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In Kabab-Ji SAL v Kout Food Group [2021] UKSC 48, the UK Supreme Court illustrated how, in England, the court will, when assessing the validity of an arbitration agreement in New York Convention enforcement proceedings, judge whether the parties have made a choice as to which law applies to that agreement.
The case involved an attempt to enforce an arbitration award in England. This arose from a franchise development agreement (the “Agreement”) which had been concluded between Kabab-Ji and a company, AHFC. The Agreement was governed by English law and contained an arbitration clause (ICC Rules, Paris seat).
Disputes arose and Kabab-Ji commenced an arbitration, but against another company, KFG. The tribunal made an award against KFG on the basis that, under English law, it had become a party to the Agreement by conduct and, under French law, a party to the arbitration agreement.
Article (V)(1)(a) New York Convention
Kabab-Ji attempted to enforce the award in England. KFG resisted this on the basis of Article V(1)(a) New York Convention (as incorporated by s.103(2)(b) Arbitration Act 1996) that “…the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made.”
Was the arbitration agreement subject to English law?
This was a case of a type where the parties had not explicitly addressed the law governing the arbitration agreement. And nor did the law chosen to govern the Agreement “match” the seat/place of arbitration (in which case only one law could fall to be applied). Therefore, the question arose as to whether English law governed the arbitration agreement (as being “the law to which the parties subjected it”). If so, then KFG could rely on “no-oral variation” provisions in the Agreement to deny that it had become a party to it (and hence, the arbitration agreement therein).
To decide this, the UKSC applied the approach it had adopted in Enka (click here), to the significance, in cases of the type described above, of the parties’ choice of law to govern their contract; i.e. any such choice should generally be understood as also extending to the arbitration clause. This, albeit without much resistance from Kabab-Ji, the UKSC saw as appropriate even in the specific context of Article V(1)(a). There was no consensus to the contrary, the conclusion was in line with the Article’s wording, the same considerations of principle in Enka applied equally here, and it was desirable for the same approach to be taken in different contexts [28-36].
Accordingly, the UKSC found that by virtue of the (typically worded) governing law provision of the Agreement, English law governed the arbitration agreement [37-39]. Attempts by Kabab-Ji, one based on the parties’ use of the UNIDROIT principles, and one based on the validation principle, to resist that conclusion were rejected. In the latter case, the UKSC said that principle did not extent to cases, such as the present, where the question was whether parties have ever agreed at all [51-52].
Some procedural points...
After then considering, and endorsing, the Court of Appeal’s conclusion that, under English law, KFG was not bound to the arbitration agreement (as, due to the effect of the no-oral variation clauses, it had not become a party to the Agreement) [54-75]. The UKSC turned to a couple of points of procedural significance for the enforcement of awards in England.
First, whether the Article V(1)(a) issue was suitable for summary determination. Kabab-Ji said consistency with that provision required a full trial of the matter. The UKSC disagreed. A summary approach could be adopted – provided it was appropriate in the circumstances [76-83].
Finally, Kabab-Ji argued for a stayed of these proceedings under s.103(5) AA 1996 pending ongoing set aside proceedings in France. The UKSC decided, however, that this was not necessary as there were no common issues on which the English court was being asked to rule; in particular, the two courts would not be applying the same law as to the question of validity of the arbitration agreement [84-92].
Comment and conclusion
From a domestic point of view, the UKSC’s decision achieves clear consistency with its earlier reasoning in Enka. The end result, however, is somewhat stark as enforcement of the award was denied in England; despite the potential for a different view as to validity of the arbitration agreement to be taken at the seat.
Two features contributed to this; the fact that the law of the contract and seat did not “match” - thereby opening up room for debate on the applicable law issue. And the fact that the New York Convention does not, on that point, tie courts to a standard approach. Where the first of those is to be the case, however, one potential solution is to include in the arbitration agreement an explicit/express choice of law to govern it (insofar as that is permissible under the law of the seat). That might then help align the law applied at the seat and that applied under Article V(1)(a). This is something parties may already consider where the law of the contract and seat don’t “match”, and the case therefore further illustrates the potential benefits of such a course of action.
Click here for the judgment