I – Introduction
Parties can agree to decide their controversial issue in an arbitration proceeding, that, according to the circumstances may be a better way to solve these issues than using a judicial proceeding. A lot has been written about advantages and disadvantages of arbitration proceeding in transnational business transaction, and won’t be discuss in this short essay.
Our purpose here is to find out if it is possible to use the Group of Companies Doctrine in international arbitration in Brazil. The Group of Companies Doctrine is used to get a group of companies into an arbitration proceeding when one of the companies that belong to it sign an arbitration clause.
For this, it will be analyzed 3 different situations, related when a single company of a Group of Companies sign an arbitration clause and act on behalf the whole Group of Companies:
i) contracts signed by a single company of a Group of Companies with arbitration seat in Brazil;
ii) contracts signed by single company to be enforceable in Brazil;
iii) contracts signed by a single company of Group of Companies, having chose that the applicable law is the Brazilian Law.
For analyzing these issues, we will have as fact that the parties have chosen that the International Chambers of Commerce (“ICC”) regulation may be applicable in all of these issues, have the seat of the arbitration and applicable law define in the proper way, and no formal vicious.
II – Possibilities to Include a Third Party
In this chapter we will present some situations when a third party can be party in an arbitration proceeding. To enter in international commercial arbitration to solve any dispute resolution, parties must have an agreement to solve disputes by this mean (“Arbitration Agreement”).
“By contrast with litigation before national courts, arbitration is a private, consensual process (in the sense that it is derived from the parties’ agreement to refer disputes to arbitration). It is nevertheless intended to result in a binding, enforceable award.[1]
In general, an arbitral tribunal has no power to join third parties (i.e. persons who are not parties to the arbitration agreement) into arbitration proceeding against their will, (…) even where common questions of fact or law arise which affect all parties.[2]
“Arbitration agreement” is an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement”.[3]
Normally, only the parties on the agreement can be forced to enter in arbitration, but it may occurs exceptional situations when it might be necessarily to expand the effects of the Arbitration Agreement to others parties (“Third Parties”) than those that have enter in to the Arbitration Agreement.
We can have some examples, in different jurisdictions when it has been possible to get a third party in an arbitration proceeding.
A – United States
It has been possible to identify 5 traditional hypotheses when American judges have decided to include a Third Party in arbitration proceeding:[4]
i) Incorporation by reference: A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause.[5]
ii) Assumption: In the absence of a signature, a party may be bound by an arbitration clause if its subsequent conduct indicates that it is assuming the obligation to arbitrate.[6]
iii) Agency: Traditional principles of agency law may bind a nonsignatory to an arbitration agreement.[7]
iv) Veil-Piercing/alter ego: In some instances, the corporate relationship between a parent and its subsidiary are sufficiently close as to justify piercing the corporate veil and holding one corporation legally accountable for the actions of the other. As a general matter, however, a corporate relationship alone is not sufficient to bind a nonsignatory to an arbitration agreement.
v) Equity Estoppel: a non-signatory plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate disputes[8]
B) France
i) Group of Companies Doctrine: where a signatory to an arbitration agreement is part of a group of companies, it is possible to extend the application of the arbitration agreement to one or more companies in the same group as the signatory.[9]
C) Brazil
There are just few cases that have been decided by Brazilian Judges regarding to include Third Parties in arbitration proceedings. The knowing cases about this are:
i) Superior Court of Justice, RESP 653.733 – RJ, 3rd Chamber, Nancy Andrighi, August, 3rd, 2006;
ii) Sao Paulo State Appeal Court , Appeal 267.450.4/6-00, 7th, Chamber of Private Law, Constança Gonzaga, May, 24th, 2006.
As the aim of this paper is to see if there is possible to argue the Group of Companies Doctrine to get a Third Party in an arbitration proceedings in Brazil, these case will be object of an accuracy study in a proper chapter.
In all the case in which the Arbitration Agreement has been extended the decision to it is looking for some fairness between the parties:
“In a number of circumstances, courts and arbitral tribunals will compel a party to arbitrate despite the fact that such party did not consent to the arbitration agreement, neither expressly, in writing or orally, nor tacitly. Legal reasoning used by courts and arbitral tribunals to compel arbitration in these cases have different name (fraud, abuse of right, piercing of the corporate veil, good faith, estoppel, etc.). However, they have in common that the third party’s objection based on lack of consent, to a greater or lesser intensity, appears to infringe a basic sentiment of justice”.[10]
III – Group of Companies Doctrine
Group of Companies Doctrine can be explained as a situation where a signatory to an arbitration agreement is part of a Group of Companies, making it possible to extend the application of the arbitration agreement to one or more companies in the same group as the signatory, under the justification that they have the same economic interest.
