Introduction

Amalgamation is a legal process under which liabilities and rights of two or more companies merge and are brought under one of the original companies or a newly formed company. In general, the company in existence after amalgamation is the successor of those liabilities and rights of the company(ies) dissolved. What if a company dissolved under amalgamation is the claimant in arbitration? Does the amalgamation affect the arbitration tribunal’s jurisdiction over the case?

In A v B [2016] EWHC 3003 (Comm), the defendant in an arbitration claim argued that the arbitration had lapsed because of the dissolution of the claimant under amalgamation, rendering the arbitration tribunal lacking jurisdiction. The argument is rejected by the English High Court, essentially on the ground that the company in existence after amalgamation is the successor of the claimant, and is entitled to be regarded as the claimant in the arbitration.

The case

Background

The defendant in an arbitration claim (the “Defendant”, and the claim the “Arbitration”) applied to the English High Court to set aside the award of the arbitration tribunal (the “Tribunal”) that permitted the substitution of the original claimant (the “Original Claimant”) by another company with which the Original Claimant has been amalgamated (the “New Claimant”). Both the Original Claimant and the New Claimant are Indian companies. The amalgamation between them (the “Amalgamation”) has been complied with all the requirements imposed by Indian laws, and under Indian laws the New Claimant has validly succeeded to all of the rights and obligations of the Original Claimant.

Defendant’s arguments

The Defendant’s claim before the English High Court was brought under section 67 of the Arbitration Act 1996 (the “Arbitration Act”), on the ground that the Tribunal lacked jurisdiction to permit the substitution of the claimant of the arbitral proceeding. It argued that the succession of the claim in the Arbitration by the New Claimant is to be treated as an equitable assignment of the rights to claim, of which notice must be given before the assignor is dissolved; without such a notice, there is no effective assignment of the rights to claim before the Original Claimant ceased to exist, and the Arbitration has thus lapsed with the dissolution of the Original Claimant.

Court’s ruling

A number of problems regarding the Defendant’s arguments have been pointed out by the Court. Firstly, if the succession of rights to claim had to be through equitable assignment with notice, it would not have been possible for the Original Claimant to give notice after the “assignment”, because by then it has dissolved – the devolution of right to claim and the dissolution of the Original Claimant must happen at the same time. The Defendant’s arguments would absurdly result in the claim “disappearing into a black hole”.

Secondly, when the subject companies are foreign companies, for the purpose of English law it is the effect of what occurs under the relevant foreign laws that matters. The Amalgamation has complied with all Indian laws and its effect is that the New Claimant has validly succeeded to all of the rights and obligations of the Original Claimant. There is no “equitable assignment” under Indian laws regarding the Amalgamation. As such, the succession of right to claim cannot be characterised as an equitable assignment.

Furthermore, the Defendant’s arguments do not actually fall within the scope of section 67 of the Arbitration Act, which has to be on the basis of “the substantive jurisdiction of the tribunal”, meaning one of the following:

1.       whether there is a valid arbitration agreement,

2.       whether the tribunal is properly constituted, and

3.       what matters have been submitted to arbitration in accordance with the arbitration agreement.

Jurisdiction of the Tribunal regarding permitting substitution of the claimant does not fall within any of the above.

Also, section 73 of the Arbitration Act constitutes a bar on a party taking part in arbitration against it raising new objection concerning the tribunal’s substantive jurisdiction in the Court which was not raised before. The Court ruled that the Defendant’s arguments are new objection not previously contended before the Tribunal. The arguments are therefore precluded from being raised in the Court to challenge the Tribunal’s award by reason of section 73 of the Arbitration Act.

Conclusion

As made clear by the case, amalgamation, of which effect is for the company remaining in existence to succeed to all the liabilities and rights of the amalgamated and dissolved company(ies), does not involve an assignment of the rights to claim in arbitration from the dissolved company to the remaining company.  Amalgamation alone would not take away the arbitration tribunal’s jurisdiction because of the dissolution of the original claimant.

That said, it should be noted that the ruling of the case relies heavily on the fact that the amalgamation has complied with all the legal requirements under Indian laws, and its effect under Indian laws is that the New Claimant is regarded as the Original Claimant. Whether amalgamation affects the claimant’s position in an arbitral proceeding will ultimately depend on the law of amalgamation in the relevant jurisdiction(s) of the claimant.  

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.