Extension of arbitration clauses under Jordanian Law: a closer look

In summary

In light of recent judicial decisions addressing the extension of arbitration clauses, this article critically examines the evolving framework under Jordanian law. These rulings, despite their scarcity, demonstrate a cautious yet progressive approach to reconciling arbitration’s consensual foundation with the complexities of commercial disputes. Emphasising the pivotal role of arbitration institutions and national courts in shaping doctrinal clarity, this article provides practical insights and recommendations for drafting arbitration clauses that enhance enforceability and ensure coherence in interconnected transactions, contributing to the development of a more predictable and effective arbitration practice.

Discussion points

• Examination of some doctrines that enable extension of arbitration clauses to non-signatories
• Courts' role in developing consistent practices for extending arbitration clauses and ensuring legal predictability

Referenced in this article

• Jordanian Arbitration Law No. 31 of 2001 and its amendments (Arbitration Law)
• Jordanian Civil Code No. 43 of 1976 (Civil Code)
• Amman Court of Appeal (Civil Division), Decision No. 5137/2024
• Economic Chamber of the Amman Court of First Instance, Decision No. 380/2022
• Amman Court of Appeal (Civil Division), Decision No. 10995/2021

Introduction

Arbitration in Jordan is governed by the Arbitration Law, which aligns closely with the UNCITRAL Model Law, facilitating both domestic and international arbitration proceedings.^[1] The Arbitration Law requires that arbitration agreements be memorialised in writing, which may take the form of signed contracts, electronic correspondence, or express references within broader agreements.^[2] Notably, the extension of arbitration clauses is not a novel concept in Jordanian arbitration jurisprudence, however, it has recently been brought into sharper focus through judicial consideration, offering renewed scrutiny and interpretation of this established yet dynamic aspect of arbitration.

The Arbitration Law, as all other national laws, provides no detailed provisions regarding the extension of arbitration clauses, leaving ample scope for party argument, third-party assertions, and judicial interpretation. This legislative lacuna underscores the importance of understanding the principles and implications surrounding the extension of arbitration clauses, as such issues may have a direct bearing on the validity of an arbitral award. While arbitral tribunals are empowered to address questions of extension under the doctrine of Kompetenz-Kompetenz,^[3] an award predicated on an improperly extended arbitration clause remains susceptible to challenge, with the potential risk of annulment. This interplay between tribunal’s jurisdiction and judicial oversight highlights the critical need for careful navigation in matters involving clause extension which this article intends to address.

Privity of contract and arbitration agreements

Under Jordanian law, the principle of privity of contract is generally upheld in the context of arbitration clauses, consistent with its broader application in the Civil Code. Arbitration clauses are in principle binding only on the parties who have expressly consented to resolve disputes through arbitration. This reflects the fundamental premise of arbitration as a consensual process, rooted in party autonomy, and a contractual exception to the jurisdiction of national courts.^[4]

While the doctrine of privity of contract serves as a cornerstone of the Civil Code and contract formation, its application in arbitration agreements under Jordanian law should be evolutionary rather than static. The challenge lies in balancing the preservation of party autonomy with the practical realities of modern commercial transactions, particularly in multi-party and complex disputes. The rigidity of the privity doctrine in such scenarios may hinder the efficacy of arbitration in addressing the intricate relationships inherent in global commerce.

Modern commercial transactions involve corporate groups, subcontractors, and affiliated entities, many of which could actively participate in the performance and execution of contractual obligations without being formal signatories to the arbitration agreement. A strict adherence to privity in such contexts may create unintended obstacles to effective dispute resolution, particularly where disputes arise involving entities that, while substantively engaged in the contractual relationship, are procedurally excluded from arbitration. The resulting fragmentation of disputes, where some parties are compelled to arbitrate while others resort to national courts, introduces risks of inconsistent rulings and prolonged litigation which ultimately undermine arbitration’s core advantages of efficiency and neutrality. A carefully dynamic approach, one that respects party autonomy while accommodating necessary exceptions, can strike the necessary balance to ensure that arbitration remains a reliable, efficient, and commercially viable dispute resolution mechanism.

