10.6092/issn.2531-6133/7258
In  the  21st  Century,  the  commerce  is  not confined  to the  boundaries  of  any single-nation  state.  Hence,  we  have  been  witness  to  the  transactions  and  disputes involving  multiple  parties  and  legal  systems.  Assuming  that  you  are  an  in-house counsel  in  an  MNE.  Do  you  ever  wonder  whether  the  parent  or  sister  companies' counsel  or  the  opposing  counsel  may  make  contact  with  you  about  the  arbitral proceedings  that  your  client  has  never  agreed  on  in  the  first  place?  Is  it  possible whether  the  non-signatory  parties  are  bound  by  or  benefit  from  the  arbitration agreement, and what could be the possible legal grounds given the doctrine of privity of contract? This article discusses one of these grounds, the group of companies doctrine, in  the  context  of  Turkish  and  US  legal  systems  comparatively  and  explores  its applicability in light of precedents.
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Gizem Halis Kasap
University of Bologna Law Review
Group of Companies Doctrine
Etching the Borders of Arbitration Agreement: the Group of Companies Doctrine in International Commercial Arbitration under the U.S. and Turkish Law
Text.Serial.Journal
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87-113
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Gizem Halis Kasap
2017/09/29
10.6092/issn.2531-6133/7258
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2531-6133
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Group of Companies Doctrine
en
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Etching the Borders of Arbitration Agreement: the Group of Companies Doctrine in International Commercial Arbitration under the U.S. and Turkish Law
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2
ARTICLES & ESSAYS                                                                      DOI 10.6092/issn.2531-6133/7258




Etching the Borders of Arbitration Agreement: the Group of Companies
Doctrine in International Commercial Arbitration under the U.S. and
Turkish Law

                                           GIZEM HALIS KASAP †



TABLE OF CONTENTS: 1. Introduction; 2. Taxonomy of Notions Related to the ‘Group of
Companies’ Doctrine: Non-Signatory Parties in Arbitration; 2.1. Rule: Agreement to
Arbitrate; 2.2. Exception: Non-signatory Parties; 2.2.1. Framework of the ‘Group of
Companies’ doctrine; 2.2.2. Compilation of Other Exceptions; 3. The U.S. Law Position
on the Group of Companies Doctrine; 4. The Turkish Law Position on the Group of
Companies Doctrine; 4.1. Statutes Related to the Group of Companies Doctrine; 4.2.
Case Law on the Group of Companies Doctrine; 5. A Comparative Analysis of Two
Approaches; 5.1. Stance Towards Arbitration; 5.2. Non-signatory Arbitration
Extensions; 5.3. Application of the Group of Companies Doctrine; 5.4. Application of the
Group of Companies Doctrine; 6. Solutions To Not To Be (or To Be) A Non-Signatory; 7.
Conclusion.


ABSTRACT: In the 21st Century, the commerce is not confined to the boundaries of any
single-nation state. Hence, we have been witness to the transactions and disputes
involving multiple parties and legal systems. Assuming that you are an in-house
counsel in an MNE. Do you ever wonder whether the parent or sister companies'
counsel or the opposing counsel may make contact with you about the arbitral
proceedings that your client has never agreed on in the first place? Is it possible
whether the non-signatory parties are bound by or benefit from the arbitration
agreement, and what could be the possible legal grounds given the doctrine of privity of
contract? This article discusses one of these grounds, the group of companies doctrine,
in the context of Turkish and US legal systems comparatively and explores its
applicability in light of precedents.


KEYWORDS: Arbitration Agreements; Doctrine of Privity: Non-Signatory Parties; Group of
Companies Doctrine.




                                            UNIVERSITY OF BOLOGNA LAW REVIEW

                                                    ISSN 2531-6133

                                                     [VOL.2:1 2017]

           This article is released under the terms of Creative Commons Attribution 4.0 International License


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       1. INTRODUCTION

Globalization is sitting in the catbird seat in our era. Recent decades, therefore,
have witnessed that international commercial transactions are booming in
terms of their size and sophistication. M.N.Es (multinational enterprises)
usually include arbitration clauses in their transactions to navigate the risks
that come with foreign jurisdiction and to protect their investment at stake.
Such international business transactions often involve a myriad of contracts
and parties. Hence, these transactions engender a variety of disputes. It is
inevitable that when such a dispute arises, it will have a bearing on almost all
of the parties' interest in the transaction. It would be ill-defined and vague to
state that only parties who agree to arbitrate can be included in the
proceedings since non-signatory parties can become a part of proceedings
through a few special theories of law. Arbitrators, most often in the interest of
fairness, feel compelled by circumstances to reach beyond the specific parties
to an arbitration agreement.

       This article discusses one of these theories, the group of companies
doctrine, in general. It first summarizes the rule of agreement to arbitrate and
its exceptions. The article continues with the application of the group of
companies doctrine in international arbitration, specifically comparing the
United States, where a pro-arbitration regime has been adopted, and Turkey,
which is one of the less arbitration-friendly countries. The aim of this chapter
is to present selected cases where the facts supported the application of the
group of companies and then to discuss which theories acted as a substitute for
the doctrine. The last part concludes by suggesting methods of drafting an
arbitration clause to prevent taking chances with or to facilitate becoming a
non-signatory party in international arbitration.




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         2. TAXONOMY OF NOTIONS RELATED TO THE ‘GROUP OF COMPANIES’ DOCTRINE:

     NON-SIGNATORY PARTIES IN ARBITRATION

We are conversant with a hornbook principle of contract law that an arbitration
agreement does not bind a non-signatory party, and such an agreement cannot
be enforced against them,1 yet certain exceptional theories allow arbitration
clauses to be imposed by or against non-signatory parties.




    2.1. RULE: AGREEMENT TO ARBITRATE

International commercial arbitration is a private contractual process that
yields final and binding results between the disputants. 2 Parties exploit the
contractual nature of arbitration by tailoring the process to their needs,
including     with     respect     to   procedural       rules    of   arbitration,        applicable
substantive law, tribunal members, and the costs of arbitration. 3 It is
noteworthy that arbitration “is a matter of consent, not coercion” 4 and this
proposal is the heart of the discussion covered in this paper because the courts
confirm that the non-signatories are bound by or benefit from arbitration
agreements “only in rare circumstances”.5




    2.2.EXCEPTION: NON-SIGNATORY PARTIES

Whereas civil law scholars refer to “extending” the arbitration clause to non-
signatories, Anglo-American scholars prefer “joining” non-signatories to the

†
  Gizem Halis Kasap, LL.M. is a member of the Istanbul Bar Association and currently an SJD
candidate at WFU Law in North Carolina. Special thanks to Dean Richard Schneider at WFU Law for
his expert advice and comments on this manuscript as well as Ayca Akkayan-Yildirim,
Ph.D visiting scholar at BU Law for her constant support and mentoring along the way.
1
  See, e.g., United Steelworkers of Am. v. Am. Warrior & Gulf Navigation Co., 363 U.S. 574, 582
(1960); Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995).
2
  THOMAS E. CARBONNEAU & WILLIAM E. BUTLER, INTERNATIONAL LITIGATION AND ARBITRATION 571 (2nd
ed. 2013); Winston Stromberg, Development in the Law: Transnational Litigation: III. Avoiding the Full
Court Press: International Commercial Arbitration and Other Global Alternative Dispute Resolution
Processes, 40 LOY. L.A. L. REV. 1337, 1341 (2007).
3
  CARBONNEAU & BUTLER, supra note 2, at 573. See also United Steelworkers, 363 U.S. at 581.
4
  Volt Info. Scis., Inc. v. Bd. of Trs., Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).
5
  Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002) (citing Hill v. G.E. Power Sys., Inc.,
282 F.3d 343, 347-49 (5th Cir. 2002)).; MARGARET L. MOSES, THE PRINCIPLES AND PRACTICE OF
INTERNATIONAL COMMERCIAL ARBITRATION 35 (2012).
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arbitration agreement.6 Both terminologies refer to the same situations: in our
case (1) when a non- signatory company of the arbitration agreement
commences arbitration proceedings through an arbitration contract signed by
one or more of the companies within the same group; or (2) when a non-
signatory company is obliged to participate as a defendant in arbitration
proceedings which is commenced by or against another company within the
same group pursuant to the clause signed.

