What law applies to an arbitration agreement? The UK Supreme Court clarifies in Kabab-Ji v Kout Food Group.

The U.K. Supreme Court recently handed down its long-awaited judgment in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait). The judgment confirmed and applied the principles concerning the governing law of arbitration agreements that were established by the Supreme Court in October last year in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb. 

In the Enka case, the Supreme Court had established that where the parties have expressly or impliedly made a choice of law to govern a contract containing an arbitration clause, that will generally be a sufficient indication of the parties’ choice of law to govern the arbitration agreement as well. On the facts of the case, particularly the fact that the parties had not chosen a governing law for the main contract in question, Shearman & Sterling successfully argued on behalf of Enka that the arbitration agreement was governed by the law of the seat and not the law applicable to the main contract.

Following the decisions in Enka and Kabab-Ji, there are three key takeaways for parties considering arbitration clauses in their transaction documents:

• The English law approach to determining the law applicable to an arbitration agreement is now clear, the decision in Enka having put to rest what Lord Burrows described as “an intriguing question of law which courts and commentators have been grappling with for many years.” The decision in Kabab-Ji has confirmed and applied the principles in Enka in the context of the enforcement of an arbitration award rendered under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) in the English Courts.
• However, there remains uncertainty at the international level. In June 2020, the Paris Court of Appeal considered the same award as the English Courts in Kabab-Ji but reached the opposite conclusion on which governing law applied to the parties’ arbitration agreement. That divergence reflected the Tribunal’s original award, in which the one English-qualified arbitrator and two civil law arbitrators also reached different conclusions. An appeal is currently pending before the highest French court, the Cour de Cassation, but it is expected that the Paris Court of Appeal’s decision will be upheld.
• In order to achieve complete certainty, contracting parties should ensure that they identify the law governing their arbitration agreement specifically, whether or not that be the same law that governs the main contract in which the arbitration agreement is found.

Read our full insight into the decisions in Enka and Kabab-Ji, informed by the Shearman & Sterling team's successful representation of Enka in the Supreme Court.