Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait)

Under article V(1)(a) of the New York Convention and section 103(2)(b) of the Arbitration Act 1996, an arbitration agreement is primarily governed by the law chosen by the parties. A general governing-law clause will normally extend to an arbitration clause within the same contract. The law of the seat applies only where no choice is indicated.

The validation principle interprets an existing arbitration agreement so as to preserve its effectiveness. It cannot create an agreement or make a person a party.

English law gives effect to No Oral Modification clauses. A non-compliant novation is ineffective unless the strict requirements for an estoppel are met. An enforcing court determines jurisdiction independently and may do so by summary judgment. The resisting party retains the legal burden of proving a ground for refusing enforcement.

Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) concerned an ICC award made in Paris under franchise agreements expressly governed by English law. The agreements were originally made between the appellant and a subsidiary of Kout Food Group. The tribunal majority found that Kout Food Group had become an additional party through conduct and made a substantial award against it.

Kout Food Group challenged the award in France and resisted enforcement in England on the ground that it had never become a party to the arbitration agreement. The Commercial Court held in [2019] EWHC 899 (Comm) that English law governed, but left the party-status issue partly open and adjourned the proceedings. The Court of Appeal, in [2020] EWCA Civ 6, held that Kout Food Group had not become a party and gave summary judgment refusing enforcement.

The issues before the Supreme Court were the law governing the arbitration agreement, whether there was any real prospect of establishing that Kout Food Group had joined it, and whether summary refusal of enforcement was procedurally proper.

1. Disposition. The Supreme Court unanimously dismissed the appeal. English law governed the arbitration agreement. There was no real prospect of establishing that Kout Food Group had become a party, and the Court of Appeal was entitled to refuse enforcement by summary judgment.

2. Applicable law. Article V(1)(a) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, implemented by section 103(2)(b) of the Arbitration Act 1996, contains uniform conflict-of-laws rules. The primary rule applies the law to which the parties subjected the arbitration agreement. The law of the country where the award was made applies by default. Applying Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] 1 WLR 4117, a general choice of law for a contract normally extends to its arbitration clause. The choice of Paris as the seat did not displace the FDA’s clear choice of English law.

3. Validation and non-state principles. The validation principle presupposes an existing arbitration agreement and assists in construing it as effective. It cannot answer the logically prior formation question by creating an agreement between persons who never made one. The contractual direction to the arbitrators to apply the UNIDROIT Principles concerned the merits and did not alter the national law governing validity. Those principles could supplement English law but could not contradict either English law or the FDA’s strict wording.

4. No Oral Modification clauses. Applying MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, the writing requirements were legally effective. A novation required the consent of all relevant parties and the discharge and replacement of the original contract. Whether the alleged arrangement was characterised as termination and replacement or the addition of a further licensee, the FDA required signed written consent. None existed. An estoppel required unequivocal words or conduct representing that the informal variation was valid and something more than the informal promise itself. The evidence satisfied neither requirement.

5. Independent and summary determination. Under Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763, the enforcing court must decide independently whether an arbitration agreement existed. The tribunal’s jurisdictional decision has no legal or evidential value. Neither the Convention nor the 1996 Act requires a full trial. Summary judgment is available where a party has no real prospect of success. The legal burden remains on the party resisting enforcement, although an evidential burden may shift once that party demonstrates a good defence on the available material.

6. Adjournment. Section 103(5) permits an adjournment pending a challenge before the court of the seat, but does not create a presumption in favour of one. An adjournment will ordinarily be sensible where both courts must decide the same issue under the law of the seat. Here, the English court had to apply English law while the French court applied materially different French rules. The French decision could create no issue estoppel and was irrelevant unless it annulled the award. The Court of Appeal therefore properly overturned the adjournment.

1. United Kingdom Supreme Court: In Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48, the court unanimously dismissed the appeal and affirmed the refusal of recognition and enforcement.
2. Court of Appeal: In [2020] EWCA Civ 6, the court dismissed the award creditor’s appeal, allowed Kout Food Group’s cross-appeal and gave summary judgment refusing recognition and enforcement.
3. Commercial Court: In [2019] EWHC 899 (Comm), the court held that English law governed and provisionally concluded that Kout Food Group had not become a party, but left open a possible evidential issue and adjourned further consideration.