company other than the company that signed the arbitration clause, even though it was from the same group of companies. The tribunal explained its point of view which is that there must be an intention of parties to have a non signatories parties bounded by the arbitration agreement and parties may intend impliedly through being a part in the performance of the commercial dealings. However, the tribunal found that it is necessary that the non signatories parties have played an key role in creating the contract includes the arbitration clause. Taking into account the circumstances of this case, the tribunal though that the requirement to apply the group of companies doctrine was not met, since the company, that did not signed the arbitration clause but wished to be apart of the arbitration, participated in the negotiation of the commercial transaction and of the provision related to that transactions but did not signed the contract that included the arbitration agreement. As a result, the tribunal decided that it is not possible to have this company in the arbitration in question.

Isover has challenged the tribunal findings before the court of appeal in Paris, since the arbitration was an ICC arbitration in Paris. However, the court found that according to the agreement between both parties and following the principle of party autonomy, the tribunal has decided according to the common intention of all parties in deciding on the applicability of the arbitration agreement, as the tribunal has justified its findings by interpreting the arbitration agreement and the commercial contract itself, and by doing so, it found that the core of the contract did not give any attention to the choice of the company that belongs to the Dow Chemical case as well as one important clause was founded in favour of extending the arbitration agreement to non signatories companies, as the arbitration clause authorized or more specifically stated that in case any dispute arises in a later stage, any companies that is controlled by the Dow Chemical Co. will be bound by the arbitration agreement if it has played an important role in the conclusion, performance or termination of the contract in which an arbitration clause was contained. And this was exactly the situation in the case in question, since the French subsidiary was a part of the parent company and has played the key role in the performance of the contract. after the Dow Chemical case, the point of view of the tribunal and the court of appeal in France was followed by other tribunals in a subsequent cases. [6]

on the other hand, applying a group of companies doctrine under the English law is different from that under the French law. the English courts did not apply the group of companies doctrine. In one case that were initiated before the English commercial court [7] . In this case, according to the arbitration agreement, the applicable law on any potential dispute will be the English law. when a dispute related to the payment obligation has arisen between two companies that were known as CMI and Fagor, a claim was brought by the latter against Caparo which was the main shareholder in CML. The court decided that Caparo was not a party to either the sale contract or the arbitration agreement and by applying the English law, there is no clause that can be the basis to justify the claims against Caparo.

In the Peterson Farms Inc. v C&M Farming, the court ensured that it is not for the procedural law that was agreed on by the parties of the arbitration agreement to identify who are the parties of such agreement, but rather it is for the substantive law to decide on this issue.

In Peterson Farms , the parties have agreed on the Arkansas law to be the applicable substantive law. however, the tribunal did not take into account the aforementioned law and assumed jurisdiction over both signatories and non signatories parties to the arbitration agreement. The defendants in the arbitration alleged that the tribunal has rendered an ward without having the jurisdiction to do so, as some of the claimants were not a party to the arbitration agreement and in this case they must not be a party to the arbitration since they did not intended to be so. The tribunal refused the allegation of Peterson farms, which were the defendants of the arbitration, and held that according to the Dow chemical case, the tribunal would have jurisdiction over the claimants that did not sign the arbitration agreement from the outset. The case were brought before the English court by Peterson farms and the court decided that the tribunal did not take into consideration the consent of the parties from two sides, the first one that according to the party autonomy principle, parties to the arbitration agreement have the liberty to chose the applicable law by which the parties to arbitration must be identified. However, the tribunal did not apply the Arkansas law. the court applied the law chosen by the parties and found that the law did not contain any provision related to a group of companies doctrine, and thus the tribunal had no jurisdiction to render the award in question.

It can be said that both laws, the English law and the Arkansas law have the same position of the group of companies doctrine. Nevertheless, it is true that the English law did not deal with the group of companies doctrine, it is still can be applied by the application of section 46(1)(b) under certain circumstances. If the consent of all parties, this includes both signatories and non-signatories, was towards having a multiparty arbitration, it would be possible to have it irrespective of the position of the English law. [8]

Under this principle, which is considered to be one bases for binding a non-signatory to an arbitration agreement, if a company is part of corporate group it can be bound to arbitrate where a specific conditions are met.

