The International Centre for Settlement of Investment Disputes (“ICSID”) has released case statistics for 2019 and updated their records for cases since 1972 (available here). ICSID has historically administered the majority of investor-state claims and these statistics remain an important bellwether for trends in such disputes. The 2019 statistics show that a lower number of cases were registered this year. There was a dip in cases involving state parties from Eastern Europe and Central Asia, and the highest proportion of cases involved state parties from South America. As in previous years, cases involving the oil and gas, electric power and other energy sectors dominated.
Tag: Vanessa Naish
On 3 February 2020, the Seychelles became the 162nd State party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“).The Seychelles is the latest state to have joined the New York Convention framework following the most recent accessions of Papua New Guinea, Maldives, Cabo Verde and Sudan.
In Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait)  EWCA Civ 6, the English Court of Appeal refused the enforcement and recognition of an arbitral award handed down by an ICC Tribunal seated in Paris, on the basis that the award was made against a non-party. This case provides helpful guidance on two significant issues: (i) how to determine the governing law of an arbitration agreement as a matter of English law and (ii) the extent to which No Oral Modification (“NOM”) clauses will be upheld by the English courts.
The case concerned a Franchise Development Agreement (“FDA”) entered into by Kabab-Ji SAL (Lebanon) (“KJS”) and Al Homaizi Foodstuff Company (“AHFC”). Following a corporate reorganisation, AHFC became a subsidiary of Kout Food Group (Kuwait) (“KFG”). A dispute arose under the FDA, leading KJS to commence an arbitration against KFG (and not AHFC).
This raised a jurisdictional question as to whether KFG had become an additional party to the FDA, and therefore to the arbitration agreement, and if so how. In order to answer that question, it was necessary to decide (i) which law governed the question of whether KFG became a party to the arbitration agreement (ii) whether, under that law, KFG had become a party to the arbitration agreement.
The arbitration clause specified that Paris would be the seat of arbitration, and the governing law clause stipulated that the FDA would be governed and construed in accordance with English law. The contract contained NOM clauses.
An ICC Tribunal seated in Paris determined that (i) whether KFG was bound by the arbitration agreement was a matter of French law and (ii) that English law governed whether a transfer of substantive rights and obligations to KFG took place. The Court of Appeal judgment does not say expressly whether the Tribunal determined that the arbitration agreement was governed by French law, suggesting that the Tribunal followed the French courts’ approach of assessing the arbitration agreement without reference to a specific national law (i.e. treating it as “autonomous”).
By majority decision, two of the arbitrators (who were not English qualified) concluded that, as a matter of English law and despite the NOM clauses, a novation was to be inferred by the conduct of the parties. Having found jurisdiction, the tribunal went on to determine that, on the merits, KFG was in breach of the FDA.
KFG filed an application before the French courts to annul the award. The application has yet to be heard and is scheduled for February 2020. Separately, KJS made an application for the enforcement of the award under section 101 of the English Arbitration Act (the “Act“). The English court initially made an ex parte order for the Award to be enforced as a judgment, and KFG responded by seeking an order refusing recognition and enforcement of the award under section 103(2) of the Act. The first instance court heard the s103 application and determined that English law governed the validity of the arbitration clause. The court considered that KFG did not become a party to the arbitration clause, but declined to make a final determination on this point in case further evidence on this issue might emerge after the decision of the French court. The court accordingly refused enforcement and recognition of the award.
The first instance decision was appealed by KJS to the Court of Appeal.
The first issue on the law governing the arbitration agreement
KJS’s key arguments were:
- There was no express choice of English law as the governing law of the arbitration agreement. The FDA was governed by English law supplemented by the obligation of good faith and fair dealing and by “principles of law generally recognised in international transactions” which included the UNIDROIT principles. The choice of “English law plus” was at odds with the common law requirement that the law applicable to an arbitration be the law of a country.
- Alternatively, there was no implied choice of English law, as the seat of the arbitration was in a different country from the country whose law governed the main agreement. This was an important factor pointing away from English law being an implied choice of law governing the arbitration agreement. The judge should have concluded either that the implied choice of law governing the arbitration agreement was French law or, in default of any choice, that French law applied as the law of the place where the Award was made (the test for foreign arbitration awards under the New York Convention).
In contrast KFG argued that:
- As a matter of construction, there was an express choice of English law as the governing law of the FDA. Article 1 provided:
- 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.
- The governing law clause (Article 15) then made it clear that “This Agreement” was governed by English law, which must mean all the agreement, including the arbitration agreement.
- The fact that the seat of the arbitration was in a different country should not displace the strong indication that there was an implied choice of English law to govern the arbitration agreement by virtue of the FDA being expressly governed by English law.
The Second Issue – had KFG become a party to the arbitration agreement?
The parties focused on the following contractual provisions of the FDA, known together as “No Oral Modification” clauses:
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 17: Waiver
17.1 Any waiver of any term or condition of the Agreement must be in writing and signed by the affected party…
Article 24: Entire Agreement
…No interpretation, change, termination, waiver of any provision hereof, and no consent or approval hereunder, shall be binding upon the other party or effective unless in writing signed…
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
KJS argued that even if the first instance court was correct that the governing law of the arbitration agreement was English law, he had erred in concluding that consent in writing was required for KFG to become an additional party to the FDA. The good faith and fair dealing provisions contained in both the FDA and the UNIDROIT principles overrode the NOM clauses and KFG could therefore be a party to the arbitration agreement without written consent.
