Abstract: The purpose of this article is to consolidate the issues raised in debates on the binding effect of the arbitration clause to non-signatory parties that are members of groups of companies in accordance with the so-called group of companies doctrine under the Brazilian legal system. First, this article analyses the concept of arbitration agreements, as well as its validity requirements, especially the requirement of written form. Then, the article explores the meaning of the group of companies doctrine in the Brazilian legal system in order to explain its meaning and implications. Finally, the article analyses whether such doctrine is compatible with the Brazilian legal system. Through this exercise, one must conclude that the Brazilian legal framework allows for such extension. However, due to the contractual aspects of the arbitration agreement and the requirement of written form, the demonstration of clear factual elements as regards the parties’ intent to arbitrate becomes the most important condition to extend the effect of the arbitration agreement to non‑signatories.
Content: Introduction; 1 The arbitration clause and the requirement of written form; 1.1 Concept; 1.2 The requirement of written form; 2 Groups of companies in Brazilian Law and the group of companies doctrine; 2.1 The concept of group of companies; 2.2 Main characteristics; 2.3 The group of companies doctrine; 3 The compatibility of the doctrine with the Brazilian law; 3.1 Compatible principles; 3.2 A mitigated requirement of written form and the Trelleborg case; 3.3 A doctrine facing challenges from the perspective of public policy and the international community; Conclusion.
On September 23, 1996, Brazilian Law No. 9,307 (“Brazilian Arbitration Act”) established the institute of commercial arbitration in Brazil and its main elements such as the arbitration agreement and its effects, the arbitrator’s role, the composition of the arbitral tribunal and the recognition of foreign arbitral awards. Additionally, with the recognition of the constitutionality of arbitration in December 2001, by the Brazilian Supreme Court (“STF”) and the ratification in July 2002, of the New York Convention by the Brazilian congress, Brazil finally entered the scene of international commercial arbitrations. It is unanimous among scholars that arbitration brought several advantages to dispute resolution, such as celerity, flexibility, confidentiality, impartiality, efficiency and ethics.
In line with globalisation and the development of new technologies, international commercial transactions significantly increased in Brazil. For instance, in 2007, 63 initial public offerings have been submitted to the São Paulo Stock Exchange, a figure 142 percent higher than the previous year. On April 20, 2013, the merger of two Brazilian education giants, Anhanguera Educacional Participações S.A. and Kroton Educacional S.A., had a market value close to BRL12 billion, creating the world’s biggest educational group. Therefore, commercial relations, from local to cross-border transactions, became more complex, giving rise to more sophisticated corporate structures.
It is evident that, with the complexity of commercial relations and the intricate composition of corporate groups, it oftentimes happens that a certain company executes an agreement containing an arbitration clause, whereas it is another company of the same economic group (but which did not execute the agreement) that performs the role of the actual participant in the contractual relationship. In such cases, a conflict that could arise is when the non-signatory party refuses to participate in the arbitration proceedings on the ground that it has neither signed nor agreed with the agreement or the arbitration clause.
Therefore, the present article aims precisely at analysing this issue: May the arbitrators extend their powers to companies that are part of transnational economic groups but were not actual signatories to the relevant arbitration agreements? Case law and scholarly comments proposed the group of companies doctrine as guidance in such situations. However, where is such theory contained and how can it be applied under a Brazilian perspective?
- THE ARBITRATION AGREEMENT AND THE REQUIREMENT OF WRITTEN FORM
Some preliminary explanations are useful in order to fully understand the application of the arbitration provision to non‑signatory parties in groups of companies. This analysis must begin with some clarifications about the arbitration agreement and especially about the requirement of written form.
The arbitration clause and the submission agreement (“compromis“) are species of the “arbitration agreements” genre. The importance of the agreement to arbitrate as a source of the arbitrators’ powers cannot be overstated in arbitration. The main difference of a submission agreement from an arbitration clause is that it is executed after the dispute has actually arisen. Therefore, it is more detailed and complete than the arbitration clause, as the parties can later identify in detail the subject matter of the dispute and its possible solutions.
