Kabab-Ji S.A.L. (Lebanon) v. Kout Food Group (Kuwait)

At a glance

Parties

Kabab-Ji S.A.L. (Lebanon), appellant and award creditor, v. Kout Food Group (Kuwait), respondent and award debtor

Case no.

Court of Appeal (Civil Division) Case No. A4/2019/0944; [2020] EWCA Civ 6

Court

England and Wales Court of Appeal (Civil Division), on appeal from Sir Michael Burton, sitting as a Judge of the High Court (Commercial Court, CL-2017-000792)

Judges

Lord Justice Flaux (gave the leading judgment), Lord Justice McCombe and Sir Bernard Rix (both agreed)

Underlying award(s)

ICC award, seat Paris, dated 11 September 2017 (majority: Professor Dr Mohamed Abdel Wahab and M Bruno Leurent; Mr Klaus Reichert SC dissented)

Treaty

New York Convention, Article V(1)(a), as enacted in section 103(2)(b) of the Arbitration Act 1996; arbitration clause in Article 14 of the Franchise Development Agreement of 16 July 2001

Sector

Food franchising

Outcome

Kabab-Ji's appeal was dismissed and KFG's cross-appeal allowed. The Court set aside the ex parte enforcement order and refused recognition and enforcement of the award.

The dispute

On 16 July 2001 Kabab-Ji, a Lebanese company, entered into a ten-year Franchise Development Agreement (FDA) with Al Homaizi Foodstuff Company (AHFC), a Kuwaiti company. AHFC became a subsidiary of Kout Food Group (KFG) in a corporate reorganisation in 2005. The FDA was expressly governed by English law and provided for ICC arbitration in Paris. Kabab-Ji started the arbitration against KFG only, not AHFC. By majority, the tribunal held that KFG had become a party by conduct and was in breach of the FDA. Kabab-Ji then sought to enforce the award in England under section 101 of the Arbitration Act 1996. KFG resisted under section 103(2), arguing that it was never a party to the arbitration agreement. Its main points were that English law governed that agreement and that the FDA's No Oral Modification clauses meant KFG could only have been added in writing.

Key holdings

1. Articles 1 and 15 of the FDA, read together, are an express choice of English law to govern the whole FDA, including the arbitration agreement in Article 14. The first sentence of Article 14.3 supports this: it tells the arbitrators to apply the provisions of the Agreement, which include the governing-law clause, also when they decide their own jurisdiction. ¶¶ 62–64
2. The choice of Paris as the seat cannot override this express choice. Nor can separability under section 7 of the Arbitration Act 1996, the absence of express wording in Article 14, or the 'English law plus' references to good faith and UNIDROIT principles. The Court left open whether English law would also have applied as an implied choice. ¶¶ 65–70
3. The No Oral Modification clauses (Articles 17, 24 and 26) can be overridden only if the estoppel test in Rock Advertising is met. Article 2.1.18 of the UNIDROIT Principles states no broader rule. In any event, neither the UNIDROIT principles nor the good-faith clause in Article 2 can contradict the strict wording of the FDA, which the last sentence of Article 14.3 prohibits. ¶¶ 72–78
4. KFG's addition as a party was never agreed or consented to in writing. Kabab-Ji could not begin to satisfy the Rock Advertising test: at most, the documents showed KFG treating itself as the licensee. KFG therefore did not become a party to the FDA or to the arbitration agreement. ¶¶ 79–80
5. The judge erred in adjourning the matter until the Cour d'appel de Paris had ruled on annulment, instead of deciding it finally. The French decision is not relevant to the questions of English law. The judge also failed to ask whether Kabab-Ji had a real prospect of success at a further hearing, which is the summary judgment test in Honeywell. Recognition and enforcement are refused under section 103(2). ¶¶ 81–86

Procedural history

1. 16 July 2001Kabab-Ji and AHFC conclude the Franchise Development Agreement.
2. 11 September 2017ICC award in Paris: by majority, KFG is held bound by the FDA and in breach of it. Mr Klaus Reichert SC dissents.
3. 13 December 2017KFG applies to the French courts to annul the award. The application is due to be heard by the Cour d'appel de Paris in February 2020.
4. 21 December 2017Kabab-Ji issues enforcement proceedings in the Commercial Court under section 101 of the Arbitration Act 1996.
5. 7 February 2018Popplewell J makes an ex parte order for the award to be enforced as a judgment.
6. 1 March 2018KFG applies under section 103(2) for recognition and enforcement to be refused.
7. 15 June 2018Teare J orders the trial of preliminary issues.
8. 8 April 2019Order of Sir Michael Burton, after a hearing on 12–14 March 2019: English law governs the arbitration agreement and KFG did not become a party, subject to a 'last chance'. The enforcement application is adjourned pending the French decision.
9. 20 January 2020Court of Appeal dismisses Kabab-Ji's appeal and allows KFG's cross-appeal; enforcement of the award is refused.

Tribunal, counsel and experts

Decided by

• Bernard Rix Judge, England and Wales Court of Appeal (Civil Division)

For the claimant

Brown Rudnick LLP

For the respondent

RPC

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Keywords

• Kabab-Ji
• New York Convention Article V(1)(a)
• section 103(2)(b) Arbitration Act 1996
• law governing the arbitration agreement
• express choice of law
• seat of arbitration Paris
• No Oral Modification clause
• Rock Advertising
• estoppel
• UNIDROIT Principles
• good faith
• non-signatory
• novation
• franchise
• enforcement refused
• adjournment section 103(5)
• Sulamerica
• separability

Summary generated with AI from the published documents — refer to the award for the authoritative text.