ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
QUEEN'S BENCH DIVISION
SIR MICHAEL BURTON (Sitting as a Judge of the High Court)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE FLAUX
SIR BERNARD RIX
| KABAB-JI S.A.L. (LEBANON)
|- and -
|KOUT FOOD GROUP (KUWAIT)
Ricky Diwan QC (instructed by RPC) for the Respondent
Hearing dates: 3, 4 and 5 December 2019
Crown Copyright ©
Lord Justice Flaux:
Factual and procedural background
(1) Does the law governing the validity of the arbitration agreement govern the question of whether [KFG] became a party to the arbitration agreement?
(2) What is that law?
(3) At English law, has [KFG] become a party to (i) the FDA and (ii) if different, the arbitration agreement?
(4) What is the law governing the capacity of the Defendant to join the arbitration agreement?
The terms of the FDA
"Article 1: Content of the Agreement
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.
Article 2: Good Faith and Fair Dealing
In carrying out their obligations under the Agreement, the Parties shall act in accordance with good faith and fair dealing. The provisions of the Agreement, as well as any statements made by the Parties in connection therewith, shall be interpreted in good faith.
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 14: Settlement of Disputes
14.2. Except for those matters which specifically involve the Mark, any dispute, controversy or claim between LICENSOR and LICENSEE with respect to any issue arising out of or relating to this Agreement or the breach thereof, …shall, failing amicable settlement, on request of LICENSOR or LICENSEE, be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
14.3. The arbitrator(s) shall apply the provisions contained in the Agreement. The arbitrator(s) shall also apply principles of law generally recognised in international transactions. The arbitrator(s) may have to take into consideration some mandatory provisions of some countries i.e. provisions that appear later on to have an influence on the Agreement. Under no circumstances shall the arbitrator(s) apply any rule(s) that contradict(s) the strict wording of the Agreement.
14.4 Nothing contained herein shall in any way deprive LICENSOR of its rights to seek and obtain a temporary restraining order, preliminary/permanent injunction or other equitable relief from a court of competent jurisdiction under any applicable law. All remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.
14.5. The arbitration shall be conducted in the English language, in Paris, France.
Article 15: Governing Law
This Agreement shall be governed by and construed in accordance with the laws of England.
Article 17: Waiver
17.1. Any waiver of any term or condition of the Agreement must be in writing and signed by the [a]ffected party…
Article 19: Rights not Transferable
The parties hereto agree that all rights granted LICENSEE under this Agreement are personal in nature and are granted in reliance upon various personal and financial qualifications and attributes of LICENSEE. LICENSEE'S interest under this agreement is not transferable or assignable, under any circumstances whatsoever, voluntarily, by operation of law or otherwise without the written consent of LICENSOR or purported transfer or assignment of all or any part of such interest shall immediately terminate this Agreement without further action of the parties and without liability to LICENSOR or its designee of any nature.
Article 24: Entire Agreement
… No interpretation, change, termination or waiver of any provision hereof, and no consent or approval hereunder, shall be binding upon the other party or effective unless in writing signed by LICENSEE and by an authorized representative of LICENSOR or its designee.
Article 25: Survival of Terms and Conditions of Agreement
The rights and obligations contained in the following provisions of this Agreement shall survive the expiration or termination of this Agreement: articles 10, 11.2, 13, 15, 16, 18, 20, 23, 25, 26, 27, 28.2, 29, 30 and 33.
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."
The judgment below
"(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves—
(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made…"
"The question then arises whether, if there is no express law of the arbitration agreement, the law with which that agreement has its closest and most real connection is the law of the underlying contract or the law of the seat of the arbitration. It seems to me that …the answer is more likely to be the law of the seat of the arbitration than the law of the underlying contract."