The arbitration clauses are generally defined by commentators as generic, random, preparatory, formal and bilateral, since both parties are bound by the arbitration clause, undertaking the obligations and rights that arise therefrom.
It is important to highlight that the arbitration clause is a typical contract, since it is expressly described and regulated by statutes (e.g., Brazilian Arbitration Act).
The main identifiable feature of arbitration agreements is their autonomy. The agreement to arbitrate is independent from the main contract in which it is inserted. As expressly provided in Art. 8 of the Brazilian Arbitration Act, the autonomy of the arbitration agreement is: (i) a general principle of arbitration and (ii) based on two main reasons. The first covers the need to respect party autonomy and the parties’ choice to submit to arbitration and, therefore, also their intent to resolve disputes through the decision of an arbitrator — including those relating to the validity or nullity of the contract. The second reason is that the purpose of the arbitration agreement is different from that of the main contract. The main contract stipulates the legal obligations of the parties, whereas the arbitration agreement commands that all disputes relating to the commercial aspect of the contract be resolved through arbitration. Such disputes may never actually arise, but if it does, the arbitration agreement will be the basis on which the arbitral tribunal will be formed in order to solve any disputes relating to the main contract.
In this case, the autonomy of the arbitration agreement grants the arbitrators the prerogative to decide upon any dispute related to the validity, existence of effectiveness of said arbitration agreement. This corresponds to the principle of kompetenz-kompetenz, according to which the arbitrator is the “master of its own competence.” In fact ‑ thanks to this principle ‑ the arbitrator is capable of resolving challenges that: (i) relate to its own ability to judge and (ii) pertain to: (a) the extension of the powers vested upon him or her and (b) the possibility of passing judgment upon third parties that may not have executed the arbitration agreement. The importance of this principle stands uncontested in national case law.
- THE REQUIREMENT OF WRITTEN FORM
As any legal transaction, the arbitration clause is also subject to some validity requirements, which, under Law 10.406 of January 10, 2002 (“Brazilian Civil Code”), are as follows: (i) legal capacity; (ii) a lawful, possible and determined object and (iii) the applicable requirements of written form. In the present study, we shall focus only on the requirement of written form, insofar as it constitutes one of the main arguments against the application of the arbitration clause to non-signatory parties. In fact, the requirement that the arbitration clause is registered in writing is of paramount importance in order to ascertain: (i) whether the non-signatory party may be included in the arbitration proceeding and (ii) whether the arbitrator is competent to decide upon a non-signatory party.
Article 4, § 1 of the Brazilian Arbitration Act determines that the arbitration clause must be agreed in writing, regardless of whether it is included in the contract itself or in a separate instrument incorporated into the contract. In its turn, Art. II, 1 of the New York Convention (“NYC”) provides that the signatory states shall recognize “an agreement in writing under which the parties undertake to submit to arbitration.” Art. II, 2 of the NYC expressly states that an “agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”
Hence, national and international statutes clearly state that the arbitration clause must be written into the contract. As Loukas Mistelis et al. posit, the requirement of written form provided both in the NYC and in the Brazilian Arbitration Act are based on two reasons. First, given the legal effects arising from the execution of an arbitration agreement, the requirement of written form aims to guarantee that the parties are in agreement about the arbitration provision. Since the reference to arbitration essentially bars access to state courts, the written form entails the parties’ waiving of their constitutional right to have their disputes resolved by a judge, since the written form only provides for arbitration. Second, a written provision provides a record of the arbitration agreement, evidencing the existence and the contents of the arbitration agreement in case a dispute arises.
Many commentators consider that the Brazilian Arbitration Act does not allow for an extensive interpretation, and as such, the arbitration agreement must be always agreed in writing. Nelson Nery Jr. considers that “the arbitration clause must be included in a contract, given that the written form is of the essence to this act.” Carlos Alberto Carmona clearly asserts that the critical effect of preventing recourse through state courts cannot be assumed, imagined, supposed or extended. Consent from the interested parties is essential.
