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Re-Calibrating the Group of Companies Doctrine in International Commercial Arbitration Regime
The first view questions the necessity of adopting the doctrine by suggesting that the determination of consent in complex multi-party arbitration can be done on the basis of traditional contractual and commercial law theories. [1] while, the second view suggests that the group of companies’ doctrine is an integral aspect of arbitration law. According to this view, the existence of specific patterns of corporate structure could be a useful factual indicator to determine the common intention of the parties to make the non-signatory, a party to the arbitration agreement.
For instance, the active involvement of a non-signatory group company in the facilitation and performance of a commercial project helmed by other signatory companies of the group can be considered as an indication that the non-signatory party also consented to arbitrate
While some jurisdictions embrace the doctrine, others tread cautiously. Understanding its compatibility with core arbitration principles, exploring alternatives, and considering public policy implications are crucial before diving headfirst into this murky water
The group of companies’ doctrine is used in the context of companies which are related to each other by virtue of their being a part of the same corporate group. Since every company in a group has a separate legal personality, a contract formally entered by one member of a group will not be binding on the other members by virtue of the limited liability principle. The group of companies doctrine is used to bind a non-signatory company within a group to an arbitration agreement which has been signed by other member of the group.
The underlying basis of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the non-signatory party to the arbitration agreement. In other words, the group of companies’ doctrines is a means of identifying the common intention of the parties to bind a non-signatory to arbitration agreement by emphasizing and analysing the corporate affiliation of the distinct legal entities.
The origin of the doctrine is primarily attributed to a number of arbitration awards rendered mainly in France. The most prominent among them remains an interim award delivered more than four decades ago by an ICC tribunal in Case No. 4131,20 more popularly known as the Dow Chemicals case[2]. In that case, Dow Chemical Group, an American company, entered into several contracts with a corporation called Isover Saint Gobains, for the installation of thermal insulation devices. These contracts were entered into via the subsidiaries of Dow Chemical. At the time of dispute and the invocation of the arbitration proceedings, Dow Chemical argued that, them being a parent company are not signatories of the contract but the concerned company is its own subsidy and therefore implored to be impleaded in the arbitration proceedings. The ICC tribunal held that Dow Chemical France “was a party” to the contracts, and consequently to the arbitration agreements contained in them, because it played a preponderant role in the negotiation, performance, and termination of the contract. As for Dow Chemical Company
The ICC tribunal was of the opinion while applying the doctrine of group of company held that since these companies were related, formed a single economic entity and hence should be impleaded in the arbitration. For this, the tribunal laid down a three-pronged test to see whether a party would fall under the Group of Companies Doctrine. This would include:
Footnotes [1] Stavros Brekoulakis, ‘Parties in International Arbitration : Consent v. Commercial Reality’ in Stavros Brekoulakis, Julian DM Lew, et al (eds) ‘The Evolution and Future of International Arbitration’ (2016) 119, 137. [2] Dow Chemical v. Isover Saint Gobain, Interim Award, ICC Case No. 4131, 23 September 1982 [3] Mohammad Razil Salim, Corporate Insolvency: Separate Legal Personality and Director’s Duties to Creditors, Vol.2, UiTM Law Review, 90 (2004). [4] Yaraslau Kryvoi, Piercing the Corporate Veil in International Arbitration, Vol.1, Global Bus. L. Rev., 176 (2010-2011). [5] Paris Court of Appeal, 7 December 1994, V 2000 (formerly Jaguar France) v. Project XS, Rev. Arb. (1996) 67. [6] X v. Y Engineering S.p.A. and Y S.p.A., 4A_450/2013, ASA Bull., 160 (2015) [7] Audley William Sheppard, ‘Third Party Non-Signatories in English Arbitration Law’ in Stavros Brekoulakis, Julian Lew, et al (eds) The Evolution and Future of International Arbitration (Kluwer Law International, 2016) 183-198. [8] Andrijana Misovic, ‘Binding non-signatories to arbitrate : the United States approach’ (2021) 37(3) Arbitration International 749-768. [9] Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Or, (2013) 1 SCC 641. [10] Cox and Kings Limited v. SAP India Private Limited, Arbitration Petition (Civ.) No. 38 of 2020,
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- Presence of a Tight Group Structure
- Participation of the Non-Signatory in the execution of the contract
- Mutual intent of the parties to bind the Non-Signatory.
- THE APPLICATION OF THE GROUP OF COMPANIES DOCTRINE IN INTERNATIONAL
- FRANCE
- SWITZERLAND
- ENGLAND
- UNITED STATES OF AMERICA
- UNITED KINGDOM
- THE APPLICATION OF THE GROUP OF COMPANIES DOCTRINE IN THE JURISPEUDENCE OF INDIAN ARBITRATION JURISDICTION.
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- A. Whether the phrase ‘claiming through or under’ be interpreted to include the ‘Group of Companies’ doctrine.
- Whether the ‘Group of Companies’ doctrine as expounded by chloro controls case (supra) and subsequent judgments is valid in law.
Footnotes [1] Stavros Brekoulakis, ‘Parties in International Arbitration : Consent v. Commercial Reality’ in Stavros Brekoulakis, Julian DM Lew, et al (eds) ‘The Evolution and Future of International Arbitration’ (2016) 119, 137. [2] Dow Chemical v. Isover Saint Gobain, Interim Award, ICC Case No. 4131, 23 September 1982 [3] Mohammad Razil Salim, Corporate Insolvency: Separate Legal Personality and Director’s Duties to Creditors, Vol.2, UiTM Law Review, 90 (2004). [4] Yaraslau Kryvoi, Piercing the Corporate Veil in International Arbitration, Vol.1, Global Bus. L. Rev., 176 (2010-2011). [5] Paris Court of Appeal, 7 December 1994, V 2000 (formerly Jaguar France) v. Project XS, Rev. Arb. (1996) 67. [6] X v. Y Engineering S.p.A. and Y S.p.A., 4A_450/2013, ASA Bull., 160 (2015) [7] Audley William Sheppard, ‘Third Party Non-Signatories in English Arbitration Law’ in Stavros Brekoulakis, Julian Lew, et al (eds) The Evolution and Future of International Arbitration (Kluwer Law International, 2016) 183-198. [8] Andrijana Misovic, ‘Binding non-signatories to arbitrate : the United States approach’ (2021) 37(3) Arbitration International 749-768. [9] Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Or, (2013) 1 SCC 641. [10] Cox and Kings Limited v. SAP India Private Limited, Arbitration Petition (Civ.) No. 38 of 2020,