Assigned Contracts & Arbitration: Key Insights from a Non-Signatory Dispute

In complex construction and engineering contracts, the assignment of obligations can lead to significant questions about arbitration jurisdiction. Recently, LegaTech represented the claimant in a dispute where a contract was assigned from one party (the assignor) to its affiliated company (the assignee). This case highlights non-signatory challenges, corporate structures, and the limits of extending an arbitration agreement beyond its original signatories.

The Dispute: Assignor vs. Assignee

The primary controversy arose when the claimant initiated arbitration against both the assignor and assignee, despite the formal contract transfer to the assignee. We argued that:

• The assignor still bore obligations under the original arbitration agreement.
• The contract’s engineering and financial elements remained under the assignor’s control.

From the claimant’s perspective, assigning the contract alone did not sever the assignor’s liability or its binding commitment to arbitrate.

LegaTech’s Legal Arguments: Group of Companies, Alter Ego, & Implied Consent

1. Alter Ego & Piercing the Corporate Veil
   • The assignor and assignee operated as a single economic entity, sharing project financing and day-to-day decisions.
   • We sought to pierce the corporate veil, contending that formal separation was largely superficial.
2. Group of Companies Doctrine
   • Citing the assignor’s extensive involvement in contract negotiation and execution, we argued the assignor had implied consent to the arbitration.
   • This doctrine typically aims to bind affiliated companies that play a pivotal role in the contract’s performance.
3. Implied Consent
   • The assignor actively participated in project coordination and financial oversight, suggesting ongoing acceptance of the arbitration agreement.
   • We maintained it would be unreasonable to exclude such a deeply involved entity from dispute resolution.

The Tribunal’s Partial Award: Competence-Competence

Relying on the principle of competence-competence, the arbitral tribunal first confirmed its own authority to decide jurisdiction. It ultimately ruled:

• Arbitration Agreement Transfer: The agreement passed in full to the assignee.
• Assignor Excluded: Despite our arguments, the tribunal found insufficient evidence to treat the assignor and assignee as one entity.
• Group of Companies Doctrine Rejected: The tribunal held that the formal corporate separation stood, leaving the assignor outside the arbitration’s scope.

Key Takeaways: Protecting Arbitration Clauses in Contract Assignments

1. Formal Consent Matters
   • Non-signatory involvement in the project may not be enough if the contractual language and corporate structure maintain legal separation.
2. Be Explicit in Assignments
   • Clearly address the fate of arbitration clauses during any contract transfer to avoid jurisdictional uncertainties.
3. Challenges with Non-Signatories
   • Courts and tribunals often hesitate to apply doctrines like alter ego or group of companies without compelling evidence.

For practitioners and businesses, this decision emphasizes the strict approach many tribunals take toward arbitration jurisdiction and non-signatory parties. By explicitly clarifying arbitration obligations in contract assignments, parties can prevent future disputes and ensure predictable dispute resolution pathways.