Doctrines allowing extension to non-signatories

Arbitration practice has developed several doctrines to extend arbitration clauses to non-signatories in specific circumstances, including for example the group of contracts doctrine, group of companies doctrine, subrogation, beneficiaries, guarantors, and action oblique. While Jordanian courts have addressed some of these doctrines, others remain largely untested, offering opportunities for further judicial development. A more liberal application of these doctrines could enhance the adaptability and efficiency of arbitration in resolving modern disputes.

Group of contracts

The group of contracts doctrine, though rarely addressed by Jordanian courts, plays a pivotal role in the resolution of disputes arising from modern commercial transactions. This doctrine enables the extension of arbitration agreements across multiple, interrelated contracts that collectively form part of a unified transaction or single economic deal. The doctrine recognises that, while not all contracts within a transaction may explicitly include arbitration clauses (or even an incorporation by reference to the main arbitration clause), disputes arising from these interconnected agreements may nonetheless fall within the scope of arbitration where the contracts are sufficiently interdependent and aligned in their purpose and performance.^[5]

In a case between a contractor and an employer involving a construction project, the Jordanian courts addressed the extension of an arbitration clause from a main construction contract to an ancillary contract concerning additional works on the site.^[6] While the ancillary contract lacked an arbitration clause, the court concluded that it, being titled ‘Annex’, formed part of the main contract and was therefore subject to the same arbitration clause. This conclusion was based on the principle that "the accessory follows the principal and cannot be subject to an independent ruling."^[7] However, it remains unclear whether the courts would adopt the same reasoning in cases where the ancillary contract provides no such indication.

In a significant annulment case in 2024, the Court of Cassation, sitting en banc, overturned an earlier ruling^[8] by rejecting the extension of an arbitration clause contained in a main agreement to a subsequent settlement agreement. The court's decision rested on the absence of an express arbitration clause, or any jurisdiction clause, in the settlement agreement, thereby establishing an interesting precedent.^[9] The court held that a settlement agreement constitutes a stand-alone contract, which effectively terminates prior agreements, including any arbitration clause contained therein. Moreover, it reasoned that by entering into the settlement agreement, the parties had implicitly waived the arbitration clause in the main agreement. The Court of Cassation’s decision in rejecting the extension of an arbitration clause to a subsequent settlement agreement is grounded in rigid contractual principles. This decision, however, is not without its shortcomings.

While it is true that a settlement agreement typically supersedes prior contractual obligations, it does not automatically follow that all provisions of the original agreement (including the arbitration clause) are rendered inapplicable. The court, in this case, presumed waiver without sufficiently analysing the parties’ intent; a key component of party autonomy. The ruling highlights the need for a more nuanced judicial approach that considers not only the express terms of the settlement agreement but also the broader principles governing arbitration, particularly party autonomy, the survival of arbitration clauses^[10] (especially in the absence of an express jurisdiction clause in the settlement agreement), and the practical realities of dispute resolution. By failing to assess whether the parties intended to retain arbitration as their dispute resolution mechanism, the court risked undermining arbitration’s role as an efficient and predictable forum for resolving commercial disputes. This ruling, in fact, underscores a critical lesson: the careful drafting of arbitration clauses and the unequivocal expression of party intent to extend arbitration clauses are essential to ensuring their effective and enforceable application, particularly in the context of related agreements.

Group of companies

Although Jordanian courts are yet to engage with the group of companies doctrine in the context of arbitration, it has emerged as a significant, albeit contentious, principle in international arbitration practice. This doctrine permits the extension of an arbitration clause contained in a contract to other entities within the same corporate group, even if those entities are not signatories to the agreement containing the arbitration clause.^[11] Its application seeks to reflect the realities of modern commercial practices, where corporate groups often function as a single economic entity, blurring the boundaries between individual companies within a group.

