Your Subsidiary Signed It. You Might Still Be Bound.

Jurisdiction: Three Routes to the Same Conclusion

The Court of Appeal found that the arbitrator had jurisdiction on three independent grounds — any one of which would have been sufficient.

Consent. The parties had expressly agreed, through the arbitrator’s procedural orders, to proceed as a single international arbitration. Zecon had consented to the jurisdictional challenge being heard together with the merits rather than as a standalone preliminary issue. Having agreed to that course, it could not later turn around and say the tribunal had no authority to decide it. The kompetenz-kompetenz principle under section 18(7) of the Arbitration Act 2005 gave the tribunal the power to rule on its own jurisdiction, and the parties had handed it exactly that opportunity.

Implied agency. The arbitrator found — and the Court of Appeal agreed — that PMSA-2 was not a new, standalone contract. The parent companies under PMSA-1 had not rescinded or novated their agreement. They had instead assigned performance obligations to their respective subsidiaries, who were acting as their nominees and agents. The same scope of work, the same commercial objective, the same project: these pointed clearly to an agency relationship. As principals, the parent companies remained liable for the acts of their wholly-owned subsidiaries under ordinary agency principles.

Crucially, the subsidiaries did not have the authority to rescind or alter PMSA-1 — that was the parent companies’ contract. What they could do, and did, was take over performance with the parents’ consent. PMSA-1 and PMSA-2 both continued to subsist, and the agency relationship ran between them.

The Group of Companies doctrine. The Court of Appeal went further and endorsed the group of companies doctrine — a principle originating from the Dow Chemical ICC arbitration — which holds that an arbitration agreement signed by one member of a corporate group can bind other group entities where the facts demonstrate that all parties intended both signatories and non-signatories to be bound.

As articulated in the Indian Supreme Court’s Mahanagar Telephone Nigam decision (cited with approval by the Malaysian High Court in Padda Gurtaj Singh v Axiata Group Berhad [2022]), the doctrine applies where there is a direct relationship between the signatory and non-signatory, direct commonality of subject matter, and the composite nature of the transaction. A “composite transaction” is one that is so inter-linked that performance of one agreement is not feasible without the aid and execution of the other.

The doctrine also extends to tightly structured groups with strong organisational and financial links that constitute a single economic reality — where funds flow between group members, where structures are shared, and where the group operates in substance as one enterprise.

On the facts, the two PMSAs were exactly that kind of composite transaction. They covered the same project, the same scope, and were executed by entities within the same corporate structure with the full knowledge and consent of the parent companies.