However, Brazilian case law has more than once taken a different position. In the judgment of the Contested Foreign Award No. 856/GB, in which the respondent alleged that it was not a proper party to the arbitration agreement since it had not signed the arbitration award, the Brazilian Superior Court of Justice (“STJ”), in accordance with the opinion written by Reporting Justice Menezes Direito, rejected this defence, ruling that “the requirement of consent is fulfilled when the respondent, as evidenced in this case, has presented a defense in the arbitration proceeding without questioning the existence of an arbitration provision.”
Therefore, it can be said that the STJ does not recognise this requirement as substantial, which means that it does not consider “the requirement of a document written and signed by the parties as of the substance of the act.”Hence, the requirement of written form is relevant only as an evidence of the agreement (ad probationem), acting as the means to prove the consent given by the non‑signatory party.
Many Brazilian and international commentators are of the same opinion. According to José Eduardo Carreira Alvim, the arbitration clause does not require a given form; what really matters is the ability to demonstrate that the parties agreed to arbitrate. As opposed to submitting to the arbitration of existing disputes, or compromis, Brazilian law does not require a specific form. It suffices under Brazilian law (i.e., Art. 4 (1) of the Brazilian Arbitration Act) that the arbitration clause be drafted in writing, since the demonstration of the latter is merely a matter of evidence – ad probationem.
In fact, since the New York Convention was drafted, the communication of commercial acts has evolved significantly and the requirement of written form no longer reflects commercial practice. Currently, older means of communication, such as telex, telegram or facsimile, are seldom used in commercial and contractual practice. The UNCITRAL Model law, in its 2006 version, already recognises such changes, contemplating a wider concept of written form.
There is no plausible justification that would warrant making the arbitration clause subject to stricter requirements than those applicable to ordinary agreements. Indeed, choosing arbitration does not exclude state courts, as it is the natural forum for international disputes. Additionally, the requirement of written form does not necessarily provide a higher legal certainty, since it oftentimes entices additional controversies.
Thus, the requirement of written form can be fulfilled if there is “any evidence” of the contents of the arbitration clause. Therefore, in accordance with the STJ case law, international practice also indicates that if a party participates in an arbitration proceeding without opposing to the existence of an arbitration clause, such implied consent suffices to justify the subjective application of the arbitration agreement.
- CORPORATE GROUPS IN BRAZILIAN LAW AND THE GROUP OF COMPANIES DOCTRINE
With the development of trade relations, which are becoming ever more complex, the incorporation of companies with equity interest in other companies is increasingly common. Thus, a crucial and obvious question arises: What does the Brazilian law mean by “corporate groups” and what does the theory of corporate groups bring to solve such problem?
- CONCEPT OF CORPORATE GROUP
The Brazilian Corporations Law distinguishes the corporate groups into two types: (i) the de jure groups and (ii) the de facto groups. The former, provided in Article 265 of the Brazilian Corporations Law, refers to a corporate group formalised by means of a convention (“convenção“), which has been approved by all the companies integrated into the group.
The main feature of the de jure groups is that they are based on a convention, which is a formal document typically obligatory and with a plurilateral nature, affecting both the company and its shareholders. The convention organises the factors of production for a particular purpose and subjects the administrators to the company’s rules.
However, although the Brazilian Corporations Law set forth the de jure groups with many details, from a practical standpoint, the latter were proven to be inapplicable and are seldom used in the Brazilian legal system. Indeed, cases involving de jure groups are rare.
The De facto groups or unconventional groups, on the other hand, are not based on a convention, but on the existence of “a group of companies under common control.” As described in Art. 243, 1st and 2nd paragraph of the Brazilian Corporations Law, de facto groups are formed by affiliated companies (coligadas) or controlled companies (controladas). Affiliated companies are those in which its investors have significant influence that is greater than 20 percent of the corporate capital. Controlled companies, on the other hand, are those in which the holding company, directly or through other companies, holds the majority of the equity interest that ensures, on a permanent basis, the predominance in corporate resolutions and the power to elect the majority of management’s members, according to Article 116 of the Brazilian Corporations Law.
