UK SUPREME COURT UNANIMOUSLY DISMISSES APPEAL IN KABAB-JI SAL (LEBANON) V KOUT FOOD GROUP (KUWAIT)

The UK Supreme Court (the Court) has handed down its much-anticipated decision in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48, unanimously dismissing Kabab-Ji SAL (Lebanon) (KJS)'s appeal. The decision to dismiss the appeal means that KJS cannot enforce a Paris-seated award granted in its favour by an arbitral tribunal against Kout Food Group Kuwait (KFG) in England and Wales.

Background

The case concerned a Franchise Development Agreement (FDA) entered into by KJS and Al Homaizi Foodstuff Company (AHFC). Following a corporate reorganisation, AHFC became a subsidiary of KFG. A dispute arose under the FDA, leading KJS to commence an arbitration against KFG (and not AHFC).

This raised a jurisdictional question as to whether KFG had become an additional party to the FDA, and therefore to the arbitration agreement, and if so how. In order to answer that question, it was necessary to decide (i) which law governed the question of whether KFG became a party to the arbitration agreement (ii) whether, under that law, KFG had become a party to the arbitration agreement.

The arbitration clause specified that Paris would be the seat of arbitration, and the governing law clause stipulated that the FDA would be governed and construed in accordance with English law.

The Tribunal in the arbitration proceedings unanimously determined that (i) whether KFG was bound by the arbitration agreement was a matter of French law and (ii) that English law governed whether a transfer of substantive rights and obligations to KFG had taken place. By majority decision, two of the arbitrators (who were not English qualified) also concluded that, as a matter of English law and despite the NOM clauses, a novation was to be inferred as a result of the conduct of the parties. Having found that the arbitration agreement was to be extended to include, in particular, KFG, the tribunal went on to determine that, on the merits, KFG was in breach of the FDA.

KFG filed an application before the French courts to annul the award. Separately, KJS applied for the enforcement of the award in England & Wales.

The French Court of Appeal refused to set aside the award on the basis that French law applied and that KFG was a party to the FDA. That decision is now pending before the French Supreme Court. The English Court of Appeal refused the enforcement and recognition of the award on the basis that there was an express choice of English law as the governing law, and that KDG had not become a party to the arbitration agreement as a matter of English law.

The full background to the decision can be found in our previous blog posts here and here.

The three issues for the Supreme Court to consider on appeal were:

• "What law govern[ed] the arbitration agreement?" (the Choice of Law Issue);
• If English law governed the arbitration agreement, whether there was "any real prospect that a court might find at a further hearing that KFG became a party to the arbitration agreement in the FDA"(the Party Issue); and
• Whether "the Court of Appeal [was] justified in giving summary judgment refusing recognition and enforcement of the award" (the Procedural Issue).

Decision

In dismissing the appeal, the Court found that:

• Firstly, in regard to the Choice of Law Issue: "The law governing the question of whether KFG became a party to the arbitration agreement is English law";
• Secondly, regarding the Party Issue: "there was no real prospect that a court might find at a further hearing that KFG became a party to the arbitration agreement"; and
• Finally, as to the Procedural issue, "the Court of Appeal was justified in overturning the judge’s decision to grant an adjournment and in giving summary judgment refusing recognition and enforcement of the award".

Comment

The Court's decision is the latest instalment in this long running saga, which has seen KJS (as award creditor) seek enforcement of the arbitral award in England and Wales, with KFG, in addition to resisting enforcement in England, seeking to set aside the award in the French courts. While the Court's decision is unlikely to be the end of the saga as the French annulment proceedings are ongoing, it has brought an end to KJS's attempt to enforce the award in England and Wales. Our full analysis of the decision will be available on this blog next week.

For more information, please contact Craig Tevendale, Partner, Liz Kantor, professional Support Lawyer, or your usual Herbert Smith Freehills contact.