         There is a burgeoning trend for tribunals and courts to make arbitration
clauses binding, even on third parties who never signed an arbitration
agreement.7 This is because of the well-entrenched principle of supporting the
agreement to arbitrate, and it is in part driving the growing popularity of
arbitration.




    2.2.1. FRAMEWORK OF THE ‘GROUP OF COMPANIES’ DOCTRINE

Characteristics of the group of companies doctrine include either a non-
signatory company availing itself of or being bound by an arbitration
agreement in which another company in the same group is a part of the
agreement.8

         As we mentioned before, the parties are free to choose rules, which the
arbitral tribunal adopts to conduct the proceedings. Considering the rules, the
arbitral tribunal determines the scope and the effects of its jurisdiction. In
cases where parties are silent on the situation of a non-signatory company in
their arbitration agreement, an arbitral tribunal may "manipulate" its
jurisdiction by joining the non-signatory company to arbitration. This practice




6
   William W. Park, Non-signatories and International Contracts: An Arbitrator’s Dilemma, in MULT.
PARTY ACTIONS INT'L. ARB. 3, 4-5 (2009).
7
 See          ICC      Arbitration     Posts      Strong       Growth       in        2015,        ICC,
http://www.iccwbo.org/News/Articles/2016/ICC-Arbitration-posts-strong-growth-in-2015/(last
visited Nov. 13, 2016).
8
  See, e.g., John P. Gaffney, The Group of Companies Doctrine and the Law Applicable to the Arbitration
Agreement, in NORTON ROSE FULBRIGHT’S INT’L. ARB. REP., May 2016 at 21-22 (briefing the essential
cases where the group of companies doctrine applied).
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has been mostly adopted and endorsed by the I.C.C., and after over a thirty-
year period of application, it still maintains its importance. 9

         Not surprisingly, the trailblazing case on the group of companies
doctrine is an I.C.C. case, Dow Chemical France v. Isover Saint Gobain
(hereinafter Dow Chemical).10 In this dispute, claimants were Dow Chemical
France, the Dow Chemical Company- which was the parent company- Dow
Chemical A.G. and Dow Chemical Europe- which both were subsidiaries- and
the respondent was Isover Saint-Gobain.11 There were two distribution
agreements signed between Dow Chemical A.G., Dow Chemical Europe and
Isover Saint-Gobain, and thereby, the arbitral tribunal was supposed to have
no jurisdiction over Dow Chemical France and the Dow Chemical Company.12
However, the parties agreed that Dow Chemical France or any other subsidiary
of the Dow Chemical Company could make deliveries under the distribution
agreements.13 The dispute arose from the products' quality, and therefore, Dow
Chemical France, the Dow Chemical Company, Dow Chemical A.G. and Dow
Chemical Europe initiated arbitration against Isover Saint-Gobain.14 Isover
Saint-Gobain argued that only Dow Chemical A.G. and Dow Chemical Europe
were the parties of the distribution agreements and arbitration clauses, and as
a result, the arbitral tribunal was exceeding the scope of its authority.15

         In its awards, the arbitral tribunal took into consideration the
negotiation, implementation and termination of the agreements that had been
signed and found that both non-signatory parties had an active role during the
agreement.16 To justify this, the tribunal pointed out that Dow Chemical France
played a crucial part in negotiations and also was the only supplier of the
defendant.17 The Dow Chemical Company, similarly, was the parent company
and exercised a power of control when the subsidiaries concluded and carried

9
   See Otto Sandrock, Arbitration Agreements and Groups of Companies, 27 THE INT’L LAW. 941, 941-942
(1993) (listing the awards where the group of companies doctrine applied by the ICC tribunals).
10
    Dow Chemical France v. Isover Saint Gobain, 9 Y.B. Comm. Arb. 1984 at 131, 131 (ICC Int’l Ct.
Arb.).
11
   Id. at 132-33.
12
   Id. at 132.
13
    Id.
14
    Id.
15
    Id. at 134.
16
    Id. at 135.
17
    Id.
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out the agreements.18 Combining all of these, the arbitral tribunal constructed
a two-prong test, which required that (1) the signatory and non-signatory
parties constituted a "single economic reality", in other words, a company
group and (2) the non-signatory companies actively participated in the
negotiation, performance and termination of the agreements. 19

         In Dow Chemical, arbitrators made the award in the interest of fairness
because the non-signatory companies were “cherry-picking” while engaging
in the negotiation, implementation and termination of the contracts like a
signatory party but ignoring to arbitrate because it was not beneficial for their
case.

         The underlying motivation under Dow Chemical is that the international
commercial arbitration is driven by the necessities of the evolving commerce,
and therefore, the arbitrators should have the power to build resilience for
these necessities, such as creating a new doctrine and apply the dispute.
However, the group of companies doctrine, like any other new doctrines
created by lex mercatoria, is open to criticism because lex mercatoria finds its
own limits at the enforcement stage, and that can lead awards to be
unenforceable before the national courts.20

         Various      subsequent       I.C.C.    cases     have    followed       Dow       Chemical.21
Nonetheless, the doctrine has been criticized, and it has divided scholars and
courts into two groups. One group which, sticking with a traditional approach,
finds that this doctrine is unneeded and this issue should be solved under the
law applicable to arbitration agreements, 22 and another group which, adopting




18
   Id. at 136-37.
19
   Id.
20
    See Abul F.M. Maniruzzaman, The Lex Mercatoria and International Contracts:A Challenge for
International Commercial Arbitration?, 14 AM. U. INT'L L. REV. 657, 696-97 (1999).
21
   See, e.g., EMMANUEL GAILLARD & YAS BANIFATEMI, PRECEDENT IN INTERNATIONAL ARBITRATION 522
(2008); ADAM SAMUEL, REVIEW OF JURISDICTIONAL PROBLEMS IN INTERNATIONAL COMMERCIAL ARBITRATION:
A STUDY OF BELGIAN, DUTCH, ENGLISH, FRENCH, SWEDISH, SWISS, U.S. AND WEST GERMAN LAW, 102-6
(1989).
22
   See, e.g., Société Kis France et autres v. Societe Generale et autres, 1992 Revue de l’Arbitrage 90,
93; Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd [2000] 2 SLR 98; BERNARD HANOTIAU,
COMPLEX ARBITRATIONS: MULTIPARTY, MULTICONTRACT, MULTI-ISSUE AND CLASS ACTIONS 50 (2005).
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a progressive approach toward arbitration, supports extending an arbitration
agreement to non-signatory companies within the same group.23

         Although in Dow Chemical, the contracts were governed by French law,
not the lex mercatoria, the arbitrators engaged in lex mercatoria and created
the group of companies doctrine. The Cour d’Appel de Paris still upheld the
award.24 The court, however, could have dismissed the award -considering the
applicability of any novel doctrine- like the German Federal Supreme Court or
the Supreme Court of the United Kingdom where they heard certain different
cases based on the doctrine and rejected the doctrine. 25 These different stands
of the national courts prove why the advocates of the traditional approaches’
point may be worth further consideration.