However, being a part of a corporate group is not enough to assert jurisdiction over a non signatory parties and it is not enough to bind them to arbitrate. According to Gaillard and Savage, the whole idea of the group companies depends on the intentions of the parties. [9]

One of the important feature of group of companies doctrine is that it identifies the parties’ intentions without having any effect on the legal personality of these parties. [10]


The swiss la did not take into account the notion of group of companies, this is pursuant to the swiss fedral tribunal which denied that a non signatory parent company is to be bound by an arbitration agreement between different parties. [11]

However, in another cases, tribunal refused to apply the doctrine of group of companies such as the ICC award in case N. 2138 of 197438 [12] , where the tribunal decision was against applying the doctrine of group of companies as it stated that it is not possible to extend an arbitration clause that was signed by one company of group of companies to another one from the same group. [13]

The fact of this case was that two companies that belong to the same parent company, were known as F.C & F.D, entered into an operating agreement that is related to the exploration of certain Oilfields in an American country. The agreement contained an arbitration clause which states that all disputes arise out of the agreement must be referred to ICC arbitration. a dispute arose and the jurisdiction of the tribunal over the parent company was questionable. According to the ICC rules, it is for the tribunal to decide on whether S.D, which was the parent company of the companies that signed the arbitration agreement, is a proper party to the arbitration or not. By examining the arbitration agreement, it was clear from the introduction of the arbitration agreement that only the subsidiary, F.D, was the only part to the aforesaid agreement. As the arbitration clause was not signed by the mother company as well as, it was understood form the materials submitted to the tribunal that F.D was a separate legal entity and it was not controlled by S.D.

According to some scholars, the problematic question of the possibility of extending the arbitration agreement that was signed by a company belonging to a group of companies to another company of the same group if the latter did not sign the arbitration agreement may arise only if both of these companies, the signatory and the non-signatory, have its own legal personality. [14]

One view was that if one of these legal persons is a branch of the other one, in case one of them has signed an arbitration agreement, it will be extended to the other one and there will be no difficulties in doing so. This view was justified by the fact that both of these entities constitutes together one legal entity. [15]

On the other hand, there is another view which is not strict as much as the previous one. It was believed, Under the lenient view, that it is possible for an arbitration agreement to be expanded to include companies that had not signed it, if this arbitration agreement was signed by other companies where there is a connection between them, such as being controlled by each other or by a parent company. However, irrespective of the thinking that this view is more flexible that the first one, certain conditions were required to be satisfied. For example, it is important to identify the extant to which all of the involved companies are controlled by only one legal entity. [16]

Ultimately, it was believed that the real reason of the ability of extending an arbitration agreement to cover parties that did not sign it, is not the existence of group of companies but rather it is factual intention of the parties. [17]

All of Fouchard, Gaillard and Goldman believe that the core of the matter of extending any arbitration agreement lies on the consent of the parties, they stated that irrespective of which party has the interest in participating in an arbitration, it is for the tribunal to decide on this subject matter according to the fact that the tribunal may reach by interpreting the arbitration agreement, since even if one party request to have a third party in the arbitration, it is not enough to bring that party into the arbitration, it is crucial to notice that one of the most important features of arbitration is that the parties must have the will to arbitrate their disputes. Thus, even if the parties that have signed the arbitration agreement agreed on having a non signatory party at a later stage, some arbitration rules and laws require the consent of the parties that is to be brought into the arbitration.

However, the type of the required consent might be achieved expressly or impliedly. an example on the first one is where the parties that have signed the arbitration agreement agree with the non – signatory party to take a part in the arbitration at the time of initiating the arbitration. in reality this might be difficult to achieve, since once the dispute arise it will be difficult for the parties who have conflicted interest to agree on extending the arbitration to include a 3rd party that might have an interest, this issue might be more problematic when there is only one party has an interest in exceeding the agreed number of parties.