It has been suggested, in theory, that the Jordanian legislative framework may not readily accommodate this doctrine as a basis for extending arbitration clauses to non-signatories. This interpretation is based on a strict reading of the Arbitration Law, the principle of privity of contract, and the Companies Law, which is viewed as preserving the distinct legal personality and separate obligations of subsidiary companies.^[12] It was further observed that the judiciary is likely to resist the extension of obligations between subsidiaries except in limited areas, such as labour law.^[13] This can be attributed to the pro-employee orientation of Jordanian labour law and court precedents, which prioritise employee's protection.

While this opinion adheres to the formal letter of the law, it overlooks the practical realities of modern commerce where a corporate group could function as a single economic entity. In fact, the opinion suggesting judiciary’s apparent willingness to embrace the group of companies doctrine in labour disputes, premised on a pro-employee approach, raises a fundamental question: if economic unity justifies the application of group of companies doctrine and extension of obligations in labour matters, why should the same rationale not apply in commercial arbitration, where principles of good faith and commercial reliance equally support its application? In fact, dismissing the application of this doctrine in arbitration and commercial transactions would ignore the reality that parent companies or affiliates may control, benefit from, or actively participate in contracts without being formal signatories. Extending arbitration agreements to non-signatories in such cases will align with principles of good faith and prevent abusive corporate structuring to evade dispute resolution. A nuanced, case-by-case approach would ensure a fair balance between respecting the distinct legal personality of companies (wherever obvious) and upholding the integrity of arbitration agreements in modern commercial transactions.

Not far away from home, the group of companies doctrine has been addressed by the Egyptian courts and arbitral institutions, namely the Cairo Regional Centre for International Commercial Arbitration (CRCICA), offering valuable insights for Jordanian courts and arbitrators.

In 2001 in the Care Service case, the arbitral tribunal under CRCICA extended the arbitration clause to a parent company based on the "economic unity" between the parent and its subsidiary which was the party involved in arbitration. The tribunal relied on international jurisprudence, reasoning that entities operating as a single economic unit within a corporate group could be bound by an arbitration clause, even if they were not signatories. The tribunal went further, positing that the Egyptian legal system does not explicitly prohibit the extension of arbitration agreements to non-signatories,^[14] provided such entities collectively form an economic unit.^[15] However, this award was annulled by the Cairo Court of Appeal, a decision later upheld by the Court of Cassation.^[16] The court at both levels emphasised the distinct legal personality of the parent company and its lack of involvement in the conclusion, signing, or performance of the relevant contract, reaffirming a strict adherence to the principle of privity of contract and distinct legal personality of each company. The Court of Cassation, however, expressed the willingness to extend the arbitration clause should the parent company have been involved (or at least interfered) in the performance of the main contract.^[17] Meaning, merely being a member of a corporate group would not automatically trigger the application of the doctrine.

In 2013, the Cairo Court of Appeal demonstrated the pragmatic approach in the Bahgat Group annulment of award case. The court accepted the extension of the arbitration clause to several companies within the Bahgat corporate group, citing their "economic unity" and the chairman’s centralised control over negotiations and performance of the concerned contract. The court further invoked a quasi-estoppel principle^[18] to bar the subsidiary companies from denying their consent to arbitration after actively participating in the arbitral proceedings.^[19] This marked a departure from the rigid stance in the Care Service case and showcased the courts' willingness to adapt their reasoning to reflect commercial realities.

The Egyptian experience illustrates both the challenges and potentials of the group of companies doctrine in arbitration. While the Egyptian judiciary has shown caution in extending arbitration agreements, as seen in Care Service, it has also demonstrated flexibility in cases like Bahgat Group, recognising the interconnected nature of modern corporate groups. Jordanian courts, which may find themselves called upon to address the doctrine, could benefit from these precedents. A balanced approach that respects the principle of privity while addressing the realities of corporate relationships will be key to fostering a robust and adaptable arbitration framework in the region. In fact, the doctrine serves a pragmatic purpose, ensuring that disputes involving closely connected entities within a corporate group are resolved efficiently and coherently before a single arbitral tribunal, aligning with the parties’ implied intent and avoiding fragmented proceedings.