In response, KFG argued that the parties had sought to achieve a high level of business certainty in the drafting of the FDA. It contained a “double lock” owing to the combination of Articles 26 and 24 with Article 17. In other words, any amendment and consent to an amendment could only be effective in writing, and any consent to waive these requirements also had to be in writing. The UNIDROIT principles could not be relied upon to establish some amendment as this would contradict the double lock in the NOM clauses. The only way in which the NOM clauses could be overridden was to the extent that the test for an estoppel stated in Rock Advertising was satisfied (see our previous post on this topic here on our Litigation Blog).
The Court of Appeal’s decision
On the first issue, the Court concluded that Articles 1 and 15 of the FDA provided for an express choice of English law to govern the arbitration agreement. The “English law plus” provisions did not point to some other system of law (specifically French law) governing the arbitration agreement and said nothing about the law governing the arbitration agreement. The fact that the arbitration clause itself did not expressly refer to English law did not matter, as the wording in Articles 1 and 15 demonstrated a clear intention that the entire FDA would be governed by English law. It was therefore not necessary to consider whether there was an implied choice of law.
On the second issue, the Court of Appeal agreed with KFG that, under English law, the NOM clauses could only be overridden to the extent that the test for an estoppel in Rock Advertising was satisfied. Principles of good faith and fair dealing could not override the clear wording of the contract. The Rock Advertising test was therefore not satisfied. The Court also considered that the first instance judge should have made a final determination that KFG was not a party to the FDA or the arbitration agreement.
This case raises important issues of construction and interpretation. It is a reminder that there is real merit in including an express governing law provision within an arbitration clause or by expressly referring to the arbitration clause within the main governing law provision of the contract. This will avoid wasting time and money arguing the issue at both the arbitration and enforcement stage.
It also demonstrates the importance of the Supreme Court’s decision in Rock Advertising and its implications for the many contracts containing NOM clauses. These will generally be effective so as to prevent contracting parties being bound by a subsequent variation unless the formalities contained within the contract are complied with. In this instance, the inclusion of the clause ensured that KFG was not a party to the FDA or the arbitration agreement as the requirement for written notice had not been followed.
For more information, please contact Craig Tevendale, Partner, Emily Fox, Of Counsel, Elizabeth Kantor, Senior Associate, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.
The English High Court (the “Court“) has refused to order costs to a claimant who successfully enforced an arbitration award, because the claimant did not satisfy its duty of full and frank disclosure when making a without notice enforcement application to the Court. In Leidos Inc v The Hellenic Republic  EWHC 2738 (Comm), the claimant failed to explain to the Court that the defendant’s challenge of the award in Greece (the seat of the arbitration) might constitute a defence to enforcement in England. Even though the claimant was ultimately successful in enforcing the award, the Court held that this “serious” and “material” omission meant it would be unjust for the defendant to pay the claimant’s costs.
The English Commercial court has overturned an arbitral award under section 67 of the English Arbitration Act 1996, finding that an arbitral tribunal lacked substantive jurisdiction because the respondent company in the arbitration had been dissolved by the time the notice of arbitration was filed (in GA-Hyun Chung v Silver Dry Bulk Co Ltd  EWHC 1147 (Comm)).
An arbitral award was recently challenged in the English High Court (the Court) in K v P  EWHC 589 (Comm). In a rare example of a successful challenge under s68 of the Arbitration Act 1996, the Court held that (i) the tribunal had failed to deal with an issue put to it, and (ii) the Claimants had been denied the opportunity properly to present their case. The Court remitted the award back to the tribunal, notwithstanding its review of the tribunal’s handling of the case and criticism of the two years taken to hand down its award.
On 30 April 2019, the Court of Justice of the European Union (“CJEU“) confirmed that the mechanism for the settlement of disputes between investors and states set out in the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA“) was compatible with EU law. This confirms the Attorney General’s opinion discussed here.
The CJEU’s opinion will lend support to the EU’s effort to develop the tribunals established under trade agreements like CETA into a permanent and multilateral Investment Court System (“ICS“) in future.
On 1 March 2019 the English court granted the claimant, ACT, a permanent anti-suit injunction against proceedings issued in Jordan (the Jordanian Proceedings) by the defendant, Soletanche (in Aqaba Container Terminal (PVT) Co v Soletanche Bachy France SAS). The Court found that the subject matter of the Jordanian proceedings fell within the scope of an arbitration clause agreed between ACT and Soletanche. Soletanche had relied in the validity of that arbitration clause in earlier ICC proceedings to claim damages from ACT (albeit unsuccessfully). It was therefore just in all the circumstances to issue an anti-suit injunction to prevent breach by Soletanche of the agreement to arbitrate and to halt its efforts to invalidate that agreement through the Jordanian Proceedings.
One of the Advocates General to the Court of Justice of the European Union, Advocate General Bot, has issued an opinion confirming that the mechanism for the settlement of disputes between investors and states provided for in the Comprehensive Economic and Trade Agreement between the EU and Canada (the CETA) is compatible with European Union law.
We discuss the content of the Advocate General’s opinion on our new blog piece, published on our Public International Law blog here.
For further information please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.
The English High Court has upheld a challenge to an arbitration award on the grounds of serious irregularity, in Fleetwood Wanderers Ltd (t/a Fleetwood Town Football Club) v AFC Fylde Ltd  EWHC 3318 (Comm). The Court held that the sole arbitrator’s conduct in making independent investigations after the substantive hearing, without notifying the parties and without giving them an opportunity to respond, breached the tribunal’s general duty under s33 of the UK Arbitration Act 1996 (the “Act“), and amounted to a serious irregularity under s68 of Act. The award was remitted back to the arbitrator for reconsideration.