The Court of Appeal hands down judgment in Kout Food Group case

21 January, 2020

On 20 January 2020, the Court of Appeal delivered its judgment in Kabab-I SAL (Lebanon) v Kout Food Group (Kuwait) [2020] EWCA Civ 6. The case will be of interest to practitioners because:

  • It clarifies the interpretative approach to be applied for determining whether there has been an express choice of law to govern the arbitration agreement finding as a matter of construction, that the law governing the main contractual agreement applied to the arbitration agreement. In this context, the Court of Appeal specifically rejected the notion that separability can relied upon to divorce the arbitration agreement from the main agreement for interpretative purposes.
  • It confirms that Article V(1)(a) of the New York Convention (1958) extends to an implied choice of law (further to the detailed analysis at first instance of the same decision: J (Lebanon) v K (Kuwait) [2019] EWHC 899 (Comm)). It also analyses further the basis of the implication of a choice of law for the arbitration agreement further to the earlier Court of Appeal decision in Sulamerica v Enesa Engelharia [2013] 1 WLR 102 concluding that the implication of a choice of law must be on the basis of business efficacy. However, it leaves open the question of the correct analysis and application of Sulamerica to determine the implied choice of law where the substantive governing law is one law and the seat of the arbitration is in a different country, with no other factors tipping the balance one way or the other. This will require further consideration of the application of the test of business efficacy that did not arise on the facts because of the conclusion that there was an express choice of law.
  • It analyses the effect of the application of UNIDROIT principles and good faith (both of which were contained in the contract in question), to the interpretation of a contract governed by English law, and concludes by analogy with treaty interpretation principles (see R v Immigration Officer at Prague Airport [2004] UKHL 55; [2005] AC 1), that such principles cannot be used to alter the strict wording of a contract (in this case the strict wording of a No Oral Modification clause). In other words, business certainty, is not undermined by a choice of UNIDROIT principles or good faith.
  • It applies the recent Supreme Court’s decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24 [2019] AC 119 to give effect to a No Oral Modification Clause and rejects the jurisdictional case advanced by the Appellant that the Respondent could become party to the contract and arbitration agreement by alleged conduct under the contract. It also clarifies that on a proper reading of the Supreme Court’s decision the defence of estoppel to an No Oral Modification Clause is similar in scope to the defence provided for under the UNIDROIT principles.
  • It authoritatively states that in the context of a jurisdictional rehearing under the New York Convention, the Court can apply the summary judgment standard (real prospect of success) to determine whether a full evidential rehearing is necessary, applying the first instance decision of Honeywell International v Meydan Group [2014] 2 Lloyd’s Rep 133.
  • It provides further guidance as to the application of the powers to adjourn under Article VI of the New York Convention (1958) by reason of a challenge before the Court of the seat (in this case the Paris Cour d’Appel).   In contrast to the earlier Court of Appeal decision in Dardana Ltd v Yukos Oil Company [2002] 1 All ER (Comm) 819, the Court of Appeal refused an adjournment application made by the award creditor and rejected the application for recognition and enforcement having concluded that English law applied to the jurisdictional issue (as to whether a third party became party to the arbitration agreement) and that the award creditor had no prospect of success under English law. The fact that a French Court, applying French law (and not the conflict of law approach of the New York Convention) might reach a different outcome was irrelevant.

Ricky Diwan QC appeared for the Respondent, instructed by Jeremy Drew of RPC LLP. The Court of Appeal judgment can be found here.