Subrogation, beneficiaries, and guarantors

While the Jordanian Arbitration Law does not expressly regulate extension to subrogated parties, beneficiaries and guarantors, insights from the Civil Code and judicial interpretations provide a foundation for understanding how these principles are applied (or could be applied).

In an insurance case before the Court of Cassation, the interplay between subrogation and arbitration clauses was addressed.^[20] The dispute arose from a claim filed by an insurer exercising its subrogation rights after compensating the insured for damages.^[21] The insurer sought to recover the amount from the responsible party (carrier), invoking contractual liability based on a bill of lading.

The bill of lading contained an arbitration clause stipulating that disputes would be resolved through arbitration seated in London. The responsible party invoked this clause against the insurer, arguing that the insurer, having substituted the insured through subrogation, was bound by the same contractual terms, including the arbitration clause. The insurer contested the applicability of the arbitration clause on different grounds. The court ruled in favour of the responsible party, aptly holding that the insurer, by stepping into the shoes of the insured, assumed not only the rights but also the obligations under the bill of lading. Consequently, the arbitration clause was binding on the insurer.^[22]

The Court of Cassation’s decision to bind the subrogated insurer to the arbitration clause in the bill of lading reflects a principled application of subrogation and Arbitration Law. The reasoning upholds the autonomy and integrity of arbitration clauses, emphasising their inseparability from the contract’s framework.^[23] Put differently, the ruling affirms that procedural obligations follow substantive rights, safeguarding the predictability and enforceability of arbitration in commercial disputes.

On the other hand, the question of extending arbitration agreements to third-party beneficiaries under Jordanian law remains untested, with no available case law to provide practical guidance. In theory, the principle of "stipulation for the benefit of a third party", codified in the Civil Code, provides a potential legal basis for such an extension.^[24] This provision allows a contract to confer enforceable rights upon a non-signatory beneficiary, which could include the right to invoke or be bound by an arbitration clause, provided the stipulation reflects the clear intent of the contracting parties.

While the theoretical framework appears to permit such extensions, significant uncertainties persist. A key issue is whether a beneficiary could successfully contest the binding nature of an arbitration clause on the grounds of unawareness or lack of consent. This question becomes particularly contentious when the arbitration clause imposes procedural burdens, such as arbitration in a foreign jurisdiction or significant financial costs, which the beneficiary may not have anticipated. The absence of judicial interpretation leaves unanswered the question of whether Jordanian courts would prioritise the consensual nature of arbitration over the contractual intent to benefit the third party. This remains an area ripe for further judicial development and exploration.

The extension of arbitration clauses to guarantors under Jordanian law is similarly an uncharted territory, leaving much to be discovered and clarified through judicial interpretation. Extension would depend heavily on the terms of the nature of the guarantee (guarantee agreement), the terms of the arbitration clause in the principal contract, and the intent of the parties. While the accessory nature of guarantees could provide a basis for such extension, it may be insufficient on its own to override the requirement for clear consent to the arbitration clause in principle agreements. Hence, parties to contracts involving guarantees should ensure that arbitration clauses are explicitly addressed in guarantee agreements to avoid disputes and ensure enforceability.^[25]

Action oblique (indirect claims)

The doctrine of action oblique (indirect claims) permits a creditor to assert the rights of their debtor against a third party when the debtor’s inaction jeopardises the creditor’s ability to recover.^[26] This mechanism, designed to protect creditors’ interests, raises significant questions in the context of arbitration, particularly whether a creditor acting through action oblique can be bound by or invoke an arbitration clause contained in the contract between the debtor and the third party.

