Data
- Date:
- 23-06-2020
- Country:
- France
- Number:
- 17/22943
- Court:
- Cour d'Appel de Paris
- Parties:
- Kout Food Group Company v. Kabab-JI Sal Company
Keywords
LONG-TERM CONTRACTS - FRANCHISE DEVELOPMENT AGREEMENT - BETWEEN A LEBANESE COMPANY AND A KUWAITI COMPANY - CHOICE OF LAW CLAUSE IN FAVOUR OF ENGLISH LAW - ARBITRATION CLAUSE REFERRING TO "PRINCIPLES OF LAW GENERALLY RECOGNIZED IN INTERNATIONAL TRANSACTIONS" - APPLICATION BY ARBITRAL TRIBUNAL OF THE UNIDROIT PRINCIPLES CONSIDERED AS AN EXPRESSION OF THOSE PRINCIPLES - NO VIOLATION OF THE ARBITRATION MANDATE
Abstract
A Kuwaiti company, entered into a Franchise Development Agreement ("the Agreement") for a period of 10 years with Respondent, a Lebanese company. Few years later, following a corporate reorganisation, the Kuwaiti company became a subsidiary of Claimant, another Kuwaiti company. A dispute arose under the contract, leading Respondent to commence an arbitration against Claimant (and not against the company which concluded the Agreement). This raised a jurisdictional question as to whether Claimant had become an additional party to the Agreement, and therefore to the arbitration clause therein contained ("the Arbitration Clause"). On the merits the Arbitral Tribunal had to decide whether there had been a breach of contract by Claimant.
The Arbitration Clause specified that Paris would be the seat of arbitration and that “the arbitrator(s) shall apply the provision contained in the Agreement and … principles of law generally recognized in international transactions”. The governing law clause stipulated that the contract would be “governed and construed in accordance with English law”. The Agreement contained also a “No Oral Modification” clause.
The Arbitral Tribunal determined that (i) whether Claimant was bound by the Arbitration Clause was a matter of French law and (ii) that English law governed whether a transfer of substantive rights and obligations to Claimant took place. By majority decision, two of the arbitrators concluded that Claimant had become a counterparty to the Agreement and that, as a matter of English law and despite the “No Oral Modification” clause contained in the Agreement, a transfer / novation was to be inferred by the conduct of the parties. In doing so, the Arbitral Tribunal referred to UNIDROIT Principles 2016 edition. Having found jurisdiction, the Arbitral Tribunal went on to determine that, on the merits, Claimant was in breach of the Agreement.
Respondent made an application for the enforcement of the award under the English Arbitration Act (see the decision of the UK Court of Appeal of 20.01.2020 - already in Unilex), while Claimant filed an application before the Paris Court of Appeal to annul the award, alleging the lack of jurisdiction of the Arbitral Tribunal and the breach by the Arbitral Tribunal of its mandate. In particular, Claimant affirmed that the Arbitral Tribunal should have applied English law also to the Arbitration Clause and, consequently, should have found that it had no jurisdiction over Claimant, since it was not a signatory to the Agreement, as already held by the UK Court of Appeal in its judgment of 20 January 2020 (already in Unilex).
On the issue, the French Court affirmed that it is generally held that arbitration clauses are legally independent from the underlying contract in which they are included either directly or by reference, and that their existence and validity are to be interpreted, subject to the mandatory rules of French law and international public policy, according to the common will of the parties, without the need to refer to any national law.
The Court dismissed the action for annulment of the arbitration award, rejecting all Claimant's objections on the following grounds: 1) except for the question of its jurisdiction, the Arbitral Tribunal correctly applied English law as provided for by the Arbitration Clause and motivated under this law that Claimant had to be considered bound to the rights and obligations set out in the Agreement; 2) the Arbitral Tribunal had applied the strict wording of the Agreement since it reached its decision by taking into account the principles of law generally recognized in international transactions, as indicated in the Agreement, when examining the dispute in light of the UNIDROIT Principles; 3) the Arbitral Tribunal correctly held that the transfer of the Agreement to Claimant does not involve a modification or an amendment of the substantial rights and obligations under the Agreement, but only their transfer to another party. Therefore, there was no need of a prior written and signed approval of the parties of the original Agreement.
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