Kabab-Ji S.A.L. (Lebanon) v Kout Food Group (Kuwait)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Flaux,Sir Bernard Rix,Lord Justice McCombe |
| Judgment Date | 20 January 2020 |
| Neutral Citation | [2020] EWCA Civ 6 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2019/0944 |
| Date | 20 January 2020 |
[2020] EWCA Civ 6
Lord Justice McCombe
Lord Justice Flaux
and
Sir Bernard Rix
Case No: A4/2019/0944
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
SIR MICHAEL BURTON (Sitting as a Judge of the High Court)
CL-2017-000792
Royal Courts of Justice
Strand, London, WC2A 2LL
Nicholas Tse and Ravinder Thukral (instructed by Brown Rudnick LLP) for the Appellant
Ricky Diwan QC (instructed by RPC) for the Respondent
Hearing dates: 3, 4 and 5 December 2019
Approved Judgment
Introduction
This appeal, which is brought with the permission of Males LJ against the Order dated 8 April 2019 of Sir Michael Burton sitting as a Judge of the High Court in the Commercial Court, raises issues (i) as to the governing law of an arbitration agreement which provides for arbitration in Paris but which is contained in a main agreement which is expressly governed by English law and (ii) as to whether the respondent became a party to the main agreement and/or the arbitration agreement notwithstanding the presence of No Oral Modification provisions in the main contract. The respondent cross-appeals, again with the permission of Males LJ, against the judge's decision not to reach a final determination of the particular preliminary issue which is the subject of the appeal.
Factual and procedural background
The appellant, a Lebanese company, entered into a Franchise Development Agreement dated 16 July 2001 for a period of 10 years with Al Homaizi Foodstuff Company (“AHFC”), a Kuwaiti company, as Licensee. In 2005 AHFC became a subsidiary of the respondent (which I will refer to as “KFG”) following a corporate reorganisation. A dispute arose under the FDA which the appellant referred to arbitration before the ICC in Paris pursuant to Article 14 of the FDA (the relevant provisions of which are set out at [8] below). That arbitration was only commenced against KFG, not AHFC.
The arbitrators had to consider a jurisdictional issue as to whether KFG had become an additional party to the FDA and thus the arbitration agreement in Article 14 and went on to consider issues on the merits as to whether there had been a breach of the FDA and claims for remedies and relief (an application by KFG to bifurcate having failed). By an Award dated 11 September 2017, the majority arbitrators (Professor Dr Mohamed Abdel Wahab and M Bruno Leurent, neither of whom is an English qualified lawyer) found that the question of whether KFG was bound by the arbitration agreement was a matter of French law, but the issue of whether a transfer of substantive rights and obligations took place was governed by English law. They went on to conclude that, as a matter of English law, a ‘novation’ was to be inferred by the conduct of the parties adding KFG as the main franchisee. They determined that, on the merits, KFG was in breach of the FDA.
The dissenting third arbitrator Mr Klaus Reichert SC, who is an English qualified lawyer, agreed that French law applied to the issue of validity of the arbitration agreement, but dissented by concluding that the appellant's case should fail because, applying English law, KFG never became a counterparty to the FDA which meant that it owed no obligation to the appellant under the FDA and that the appellant had sued the wrong party.
Following the publication of the Award, on 13 December 2017, KFG filed an annulment application before the French courts, Paris being the seat of the arbitration. That application is due to be heard by the Cour d'appel de Paris in February 2020. On 21 December 2017, the appellant issued proceedings in the Commercial Court in London under section 101 of the Arbitration Act 1996 for enforcement of the Award as a judgment. On 7 February 2018, Popplewell J made an order ex parte for the Award to be enforced as a judgment. On 1 March 2018, KFG applied under section 103(2)(a) and (b) of the Arbitration Act 1996 for an order that recognition and enforcement of the Award as a judgment be refused and an order setting aside the order of Popplewell J. It also sought case management directions including in respect of the trial of preliminary issues.
At a case management conference on 15 June 2018, Teare J made an order for the trial of certain preliminary issues. He also ordered that the appellant's applications for an adjournment of the enforcement proceedings in England pending the determination of the French proceedings and for security for the Award be dealt with by the Court at the same hearing as the preliminary issues.
