Parties' consent is the foundation of any international arbitration. Usually, this consent is expressed in an arbitration agreement, binding the formal signatories to the contract.
There are circumstances where non-signatories to the original agreement may be bound by it and benefit from it. The New York Convention states that international arbitration agreements are binding on the parties involved (article II). It provides no guidance as to how those parties are to be determined. National laws are also almost universally silent on this matter. The non-signatory position is therefore developed through case law across jurisdictions: this can cause difficulties when drafting arbitration clauses.
The arbitration clause is binding on the basis of assignment, succession or agency: no surprises there. In certain circumstances, however, the court or tribunal may extend the arbitration clause to include a party other than a signatory to the arbitration clause, in particular if that party has corporate ties with the original signatory.
'Group of companies' and 'piercing the corporate veil'
Two well-known doctrines which allow extension of the arbitration agreements to non-signatories are 'group of companies' and 'piercing the corporate veil'. These two theories are often mixed up.
Essentially, both are justified by considerations of fairness and good faith, both of these general principles of contract law (although these general principles are not applicable under English law, they are relevant in Australia and many civil law jurisdictions). Veil piercing focuses on fraud or abuse of right where the real party is shielded from liability by the corporate structure. The 'group of companies' doctrine addresses the (presumed) intention of the parties to arbitrate. Drafting the arbitration agreement
"The 'group of companies' doctrine addresses the (presumed) intention of the parties to arbitrate."
It may not be unusual for companies within the same group to be involved in carrying out various parts of a project, even without contracts formally setting out their roles. If there is no wish to allow extension of an arbitration agreement to nonsignatories involved in a project, this has to be very clearly indicated in the agreement. Companies may otherwise find themselves drawn into arbitration proceedings with related companies and find that the circumstances justify that. In order to ensure the effectiveness of corporate structures created with the intention of allocating profit, cost and risk between different entities, companies will need to review all transactions and associated arbitration agreements to check where and how best to put the necessary express provisions in place.
Case law on 'group of companies'
The Dow Chemical Company and others v ISOVER Saint Gobain
A prominent case covering 'group of companies' is the Dow Chemical v ISOVER ICC arbitration. The dispute arose out of several contracts executed by various Dow Chemical Company subsidiaries (but not Dow Chemical Company itself) and Isover. Dow Chemical Company together with its subsidiaries commenced arbitration. Isover objected to jurisdiction over the claims asserted by Dow Chemical Company on the ground that the latter was not a party to the contract. The tribunal upheld its jurisdiction.
The award is often misinterpreted as suggesting that the corporate ties within the group were sufficient to establish the tribunal's jurisdiction, and has thus been subject to criticism. In fact the reasoning was more