On appeal from:  EWCA Civ 6
The Appellant, a Lebanese company, entered into a Franchise Development Agreement with a Kuwaiti company, granting a licence to operate its restaurant franchise in Kuwait for ten years. In 2005, the company became a subsidiary of the Respondent. A dispute arose under the FDA and linked Franchise Agreements, which was referred to arbitration.
The Respondent argued that it was not a party to the FDA, the arbitration agreements contained in the FDA, or the Franchise Agreements, and that they took part in the arbitration under protest. The majority arbitrators found that, applying French law, the Respondent was a party to the arbitration agreements. They also found that, applying English law, the Respondent was an additional party to the FDA by “novation by addition” and was in breach of the FDA and linked agreements. They made an award against the Respondent for unpaid licence fees and damages in the principal sum of US$6.7 million. The Respondent applied to the Paris Court of Appeal to set aside the award. Soon afterwards, the Appellant issued proceedings in the Commercial Court in London to enforce the award.
On a trial of preliminary issues relating to the FDA the Commercial Court held that the validity of the arbitration agreement in the FDA was governed by English law and that, subject to a point left open, as a matter of English law the Respondent was not a party to the FDA or the arbitration agreement. The court postponed making a final decision on enforcement pending the decision of the Paris Court of Appeal. Both parties appealed to the Court of Appeal which upheld the judge’s decision, save that it held that the judge should have made a final determination. It held that that there was no real prospect of it being shown that the Respondent became a party to the arbitration agreement and that summary judgment should be given refusing recognition and enforcement of the award.
The Appellant appealed to the Supreme Court.
HELD – appeal dismissed.
The Court held that: (i) that the arbitration agreement is governed by English law; (ii) that in English law there is no real prospect of a court finding that the Respondent became a party to the arbitration agreement; and (iii) that, procedurally, the Court of Appeal was right to give summary judgment refusing recognition and enforcement of the award.
The choice of law issue
The effect of the relevant clauses in the FDA is plain. The FDA’s governing law clause provides that “this Agreement” shall be governed by English law and this clearly extends to the arbitration agreement.
The party issue
The Appellant contended that the Respondent became a party to the arbitration agreements by becoming a party to the FDA by novation because of the parties’ conduct and the performance of various contractual obligations over a sustained period of time. It could not, however, point to any agreement in writing to this effect between itself. The FDA contained a number of provisions which prescribe that it may not be amended save in writing signed on behalf of both parties – “No Oral Modification Clauses”. The No Oral Modification clauses are therefore an insuperable obstacle to the Appellant’s case of novation by addition as the Appellant could not adduce evidence to prove that it was done so in writing.
For a PDF version of the judgment, see: Judgment (PDF)
For the Press Summary, see: Press summary (HTML version)
For a non-PDF version of the Judgment, see: Judgment on BAILII (HTML version)