     2.2.2. COMPILATION OF OTHER EXCEPTIONS

Although a discussion of each of the exceptions is beyond the scope of this
paper, under U.S. law, the majority of federal cases recognizes five theories: (1)
incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter
ego and (5) estoppel.26 The third-party beneficiary theory has also been
accepted as a sixth exemption.27 Moreover, it is possible to name other
theories, arising out of the arbitral awards, case law of other countries and
secondary sources, such as assignment, novation, succession by operation of
the law, and subrogation.28


23
   See, e.g., Orri v. Société des Lubrifiants Elf Aquitaine [1992] Jur Fr 95 (11 January 1990).
24
   Societe Isover-Saint-Gobain v. Societes Dow Chemical France and others, Cour d’appel [CA]
Paris, October 21, 1983 REV. ARB. 98 (1984).
25
   See, e.g., BGH, III ZR 371/12, 27 Nov. 2013 and Peterson Farms Inc. v. C&M Farming Ltd [2004]
All E.R. (D) 50.
26
   See, e.g., Reid v. Doe Run Res. Corp., 701 F.3d 840, 846 (8th Cir. 2012); Mundi v. Union Sec. Life
Ins. Co., 555 F.3d 1042,1045 (9th Cir. 2009); World Rentals & Sales, LLC v. Volvo Constr. Equip.
Rents, Inc., 517 F.3d 1240, 1248 (11th Cir. 2008); Zurich Am. Ins. Co. v. Watts Indus., 417 F.3d 682,
688 (7th Cir. 2005); Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411,
417 (4th Cir. 2000); Bel-Ray Co. v. Chemrite Ltd., 181 F.3d 435, 446 (3d Cir. 1999); Thomson-CSF,
64 F.3d at 776; See also Cosmotek Mumessillik Ve Ticaret Ltd. Sirkketti v. Cosmotek U.S.A., 942 F.
Supp. 757, 760 (D. Conn. 1996) (adopting the same principles in terms of international commercial
arbitration).
27
   See, e.g., Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004); Bridas S.A.P.I.C.
v. Gov't of Turkm., 345 F.2d 347, 354 (5th Cir. 2003).
28
    James M. Hosking, Third Party Non-Signatory's Ability to Compel International Commercial
Arbitration: Doing Justice without Destroying Consent, 4 PEPP. DISP. RESOL. L.J., no. 3, 2004, at 469,
482-85.
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As demonstrated, all these theories are accepted in a traditional sense, and
they hinge on either contract or company law, or equity law. The rest of the
paper will discuss whether there is a need to adopt the group of companies
doctrine while the same result might be achieved through the abovementioned
conventional doctrines.

         3. THE U.S. LAW POSITION ON THE GROUP OF COMPANIES DOCTRINE

U.S. Courts are reluctant to acknowledge the group of companies doctrine,
persisting with the idea that binding non-signatories is only possible under
the traditional theories recognized in Thomson-CSF.29 It should be underlined
that U.S. courts have never explicitly opposed the doctrine, but instead, they
have applied different theories even though the facts supported applying the
group of companies doctrine.30

         The notable and most-relevant decision on the group of companies is
Sarhank Group v. Oracle Corp. (hereinafter Sarhank) in which the Second Circuit
found that the non-signatory parent was not bound by the foreign arbitral
award rendered in Egypt, in spite of the fact that the arbitral tribunal had
issued an award which concluded that the non-signatory parent was bound by
the arbitration clause under the "group of companies" theory. Moreover, the
Egyptian Supreme Court had upheld the award before the Second Circuit’s
ruling.31

         In Sarhank, Sarhank Group, an Egyptian company, concluded an agency
agreement (hereinafter the Agreement) with Oracle Systems Ltd. (hereinafter
Systems), which was a wholly owned subsidiary of Oracle Group (hereinafter
Oracle), a U.S. manufacturer.32 The Agreement included an arbitration clause
and Oracle was neither a party to the Agreement nor to the arbitration
agreement.33 A dispute arose between the contracting parties and Sarhank




29
   See, e.g., Reid, 701 F.3d at 846; Mundi, 555 F.3d at 1045; Denney v. BDO Seidman, L.L.P., 412 F.3d
58, 71 (2d Cir. 2005); Intergen N.V. v. Grina, 344 F.3d 134, 144 (1st Cir. 2003).
30
    Alexandre Meyniel, That Which Must Not Be Named: Rationalizing the Denial of U.S. Courts With
Respect to the Group of Companies Doctrine, 3 ARB. BRIEF, no. 1, 2013, at 18, 32.
31
   Sarhank Group v. Oracle Corp., 404 F.3d 657, 658-59 (2d Cir. 2005).
32
   Id. at 658.
33
   Id.
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Group initiated arbitration against both Systems and Oracle, its parent. 34 Oracle
objected to the tribunal's jurisdiction, arguing that it had not signed the
Agreement.35 Nonetheless, the tribunal rejected the claim and issued an award
holding that Oracle and Systems were “jointly and severally liable”. 36 The
tribunal's reasoning was essentially based on the elements of the group of
companies doctrine.37 Sarhank Group moved to confirm and enforce the award
in the United States pursuant to the “New York Convention”,38 codified at 9
U.S.C. § 201-08.39 The district court entered the judgment for Sarhank Group,
but Oracle appealed the decision to the Second Circuit. 40

         The Second Circuit accepted Oracle's arguments on the grounds that
Oracle did not enter into the Agreement, and the arbitrators lacked jurisdiction
to determine arbitrability. Hence, the Second Circuit vacated the award. 41
Further, the Second Circuit remanded for a determination as to whether Oracle
was bound by the arbitration agreement "on any basis recognized by American
contract law or the law of agency", and the other ground was that
"enforcement of the award would be contrary to American public policy.”                           42




34
   Id.
35
   Id.
36
   Id.
37
    Id. at 662 (stating the award that “despite … their having separate juristic personalities,
subsidiary companies to one group of companies are deemed subject to the arbitration clause
incorporated in any deal either is a party thereto provided that this is brought about by the
contract because contractual relations cannot take place without the consent of the parent
company owning the trademark by and upon which transactions proceed." ).
38
    Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Dec. 29, 1970, 21
U.S.T. 2517, 1970 U.S.T. LEXIS 115.
39
    Sarhank Group, 404 F3.d at 659.
40
   Sarhank Group, 404 F3.d at 658.
41
   Sarhank Group, 404 F3.d at 662-63.
42
   Sarhank Group, 404 F3.d at 659.; See also Motorola Credit Corp. v. Uzan, 388 F.3d 39, 65 (2d Cir.
2004) (applying the law of the contract, Swiss law, to the issue of whether a non-signatory could
benefit from an arbitration clause.) In Motorola, Motorola entered into a number of
agreements governed by Swiss Law, containing a clause that any dispute arising under the
agreement shall be submitted to arbitration. Id. 43. In this case, the Second Circuit found that
"under Swiss law, defendants, as non signatories to the agreements, may not invoke the
arbitration clauses contained in those agreements.” Id. 51. This created a split in authority inside
the Second Circuit regarding the consideration of the choice-of-law clauses and its application to
the non-signatories because in Sarhank, the Second Circuit did not apply the Egyptian law to the
issue of non-signatories. For the attempt of reconciliation see Republic of Ecuador v.
ChevronTexaco Corp., 376 F. Supp. 2d 334, 355 (S.D.N.Y. 2005).
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The Third Circuit has followed the Second Circuit’s analysis in Thomson-CFS,43
and it has held a narrow view in considering the extension of arbitration
clauses to non-signatories.44 In E.I. Dupont, DuPont China, Rhone Poulenc Fiber
and Resin Intermediates (hereinafter Rhodia Fiber), and Liaoyang Petro-
Chemical Fiber Company were a part of the arbitration clause included in the
Joint Venture Agreement (hereinafter the J.V.A.).45 The J.V.A. also contained a
provision that the parents would "assist the Company in the balancing of
foreign exchange...”.46 Furthermore, to ensure the success of the company, the
J.V.A. set forth that the parties "and their Affiliates [emphasis added] will not
take action detrimental to the interest or well-being of the Company."47
Pursuant to these provisions of the J.V.A., both parents entered into related
agreements with the joint venture company. 48 After the dispute arose, DuPont,
the parent of DuPont China, brought a suit against Rhodia Fiber and its parent,
Rhodia.49