One of those situations may be present when there is a sole company that belongs to a Group of Companies that has signed a contract, in which there is an arbitration clause, and make business and act on behalf of all the Group of Companies. This situation may occur when the Group of Companies is a multinational group, making business around the world, throw its subsidiaries, having each of those their own personality.
Multinational companies normally are organize in a form of Group of Companies, that will be define for us a group of related companies that have the same control and economics interest. The companies of the Group of Companies have their own personality, and sign agreements around the world on behalf and in interest of the whole group[11].
Knowing the situation exposed on the previous paragraph, it is possible that the situation related with the controversial issue is regard to part of the group that differs from the company that has signed the contract that has the arbitration clause, normally a subsidiary.
As response for this, it has been created the Group of Companies Doctrine. In this doctrine it is possible to include in an arbitration proceeding a party that is not the party that has signed the arbitration clause, but belongs to the Group of Companies from the party that has signed the arbitration clause, regarding to a specific agreement. The application of this doctrine is possible when, instead the contract with the arbitration clause has been signed by a solely company of the Group of Companies, this company acts in behalf of the interest of the Group of Companies, with the knowledge of the contract and its arbitration clause by part of the Group of Companies.
By law, each member of the Group of Companies is independent, but it economics interest and control[12] are normally common to the whole Group of Companies. At the same time, the results and benefit that arise from the contract signed will benefit signatory party and the whole Group of Companies. It appears logic that all the parts that benefits from the contract should be linked to the arbitration clause.
The Group of Companies Doctrine comes as response to this situation under French Law.
The first step to make liable the Group of Companies or to given then the right to defend its right, when there is a arbitration clause, is to obligate or allow then to be part in the arbitration proceeding, considering that the Arbitration Agreement has been extend to this others parties.
The use of the Group of Companies Doctrine to extend the effect of an Arbitration Agreement has first been seen at ICC Case No. 4131, Dow Chemical France v. Isover Saint Gobain (“Dow Chemical”), and is the leading case on this matter.
In the case just mentioned, the seat of the arbitration proceeding was France, the arbitral tribunal conclude that Dow Chemical Company (parent company incorporate in USA) “(…) had and exercised absolute power over its subsidiaries (…)” who were signatories to the arbitration clause, and those subsidiaries effectively and individually participated in the conclusion, performance and termination of the contracts.
The Tribunal also concluded that, it was important to take in account that in matter of fact a Group of Companies constitutes one and same economic reality. On that basis, the Tribunal determined that the arbitration clause expressly accepted by certain of the subsidiaries in the Dow Chemicals Group should bind other entities within the same group, that have role in the conclusion, performance or termination of the contracts containing said clauses [arbitration clause], and in accordance with the mutual intention of all parties to the proceedings, appears to have been veritable parties to these contracts or have been principally concerned by them and the disputes which to which they give arise.
This doctrine have been applied in some other cases (i.g. KIS France SA -v- SA Société Générale), but in some others it have not been applied, under the argument that the law of the seat do not permit this kind of interpretation[13] (i.g. Peterson Farms Inc. v. C & M Farming Ltd. – seat in England).
As described above, the application of this doctrine depends on some factors, because of that, this paper wants to analyze what would be need to apply this doctrine in situation related with Brazil. In order words, the object of this paper is to discuss if, according to Brazilian’s Law, it is possible to apply the Group of Companies Doctrine.
IV – Arbitration Seat in Brazil and Group of Company Doctrine
At the moment of choosing where to seat an arbitration proceeding it is important to know the Arbitration Law from the arbitration seat, because this is the law that will be applied in the arbitration proceeding, to evaluate if the conditions of an arbitration are present, deadlines, appeals and other procedure matters.
An arbitration seat in Brazil will be regulated by the Law nº 9.307/1996 (“Brazilian Arbitration Law”), and this law will define what are the requirements to a valid arbitration proceeding.
a) What kind of matters can be object of an arbitration proceeding;
b) Who are parties of an arbitration proceeding;
c) What are the requirements to file arbitration proceeding.
Regarding to this matters, the Brazilian Arbitration Law says, on its article 1, that can be object of the arbitration all disposal patrimonial rights, and that can be party in an arbitration people with capacity to contract[14]. This same law, in its articles 2 and 3[15], says that parties can submit their controversial issues to arbitration when there is a written arbitration clause (“Arbitration Agreement”).