The consent of the third party might assumed by the arbitrators, as they should investigate about the contribution of the 3rd party in the negotiation of performance of the main contract. [18] however, the tribunal may extend the arbitration agreement if it was clear from the subject matter of the contract that it concerns the group of companies as one legal entity or where the wording of the arbitration agreement that the group is regarded as a party to the key contract. [19]

In one of the ICC cases [20] the claimants were three companies, ADA, BDB and CDC, as well as their main shareholders. Their work was related to hotels business. The shareholders of these companies has entered into a protocol to create a hotel group with another company. However, for some reasons the protocol was not put into operation and as a result, the three companies and their shareholders have initiated an ICC arbitration in Paris since the protocol included an agreement to arbitrate any dispute that may arise out of it. Irrespective of the fact that Mr. Paul, the shareholder of the three companies, was the one who signed the arbitration agreement, each of the three companies has alleged damages that it suffered because of the failure of the other company, which has signed the agreement with the shareholder, to implement the protocol. The question in this case was whether the tribunal may assert jurisdiction over these three companies since they did not sign the arbitration agreement, it was stated that the scope of an arbitration agreement can be extended to the three non – signatory companies only if they have played a specific active role in the stage prior to concluding the contract or the agreement that included the arbitration clause. Or if these companies were directly connected to the agreement.

The doctrine of group of companies was developed by different entities such as the ICC tribunals and the French courts. [21] Because of being an essential element of arbitration proceeding, the non existence of an arbitration agreement is considered to be the main problem of having non signatory parties participated in arbitration. The other important obstacle that both courts and tribunals should deal with is to find whether the tribunal has the jurisdiction over these parties. Thus, the dilemma is related to the extension of the arbitration agreement and the extension of the effects and the extent of the tribunal jurisdiction over non signatory companies. This is pursuant to the fact that the arbitration agreement has both jurisdictional character as well as a contractual nature. [22] in another words, the tribunal must deny its jurisdiction if there is no arbitration agreement from which it can obtain its power over parties because the arbitration agreement is the main evidence for denying the jurisdiction of the national courts and for proving that the parties intended to resolve their dispute through arbitration.

It is essential to mention that the existence of a group of companies is no sufficient by its own

To apply the arbitration agreement over non signatory parties, since according to the

Arbitration tribunal and national courts more requirements must be met to be able to extend the arbitration agreement. [23] Irrespective of the fact that one of these requirements was to

Have Contributing in the negotiation or performance of the main contract, a signed

Arbitration clause still required. This doctrine was expressed in the Dow chemical case in 1982, in which the court stated that “a group of companies constitutes one and the same economic reality of which the arbitral tribunal should take account when it rules on its own jurisdiction” (dow chemical v. Isover saint Gobain, 1982).

In relation to the condition related to the relationship between these companies, the non signatory and non signatory companies, it is important to identify if these companies are controlled by the same parent company. This issue was discussed in Clayton Brokerage Co v. teleswitcher Corp case [24] as well as in State of New Jersey department of environmental protection v. Ventron Corp [25] , where it was essential for the tribunals to investigate about the extant to which the parent company has controlled other subsidiaries in order to apply the group of companies doctrine.

The courts decided that this doctrine might be applies only if there was a real connection between the parent company and its subsidiaries, it was stated that when the parent company decides on all its subsidiaries’ business decisions without having any discussion with the concerned subsidiary [26] courts allowed the application fo the aforementioned doctrine. Also, it was possible to extend the arbitration to a parent company where the subsidiary main work is for the exclusive benefit of the parent company. [27]

In practice :

see dow chemical

the sponsor A.B Case [28] :

a negotiation, between Swedish group Sponsor which belonged to Sponsor A.B and the French group Lestrade, has started concerning an acquisition of two companies that were a part of the latter group. A protocol was concluded and it included an ad hoc arbitration clause was signed by the two parties who negotiated the undertakings. Several years later, a dispute has arise, as a result the Lestrade group started an arbitration proceedings against the Swedish group Sponsor as well as Sponsor A.B. the defendant did not respond to the arbitration and as a result the claimant requested from the commercial court to appoint an arbitrator that present the absent defendant, the court chosen an arbitrator. However, Sponsor A.B has objected on the court decision and alleged that he was not part of the main contract and in sequences he was did not sign the arbitration agreement. Thus, an arbitration proceeding cannot be commenced against him. The defendant appealed the court decision. Though, his appeal was refused. The court justified its findings by giving the fact although Sponsor A.B did not actually sign the arbitration agreement nor the main contract, it has played an important key role in the conclusion of the contract and for this reason it is reasonable to extend the arbitration clause to this company which did not sign the arbitration clause. The court held that this company is bound by the arbitration agreement because its active participation in the conclusion of the contract that contained the arbitration clause is interpreted as agreeing to be a part of this arbitration proceedings and this was deemed to be the common intention of all the parties to the arbitration clause. [29]