         In its holding, the Third Circuit reinforced the federal policy favoring
arbitration and added that "[T]he presumption in favor of arbitration carries
"special force" when international commerce is involved…". 50 The Third Circuit
analyzed whether DuPont, a non-signatory parent, was bound by the
arbitration clause under the third party beneficiary, agency, and equitable
estoppel theories.51 After applying each of the theories, the Third Circuit
decided that the non-signatory parent was not bound by the arbitration clause
and affirmed the District Court’s judgment that denied appellants' motion to
compel arbitration.52




43
    E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d
187, 195 (3d Cir. 2001) (incorporating one more exception, the third party beneficiary, into the
exceptions counted in Thomson-CSF, 64 F.3d at 776).
44
    See, e.g., Invista S.à.r.l. v. Rhodia, SA, 625 F.3d 75, 85 (3d Cir. 2010); E.I. Dupont., 269 F.3d at 195;
Bel-Ray Co., 181 F.3d at 446.
45
   E.I. Dupont., 269 F.3d at 190.
46
    E.I. Dupont., 269 F.3d at 191.
47
   E.I. Dupont., 269 F.3d at 192.
48
    Id.
49
    E.I. Dupont., 269 F.3d at 192.
50
   E.I. Dupont., 269 F.3d at 194.
51
   Id.
52
   E.I. Dupont., 269 F.3d at 205.
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In Bel-Ray, the Third Circuit adopted again the same approach in E.I. Dupont and
maintained its view.53 In this case, Bel-Ray and Chemrite (Pty.) Ltd, a South-
African company, signed a number of agreements including an arbitration
clause.54 While the agreements were in force, Chemrite sent a fax stating that it
had changed its name to "Lubritene (Pty) Ltd",55 but legally, the succession
took place when Chemrite sold its business, including its rights under the
agreements, to Lubritene, which was a newly established entity, and Chemrite
entered liquidation.56

         After the dispute arose between the parties, Bel-Ray filed an action to
compel Lubritene and the four of its directors and officers (hereinafter the
Individual Appellants) to arbitrate.57 Bel-Ray alleged that Lubritene and the
Individual Appellants "conspired to misappropriate Bel-Ray's technology and
other proprietary information and intentionally defrauded Bel-Ray by leading
it to believe that Lubritene would abide by the Trade Agreements."58 Bel-Ray
also alleged "[L]ubritene marketed Bel-Ray products falsely under Lubritene's
trade name, and conversely marketed inferior Lubritene products under Bel-
Ray's trade name thereby damaging Bel-Ray's business reputation".59 After
claims and counterclaims, the District Court entered a summary judgment for
Bel-ray and an order compelling Lubritene and the Individual Appellants to
arbitrate.60 Thus in appeal, the issue was whether the successor and four of its
directors and officers were bound by the predecessor's arbitration agreement. 61

         Although the facts of the case supported the extension of the arbitration
clause, the Third Circuit did not engage in a detailed analysis. The court
recognized the exceptions adopted by Thomson-CSF and very briefly held that
"having      similarly      compared   our   record   with   the Thomson-CSF court's
explanation of each of the five enumerated theories, we have also concluded



53
   Bel-Ray Co.,181 F.3d at 446.
54
   Bel-Ray Co.,181 F.3d at 438.
55
   Id.
56
   Id.
57
   Bel-Ray Co.,181 F.3d at 437.
58
   Bel-Ray Co.,181 F.3d at 439.
59
   Id.
60
   Id.
61
   Bel-Ray Co.,181 F.3d at 445.
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that each is inapposite here. "62 The court just stayed with the reasoning that
traditional principles of contract and agency law do not support joining the
non-signatories to the arbitration clause.63

         Unlike E.I. Dupont, the Third Circuit did not engage in application of the
traditional principles of contract and agency law and rushed the conclusion by
bypassing the comprehensive reasoning of its ruling. The alleged claims,
however, could have supported the situation in which the claims were
"intimately founded in and intertwined with the underlying contract
obligations"64 and therefore, justified the extension of the arbitration clause to
the Individual Appellants under either the group of companies doctrine or
traditional exceptions recognized by Thomson-CFS.65

          In Invista, the Third Circuit deferred to the tribunal’s partial award
when the tribunal found that it had no jurisdiction over the non-signatory
party, Rhodia S.A.66 In this case, Rhodianly, Rhodia Operations S.A.S, and
Rhodia S.A. commenced arbitration against INVISTA-affiliated entities.67
Shortly after the initiation of the arbitration, INVISTA-affiliated entities
brought a suit against both Rhodia S.A. and related parties alleging that Rhodia
S.A. violated the non-disclosure agreement concerning the trade secret. 68 While
the parties were litigating, the tribunal issued a partial award and found that it
had lacked jurisdiction over Rhodia S.A. 69 Rhodia S.A. filed a motion to have
each of the three INVISTA entities to be compelled to arbitrate the claims. 70



62
   Bel-Ray Co.,181 F.3d at 446.
63
   Id.
64
    McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984)
(quoting Hughes Masonry Co. v. Greater Clark Cty. Sch. Bldg. Corp., 659 F.2d 836, 841 n. 9. (7th
Cir. 1981)). In this case, the contractor brought a lawsuit against the construction manager. The
dispute was arising from the duties to the building owner. Although there was no arbitration
agreement between the disputants, each disputant had separately entered into the arbitration
agreements with the building owner regarding the project. The Eleventh Circuit held that the
claims were "intimately founded and intertwined with the underlying contract obligations", and
thus, the non-signatory parties were subject to arbitration.
65
   Pedro J. Martinez-Fraga, The Dilemma of Extending International Commercial Arbitration Clauses to
Third Parties: Is Protecting Federal Policy While Accommodating Economic Globalization a Bridge to
Nowhere?, 46 CORNELL INT'L L.J. 291, 311 (2013).
66
    See Invista S.à.r.l., 625 F.3d at 85.
67
   Invista S.à.r.l., 625 F.3d at 80.
68
   Invista S.à.r.l., 625 F.3d at 82.
69
   Invista S.à.r.l., 625 F.3d at 81.
70
   Invista S.à.r.l., 625 F.3d at 82-3.
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In its holding, the Third Circuit quoted Thomson-CSF and restated the
exceptions to bind a non-signatory party to an arbitration agreement.71 The
Third Circuit, however, did not assess these exceptions. Instead, the Third
Circuit held that "the Tribunal's holding that it has no jurisdiction over Rhodia,
S.A. means that Rhodia S.A. is a stranger to the I.C.C. Arbitration and,
therefore, has no enforceable right of arbitration" and dismissed the appeal as
moot without addressing whether the non-signatory parties were bound by the
arbitration agreement.72

         As opposed to the Second Circuit in Sarhank, the Third Circuit has
deferred the tribunal’s decision and not engaged in a merits review although it
arouses curiosity whether the Third Circuit would have engaged in a merits
review if the tribunal had decided contrariwise and found that it had a
jurisdiction over the non-signatories.