The existence of an Arbitration Agreement can be point of discussion over Brazilian Law. There are decisions that have interpreted this point in different way. Some decision have role that an Arbitration Agreement may be such as a fax accepted by the parties or some less formal situations such accepts in general international arbitrations proceedings[16], and some others decisions that require a formal Arbitration Agreement with 2 witness[17], and other proper formalities do make a contract enforceable under Brazilian Law.
The position of the Superior Court of Justice is that the Arbitration Agreement may be such as a fax accepted by the parties[18], according to international principles, and this is the majority position in Brazilian’s Courts, as we believe.
It is important for having an enforceable Arbitration Agreement that the regulation, applicable law, arbiter and other essential characteristics of the arbitration proceeding are clear defined on it.
The problem we are going to analysis refers if it is possible to extend an Arbitration Agreement signed by a company of a Group of Company to the whole Group of Companies, using for that the Group of Companies Doctrine.
When the arbitration is seat in Brazil, the Brazilian Arbitration Law will be applied to define if a party can or cannot be part of it. This decision will have to be taken by the arbiters. For that, the arbiters will have to consider the Brazilian Arbitration Law and the Regulation of the Arbitration Tribunal, in the case, as mentioned above, ICC Rules.
The arbiters will have the competence to decide if there is or there isn’t an Arbitration Agreement on the principle of competence-competence, that has been adopted en Brazilian Law on its arts. 8º and 20[19], and have already been recognized by Brazilian Court[20].
For decide about the application of the Group of Companies Doctrine, arbiters will have to reefer themselves to Brazilian Law on expanding the effects of an Arbitration Agreement. There have just been 2 decisions on expanding the Arbitration Agreement to a Third Party in Brazil, and none of those are related with Group of Companies Doctrine (as it will be explained latter), so there is no specific jurisprudence.
As there is no decisions on Group of Companies Doctrine, the analyze of it will have to be done on abstract level.
The first step for that is to find out if Group of Companies is known in Brazilian Law. The Brazilian Law recognize de existence of Group of Companies on several acts, such as:
i) Law 6.404/1976 (Corporation Act);
ii) Law 11.101/2005 (Bankruptcy Act);
iii) Law 8.884/94 (Antitrust Act);
iv) Law 8.078/90 (Consumer Protection Act).
There are several others acts that recognize the existence of Group of Companies in Brazilian Law, but it appears enough to prove that Group of Companies are a juridical phenomenon know by Brazilian Law.
To extend the Arbitration Agreement means to make someone liable for obligations of someone else, in this manner, now we have to check if there are any situations when a Group of Companies are liable for the obligation of companies that belong to its group.
There are several cases one a company of one Group of Companies have been made liable for obligations of another company that belong to the group in Brazilian Law. We can get as example of this several decisions.
In the RECURSO ESPECIAL Nº 1.071.643 – DF (2008/0144364-9) the Superior Court of Justice decided that the Group of Company is liable whenever it is used to some kind of fraud to avoid liability.
In the REsp 704.546/DF the Superior Court of Justice have decided to extend the guarantee clause in favor of company of the Group of Companies because the third company had benefit from the contract, even having the contract have been signed for person with no powers for that.
In the Appeal 990102156524, the São Paulo State Appeal Court rule that others companies that belong to the same Group of Companies may be liable, because all the companies have related business and have had benefit from the contract[21].
Brazilian’s Courts have made liable the Group of Companies when it was clear that it was a Group of Companies and the some other company from the group have had benefit from the operation.
Concluding this point, indeed there is no decisions regarding to application of Group of Companies Doctrine to extend the effects of an Arbitration Agreement to a third party, there are several decisions making liable a Group of Companies for obligations of a company from the group when there have been intend to practice some kind of fraud or the Group of Company have had benefits from the business (same arguments of Group of Company Doctrine).
So, it is possible to conclude that Brazilian’s Court might accept the Group of Companies Doctrine on question related to extend the effects of an arbitration clause to third parties, when the seat of arbitration is in Brazil, whenever, as in French Law, it need to be clear that there is a Group of Companies and some other company from the group have participated in the business, or the different personalities have been used to fraud the Arbitration Agreement.
V – Contracts signed by single company to be enforceable in Brazil
Brazil has signed ratified throw Legislative Decree n. 4.311/2002 the New York Convention on the Recognition and Enforcement of Foreign Arbitral. According to article 5, 1 (d), from this convention, a country can denied to enforce an arbitration award if the proceeding was not as agreed between the parties or the law of the place where the arbitration took place. In this way, regarding to extend the effects of an arbitration clause to third party may be analyze according to the law where the arbitration proceeding took place.