Therefore, we can infer that the de facto groups are “an amalgamation of companies without the need to exert between them a deeper relationship, remaining isolated and without legal organisation.” As explained by Modesto Carvalhosa, “the comprising companies keep intact the individuality of their operational objectives,” since the holding company does not have a direct influence on the conduct of the management of the subsidiaries.
- CHARACTERISTIC ELEMENTS
In fact, to have a group of companies, the comprising companies must have their own legal personalities that are distinct from one another. This enables the adoption of various organisational structures that allow for quick and easy adaptation (including change of capitals) to address market whishes and reduce possible risks to each entity.
However, the existence of a plurality of companies that are linked by ownership of capital does not in itself characterise the concept of a group. A group is formed only when the element of plurality is combined with the second element, which is the steering unit.
Within the corporate perspective, the steering unit of a group of companies is intrinsically linked with the degree of control exercised by each company to the other.
The legal concept of control is given by Art. 116 and Art. 243, 2nd paragraph of the Brazilian Corporations Law, According to the aforementioned articles, control of a company on another is proven when (i) the holding company, directly or through other companies, holds the majority of the equity interest ensuring, on a permanent basis, the predominance in corporate resolutions and the power to elect the majority of management’s members (objective criteria); and (ii) effectively uses this power to conduct the company’s activity (subjective criteria).
It can be inferred from the abovementioned articles that the control of one company over another is not only characterised by a majority participation in the corporate capital of the subsidiary but also by the effective use of control. Therefore, we can say that control is “a de facto situation which is not necessarily linked to the ownership of the majority of the shares entitled to vote.”
The controlling interest is so insufficient that there are cases where the real holder of the decision-making powers does not figure as a shareholder. It is the example of large companies, heavily indebted before a bank that must have the prior approval of such financial institution to perform certain important acts of their activities (e.g. business reorganisation, change of control, sale of an asset important to the financial institution). Minority shareholders, especially state-owned entities, may also exercise a power of control when they are holders of golden shares that give the right to veto certain matters in general meetings.
Indeed, the element that some call the “dominant influence on the fate of the subsidiary” is the only general criterion of identification of all corporate groups in as far as it shows, in a concrete and factual point of view, the control of a company over the other.
- THE GROUP OF COMPANIES DOCTRINE
The group of companies doctrine, which is based on the ICC No. 4131/1982 Dow Chemical vs. Isover Saint-Gobain, is considered the leading precedent on the applicability of the arbitration clause to non-signatories in groups of companies. This case originated from two distribution agreements concluded between the Swiss companies Dow Chemical AG, Dow Chemical Europe and the French company Isover Saint-Gobain, through which the Swiss companies provided to the French Isover Saint-Gobain thermal insulation equipment. It is important to bear in mind that both Swiss companies were part of the large business group Dow Chemical and it is provided in the agreements that the French subsidiary Dow Chemical France or any other subsidiary of the Dow Chemical group, even those that are not signatories of the contracts and arbitration clauses, could carry out deliveries of products acquired by Isover Saint-Gobain.
Issues arose regarding the products’ quality, which caused the companies Dow Chemical AG, Dow Chemical Europe and the non-signatories Dow Chemical France and The Dow Chemical Company to initiate arbitration against Isover Saint-Gobain. The Dow Chemical companies claimed that Isover Saint-Gobain delivered products that were not in accordance with the required quality standards, which is in violation of the distribution agreement. In its defence, Isover Saint-Gobain argued that the two companies, Dow Chemical France and The Dow Chemical Company, were not parties to the distribution agreements and the arbitration clause and therefore, from their point of view, the arbitral tribunal was not competent to rule on the case.
After having decided that the law applicable to the arbitration agreement was the intention of the parties and the lex mercatoria, the arbitral tribunal analysed the way that the negotiation, execution and termination of the agreements have been made.
The evidence showed that Dow Chemical France, although not counted as a signatory to the agreements, was in the centre of negotiations and was the only supplier of Isover Saint-Gobain. Additionally, it has participated in the negotiations that gave rise to the termination of the agreements. The Dow Chemical Company, on the other hand, was the owner of the brands of the products that would be commercialised in France, and therefore, the agreements could not have been concluded and implemented without its consent.