In a significant decision by the Economic Chamber of the Amman Court of First Instance, the court directly addressed the application of arbitration clauses to indirect claims.^[27] The case involved a construction agreement between a contractor (the debtor) and an employer (the defendant). The creditor (the claimant) initiated legal proceedings against the employer, demanding reimbursement for liquidated bank guarantees that the contractor had provided. The creditor argued that the liquidation was unlawful, as the contractor had fulfilled its contractual obligations under the construction agreement.

The construction agreement, which defined the rights and obligations of the contractor and the employer, included an arbitration clause stipulating that disputes arising from the contract would be resolved through arbitration. The employer requested the dismissal of the court case, invoking the arbitration clause. The court ruled that the creditor, acting on behalf of the contractor through action oblique, was bound by the arbitration clause in the construction agreement. By representing the contractor’s rights, the creditor effectively stepped into the contractor’s legal position and became subject to the contractual mechanisms agreed upon by the contractor and the employer.

The court’s decision interestingly illustrates a nuanced understanding of action oblique, ensuring that creditors cannot selectively enforce substantive rights while disregarding the procedural frameworks embedded in the debtor’s contracts. This decision indicates that creditor’s invocation of action oblique is entirely derivative, meaning the creditor assumes not only the substantive rights of the debtor but also the procedural obligations tied to those rights. It remains to be seen whether the Court of Cassation would uphold the lower court's reasoning.

Towards a balanced approach to extension of arbitration clauses in Jordanian courts

While recognising that arbitration agreements are fundamentally consensual, courts must also recognise that their effective application sometimes require the inclusion of non-signatories under specific legal doctrines such as those discussed above​. These mechanisms aim to preserve the viability and efficiency of arbitration in resolving disputes arising from complex, interconnected transactions. Therefore, courts should avoid adopting an overly rigid approach when evaluating the extension of arbitration clauses and assessing applications for the annulment of arbitral awards that are based on such extension. Instead, they must strike a balance that respects the consensual foundation of arbitration while considering the broader principles of fairness and commercial realities inherent in such disputes. Such a balanced approach not only safeguards the integrity of arbitration but also ensures its continued relevance in modern commerce.

Extending arbitration clauses to non-signatories offers several practical advantages. Extension can promote efficiency by consolidating related disputes within a single arbitral proceeding, while reducing the risk of inconsistent decisions, avoiding delays, and possibly minimising cost. This approach aligns with the above described interconnected commercial and corporate transactions, recognising that arbitration should reflect the economic reality of business relationships rather than being constrained by rigid formalism. Further, binding non-signatories in appropriate circumstances enhances fairness by preventing entities from exploiting technicalities to avoid arbitration. Proper application of doctrines that support extension of arbitration clauses ensures that parties who benefit from a contract(s) cannot selectively avoid its dispute resolution mechanism, thereby upholding the integrity of the arbitration process. Indeed, such extensions reinforce the principle of good faith, particularly in cases where the conduct of the parties demonstrates a clear intention, whether express or implied, to be bound by arbitration.

Despite these benefits, the extension of arbitration agreements remains contentious. One may argue that such extensions risk undermining the consensual nature of arbitration, particularly when based on broad interpretations of implied consent to arbitration or economic unity. While courts need to be cautious of improper overreach, they need also to consider the clear evidence of intent or conduct that justifies the inclusion of non-signatories. As once aptly expressed, answering the question of extension "cannot be achieved through abstract generalization but requires consideration of the arbitration language and the relations and dealings in a specific factual setting."^[28] By contrast, in certain circumstances, extension of arbitration clauses may operate by force of law without regard to the questions of intent and factual settings; cases of succession being the most obvious example.