         When the issue was whether the non-signatory party could compel
arbitration, the First Circuit has considered the scope and the wording of the
arbitration clause. In Sourcing, Sourcing Unlimited (d/b/a Jumpsource) and
Asimco Technologies, Inc. (hereinafter A.T.L.) entered into a partnership
agreement        containing       an    agreement        to    arbitrate      in      China. 73       Asimco
International, Inc. (hereinafter Asimco) was a subsidiary of A.T.L., and it was
not a party to the agreement.74 The chairman of Asimco, however, participated
in negotiations, which resulted in the agreement and became involved in the
transaction by agreeing to deliver the parts produced by the partnership to the
venture's customers in the United States as well as to invoice the customers
and retain partnership profit in the United States. 75 When the dispute arose,
Jumpsource brought a suit against non-signatory Asimco and alleged that
dispute arose from a separate oral contract whereas Asimco asserted that it
was nothing but an oral modification of the partnership contract containing a




71
   Invista S.à.r.l., 625 F.3d at 85.
72
   Invista S.à.r.l., 625 F.3d at 87.
73
    Sourcing Unlimited, Inc. v. Asimco Int'l, Inc., 526 F.3d 38, 41 (1st Cir. 2008).
74
    Id.
75
   Id. at 42.
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provision for arbitration.76 Asimco filed a motion to dismiss the action and
compel arbitration.77

         The main issue in this case was whether a signatory party could render
an arbitration clause ineffective when the claim was filed against a non-
signatory party asserting that there was no arbitration agreement in writing
with a non-signatory party.78 The First Circuit reversed the district court's
order and granted the non-signatory party's motion to dismiss and to compel
arbitration.79 The Court compelled the signatory party to arbitrate with the
non-signatory party by employing the equitable estoppel theory and indicating
the expansive nature of the arbitration clause. 80 The court held that the claim
was "intertwined" with the underlying contract, including the arbitration
clause.81

         Similarly in Intergen, the Third Circuit pondered the grammatical
interpretation of the arbitration clause in the purchase contract. Only the
"Buyer" and "Seller", which was defined in the contract, were allowed to
invoke arbitration although the clause had a broad scope in terms of claims. 82
The Court also considered that because the parties were “sophisticated
commercial actors”, they could have drafted different contracts but they did
make deliberate choices by defining who was eligible to invoke arbitration
clause.83 It is also noteworthy that the First Circuit made an emphasis on
federal policy favoring arbitration, yet limiting the borders of the policy to
exclude the “situations in which the identity of the parties is in dispute.” 84
Thus, the Court upheld the district court's denial of the non-signatory parent’s
motion to compel arbitration.85

         With reference to the cases analyzed above, we can infer that the U.S.
courts are reaching the result without adopting the group of companies

76
   Id. at 42-3.
77
   Id. at 42.
78
   Id. at 43.
79
   Id. at 48.
80
   Id.
81
   Id. at 47.
82
   See Intergen N.V., 344 F.3d at 146.
83
   Intergen N.V., 344 F.3d at 150.
84
   Id.
85
   Id.
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doctrine, yet adopting the contractual theories, which cover more scenarios
than the group of companies doctrine. 86 It should be emphasized that this
analyze above does not aim to show U.S. courts’ position in terms of binding
non-signatories, but to compare and contrast the applicable doctrines under
U.S. law and the group of companies doctrine when the issue was whether the
non-signatories were bound by the arbitration agreement.




        4. THE TURKISH LAW POSITION ON THE GROUP OF COMPANIES DOCTRINE

Unlike U.S. law, Turkish law is a product of the civil law system. As a result,
statutes have more bearing than the case law on the judicial system. From
exploring the statutes related to the group of companies doctrine, this chapter
will move on to an examination of selected Turkish Supreme Court decisions
related to the doctrine. Similar to the previous chapter, the information aims to
create a base for the comparison of the two legal systems.

        The term “group of companies” is used to refer to a management of
more than one stock company under Turkish law, and the Turkish Commercial
Code sets forth its principles.87 In other words, it actually refers to a “corporate
group” as understood in common law. As seen, whereas a literal translation of
“corporate group” from Turkish to English results in the term of “group of
companies”, the meaning of it in Turkish is not the same as that of the term in
English. The term, therefore, can be misleading for foreign lawyers, and thus,
it becomes of importance for foreigners to consult local lawyers. It is necessary
to make it clear that this article does not use the “group of companies
doctrine” term as in “corporate group” throughout the discussion.




86
  Meyniel, supra note 30, at 23.
87
  Turkish Commercial Code, Law No.: 6102 Official Gazette, Feb. 14, 2011 No.: 27846, §§ 195-209,
enacted: Jan. 13, 2011. [hereinafter the TCC]
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     4.1. STATUTES RELATED TO THE GROUP OF COMPANIES DOCTRINE

International arbitration in Turkey is governed by the International Arbitration
Act (hereinafter the I.A.A.), which is established based upon Chapter 12 of
Switzerland's Federal Code on Private International Law and UNCITRAL. 88
Under the I.A.A., the arbitration agreement is a legally binding contract
between the parties.89 There is no provision that addresses the non-signatory
parties situation, nor does the abundance of case law discuss the non-
signatory parties’ situation in an arbitration agreement, especially in terms of
the group of companies doctrine.

         This ambiguity has laid the burden on scholars and practitioners when
they evaluate the issue in terms of predictability.




     4.2. CASE LAW ON THE GROUP OF COMPANIES DOCTRINE
It is necessary to examine the Turkish Supreme Court database to ascertain if
the group of companies doctrine itself has been addressed by the courts. A
sufficient number of cases, albeit not ample, allows us draw certain
conclusions on the issue:

         (1) Assessment of Turkish case law as to the position of non-signatories
yields a quite certain result that a non-signatory can be bound by or benefit
from an arbitration agreement in the event of incorporation by reference, 90
assignment91 and subrogation.92


88
   See Grand Nat’l Assembly of Turk., Draft Act of No. 4686 and its Preamble (Jun. 6, 2001),
http://www2.tbmm.gov.tr/d21/1/1-0874.pdf.
89
    International Arbitration Act. Law No.: 4686 Official Gazette, 21 Jun. 2001 No.: 24453, §4,
enacted Jul. 5, 2001[hereinafter the IAA]; Also see the 3rd Civ. Cir. of the Turkish Sup. Ct., Case No.:
2014/12342 Decision No.: 2015/6885 dated 27 Apr. 2015.
90
   E.g., Gen. Assemb. of Turkish Sup. Ct., Case No.: 1994/11-765, Decision No.: 1995/39 dated 1 Feb.
1995; 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2015/7064 Decision No.: 2015/9348 dated 16 Sep.
2015; 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2015/1687 Decision No.: 2015/6696 dated 11 May.
2015; 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2012/5132 Decision No.: 2012/7052 dated 2 May
2012; 11th Civ. Cir. of Turkish Sup. Ct, Case No.: 2005/13708 Decision No.: 2007/587 dated 22 Jan
2007; 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2002/216 Decision No.: 2002/4357 dated 6 May
2002; 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2001/10475 Decision No.: 2002/2260 dated 12
Mar. 2002.
91
    11th Civ. Cir. of Turkish Sup. Ct., Case No.: 1993/5034 Decision No.: 1994/4082 dated 10 May
1994.
92
   E.g., Gen. Assemb. decision supra note 90 dated 1 Feb. 1995; 11th Cir. decision supra note 90 dated
6 May 2002.
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           (2) There are other decisions, on the other hand, discussing certain
legal theories in which binding a non-signatory party pursuant to these
doctrines is not accepted. These theories can be named as, third party
beneficiary, guarantee or agency with the actual express authority.