"17. However, whereas there would therefore be a powerful case for English law as being the implied choice in any event, by virtue of its governing the host agreement, I am satisfied that there is no need to resort to such implied agreement in this case, as there is an express choice. Article 15 provides for the laws of England as the governing law of the FDA. Article 14, the Settlement of Disputes clause, expressly states by clause 14.3, that "the arbitrators shall apply the provisions contained in the agreement", which is the FDA, and Article 1 provides that "This Agreement …shall be considered as a whole." Article 14 (3) then continues (with my underlining) "the arbitrators shall also apply principles of law generally recognised in international transactions. The arbitrators may have to take into consideration some mandatory provisions of some countries." It is clear to me that, on the clear construction of Article 14.3, the provisions which the Arbitrators were thus required to apply included the provisions as to law in Article 15, because by Article 14 (3) they must also apply certain other principles of law."
"16. The enforcement of No Oral Modification clauses carries with it the risk that a party may act on the contract as varied, for example by performing it, and then find itself unable to enforce it. It will be recalled that both the Vienna Convention and the UNIDROIT model code qualify the principle that effect is given to No Oral Modification clauses, by stating that a party may be precluded by his conduct from relying on such a provision to the extent that the other party has relied (or reasonably relied) on that conduct. In some legal systems this result would follow from the concepts of contractual good faith or abuse of rights. In England, the safeguard against injustice lies in the various doctrines of estoppel. This is not the place to explore the circumstances in which a person can be estopped from relying on a contractual provision laying down conditions for the formal validity of a variation. The courts below rightly held that the minimal steps taken by Rock Advertising were not enough to support any estoppel defences. I would merely point out that the scope of estoppel cannot be so broad as to destroy the whole advantage of certainty for which the parties stipulated when they agreed upon terms including the No Oral Modification clause. At the very least, (i) there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality; and (ii) something more would be required for this purpose than the informal promise itself: see Actionstrength Limited v International Glass Engineering INGLEN SpA  2 AC 54, paras 9, 51, per Lord Bingham of Cornhill and Lord Walker of Gestingthorpe."
"52. The question is whether Article 2 makes any difference by providing that (i) the provisions of the FDA shall be interpreted in good faith (ii) Z [AHFC] must act in accordance with good faith and fair dealings (K [KFG] will only have to do that once a party to the Agreement). Mr Tse pointed, by way of exemplifying a good faith obligation, to the recent decision in Al Nehayan v Kent  EWHC 233 (Comm). However, in that case Leggatt LJ was considering whether he could identify "two forms of furtive or opportunistic conduct, which seem to be incompatible with good faith in the circumstances of the case." Nothing like that was suggested to occur in this case."
"53. Against this background, in that (1) conduct of itself is plainly not enough, (2) there was some room for argument about the requirement for consent in writing being " interpreted in good faith ", I invited Mr Tse to refer to any documents which he asserted could support a case that there had been anything approximating to consent in writing by the Claimant and/or by Z. He identified four documents, of which only two survived the most cursory examination, to which he added, after such investigation as could be carried out by reference to documents which were before the Arbitrators but not in the bundles before the court, a further two. The four were:
(i) a letter dated 22 May 2006, sent by Mr Zeine, the Chief Executive Officer of Z and of K, on K note paper to the Claimant:
(ii) an email dated June 3 2006, sent by the Claimant to Mr Zeine at Z, enclosing a copy of minutes of a meeting on the Claimant's headed note paper dated May 29, 2006:
(iii) a letter dated June 6, 2006 from Mr Zeine, on K headed note paper to the Claimant.
(iv) an email dated 7 November 2006, from the Claimant to Mr Zeine, attaching a draft unsigned MOU between the Claimant and K for his comments.
It is necessary to add that the May/June 2006 exchanges (i) to (iii) were followed by an FOA dated 4 July 2006, expressly between the Claimant and Z as Operator: and the November 2006 email and draft was followed by a chain of emails between the Claimant and K, referring to the fact that "until further notification we are still operating under Z in regard to imports.""
"54. It is these documents, and any others which Mr Tse says the Claimant may be able to locate from amongst the documents before the Arbitrators, as interpreted by Article 2, upon which the remnant of his case must depend. Only if he can make such a case will he be able to resist the otherwise clear answer to Preliminary Issue 3, namely that at English law K did not become a party to the FDA or, consequently, to the arbitration agreement."