Taking these into account, the arbitral tribunal recognised the existence of a corporate group between the Dow Chemical companies and, consequently, applied the arbitration clause to the non-signatories of the group based on two main grounds: (i) the companies concerned formed a single economic reality and (ii) the non-signatory companies actively participated in the execution, performance and termination of the agreements.
Many legal precedents and scholars follow such theory and have developed the fundamentals of the single economic reality and participation in the execution of the agreement. In ICC Case No. 5103/1988 Three European companies vs. Four Tunisian companies, the tribunal favoured the application of the arbitration clause considering that with “the involvement of the non-signatory to the negotiation or execution of the agreement, it tacitly accepted to be bound by that provision.” In another precedent, the ICC established as elements for the application of the single economic reality the following: (i) the direct control of the activities of the subsidiary by the parent company; (ii) the insolvency of the subsidiary and (iii) the absence of important activities in the subsidiary.
The group of companies doctrine is also recognised in the United States, as demonstrated in the case Thixomat, Inc. vs. Takata Physics where the issue arose about the possibility of applying the arbitration clause to Takata Physics, a non-signatory subsidiary, who, along with its parent company Takata Corporation, initiated arbitration against Thixomat. Thixomat asked for the closure of the arbitration but the district court rejected the request on the grounds that the arbitration clause can be applied as long as the claims of the subsidiary and the parent company are based on the same facts and are inherently inseparable.
In the case Kis France v. Société Générale, the Court of Appeal of Paris demonstrated another example where the arbitration clause can be extended within a group. In this case, the parent company of the corporate group and one of its clients signed an agreement pursuant to which the services would be provided by the subsidiaries of the parent, which are all non-signatories to the agreement. Thus, during the performance of the agreement, the customer started to deal directly with the subsidiaries, which performed the contents of the agreement. The arbitral tribunal decided to apply the clause to all the companies involved. The Paris Court of Appeal confirmed the judgment on the grounds that the mutual obligations of the parties were inexorably linked and the head offices played a dominant role with respect to their subsidiaries, which were required to comply with the head offices’ financial and business decisions.
Nevertheless, according to Brekoulakis, it does not suffice that the non-signatory and the signatory company belong to the same group. It is required for both companies to form a cohesive group structure and strong organisational and trade relations. The author cites the example of a hierarchical operation structure where the head offices hold the control functions in the group’s business strategy and various subsidiaries. To Pietro Ferrari, the parent company of the group should have acted not only on its own, but also on behalf of its subsidiaries.
As a consequence, we see that the group of companies doctrine is founded on two essential elements for the application of the arbitration clause: (i) the participation and effective consent of the non-signatory party in the conclusion, execution and termination of the agreement and (ii) the existence of a single economic reality, referring in particular to the concerned parties forming a group of companies.
- THE THEORY’S COMPATIBILITY WITH BRAZILIAN LAW
This article demonstrated that due to the applicability of the group of companies doctrine, which is recognised by international arbitration, companies that are part of a corporate group may be bound by the provisions of an arbitration agreement in spite of having not signed the arbitration clause.
In the following section, we will show that the doctrine is compatible with the Brazilian legal system, given that it is based on principles commonly accepted by the Brazilian legislation and case law.
However, the group of companies doctrine is also subject to some limitations and criticisms, which will also be analysed in this article.
- COMPATIBLE PRINCIPLES
By extending the application of the arbitration clause to a non-signatory party that has actively participated in the execution, performance and termination of the contract, it is clear that the arbitral tribunals are basing their decision on the principle of party autonomy.
Considered as the cornerstone of commercial arbitration and private law, the principle of party autonomy allows every capable person to: (i) enter into lawful business agreements and (ii) define their content. According to Silvio Salvo Venosa, “the declaration of will is an essential element to the business agreement. It is a requirement. When there is no appearance or declaration of an intention of the parties, then we cannot even consider the existence of business agreement.”
