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On 28 September 2022, the French Cour de Cassation rendered an important and awaited decision for the international arbitration community in the Kabab-ji/Kout Food case.

Factual Background

In July 2001, Lebanese company Kabab-Ji and Kuwaiti company Al-Homaizi Foodstuff Co. WWL (“Al-Homaizi”) entered into a ten-year franchise agreement to operate the “Kabab-Ji” restaurant brand in Kuwait. The franchise agreement, as well as the agreements concluded with each restaurant, provided for the application of English law and contained an arbitration clause providing for ICC arbitration.

In 2004, Al-Homaizi informed Kabab-Ji of the restructuring of the group through the creation of a Kuwaiti holding company, Gulf and World Restaurants & Food, which became Kout Food Group (“KFG). The contracts expired in 2011.

On 27 March 2015, Kabab-Ji initiated arbitration proceedings against KFG.

By an award rendered in Paris on 11 September 2017, the arbitral tribunal accepted jurisdiction and extended the arbitration clause to KFG (even though it was not a signatory of the contracts and the arbitration clauses) because it was directly involved in the performance of the contracts. The arbitral tribunal ordered KFG to pay Kabab-Ji the unpaid license fees and damages for loss of opportunity.

KFG brought an action before the French courts to set aside the award. KFG alleged that the arbitrators did not have jurisdiction because, according to the applicable law which is the English law (according to KFG), KFG was not a party to the arbitration agreements.

In the meantime, Kabab-Ji sought to enforce the award in England.

The Decision of the English Courts

On 20 June 2020 (Court of Appeal) and then on 27 October 2021 (Supreme Court), the English courts held that the law governing the contract should also govern the arbitration agreement, despite recognizing that governing law clauses do not necessarily cover the arbitration agreement. The English courts based their reasoning on the wording of the governing law clause included in the contract. The governing law clause specified that the “Agreement” (capitalized) should be governed by English law. Art. 1 of the contract defined “Agreement” as including all the contractual terms i.e. also the arbitration agreement. Therefore, the arbitration agreement should be governed by English law.

The English courts concluded that, as a matter of English law, KFG was not a party to the franchise agreement and the arbitration agreement. The English courts further held that the arbitral tribunal did not have jurisdiction over the dispute and refused to recognize the arbitral award in England.

The Decision of the French Courts

The French courts, however, adopted an opposite position.

The Paris Court of Appeal, in its decision of 23 June 2020,[1] recently confirmed by the Court of Cassation in its decision of 28 September 2022,[2] reiterated an established French law principle according to which an arbitration agreement, by virtue of its autonomy and independence, is not subject to the law governing the main contract in the absence of an express will of the parties to that effect. This principle was first established by the Court of cassation in the Dalico case on 20 December 1993. It has been followed by French courts on multiple occasions thereafter, and the Kabab-ji/Kout Food case is a good illustration of this well-established position.

In the Kabab-ji/Kout Food case, the French courts concluded that the arbitration clause is not subject to English law but is governed by the common will of the parties. Since, in this case, the parties did not choose the arbitration agreement’s governing law, the French courts gave full force to the parties’ agreement as to the seat of arbitration by applying the substantive rules of the seat to the arbitration agreement.

The French courts concluded that the arbitration agreements between Kabab-Ji and Al-Homaizi should be extended to KFG, which was involved in the performance of the contracts. Therefore, the French courts refused to annul the arbitration award.

Conclusion and Key Takeaways

This case highlights the differing views of French and English courts as to the extension of the arbitration clause to non-signatory third parties. In that regard, the express choice of law applicable to the main contract and the express choice of the seat of the arbitration will be crucial. Defining them clearly in the agreement will increase the chances of recognizing or enforcing the award. It is thus a key element which the parties should focus on at the very early stages of their business relationship and before any dispute. This case also invites the drafters of an arbitration clause to specify the law applicable to the arbitration agreement itself, which can be different to that of the main contract.


[1] Paris Court of appeal, 23 June 2020, n° 17-22943.

[2] Cour de cassation, 28 September 2022, n° 20-20.260.

Author

Marine de Bailleul is an associate in Baker McKenzie’s Paris office. Marine advises clients – individuals, corporations, state governments – in global dispute resolution strategy and represents them in major investment-treaty and commercial arbitrations. Marine’s experience includes the ICC, LCIA, ICSID, and UNCITRAL Arbitration Rules, especially disputes arising out of international commercial contracts, bilateral investment treaties and investment agreements. Her practice mainly involves multijurisdictional issues where she has extensive experience. Marine can be reached at Marine.DeBailleul@bakermckenzie.com and + 33 1 44 17 53 81.

Author

Rima Bouguecha is a trainee-lawyer in Baker McKenzie’s Paris office (pending admission to the Paris bar). Having worked in various international law firms, Rima is interested in pursuing a career in international arbitration. Rima holds an LLM in Arbitration from Penn State University and a Master degree in Arbitration and international commercial law from Paris I Sorbonne University. She speaks French, English and Arabic. Rima can be reached at rima.bouguecha@bakermckenzie.com.