Given the limited case law on the extension of arbitration clauses within the Jordanian legal framework, Jordanian courts are uniquely positioned to establish a robust and balanced jurisprudence on this pivotal issue. By adopting a principled approach that upholds the consensual foundation of arbitration while addressing the commercial realities of interconnected transactions, Jordanian courts can effectively balance fairness and efficiency. Judicial analysis should prioritise the intent of the parties, the economic and legal interdependence of transactions, and the core principles underpinning doctrines such as agency, implied consent, and economic unity. Developing a coherent and predictable framework would align the Jordanian practice with international arbitration standards. Such alignment is particularly critical in cross-border disputes, where consistent interpretation plays a decisive role in the recognition and enforcement of arbitral awards, fostering greater trust and reliability in arbitration as a dispute resolution mechanism.

Beyond the Basics: Strategic Considerations

The extension of arbitration clauses to non-signatories under Jordanian law presents both strategic opportunities and legal uncertainties for practitioners. While certain principles supporting extension are grounded in Civil Code provisions, their interplay with the Arbitration Law remains complex and often unpredictable. Successfully navigating this terrain requires precise contractual drafting, a firm grasp of evolving judicial interpretations, and a forward-looking approach to dispute resolution. Practitioners must carefully balance the principles of consent and privity against the realities of modern commercial transactions, ensuring that arbitration remains an effective mechanism for resolving disputes within corporate groups and interconnected business arrangements. As Jordanian courts continue to interpret these doctrines, a proactive approach will be essential in promoting more effective, efficient, and predictable dispute resolution.

The foundation of any enforceable arbitration clause lies in its precision and clarity. In Jordanian practice, where courts emphasise party autonomy and consent, ambiguity in drafting can lead to significant disputes. Hence, for example, practitioners need to address whether arbitration clauses should explicitly extend to related parties and contracts, particularly in complex commercial arrangements involving interconnected contracts, such as guarantees or framework agreements.

The incorporation of arbitration clauses by reference is another critical consideration. In multi-contract relationships, practitioners should ensure that the principal arbitration agreement is unambiguously incorporated into ancillary agreements. This approach avoids the risk of fragmented dispute resolution mechanisms across interconnected contracts, particularly in cases involving subcontracts, performance guarantees, settlement agreements or other ancillary arrangements.

Recent decisions, such as those addressing action oblique, subrogation, and settlement agreements (as ancillary agreement to principal agreement), suggest an evolving yet cautious judicial approach to extending arbitration clauses. Therefore, practitioners should remain attuned to these developments and align arbitration clauses with international standards while accommodating the specific requirements of Jordanian law, particularly in cross-border disputes involving multi-party contracts or complex corporate structures. Comparative insights from jurisdictions with analogous legal frameworks can provide valuable guidance, fostering greater predictability and doctrinal consistency in arbitration practice.

Alongside judicial developments, arbitration institutions play a critical role in bettering the arbitration practice. Awards rendered by tribunals operating under the auspices of such institutions not only clarify key legal doctrines but could also contribute to procedural uniformity, advancing arbitration practice beyond the jurisprudence of national courts. Establishing such an institution in Jordan could significantly enhance the country’s arbitration regime by positioning Jordan more firmly within the global arbitration landscape, an area that demands further development.

Conclusion

The extension of arbitration clauses to non-signatories under Jordanian law presents both challenges and opportunities as courts navigate the intersection of established legal doctrines in the Civil Code, the foundations of arbitration, and the practical demands of modern commerce. Recent decisions reveal cautious but progressive steps toward accommodating such extensions, offering a foundation for a more predictable and effective arbitration framework. Yet, significant gaps remain in judicial precedent, particularly regarding underexplored doctrines like the group of companies. This evolving area demands careful attention from practitioners, emphasising precise drafting and strategic foresight.

Endnotes

"The insurer may be subrogated for the insured extent of the compensation paid for the damage, in any claims the insured may have against the party responsible for the harm giving rise to the insurer’s liability unless the party who caused the unintentional damage is one of the ascendants, descendants, spouses, in-laws or those living jointly with the insured or a person for whose acts the insured is responsible."