           Under Turkish law, if the principal gives actual express authority to the
agent for concluding an arbitration agreement, the principal is deemed a party
to the arbitration agreement, not the non-signatory (third party) agent.93 The
actual issue under the agency theory, in fact, is whether the principal or agent
can be held liable in the event of apparent authority or estoppel. 94 For now,
there is no known case in which the Turkish Supreme Court discusses this
issue.95

           In a recent Turkish Supreme Court case dated 6/25/2015, the issue was
whether the I.C.C. award could be enforced on behalf of the third party
beneficiary of the contract.96 In this case, the non-signatory party, the
plaintiff, was the state agency and it had approved the concession agreement
which contained an arbitration clause between the defendant and the other
plaintiff in the case.97 Also, the non-signatory party was benefitting from the
contract, put differently, it was the third-party beneficiary.98 The majority of
the Turkish Supreme Court reversed the judgment of the trial court and held
that the approval of the contract by the non-signatory party did not
necessarily mean that the non-signatory party also approved the arbitration
clause.99 The court stated that arbitration agreements had an exceptional
character, and therefore, a non-signatory party shall give either express
consent or tacit consent on the condition that it creates no doubt. 100 On the
other hand, the dissent stated that under the Turkish Constitution, the parties


93
    E.g., 19th Civ. Cir. of Turkish Sup. Ct., Case No.: 2002/7495 Decision No.: 2002/6932 dated 24
Oct. 2002; 19th Civ. Cir. of Turkish. Sup. Ct. numbered 8273/265 dated 23 Jan. 1997.
94
     Banu Şit Köşgeroğlu, Yabancı Hakem Kararlarının Üçüncü Kişilere Karşı Tenfizi [Enforcement of
Foreign Arbitral Award Against the Third Parties], 15 GAZI UNIVERSITESI HUKUK FAKULTESI DERGISI
[GUHFD], no 3,2001, at. 12.
95
     See also Id.
96
     11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2014/9538 Decision No.: 2015/8707 dated 25 June
2015.
97
     Id.
98
     Id.
99
     Id.
100
    Id.
                                               103
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can arbitrate for the disputes between state agencies and private parties, and
thus, there was no ground for the majority to allege that the state agency was
not a party of either the concession agreement or the arbitration clause. 101

         In one case, the Turkish Supreme Court did not accept the extension of
the arbitration clause to the guarantor either. In the case dated 3/11/2004, the
defendant non-signatory party was the bank that issued the letter of credit for
the plaintiff where the plaintiff entered into a sale agreement, including an
arbitration clause, with the other defendant, which was a corporation. 102 The
Turkish Supreme Court relied heavily on its earlier precedents and held that
the non-signatory bank was not bound by the agreement because arbitration
agreements had exceptional characteristics as opposed to litigation in the court
system.103

         (3) There is no ruling discussing the group of companies doctrine,
whether affirmatively or not. In one unpublished Turkish Supreme Court case
dated 11/7/1989, the claimant filed a motion to enforce the arbitral award
decided by the Arbitral Tribunal of the Bremen Cotton Exchange. 104 The
claimant, Bunge GmbH, conducted negotiations with Osman Akca Corporation
(hereinafter the Corporation) and believed that the Corporation was the party
to the agreement whereas he actually entered into the contract of sale
including an arbitration clause with Osman Akca L.L.C. (hereinafter the
L.L.C.).105 In this case, the Turkish Supreme Court upheld the trial court on the
grounds that the arbitral award could not be enforced against the non-
signatory party, the Corporation.106




101
    Id. The reason why the dissent referred to the Turkish Constitution is that it was prohibited for
the state agencies to arbitrate until 1999. To make concession contracts arbitrable, the Turkish
Constitution was amended in 1999. The dissent opinion, in fact, took a stand against the anti-
arbitration mindset of the majority. See §125 of the Turkish Const., amended version by Act No.:
4446 Official Gazette 14 Aug. 1999 No.: 23786 enacted 13 Aug. 1999.
102
     19th Civ. Cir. of Turkish Sup. Ct., Case No.: 2003/2654 Decision No.: 2004/2603 dated 11 Mar.
2004.
103
     Id.
104
    11th Civ. Cir. of Turkish Sup. Ct., Case No.: 1990/2931 Decision No.: 1991/6828 dated 07 Nov.
1989.
105
     Id.
106
     Id.
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        The Corporation and the L.L.C. were sister companies. 107 Moreover, it is
understood that the sister company was involved in the negotiations in a way
that indicated that the non-signatory party was in effect the original party of
the sale.108

        In one case regarding a stock purchase agreement, the conflict arose out
of the transfer of the trademark.109 The stock purchase agreement concluded
between the co-partners of the A.. Lastik San. A.Ş. (hereinafter the Individuals)
and the C.. GmbH, the defendant.110 The agreement set forth the conditions of
the trademark transfer and included an arbitration clause for any disputes
arising out of the contract.111 As per the Agreement, the defendant shall transfer
the trademark of “A.. Lastik Sanayii” to the Individuals. 112 Later, the defendant,
C.. GmbH, switched the title from A.. Lastik San. A.Ş. to C.. Lastik San. A.Ş.
However, it did not transfer the ownership of the trademark. 113

        The Individuals brought a suit against the defendant and the non-
signatory C.. Lastik San. A.Ş.114 The defendant filed a motion to compel
arbitration and the trial court entered a judgment for the defendant and the
plaintiffs appealed.115

        The Turkish Supreme Court held that the C.. Lastik San. A.Ş. did not
sign the agreement regardless of whether it was the assignee or successor of
the C.. GmbH or the Individuals.116 The court also noted that because the result
would directly affect the non-signatory party’s rights, it shall not be enforced
to arbitrate through the arbitration clause in which it had not agreed. 117 The




107
     See Turkish Trade Registry Gazette, THE UNION OF CHAMBER & COMMODITY EXCH. OF TURK.,
http://www.ticaretsicilgazetesi.gov.tr/sorgu_acik.php (last visited Nov. 6, 2015)
108
     Id.
109
     11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2005/7964 Decision No.: 2006/8410 dated 14 July
2006.
110
    Id.
111
    Id.
112
    Id.
113
    Id.
114
    Id.
115
    Id.
116
    Id.
117
    Id.
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court considered the language of the arbitration clause and held that the
arbitration clause bound only the parties pursuant to the Agreement. 118

         To put it another way, the Turkish Supreme Court did not evaluate the
theories, whether there is an assignment or succession, and emphasized that
the arbitration agreement cannot be compelled against a non-signatory.

         In the case dated 10/05/2015, the parties entered into a merger
agreement which included an arbitration clause.119 The dispute arose when the
plaintiffs did not receive the payment for the shares. 120 When the plaintiffs
brought a lawsuit, the defendants filed a motion to compel arbitration before
the trial court.121 The trial court entered judgment for the defendants and
compelled the plaintiffs to arbitrate.122 The Turkish Supreme Court, however,
reversed the judgment by stating that the plaintiffs S.. B.. and M.. B.. did not
sign the merger agreement, and therefore, the arbitration clause could not be
enforced against these non-signatory parties.123 Although the available facts of
the case do not allow us to comment on the non-signatory parties’ position in
the transaction, there might have been an opportunity for the Turkish courts to
discuss the applicability of the group of companies doctrine.

         Likewise, a lack of legal reasoning and the confidentiality of the parties’
names create a hurdle to study other cases regarding the possible application
of the group of companies doctrine. As an illustration, in the case dated
6/24/2013, there was a construction agreement including an arbitration clause
between the plaintiff, Ş..Hafriyat Ins. Taah. San. Tic. Sti., and the defendant, Ş..
M.. San. ve Tic. Ltd. Sti.124 Later, the defendant concluded a novation agreement
with D.. Ltd. Sti.125 The issue was originating from who had a right to compel




118
    Id.
119
    11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2015/9436 Decision No.: 2015/9845 dated 5 Oct. 2015.
120
    Id.
121
    Id.
122
    Id.
123
    Id.
124
     15th Civ. Cir. of Turkish Sup. Ct., Case No.: 2012/4971 Decision No.: 2013/4112 dated 24 June
2013.
125
    Id.
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arbitration.126 After mentioning briefly these facts, the Court held that because
D.. A.Ş. was a non-signatory party, it cannot be compelled to arbitrate.127

         As it is seen, whereas the court mentioned the parties of the
construction agreement and the party of the novation agreement, the Court
mentioned D.. A.Ş. for the first time when it was holding that D.. A.Ş. was not
bound by an arbitration agreement. In its ruling, the Turkish Supreme Court
never engaged in explaining who the non-signatory D.. A.Ş. was and what was
its position as to the privity between the parties.