"It is common ground that there is no risk of issue estoppel here because the French court is not bound by this judgment, but I would hope that the firm opinion that I have expressed and am expressing as to the effect and impact of English law will not go unnoticed in the French courts, given that on any basis English law is central to the decision. I am very nearly persuaded by the Defendant to pursue the issue which I have taken to the brink in paragraph 54 above, in order to be in a position to set aside the enforcement and to give a firm answer to Preliminary Issue 3 by reference to English law, which at this moment I have left slightly unanswered."
"(1) What Teare J ordered was the hearing of Preliminary Issues, though in the event not the ones I have heard, but nevertheless Preliminary Issues, and not the final resolution of this application.
(2) That would of itself not prevent my proceeding to make an order if I was satisfied it was just to do so on it appearing that there is no prospect of success for the Claimant's application, but Mr Tse has submitted that his submitted list of documents relied upon was only completed during the course of the hearing, and there may be more.
(4) It is just possible that the examination of the four (or any more) documents, and any evidence given, by way of rehearing, might establish that there was something approximating to a consent in writing by the parties in accordance with the conclusions I have reached, unlikely though that may seem."
"(3) At English law, has the Defendant become a party (i) to the FDA (ii) if different, the arbitration agreement? No to either agreement, subject only to the unlikely possibility that a further consideration by reference to English law, in accordance with my judgment above, might give a different answer. If the Award is not set aside in Paris, and the Claimant wishes to pursue enforcement in the English courts, the matter can be restored for determination of the issues I have left outstanding."
"…but for my having given a 'last chance' to the Claimant for the reasons I have given, I would have concluded that, as against K at English law, the Claimant has and ought to have no prospect of success in enforcing this Award."
"At English law (subject to paragraphs 53, 54 and 66(3) of the judgment…) the Defendant did not become a party to the FDA or the arbitration agreement of the FDA, the two questions raising the same issue".
Paragraph 3 of the order then adjourned the appellant's enforcement application and stayed the judgment with liberty to restore the matter for determination of any outstanding issues following the decision of the Cour d'appel de Paris.
The grounds of appeal and cross-appeal
"The Judge erred in the following respects:
(a) The Judge failed to apply French law to the question of whether KFG was bound by the relevant arbitration agreements, and failed to find that KFG had become a party to the arbitration agreements as a result of its conduct and performance of the host contracts;
(b) The Judge, erroneously applying English law to find that the Respondent had not become a party to the arbitration agreements, or to the host contracts, because he ruled that the contracts required an agreement in writing to add the Respondent. On a proper and true construction of the relevant arbitration agreements and the host contracts, there was no such requirement under the relevant contracts."
(1) The judge had erred in law at  of the judgment in saying that there was "some room for argument" that the effect of the good faith interpretation clause in Article 2 whilst it could not dispense with the requirement for written consent under the No Oral Modification clauses, might mean that that requirement had to be interpreted in good faith, without identifying what that meant in practice. The No Oral Modification clauses were clear and unambiguous and incapable of being altered by Article 2 as a matter of interpretation. In any event, as the judge found, the appellant could point to no written consent of any description.
(2) The judge had erred in law in failing to apply the test for summary judgment to the application to enforce. Where, as here, the award debtor establishes a New York Convention defence under Article V (as enacted in section 103(2) of the Arbitration Act 1996) and/or the appellant has no realistic prospect of resisting the defence, recognition and enforcement should be refused without the need for any further or fuller rehearing.
(3) Had the judge applied the summary judgment test correctly, he would have made a final determination that KFG was not a party to the FDA or the arbitration agreement and refused recognition and enforcement without leaving open the possibility of further evidence and argument at a later stage.
Summary of the parties' submissions
"Article 1.7 (Good faith and fair dealing)
(1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.
Article 1.8 (Inconsistent behaviour)
A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment.
Article 2.1.1 (Manner of formation)
A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement.
Article 2.1.18 (Modification in a particular form)
A contract in writing which contains a clause requiring any modification or termination by agreement to be in a particular form may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has reasonably acted in reliance on that conduct."