These applications all came before Sir Michael Burton for hearing on 12 to 14 March 2019. On the third day of the hearing, with the agreement of the parties, the judge reformulated the preliminary issues, as ordered by Teare J, as follows:
(1) Does the law governing the validity of the arbitration agreement govern the question of whether [KFG] became a party to the arbitration agreement?
(2) What is that law?
(3) At English law, has [KFG] become a party to (i) the FDA and (ii) if different, the arbitration agreement?
(4) What is the law governing the capacity of the Defendant to join the arbitration agreement?
The terms of the FDA
Before considering the judgment of Sir Michael Burton, it is necessary to set out the terms of the FDA which were relevant to his decision and which are relevant to the present appeal:
“Article 1: Content of the Agreement
This Agreement consists of the foregoing paragraphs, the terms of agreement set forth herein below, the documents stated in it, and any effective Exhibit(s), Schedule(s) or Amendment(s) to the Agreement or to its attachments which shall be signed later on by both Parties. It shall be construed as a whole and each of the documents mentioned is to be regarded as an integral part of this Agreement and shall be interpreted as complementing the others.
Article 2: Good Faith and Fair Dealing
In carrying out their obligations under the Agreement, the Parties shall act in accordance with good faith and fair dealing. The provisions of the Agreement, as well as any statements made by the Parties in connection therewith, shall be interpreted in good faith.
Article 3: Grant of Rights
3.1. License: … This grant is intended to be strictly personal in nature to the LICENSEE and no rights hereunder whatsoever may be assigned or transferred by LICENSEE in whole or in part without the prior written approval of LICENSOR.
Article 14: Settlement of Disputes
…
14.2. Except for those matters which specifically involve the Mark, any dispute, controversy or claim between LICENSOR and LICENSEE with respect to any issue arising out of or relating to this Agreement or the breach thereof, …shall, failing amicable settlement, on request of LICENSOR or LICENSEE, be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
14.3. The arbitrator(s) shall apply the provisions contained in the Agreement. The arbitrator(s) shall also apply principles of law generally recognised in international transactions. The arbitrator(s) may have to take into consideration some mandatory provisions of some countries i.e. provisions that appear later on to have an influence on the Agreement. Under no circumstances shall the arbitrator(s) apply any rule(s) that contradict(s) the strict wording of the Agreement.
14.4 Nothing contained herein shall in any way deprive
LICENSOR of its rights to seek and obtain a temporary restraining order, preliminary/permanent injunction or other equitable relief from a court of competent jurisdiction under any applicable law. All remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.
14.5. The arbitration shall be conducted in the English language, in Paris, France.
…
Article 15: Governing Law
This Agreement shall be governed by and construed in accordance with the laws of England.
Article 17: Waiver
17.1. Any waiver of any term or condition of the Agreement must be in writing and signed by the [a]ffected party…
Article 19: Rights not Transferable
The parties hereto agree that all rights granted LICENSEE under this Agreement are personal in nature and are granted in reliance upon various personal and financial qualifications and attributes of LICENSEE. LICENSEE'S interest under this agreement is not transferable or assignable, under any circumstances whatsoever, voluntarily, by operation of law or otherwise without the written consent of LICENSOR or purported transfer or assignment of all or any part of such interest shall immediately terminate this Agreement without further action of the parties and without liability to LICENSOR or its designee of any nature.
Article 24: Entire Agreement
… No interpretation, change, termination or waiver of any provision hereof, and no consent or approval hereunder, shall be binding upon the other party or effective unless in writing signed by LICENSEE and by an authorized representative of LICENSOR or its designee.
Article 25: Survival of Terms and Conditions of Agreement
The rights and obligations contained in the following provisions of this Agreement shall survive the expiration or termination of this Agreement: articles 10, 11.2, 13, 15, 16, 18, 20, 23, 25, 26, 27, 28.2, 29, 30 and 33.
Article 26: Amendment of Agreement
The Agreement may only be amended or modified by a written document executed by duly authorised representatives of both Parties.”
The judgment below
The judge noted at [8] of the judgment, by reference to the decision of the Supreme Court in Dallah Real Estate v Ministry of Religious Affairs [2010] UKSC 46; [2011] 1 AC 763, that an application...
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