English High Court grants declaratory relief under s72 in ABC v DEF

In ABC v DEF [2025] EWHC 711 (Comm) the English Court determined that the claimant (the Claimant), a parent company of contracting subsidiaries, was not bound by the arbitration agreements which were the subject of the arbitral reference. Consequently, it granted declaratory relief under Section 72 of the Arbitration Act 1996, affirming that there was no valid arbitration agreement between the Claimant and the Defendant (the Defendant). The case underscores the careful exercise of the English court's supervisory jurisdiction over English-seated arbitrations, striking a balance between respecting arbitral autonomy and protecting the rights of non-participating parties.

Background

The dispute concerned two contracts (the Contracts) entered into on 18 August 2020 for the supply of pharmaceutical products. The first contract was between the Defendant and a UK Ltd company (3 UK), while the second contract was between the Defendant and a Malaysian entity (3 Malaysia). 3 UK was a direct subsidiary of the Claimant, and 3 Malaysia was a direct subsidiary of 3 UK. The Claimant was not a party to either of the Contracts.

The Contracts included an LCIA arbitration clause (Clause 14), designating London as the seat of arbitration. Clause 17 (Clause 17) mandated that any amendment, modification, or novation must be executed in writing and signed by the respective parties.

Following dissatisfaction with contractual performance, the Defendant initiated separate arbitration proceedings under each Contract. The Claimant was named as a respondent in both arbitrations alongside, respectively, 3 UK and 3 Malaysia. The two arbitrations were later consolidated under a sole arbitrator.

The Claimant chose not to participate in the arbitral proceedings but sought declaratory relief from the English court under Section 72 of the Arbitration Act 1996 (the Act) which permits non-participants in an arbitration to challenge the tribunal’s jurisdiction. The Claimant argued that since it was not a party to the Contracts it was not subject to the arbitral process initiated by the Defendant under them.

The Defendant modified its case at various stages. Initially, it claimed in its Requests for Arbitration that the Claimant shared liability for the obligations of its subsidiaries due to its supervisory role within the corporate group. It ultimately argued in its skeleton arguments prior to the s72 hearing that a separate, implied contract containing an arbitration agreement identical to Clause 14 had arisen between the Claimant and the Defendant as a result of the Claimant’s involvement in performing obligations under the Contracts.

The Decision

During opening submissions the Defendant confirmed it had abandoned its original position that the Claimant was a party to the Contracts. Judge Pelling KC deemed this concession "close to inevitable". The Contracts clearly defined the parties as the defendant, 3 UK and 3 Malaysia, with the Claimant neither named nor signing either agreement. Clause 17 specifically restricted any modification or novation of the contracts unless executed in writing by the relevant signatories and the Defendant did not contend that the contracts had been modified. Consequently, the Defendant’s earlier argument that the Claimant was bound by the arbitration agreements due to its corporate relationship with the subsidiaries was deemed “impossible”, considering both the contracts’ drafting and established principles on corporate personality.

The Defendant’s Implied Contract Argument

The court assessed the Defendant's new implied contract argument as "fatal" to its opposition to the Claimant's application. Judge Pelling KC noted that the only arbitral proceedings involving the Claimant and Defendant were those initiated under the Contracts. Since the alleged implied contract was not pleaded in the Requests for Arbitration submitted to the LCIA, it fell outside the scope of the current arbitration references and the arbitrator's jurisdiction. While the LCIA Rules permitted amendments to arbitral claims, the court expressed doubt that such a fundamental change could be permitted within the existing proceedings.  

The Claimant’s application for declaratory relief

Judge Pelling KC emphasised the necessity of balancing an arbitral tribunal's authority to determine its own jurisdiction under Section 30 of the Act with judicial oversight conferred by Section 72. The court acknowledged that granting declarations of non-arbitrability should be approached with caution as a matter of policy, especially in cases where highly fact-sensitive or complex jurisdictional issues exist and where the tribunal may be better placed to resolve such disputes. However, it maintained that the threshold for caution lessens where it is evident that the dispute does not fall under a valid arbitration agreement. Delving into a complex factual inquiry related to the Defendant's implied contract argument was unnecessary. Invoking a complicated factual inquiry related to the Defendant's implied contract theory was deemed unnecessary. The arbitrations had been initiated under Clause 14 of the Contracts, thus eliminating the need to evaluate the existence of an implied contract. Given the unambiguous exclusion of the Claimant from the arbitration clauses forming the basis of the original arbitral references, the Claimant's non-participation and jurisdictional challenge were found to be appropriate.

Accordingly, the court considered judicial intervention to be warranted. It granted declaratory relief under s72 of the Act, declaring that there were no valid arbitration agreement binding the Claimant under the Contracts and confirming that the Claimant was not liable to engage arbitral proceedings with the Defendant concerning alleged breaches of the Contracts. The court was careful to note that these declarations did not prevent the Defendant from initiating fresh arbitration proceedings based on its new implied contract theory.

Costs, Publication of the judgment and refusal of permission to appeal

The court awarded the Claimant its costs on the standard basis, rejecting a request for indemnity costs. The court acknowledged that the Defendant’s evolving arguments had caused inefficiencies, but considered it typical for a party to resist such applications, even when the opposition "fails in emphatic terms". The correspondence exchanged was characterised as "typically tough" between highly experienced commercial solicitors engaged in contentious commercial litigation. To view it as anything more would be incorrect. Consequently, the Defendant's conduct did not meet the stringent standard of unreasonableness needed to justify indemnity costs.

The court confirmed that the judgment should be published under the open justice principle of the English court, indicating that any necessary confidentiality could be protected through anonymisation.

The court considered any proposed appeal to be unarguable and permission to appeal was refused.

Comment

This judgment reinforces the consensual nature of arbitration agreements and serves as a warning against the assumption that a parent company can be treated as a contracting party solely due to its involvement with a subsidiary's operations. It also emphasises the importance of ensuring that Requests for Arbitration are comprehensive and based on all potential arbitration agreements on which the claimant party intends to rely. Additionally, the case illustrates the court's recognition of the boundaries of its judicial oversight under the Act and its readiness to act robustly where a party is clearly not bound by the arbitration agreements in question.