"It seems to me that Mr Hirst might have been too diffident: that a case for an express choice might have been available even before me. When the parties expressly chose that "This Agreement" should be governed by and construed in accordance with the laws of India, they might be thought to have meant that Indian law should govern and determine the construction of all the clauses in the agreement which they signed including the arbitration agreement. Express terms do not stipulate only what is absolutely and unambiguously explicit, and it seems to me strongly arguable that that is the ordinary and natural meaning of the parties' express words (notwithstanding relatively recent developments in the English law about the separability of arbitration agreements from the substantive contract in which it was made and assuming that these foreign companies are to be taken to have known about the developments in 2008 when they concluded the SHA). The governing law provisions in the agreements in the two Court of Appeal authorities referred to "the policy" and "this Policy" being governed by the internal laws of New York and Brazilian law respectively, and the word "policy" might naturally be taken to connote to obligations and rights more directly relating to the insurance than the arbitration agreement."
"Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."
"The concept of separability itself, however, simply reflects the parties' presumed intention that their agreed procedure for resolving disputes should remain effective in circumstances that would render the substantive contract ineffective. Its purpose is to give legal effect to that intention, not to insulate the arbitration agreement from the substantive contract for all purposes."
"In the absence of any indication to the contrary, an express choice of law governing the substantive contract is a strong indication of the parties' intention in relation to the agreement to arbitrate. A search for an implied choice of proper law to govern the arbitration agreement is therefore likely (as the dicta in the earlier cases indicate) to lead to the conclusion that the parties intended the arbitration agreement to be governed by the same system of law as the substantive contract, unless there are other factors present which point to a different conclusion."
"(4) Where the matrix contract contains an express choice of law, this is a strong indication or pointer in relation to the parties' intention as to the governing law of the agreement to arbitrate, in the absence of any indication to the contrary.
(5) The choice of a different country for the seat of the arbitration is a factor pointing the other way. However, it may not in itself be sufficient to displace the indication of choice implicit in the express choice of law to govern the matrix contract."
"There are at least three reasons for including such clauses. The first is that it prevents attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment. Secondly, in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms. Thirdly, a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them. These are all legitimate commercial reasons for agreeing a clause like clause 7.6. I make these points because the law of contract does not normally obstruct the legitimate intentions of businessmen, except for overriding reasons of public policy. Yet there is no mischief in No Oral Modification clauses, nor do they frustrate or contravene any policy of the law."
He submitted that by the double lock provisions to which they had agreed, the parties to the FDA had obviously been trying to achieve a high level of business certainty.
"…a court might conclude of its own motion that the determination of an application under s. 103(2) would be an inappropriate use of court time and/or contrary to comity or likely to give rise to conflict of laws problems, when there were concurrent proceedings which would be likely to resolve the issue in the country in which or under the law of which the award was made (cf. Soleh Boneh v Republic of Uganda  2 Lloyds Rep 208)."
As appears from  the adjournment was granted by the judge at first instance because issues of Swedish law arose which were best determined by the Swedish courts. That exercise of discretion was upheld by the Court of Appeal.
Analysis and conclusions
"Yet there is an exception to the general rule. In application of the general principle prohibiting inconsistent behaviour (see Article 1.8), this Article specifies that a party may be precluded by its conduct from invoking the clause requiring any modification or termination to be in a particular form to the extent that the other party has reasonably acted in reliance on that conduct.
A, a contractor, contracts with B, a school board, for the construction of a new school building. The contract provides that the second floor of the building is to have sufficient bearing capacity to support the school library. Notwithstanding a "no oral modification" clause in the same contract, the parties orally agree that the second floor of the building should be of non-bearing construction. A completes construction according to the modification and B, who has observed the progress of the construction without making any objections, only at this point objects to how the second floor has been constructed. A court may decide that B is not entitled to invoke the "no oral modification" clause as A reasonably relied on the oral modification, and is therefore not liable for non-performance."
Sir Bernard Rix
Lord Justice McCombe