         (4) The last noteworthy point is that although the Turkish Supreme
Court has adopted the piercing of the corporate veil theory relatively recently, 128
there has been no application of this theory in any arbitration agreements. In a
similar vein, Turkish courts have employed the estoppel doctrine when the
issue is that there is a valid agreement to arbitrate between the parties. 129
Nonetheless, Turkish courts have never used this doctrine to decide whether a
non-signatory party can be enforced to arbitrate.




         5. A COMPARATIVE ANALYSIS OF TWO APPROACHES

Compared to the United States, Turkish courts retain a touch of reluctance
when there is a matter of arbitration. As a corollary of this, there is a visible
difference between U.S. courts and Turkish courts as to the applicable doctrines
on extension of arbitration agreements to the third parties, which can be
deduced from the reiterated wording taken from the case law in each
jurisdiction. The main difference is that U.S. courts have accepted more
number of doctrines than the Turkish courts. U.S. courts have also more


126
    Id.
127
    Id.
128
     19th Civ. Cir. of Turkish Sup. Ct, Case No.: 2005/8774 Decision No.: 2006/5232 dated 15 May
2006.
129
     E.g., 19th Civ. Cir. of Turkish Sup. Ct., Case No.: 2015/7618 Decision No.: 2015/17519 dated 23
Dec.2015; 11th Civ. Cir. of Turkish. Sup. Ct, Case No.: 2003/6774 Decision No.: 2004/3751 dated 9
Apr.2004; 19th Civ. Cir. of Turkish Sup. Ct, Case No.: 1995/9108 Decision No.: 1995/9685 dated 15
Nov.1995; 11th Civ. Cir. of Turkish Sup. Ct, Case No.: 1979/3855 Decision No.: 19794351 dated 2
Oct.1979.
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frequently considered and discussed the applicability of these doctrines as
opposed to Turkish courts.

          Where the issue is whether a non-signatory party is bound by an
arbitration clause, the jurisdictions have taken the different stands as follow:




      5.1. STANCE TOWARDS ARBITRATION

The Turkish Supreme Court has repeated the phrase that "[I]n principle, the
courts are the ones who hear a dispute. Arbitration agreement has an
exceptional character, and it only binds the parties who agree to. If not, it runs
afoul of the principle that independent courts shall exercise the judicial power
pursuant to the Art. 9 of the Turkish Constitution and the principle of natural
judge.”130 U.S. courts, on the other hand, have laid stress on the standard of
federal policy preferring arbitration over litigation.131 U.S. judiciary has
demonstrated and reaffirmed the Congress’s intent established by 9 U.S.C.S. §
2.132




      5.2. NON-SIGNATORY ARBITRATION EXTENSIONS

The great wealth of U.S. cases has applied five exceptions named by Thomson-
CFS.133 In Turkish case law, however, the courts have not named the applicable
exceptions. It should come as no surprise because as a part of civil law, statutes

130
    Natural judge refers to pre-established and ordinary courts and judges as opposed to ad hoc
trial. See §37 of the Turkish Const. See also 19th Civ. Cir. of Turkish Sup. Ct., Case No.: 2002/7495
Decision No.: 2002/6932 dated 24 Oct. 2002; 19th Civ. Cir. of Turkish Sup. Ct., Case No.: 2003/2654
Decision No.: 2004/2603 dated 11 Mar. 2004.See also 11th Civ. Cir. of Turkish Sup. Ct, Case No.:
2015/14286 Decision No.: 2016/2435, dated 7 Mar. 2016; 15th Civ. Cir. of Turkish Sup. Ct, Case No.:
2015/2198 Decision No.: 2015/2758, dated 22 May. 2015; 11th Civ. Cir. of Turkish Sup. Ct, Case No.:
2013/7572 Decision No.: 2014/14133, dated 19 Sep. 2014; 15th Civ. Cir. of Turkish Sup. Ct, Case No.:
2014/3330 Decision No.: 2014/4607, dated 1 July 2014; 11th Civ. Cir. of Turkish Sup. Ct, Case No.:
2009/3257 Decision No.: 2011/1675, dated 15 Feb. 2011; 15th Civ. Cir. of Turkish Sup. Ct, Case No.:
2009/1438 Decision No.: 2009/2153, dated 13 Apr. 2009; 15th Civ. Cir. of Turkish Sup. Ct, Case No.:
1996/247 Decision No.: 1996/438, dated 29 Jan. 1996.
131
    Bouriez v. Carnegie Mellon Univ., 359 F.3d 292, 294 (3d Cir. 2004); E.I. Dupont De Nemours &
Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 194 (3d Cir. 2001). See also
Sarhank Group v. Oracle Corp., 404 F.3d 657, 661 (2nd Cir. 2005). Cf. Intergen N.V. v. Grina, 344
F.3d 134, 150 (1st Cir. 2003) (limiting the federal policy favoring arbitration when the parties’
identity is in question).
132
    9 U.S.C.S. § 2 (1925); See e.g. CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012); Moses H.
Cone Mem'l Hosp. v Mercury Constr. Corp., 460 U.S. 1, 25 (1983).
133
    See supra p.6.
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prevail over case law. Considering this, when we examine the statutes and case
law, the most striking exception reveals itself in the event of incorporation by
reference.

          Incorporation clauses are validated by the Art. 4 of the I.A.A. as a
general provision and Para. 3 of Art. 1237 of the T.C.C. as a special provision in
the event that a bill of lading refers to a charterparty containing an arbitration
clause.134 Moreover, the judicial application of these statutes is widespread
when an arbitration clause is incorporated into an agreement by reference.

We can generalize that Turkish courts are not sympathetic to third party rights
considering lack of privity. Therefore, only incorporation by reference,
assignment, and subrogation theories satisfy a requirement of privity between
the signatory and non-signatory party.




      5.3. APPLICATION OF THE GROUP OF COMPANIES DOCTRINE

U.S. courts have accepted to extend arbitration agreements to the non-
signatories, including company groups. The abovementioned five exceptions
achieve similar results to application of the group of companies doctrine.
However, the group of companies doctrine itself has no application pursuant to
Sarhank, which applied U.S. domestic arbitration law when deciding the
jurisdiction of the arbitral tribunal. 135 Sarhank found that the award was
contrary to American public policy.136 However, the Second Circuit should not
have discounted a choice-of-law provision. The Second Circuit could have
assessed the non-signatory parties’ situation through the law chosen by the




134
    Compare the Art. 4 of the I.A.A. with the Para. 3 of Art. 1237 of the T.C.C. The I.A.A. validates that
the reference in a contract to a document included an arbitration clause constitutes an arbitration
agreement on the condition that the reference is such as to make that clause part of the contract.
Similar, but more specifically, the T.C.C. provides that the provisions of the charter party can also
be enforced against the holder of the bill of lading. In other words, if the bill of lading is referring
to a charterparty with the condition that the reference contains an arbitration clause, it may be
enforced against the holder of the bill of lading.
135
    See Sarhank Group, 404 F.3d at 662-63.
136
    See Sarhank Group, 404 F.3d at 659.
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parties under Article V(1)(a) of the New York Convention which is a ground for
refusal if there is no valid agreement to arbitrate.137

          Turkish courts have also accepted to extend arbitration agreements to
the non-signatories, albeit not as often as U.S. courts. The Second Circuit
refused the group of companies doctrine implicitly in Sarhank whereas there is
no ruling discussing, or even tacitly refusing, the applicability of the group of
companies doctrine under Turkish law. The case dated 11/7/1989, where the
non-signatory sister company was involved in the negotiations, could have
been a perfect example for the application of the doctrine but the Turkish
Supreme Court did not elaborate its legal reasoning.138