Provided in Article 2 of the Brazilian Arbitration Act, the parties’ autonomy in arbitration means “the parties’ freedom to establish the method by which the conflict will be resolved.” Thus, the parties are free to choose the proceedings to be adopted by the arbitrators, as well as the substantive law to be applied in the resolution of the dispute.
In this regard, the Brazilian Federal District’s Court of Justice held on its civil appeal number 20110111045065 DF that:
Party autonomy is the cornerstone of arbitration, being portrayed in the called arbitration agreement. Since it constitutes a business agreement, the general validity prerequisites of businesses agreements must be observed, such as: capable agent, a lawful, possible, determined or determinable purpose, the form must be as prescribed by law or at least a non prohibited form, and there must be a free expression of will delivered in good faith. 
Another notable principle is the Principle of Appearances (“princípio da aparência“), which has been very well analysed by the Pau Court of Appeal in France, in the case Société Sponsor A.B. vs. Lestrade. In this case, Lestrade sold stocks to Sponsor SA, a subsidiary of the French company Sponsor AB. Although Sponsor SA has not signed the agreement, Lestrade started arbitral proceedings against not only the subsidiary, but also the parent company. The Court of Appeal extended the application of the clause under the grounds that:
Whether Sponsor A.B. performed an important role in the execution of the purchase agreement, its role would not be any different regarding the non-performance. Consequently, the third party it is, only appears to be this third party. In fact, it is the soul, the inspiration, in other words, the thinking head behind the party (free translation by the author)
In the Brazilian Federal District’s Court of Justice civil appeal No. 20050110451887, the respondent was ABN-AMRO Arrendamento Mercantil S/A, a subsidiary of ABN AMRO Real S/A bank, which controlled the company that executed the contract. The court decided to apply the theory of appearances since “it is widely evidenced that the companies belong to the same economic group, which means, that is possible to conclude that the defendant is a legitimate party to respond to the claim.”
It is possible to conclude that the extension of the arbitration clause through the application of the group of companies doctrine is based on principles and theories that undoubtedly belong to the Brazilian legal system.
- THE RELATIVISED WRITTEN FORM AND THE TRELLEBORG CASE
It was previously exposed that the requirement of the written form for arbitration provisions is not absolute and has already been interpreted not only by Brazilian commentators but also by international scholars. In addition to this interpretation, the group of companies doctrine has also been discussed in the Trelleborg case, judged by the 7th Chamber of Private Law of São Paulo’s Court of Justice (“TJSP”) on 24 May 2006. Although the court has only referred to the theory in part, it is an important precedent that matches the arbitral practice shown in the present study.
In this case, the company Anel Empreendimentos, Participações e Agropecuária Ltda. (“Anel”) and its leading partner were quotaholders in the company PAV – Projetos e Aplicações de Vibrotécnica de Vedação Ltda. (“PAV”). After a while, the quotaholders and Trelleborg Industri AB, a Swedish company belonging to the Trelleborg Group, agreed that Trelleborg Industri AB would have the right to appoint any company taking part in the Trelleborg Group to execute a commercial partnership agreement in Brazil.
In 1997, the acquisition of 60 percent of the PAV capital stock was made by Trelleborg do Brasil Ltda. (“Trelleborg Brasil”), a Trelleborg Industri AB Brazilian subsidiary that started to be called Trelleborg PAV, having as partners PAV and Trelleborg Brasil.
The dispute arose when Anel was informed that Trelleborg Holding AB, a subsidiary of Trelleborg Industri AB and the parent company of Trelleborg Brasil, had acquired AVS Brasuk Getoflex Ltda., which is Trelleborg PAV’s main competitor. In addition, it also nominated the same members of Trelleborg PAV’s Management Board to serve at the board of AVS Brasil Getoflex Ltda. Therefore, Anel’s commercial partner became its main competitor.
Hence, Anel initiated an arbitration procedure against Trelleborg’s group of companies, alleging breach of affectio societatis. In view of the defendants’ refusal to participate in the procedure, Anel filed a suit to compel the commencement of the arbitration procedure as provided for in Art. 7 of the Brazilian Arbitration Act. The first-instance judge granted the plaintiff’s claims, ordering the defendants to participate in the arbitration.
