The Supreme Court dismissed Kabab-Ji’s appeal and refused enforcement in England of a Paris ICC award against Kout Food Group. English law, chosen to govern the franchise agreements, also governed whether KFG had become a party to the arbitration clause. Clauses requiring signed writing meant there was no real prospect that KFG had joined by conduct, so summary refusal of recognition and enforcement was justified.
The agreements and the award
Kabab-Ji SAL granted Al Homaizi Foodstuff Company a licence to operate a restaurant franchise in Kuwait under a Franchise Development Agreement dated 16 July 2001 and ten subsequent Franchise Outlet Agreements. The agreements were expressly governed by English law. They provided for ICC arbitration in Paris and contained provisions restricting transfer of the personal licence and requiring amendments, terminations and waivers to be recorded in signed writing.
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After a restructuring, Kout Food Group became the licensee’s holding company. Kabab-Ji brought ICC proceedings against KFG alone. KFG took part under protest. A majority of the tribunal found that KFG had become a party to the arbitration agreement and the franchise arrangements. It made an award in Kabab-Ji’s favour.
KFG applied in France to annul the award. Kabab-Ji applied in England under section 101 of the Arbitration Act 1996 to enforce it as a New York Convention award. The Paris Court of Appeal later dismissed the annulment; KFG appealed to the Court of Cassation. Because the award had not been annulled, KFG’s only ground in England was article V(1)(a) of the Convention, enacted in section 103(2)(b): that the arbitration agreement was not valid under the applicable law.
Which law governs validity
The Supreme Court applied section 103(2)(b) of the Arbitration Act 1996. It looked first for a choice of law governing the arbitration agreement. In the absence of an indication of choice, the provision pointed to the law of the country where the award was made. Applying the approach then in force, a general choice of law for the contract normally extended to an arbitration clause within it.
Clause 15 provided that the Agreement was governed by English law, and clause 1 defined the Agreement as including all its terms, including the arbitration clause. There was no reason to except that clause. The instruction that the arbitrators also apply principles of law generally recognised in international transactions, accepted as a reference to the UNIDROIT Principles, specified rules for the merits. It did not remove the choice of English law or require French law to govern validity. Even if national law had been supplemented by non-state principles, the parties’ choice of English law would remain. The validation principle, which supports an interpretation that gives effect to an agreed arbitration clause, does not create an agreement with a person who denies being a party.
No real prospect that KFG became a party
Kabab-Ji contended that KFG joined the arbitration clause only by joining the Franchise Development Agreement through a novation by addition. English law gives effect to no-oral-modification clauses. These clauses required a signed written document both for any modification or termination and for any waiver of that requirement, consistently with the personal character of the licence. No such document existed. A new agreement alongside the existing licence, or a waiver of the restrictions on transfer, would have required the same signed consent from the original parties.
Reliance on the clauses could be defeated by estoppel only if there were an unequivocal representation that an informal variation was valid and something more than the informal promise itself. No such representation by Al Homaizi had been identified. KFG’s own conduct would not show that it believed it could become the licensee without compliance. The UNIDROIT Principles could not contradict English law or the strict wording, and it was not explained how they established the alleged novation. The contractual good-faith obligation could not be invoked against KFG unless it was already a party or precluded from denying that status, and reading the clauses according to their wording was not contrary to good faith.
The Court of Appeal was therefore right to find no real prospect that a further hearing would establish that KFG became a party. The issue had already been contested in the arbitration with witness evidence and disclosure, and no evidence going beyond an informal promise had been identified.
Summary judgment and the adjournment
The party resisting enforcement must prove a Convention ground, and the English court determines that issue itself. The arbitrators’ view of their own jurisdiction has no legal or evidential value. Neither the Convention nor the 1996 Act requires a full trial in every case. Summary determination under the Civil Procedure Rules is available where there is no real prospect of success and is consistent with expeditious enforcement. The legal burden remains on the resisting party; if the existing material discloses a good defence, the other party must show what further evidence might alter the result. The agreed preliminary issue was likely to be decisive, and further evidence could make no realistic difference.
The judge’s adjournment pending the French decision was also rightly overturned. An adjournment may be appropriate where the court of the seat will decide the same issue under the same law. French law instead applies its own substantive rules and assesses the parties’ common intention without selecting a national law, unless the arbitration agreement itself chooses one. A French decision would not bind the English court, which had to apply English law, so contradictory outcomes could not be avoided. The possibility of a later annulment was no reason to adjourn after a hearing on the merits at the award creditor’s request.
Verdict: The Court unanimously dismissed Kabab-Ji’s appeal. English law governed the validity of the arbitration agreement. There was no real prospect of establishing that KFG had joined it. Recognition and enforcement in England could be refused without a trial or an adjournment pending the French proceedings.
Source: Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48