          Although both judiciaries have not adopted the group of companies
doctrine, the United States has made its position clear in contrast to Turkey by
denying the existence of the doctrine itself when the courts refused to respond
to claims involving the group of companies doctrine. 139




      5.4.APPLICATION OF THE OTHER EXCEPTIONS

Turkish courts have not accepted the third-party beneficiary doctrine whereas
the non-signatories have been held to benefit from or have been subject to
arbitration on a third-party beneficiary theory under U.S. Case law.140

          Agency theory itself drastically differs between U.S. and Turkish law.
Under U.S. law, it is accepted that when a principal is bound by an arbitration
clause, “its agents, employees, and representatives” are also embraced under




137
    See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 50 (2nd Cir. 2004) (applying a choice-of-law
clause to determine which laws govern the validity of the arbitration clause).
138
    11th Civ. Cir. of Turkish Sup. Ct., Case No.: 1990/2931 Decision No.: 1991/6828 dated 07 Nov.
1989.
139
    Brief for Defendant/Appellee and Cross-Appellant at 7, Marathon Oil Co. v. Ruhrgas A.G., 145
F.3d 211 (5th Cir. 1998). See also Meyniel, supra note 30, at 39-42.
140
    Compare E.I. Dupont De Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S.,
269 F.3d 194 (3d Cir. 2001) with 11th Civ. Cir. of Turkish Sup. Ct., Case No.: 2014/9538 Decision No.:
2015/8707 dated 25 June 2015.
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the terms of such agreements.141 Under Turkish law, however, only the
principal himself is bound by an arbitration clause to the extent that his agent
has the actual express authority to bind the principle. 142

         U.S. courts also recognized the doctrine of veil-piercing, by means of
which a non-signatory party is bound by an arbitration agreement of its alter
ego.143 As for Turkish courts, they are unlikely to bind a non-signatory party
by piercing the corporate veil, considering that there has been no such ruling
so far, and that Turkish courts tend to litigate cases considering the notion of
how important the express consent of the parties is to arbitrate.

         In civil law systems, equitable estoppel is known as the “good-intent”
doctrine, and it is not extraordinary for Turkish courts to employ this
doctrine. In the United States, we see that a signatory party may be estopped
from avoiding arbitration with a non-signatory.144

         In Turkey, however, the good intent doctrine (or estoppel) may become
a legal reasoning when analyzing whether there is a valid agreement between
the parties, which has not covered the situations so far where the non-
signatories exist.145




         6. SOLUTIONS TO NOT TO BE (OR TO BE) A NON-SIGNATORY



141
    E.g., Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1121 (3d Cir. 1993); Arnold v.
Arnold Corp., 920 F.2d 1269, 1281-82 (6th Cir.1990); Letizia v. Prudential Bache Sec., 802 F.2d
1185, 1187-88 (9th Cir.1986). Cf. E.I. Dupont De Nemours & Co., 269 F.3d at 204 (not extending the
arbitration clause to the non-signatories on the grounds that the claims did not arise from the
agreement including arbitration clause)
142
    Turkish Code of Obligations, Act No.: 6098 Official Gazette, Feb. 4, 2011 No.: 27836, §40,
enacted: Jan. 11, 2011.
143
    E.g., Bridas, 345 F.2d at 358-59; CTF Hotel Holdings, Inc. v. Marriott Int'l, Inc., 381 F.3d 131, 138
(3d Cir. 2004).
144
    E.g., Sunkist Soft Drinks v. Sunkist Growers, 10 F.3d 753 (11th Cir. 1993); . . Ryan & Sons v.
Rhone Poulenc Textile SA, 863 F.2d 315 (4th Cir. 1988).
145
    Compare 11th Civ. Cir. of Turkish Sup. Ct, Case No.: 2003/6774 Decision No.: 2004/3751, dated 9
Apr. 2004 and 19th Civ. Cir. of Turkish Sup. Ct, Case No.: 2002/2249 Decision No.: 2002/7219,
dated 7 Nov. 2002 (finding that the party was estopped from denying arbitration agreement
because silence of the denying party constituted acceptance of the arbitration agreement) with
19th Civ. Cir. of Turkish Sup. Ct, Case No.: 1995/9108 Decision No.: 1995/9685, dated 15 Nov. 1995
(holding that the party did not necessarily bound by arbitration agreement under the good intent
doctrine where the underlying agreement was established by conduct of the parties).
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Freedom of contract entitles parties to choose the law applicable to arbitration
agreements as well as to the underlying contract. Most of the time, the parties
do not choose the law applicable to the arbitration contract itself. This creates
ambiguity of what the applicable law is. There are several approaches to
determine what the law governing the arbitration agreement should be. The
first thing that springs to mind would be either the substantive law chosen by
the parties to govern underlying agreements or the law of the seat of the
arbitration.146 Although it seems remote possibility to apply, the other approach
would be the application of transnational rules. 147 Even though choice of law
clauses may be a solution, the courts can find a way to walk around the clause.
Notwithstand the existence of a choice of law clause, the Second Circuit in
Sarhank adopted domestic law through the extensive interpretation of public
policy.148

         The other solution may be a careful drafting of the arbitration clause
itself. A carefully tailored arbitration clause, defining situation of third parties
in arbitration may diminish the ambiguity. As an illustration, U.S. courts in
Sourcing and Intergen and the Turkish Supreme Court in the case dated
7/14/2006 analyzed the scope of arbitration clauses in terms of the definition
of parties when they decided on the non-signatories’ position in arbitration.
Therefore, clear and unambiguous language defining who the parties are and
the situation of related third-parties are crucial to avoid any unexpected
results.




         7. CONCLUSION

The group of companies doctrine is one of the solutions to extend an
arbitration agreement to non-signatories, and it is not a unique for the I.C.C. to
create sui generis theories. The doctrine came into existence through lex

146
    Renato Nazzini, The Law Applicable to the Arbitration Agreement: Towards Transnational Principles,
65 INT. COMP. LAW Q. 681, 681 (2016).
147
    E.g., In Dow Chemical, the tribunal applied transnational rules, more specifically lex mercatoria,
to the case and took into consideration of demands of international commerce. Id. 695.
148
    Sarhank Group v. Oracle Corp., 404 F.3d 662-63 (2nd Cir. 2005).
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mercatoria and pragmatic-minded expert arbitrators. Nonetheless, it has
created confusion by combining the equity principles where no agreement
exists and the contract law principles where there is an arbitration agreement
but the consent of it is tacit rather than express. Any pioneering doctrines –i.e.
the group of companies doctrine- bear the risk of being rejected by the
jurisdictions where the enforcement of the arbitration agreement or arbitral
award is sought. Therefore, each jurisdiction has taken different stands for
adaption of this doctrine.

       This paper aims to see what could be the possible position of the pro-
arbitration regimes and the less friendly-arbitration regimes to adopt the
group of companies doctrine. To analyze this, the paper compared and
contrasted two different jurisdictions - the United States and Turkey- and
found that it is not necessary that the pro-arbitration regimes –e.g. the United
States- are tend to adopt the group of companies doctrine although joining
non-signatories to the arbitration agreement is more common and acceptable.

       In the United States, agency, third-party beneficiary and estoppel
theories substitute most of the time for the group of companies doctrine.
Although there is a limited application of extension of arbitration clauses to
non-signatories in Turkey, the abovementioned theories are also accepted in
Turkey as a rule of law. If the Turkish judiciary evolves a point where
arbitration is more welcomed and favored by the courts, then these theories
allow the judiciary to extend the arbitration clause to non-signatories.

       Even though the Turkish and U.S. courts have not accepted the group of
companies doctrine, this paper argues that the courts in each jurisdiction
should be more open-minded towards arbitration and should not engage in
merits review when the parties seek to compel arbitral awards decided
pursuant to the doctrine.




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