The defendants filed an appeal to the TJSP, alleging that Trelleborg Industri AB lacked the standing to be sued, since it had not signed the contract, which had the arbitration clause. The TJSP rejected the allegations because Trelleborg Industri AB had exerted, in many opportunities, an active participation not only in the relation kept with Anel in order to perform the contract, but also in the arbitral proceedings. Indeed, evidence had shown that Trelleborg Industri AB: (i) appeared in the letter of intent executed by the parties; (ii) sent a correspondence to Anel in which it demonstrated its interest in the execution of the agreement; (iii) was represented by an official through a proxy and (iv) actively took part in the arbitration proceeding.
It is clear therefore that the arguments put forward by TJSP’s Chamber are the same arguments previously invoked by the tribunal constituted under the ICC rules to decide the Dow Chemical case ‑ that is, the need of active participation of the non-signatory party in order to extend the application of the arbitration provision.
Therefore, although TJSP’s decision does not make express reference to the group of companies doctrine, it dwelled on the same grounds according to which a non-signatory party must actively participate in the contract’s execution, performance and termination in order for the arbitration provision to apply. For these reasons, the progress brought by this precedent is clear and meets the grounds explained above in the three arbitral and state decisions previously exposed in item 3.
On August 26, 2015, the TJSP reconfirmed its position extending the application of the arbitration clause to non-signatory parties in GP Capital Partners (“GP”) et al. vs. Fernando Soares et al. In this case, GP requested the reversal of the arbitral award based on the argument that it had never signed and agreed with the arbitration clause provided in the share purchase agreement that was executed between Fernando Soares and Almeria (a controlled entity of GP), pursuant to which Fernando Soares sold shares of Imbra S.A. to Almeria. Based on several factual elements, the TJSP decided that GP had an active role in the negotiation, which resulted in the execution of the share purchase agreement and the subsequent commercial operations. Therefore, GP’s intention to be bound by the share purchase agreement’s provisions, including the arbitration clause, was undeniable and, as such, TJSP rejected the appeal.
Additionally, for the first time, TJSP mentioned the group of companies doctrine. Nevertheless, the state court of appeal did not entirely recognise it to the extent that is stated that the mere existence of a group of companies does not constitute sufficient ground to apply the arbitration provision to a third party.
However, as every theory, the group of companies doctrine is not universally accepted and certainly subject to criticism.
- A THEORY CHALLENGED BY PUBLIC POLICY IN THE INTERNATIONAL REALM
As already explained, party autonomy and kompetenz-kompetenz are the fundamental principles of arbitration. These are also among the requirements for the arbitration provision to apply to non-signatory parties within a group of companies. However, these principles are not absolute.
The Brazilian Arbitration Act itself expressly states in its second article, first paragraph that the parties are free to choose the rules of private law to be applied in the arbitration, “as long as it does not violate good customs and the public policy.” Such limitation is reiterated in Art. 39, II, under which the STJ can refuse foreign sentences that violate Brazilian public policy.
As a matter of fact, public policy is one of the main checks to party autonomy and, therefore, also to the arbitration provision’s application to non-signatory parties. When these two principles are in conflict, the public policy shall prevail, as stated by Cláudio Finkelstein:
Therefore, it is clear that the parties may choose the law that better fits their needs, always regarding the limits established by the public order rules, that must prevail to the arbitration, superseding the parties will (free translation by the author). 
Public policy rules are understood as those that establish the principles whose maintenance is considered essential to the organisation of social life in accordance with the basic tenets of law. They fill the community’s interests, the society’s economic and moral orders and the fundamental legal basis.