another example that is related to the application of the group of companies doctrine is the ICC case number 5103 [30]

in a recent case, Long v.Silver [31] ,

the court gave permission to a non signatory parties, in particular , shareholders to join arbitration if some conditions are met, the first one was that all of the shareholders must be members of the board of directors and they must control all of the activities of the cooperation.

Some scholars have distinguished between extending an arbitration agreement to a non signatory parent company from being extended to other subsidiaries in the same group as well as to a non signatory company that is not a subsidiary but belongs to the same group. [32]

In a French case [33] (we have mentioned before) the decision was contrary to a decision in an ICC case [34] the tribunal rejected the plaintiff’s request to apply the arbitration agreement, that was signed by an individual (X) for the benefit a subsidiary company (FD), over its parent company (SD), the tribunal reasoned its decision by pointing out that the parent company did not sign the arbitration clause which is a key element for being bound by the arbitration agreement. As well as, due to the fact that the arbitration clause was not signed on behalf of the parent company but rather on behalf of the subsidiary. Also, the person who had signed the arbitration clause was not authorised to conclude any transactions on behalf on the parent company As a result, FD is considered to be the only company that is bound by the arbitration and the award as consequence and the most important issue is that the intention of the parties plays an important role at the time of agreeing to arbitrate any dispute that relates to the commercial transactions concluded between the parties, and by considering the circumstances of this case, it was clear that at the time of signing the memorandum of agreement, it was known to the party, that applied to extend the arbitration agreement to the parent company to be a part to the arbitration, that the subsidiary will be the part who is going to perform the contract and not the parent company. Thus, it was supposed from the begging to disclose the intention of having the parent company as a part to the arbitration that was agreed on.

The Swiss approach was different from the French one, in the former; the Swiss tribunal was stricter and ignored the notion of the group of companies. However, the French court gave an importance to the group of companies’ doctrine and was deemed to be more liberal concerning the extension of an arbitration agreement. [35]

Concerning the Swiss approach it is deemed that it was not stable. The main approach was different from that one in the last century since the possibility of applying the theory of a group of companies was denied, after that, it was decided by an ad hoc tribunal that it is possible to extend the arbitration agreement to the parent company if an important condition is met, which was that the arbitration clause must be entered into by a wholly owned subsidiary. [36]

On the other hand, in the united states the situation concerning the group of companies doctrine, in the case United Int’l Holdings, Inc. v. wharf (holding) Ltd. [37] In which the court refused to extend the doctrine duo to the fact that the signatory company had its own legal personality and was separate from the other companies that were belonged to the same group of companies but did not sign the arbitration agreement.

One important point must be explained to illustrate the mechanism that must be followed to determine the possibility of extending the arbitration agreement, which is that the tribunal should take into account the structure and organisation of a group of companies. This is due to the fact that several companies whatever the connection between them, whether they are subsidiaries, parent or sisters companies, might constitute what is called unite ecompanique doctrine, which propose that any company can be a part of an arbitration clause that is signed by one company of the former is a subsidiary or a parent company whether the latter is the claimant or the respondent. [38]

However, Otto Sandrock believes that the group of companies doctrine must be rejected for variant reasons; there are different principles that are related to international and domestic business law lead to the conclusion that an arbitration agreement must have an effect only over parties that have signed such agreement and to keep any other non signatory outside the scope of an arbitration clause. For example, the interpretation of the form requirement principle, which exist in most important the international conventions concerning international arbitration, such as the New York convention on the recognition of foreign arbitral awards article II as well as article I of the European convention on international commercial arbitration, requires the signatory of the parties to be able to participate in an arbitration. Pursuant to these articles, Otto sandrock argued that the most important element to determine the parties to arbitration is the signature of such parties irrespective of being a member of group of companies whose other members have signed the arbitration agreement. [39]

In relation to this point, an ICC case

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on LawTeacher.net then please: