Arbitration update: Cour de Cassation allows enforcement of Kabab-ji award

The French Cour de Cassation, France’s supreme court of appeal, has just handed down its decision in Kabab-ji v Kout Food Group, concerning enforcement of a 2017 Paris arbitral award. In its judgment of 28 September 2022, the French Court found in favour of Kabab-ji. In dismissing Kout’s appeal on the annulment, the Court effectively upheld the recognition and enforceability of the award in France. Notably, the French Court’s decision is in direct conflict with the UK Supreme Court’s decision on the same award, who in October 2021 found in favour of Kout, and ruled the Paris award to not be enforceable in England and Wales.

As a recap, Kabab-ji (a company specialising in Middle Eastern cuisines) entered into a Franchise Development Agreement (the “FDA”) with Al Homaizi Foodstuff Company (“AHFC”) in 2001. This related to Kabab-ji’s expansion under licence in Kuwait. Following a corporate reorganisation in 2005, AHFC became a subsidiary of Kout Food Group (“KFG”). When a dispute arose under the FDA, Kabab-ji commenced an arbitration against KFG (and not AHFC). The Tribunal unanimously held 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 under the FDA took place was governed by English law. Two of the three arbitrators then concluded that KFG had become an additional party to the FDA (including the arbitration agreement). The majority also found that, on the merits, KFG was in breach of the contract.

Following the issue of the Award in 2017, KFG commenced proceedings in the French courts seeking an order for annulment, including on the basis that the tribunal had lacked jurisdiction over KFG. Subsequently, Kabab-ji issued proceedings in the English courts for enforcement of the Award under the New York Convention, cumulating in the October 2021 Supreme Court decision. In Paris, the Cour d’Appel last year refused KFG’s application to have the award annulled, which decision was appealed to the Cour de Cassation.

In both countries, the question of whether French or English law applies was crucial in part because of the potentially different treatment of no oral modification clauses under the laws of both countries. Though the main agreement between the parties was to be governed by English law, in Wednesday’s judgment the Cour de Cassation emphasised the independence of the arbitration clause from the reset of that agreement.

The conspicuously differing results here mirrors those in the case of Dallah v Pakistan. In fact, the present decision represents an arguably more significant schism between the approach of the two nation’s top courts. In Dallah, the UK Supreme Court applied French law and the question was one of its interpretation. Here, the UK Supreme Court declined to apply the national law applied by both the arbitral panel and now France’s highest civil appellate court.

The decision of the Cour de Cassation provides insightful context to the UK Supreme Court’s decision. A key takeaway highlighted by the opposing national approaches is that parties to an agreement should ensure at the drafting stage that the law governing the arbitration agreement is specified in such agreements.

Partners Seamus Andrew and Christopher Lillywhite, and associate Jason Rose, of Velitor Law continue to be involved in this case, along with the Beirut headquartered firm Alem & Associates and Counsel Nicholas Tse of Alem and Crown Office Chambers.