This principle is relevant to this article insofar as the application of the arbitration to non-signatory companies may be thwarted by public policy. The STJ has already rendered opinions regarding this subject, as it did in the Foreign Contested Sentence number 978/GB. In this case, the claimant, Indutech SPA, presented a foreign arbitral decision for enforcement. This foreign arbitral decision was issued by England’s Liverpool Cotton Association against respondent, Algocentro Armazéns Gerais Ltda., addressing a breach of contract. However, Algocentro Armazéns Gerais Ltda. neither executed the contract nor did it file a defence or actively attended to the arbitration. Therefore, Justice Hamilton Carvalhido, in his opinion, denied the enforcement under the grounds that there were no safe elements to evidence Algocentro Armazéns Gerais Ltda’s waiver of the state court jurisdiction and its acceptance of the arbitration jurisdiction. The lack of such elements would amount to a significant violation of the party autonomy principle and, therefore, to an offense to the Brazilian public policy.
Besides the public policy rules that limit, in a certain way, the application of the arbitration provision to groups of companies, the group of companies doctrine itself is questioned in relevant foreign jurisdictions, such as in the famous case of Peterson Farms Inc vs. C&M Farming Ltd in England. In this case, Peterson Farms, an American company, entered into a purchase contract with C&M Farming, an Indian company. By this contract, Peterson Farms delivered roosters for future reproduction and commercialisation to be done by C&M Farming. The contract had an arbitration provision. An issued arose when C&M Farming realised that the poultry were infected. Therefore, C&M Farming and other companies from the group started arbitration against Peterson Farms. The arbitral tribunal sentenced the latter to pay the damages suffered by all enterprises from the group involved, basing its decision upon the group of companies theory raised in ICC precedents.
Unsatisfied, Peterson Farms argued before the London Commercial Court against the validity of the expert report rendered in the arbitration. Judge Langley decided that Arkansas’ state law should also be applied in the interpretation of the arbitration provision and decided that it would be equivalent to English law. In the judge’s view, the law used by the tribunal to base its findings was not the law stipulated in the contract, not even the seat of arbitration law, but, instead, the group of companies doctrine, which does not belong to English law.
Hence, English courts considered that the group of companies doctrine do not apply, and, as such, the parties shall use the most regular mechanisms to bring third parties to the arbitration.
The binding effect of the arbitration agreement in groups of companies is possible by means of the application of the group of companies doctrine. According to the theory, which has its origin in the French law and the Dow Chemical vs. Isover St. Gobain case, the arbitrators may include non-signatory companies to the arbitral proceedings if it is proven that the companies involved form the “same economic reality” and played an active role in the formation, performance and termination of the agreement.
The analysis of the group of companies and the writing requirement of an arbitration agreement in the Brazilian legal system show clearly that the group of companies is somehow compatible with Brazilian law. Groups of companies often present the “same economic reality,” either by means of a formal agreement (convention) or by factual and intangible elements, such as the exercise of power of control by the parent company to its subsidiaries. Moreover, the requirement of a written arbitration agreement is not essential for the validity of the arbitration agreement. In other words, the consent of a party may be demonstrated by means other than a signature, such as the conduct of a party or the exchange of electronic messages. In fact, the consent to arbitrate can be implied and, thus, not signing a contract does not necessarily indicate the intention to not be part of it. In addition, there would be no reason to refuse such an institute considering that it is based on principles and theories already established in the Brazilian legal system, such as the principle of party autonomy and the Principle of Appearance.
There is, however, an apparent difficulty in defining corporate groups, whose existence depends largely on the individual case and does not motivate per se a subjective application of the arbitration clause. In fact, in Brazil, arbitration is essentially contractual and based on clear and unambiguous expression of the will of the parties. And, as showed in the recent case law of the Brazilian courts, the mere existence of a single economic reality does not suffice to demonstrate the non-signatory’s consent to be bound by the arbitration clause. Given that an extensive interpretation of the written form, as what is done in France, may conflict with the rules of public policy and basic principles of corporate and contract law, causing considerable legal uncertainty.
Therefore, it can be concluded that the subjective extension of the application of the arbitration clause in corporate groups is fully possible and should be seen as favourable by the academic community and national courts, but it will depend on the detailed analysis of each case to not misrepresent the arbitration itself and cause conflict with the Brazilian public policy.