Considering that the arbitration award was legal according to the law where the arbitration proceeding took place, Brazilian’s Courts will not have the power to deny it enforcement. However, it may be possible for the Brazilian’s Court to deny the enforcement, they understand that there is not an Arbitration Agreement that obligate the party to go to arbitration.
It is important to point that to enforce the arbitration award in Brazil it is necessary the homologation of the award on Superior Court of Justice, according to art. 35, from Brazilian Arbitration Law.
The Brazilian’s Court have not rule in a case about the extension of an arbitration clause, but after analyze decisions from the Superior Court of Justice, it is possible to note that the court do not get on the merits of the arbiters decisions[22], so we could say that it is possible for the court to accept the extension, even because the extension of liable for companies of the same Group of Companies has been recognized by the court. However, as it is necessary to prove the existence of an Arbitration Agreement to enforce the arbitration award, there is some risk that the Superior Court of Justice may not homologate the award, doesn’t allowing to enforce it.
VII – Contracts signed by a single company of Group of Companies, having chose that the applicable law is the Brazilian Law
As mentioned above, for decided if the arbitration clause may or may not be extend, it is necessary to use the law of the seat of the arbitration, not the law of the contract, regarding to this situation, even if Brazil eventually apply the Group of Company Doctrine, if the seat of arbitration do not recognize this theory, it may be not applicable.
VI – Brazilians Decisions on Expand Arbitration Agreement to Third Parties
In the case Superior Court of Justice, RESP 653.733 – RJ, 3rd Chamber, Nancy Andrighi, August, 3rd, 2006, the Superior Court of Justice upheld a decision of the Rio de Janeiro State Appeals Court that applied the principle of intervenient party to extend the effects of an arbitration clause to non-signatory parties. The third party was a intervener in the contract that had the arbitration clause, and because of it, it has been decided that the effects of this clause should be extended to the third party.
In the case Sao Paulo State Appeal Court, Appeal 267.450.4/6-00, 7th, Chamber of Private Law, Constança Gonzaga, May, 24th, 2006, it was ruled by São Paulo State Appeal Court that the arbitration agreement should be expand to a Third Party, regarding it hasn’t signed the arbitration agreement, on the ground that the Third Party had an active role on the conclusion of the negotiation. This case had as object to compel the parent company of a subsidiary that had signed an Arbitration Agreement to join an arbitration proceeding.
In this claim the court decided that the parent company’s “active participation”, “clear involvement” and “interest in the conclusion” of the acquisition negotiations would justify its participation in the arbitral proceedings.
The court didn’t accept the parent company’s argument that it had never signed the arbitration clause.
VI – Conclusion
It is generally accepted in international arbitration that circumstances may arise in which a party[23] who has not signed an Arbitration Agreement may take advantage of it or be bound by it. In particular, a non-signatory company may benefit from or be bound by an Arbitration Agreement signed by another company within the group to which it belongs in some specific situations. In France, this situation has been relate as Group of Companies Doctrine and has as important precedent the Dow Chemical case.
To decided on the application of the Group of Companies Doctrine, the Court or the Arbiters will have to use the law of the seat of the arbitration proceeding. If the arbitration proceeding take place in Brazil, Brazilian Arbitration Law shall be applicable.
At the same time, we can see 3 different situations that may occurs, with different effects on the how to decide to extend or not the Arbitration Agreement. The first is when the seat of the arbitration proceeding is Brazil, the second when the arbitration award has to be enforce in Brazil, and the third, when the applicable law is the Brazilian Law.
If the seat of the arbitration proceeding is Brazil, the arbiters would have the competence to analyze with the arbitration clause would have to be extend or not, on the ground of the competence-competence principle, and, if the it is possible to prove that there is a Group of Company, and it has have benefits from the deal that has the arbitration clause, or there is any kind of fraud to avoid the application of it, arbiters shall decide to extend the effects of the Arbitration Agreement, even not having this situation ever been taken to court.
Regarding to enforce an award were the Group of Doctrine have been used, Brazilian’s Court (in especial Superior Court of Justice) looks likely to accept the decision, but there is the risk that it may consider that there is no written agreement.
And, if the contract law is the Brazilian Law, the application of the Group of Company Doctrine will depend of the seat of arbitration law.
Informações Sobre o Autor
Luiz Antonio Varela Donelli
Advogado no Porto Lauand Advogados. Master em Derecho Internacional de los Negocios ESADE- URL, Barcelona, Espanha. Certificado em Direito Transnacional pela Georgetown Law School, Center of Transnational Law Studies, Londres, Inglaterra. Especialista em Direito Empresarial pela Universidade Presbiteriana Mackenzie.
