Who Governs? UK Supreme Court Clarifies Applicable Law For Arbitration Agreements In Enforcement Context

• Published date: 26 November 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Mayer Brown
• Author: Mr Stephen Moi, Rhys Morgan and Lisa Dubot

On 27 October 2021, the UK Supreme Court handed down its decision in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48 ("Kabab-Ji"), confirming that - as a matter of English conflict of laws rules - the governing law chosen by contracting parties should generally be construed as applying also to the arbitration agreement in that contract.

The decision serves, amongst other things, as a caution that, where arbitration is the parties' chosen dispute resolution method, it is in general best practice wherever possible to specify a separate governing law provision for their arbitration agreements. Otherwise, there may be a risk that the differing rules applied by different national courts to determine the governing law of the arbitration agreement may lead to litigation with uncertain and possibly inconsistent outcomes.

This update provides an analysis of the Supreme Court's judgment in Kabab-Ji and considers its implications.

Background

In 2001, Kabab-Ji SAL ("KJS") entered into a Franchise Development Agreement and a number of related agreements with Al Homaizi Foodstuff Company ("AHFC") for the operation of a restaurant franchise in Kuwait (collectively, the "Agreements"). The Agreements, which were expressly to be governed by and construed in accordance with English law, included an agreement to submit any dispute to an ICC arbitration seated in Paris (the "Arbitration Agreement"), though the Arbitration Agreement itself did not separately specify the system of law applicable to it.

Following a corporate reorganisation in 2005, AHFC became a subsidiary of Kout Food Group ("KFG"), though KFG never became a party to the Agreements. Subsequently, a dispute arose under the Agreements, in relation to which KJS commenced an arbitration against KFG (and not AHFC), which the arbitral tribunal determined in favour of KJS.

Throughout, KFG had maintained that it was not a party to the Arbitration Agreement and was therefore not bound by the arbitral award. The key anterior issue was this - what law governed the Arbitration Agreement? English law, as the law governing the Agreements as a whole? Or French law, as the law of the seat of the arbitration?

The Tribunal, by a 2-1 majority, determined that:

• whether or not KFG was a party to the Arbitration Agreement was a matter of French law (as the law of the seat of the arbitration) rather than English law;
• applying French law to this issue KFG had been a party to the Arbitration Agreement; and
• ·on the...