What law governs an arbitration agreement and why it matters? Lessons from Kout Food Group v Kabab-Ji SAL

In the absence of an express choice, what law governs an arbitration agreement in a commercial contract? The answer is complex and will depend where the question is asked, as the process used by national courts to determine the law governing the arbitration agreement is not uniform. As a result, courts in different jurisdictions can reach different conclusions on the same set of facts with important commercial consequences for parties seeking to commence an arbitration or enforce or challenge an arbitration award.

This issue was highlighted recently in a judgment by the French Supreme Court upholding an ICC award in the dispute between Kout Food Group (“Kout”) and Kabab-Ji SAL (“KJS”)[1], in contrast to a decision by the UK Supreme Court (“UKSC”) in 2021 holding that the same award could not be enforced in England & Wales on the basis that the tribunal lacked jurisdiction under the arbitration agreement in question[2]. The result for KJS is an award upheld in one jurisdiction, but denied recognition and enforcement in another. It underlines the importance for parties of properly drafted arbitration agreements which reduce the scope for such differential outcomes. 

In this article, we consider the decisions of both Supreme Courts, and provide some tips on drafting to ensure that parties have certainty as to which law governs the arbitration in any eventual dispute.

Background to the Dispute & the UK position

In October 2022, the French Supreme Court handed down its eagerly awaited decision in the dispute between Kout and KJS following the UK Supreme Court’s decision in late 2021. The background to the claim brought by KJS in it’s the arbitration proceedings and its subsequent actions in the English and French courts is set out in our previous article (accessible here).  

In brief, the dispute concerned a Franchise Development Agreement (“FDA”) under which a Kuwaiti company, Al Homaizi Foodstuff Company (“AHFC”), was licensed to operate restaurant outlets under the KJS brand. After the FDA was signed, AHFC became a subsidiary of Kout. It was said by KJS that Kout effectively performed the obligations of AHFC and so became the main franchisee. The FDA contained an English governing law clause and an arbitration agreement providing for arbitration seated in Paris. The arbitration clause in the FDA did not specify the law which governed the arbitration agreement. On a dispute being referred by KJS to arbitration against Kout (not AHFC), the tribunal held that Kout had breached the FDA and was liable to…

Full article available on Disputes +

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