Kabab-Ji and Choice of Law in International Arbitration: Institutional Rules as a Path Toward a Harmonized Regime

Matt Azzopardi April, 2023

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The recent Kabab-Ji case has made only one thing unmistakably clear—international commercial arbitration has a choice-of-law problem. In the absence of an express agreement between the parties, some domestic courts hold that the law of the arbitral seat applies to the arbitration agreement,[1] while others hold that the law of the main contract applies.[2]

This is a problem because international commercial contracts often include a general choice of law clause, rather than a choice of law specifically for the arbitration agreement.[3] In addition, because international arbitration is usually conducted at a “neutral” place, the law of the substantive contract and the law of the seat are generally not the same law.[4] The default or implied choice of law rules are, therefore, often decisive in determining the law applicable to the arbitration agreement.[5]

Purposes of International Commercial Arbitration and the New York Convention

International commercial parties choose to resolve disputes by arbitration for a few reasons. First, arbitration generally offers a more efficient process for resolving the parties’ dispute than domestic court proceedings.[6] Second, arbitration allows for party autonomy in specifying procedural and substantive rules of the proceeding.[7] Third, international arbitration allows for the recognition of awards across jurisdictions.[8]

Since parties often seek to arbitrate in a neutral place, the arbitral award often must be enforced outside the jurisdiction where the arbitration was conducted.[9] To ensure the recognition and enforcement of awards, over 170 nations have ratified the Convention for the Recognition and Enforcement of Foreign Arbitral Awards [hereinafter “New York Convention”].[10]

The New York Convention allows some leeway for non-recognition of awards where the question of the tribunal’s jurisdiction to hear the dispute is dependent on the choice of law. Article V(1)(a) provides that a court may refuse to recognize and enforce the award if the “agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law of the country where the award was made.”[11]

While the second prong—“the country where the award was made”—seemingly provides a clear default choice for the law of the seat, courts disagree on the criteria for determining the first prong—“the law to which the parties have subjected it.”[12] In particular, some jurisdictions consider the law of the main contract to be the parties’ implicit choice.[13] Other jurisdictions consider the law of the seat to be the parties’ implicit choice, or they simply rely on the default choice of the law of the seat from the New York Convention.[14]

These disagreements can lead to inconsistent results if the law applicable to the arbitration agreement in the country where enforcement is sought is different from the law applicable in the country of the seat. This is exactly the scenario that played out in the Kabab-Ji case.

The Kabab-Ji Case

In the Kabab-Ji case, the parties’ arbitration agreement specified France as the seat of arbitration and specified English law to govern the substantive contract.[15] The tribunal held unanimously that the law of the seat—French law—applied and issued an award.[16] The losing party refused to pay and sought annulment of the award in France.[17] The winning party sought enforcement to recover from the losing party’s assets in the UK.[18]

The choice of law governing the arbitration agreement was decisive to the outcome of the case. Under French law, the losing party was considered a party to the arbitration agreement.[19] Under UK law, the losing party was not considered a party to the arbitration agreement.[20] The tribunal’s award would therefore only be valid and enforceable if the reviewing court considered to be the law applicable to the arbitration agreement to be French law.

The UK and French courts issued conflicting rulings on the law applicable to the arbitration agreement, a problematic and unhelpful result. In the UK, the Supreme Court refused to enforce the award, holding that law applicable to the arbitration agreement was the law of the main contract (English law).[21] The French Court de Cassation upheld the award, refusing the request for annulment because the law applicable to the arbitration agreement is the law of the seat (French law).[22]

The difference in interpretation meant that the award wasn’t enforced in the UK, even though the award remained valid in France.[23] This a problem given that one of the goals of international commercial arbitration is for awards to be recognized and enforced across jurisdictions.[24]

Solution: Institutional rules should specify the default law applicable to the arbitration agreement

The Kabab-Ji case illustrates how differences in the choice of law approaches can undermine the fundamental goals of international arbitration. To solve this problem, arbitration institutions should amend their rules to provide a default choice of law in the absence of an express choice by the parties.

Other solutions appear unlikely to resolve the problem. One possible alternative solution is for domestic courts to fall in line and adopt the same approach on their own.[25] This solution seems unlikely to fully resolve the problem given the longstanding differences among nations, particularly France and the UK, with the Kabab-Ji case as a very clear illustration.[26] Another possible solution is to amend the New York Convention to more clearly specify the applicable law. That solution is very unlikely, given that amendment would require states with conflicting views to agree.[27]

Institutional default rules can provide a predictable solution that ensures enforceability and eliminates the need for costly proceedings to determine the choice of law.[28] Commercial parties rely on arbitration institutions to facilitate the efficient and enforceable resolution of disputes.[29] Arbitration institutions, therefore, provide a set of rules to fill gaps in the law governing the procedures of the dispute.[30]

There are several reasons why institutional default rules are likely to provide an effective solution. First, while not all arbitrations fall under the purview of arbitration institutions, many do.[31] In addition, where parties wish to engage in institutional arbitration, the institution must be specified in arbitration agreements.[32] This alleviates the problem where the parties fail to specify the law applicable to the arbitration agreement since the parties can rely on the rules of the institution to specify a default instead. Finally, national courts are highly deferential to institutional rules.[33] This alleviates the problem where the national courts, such as the UK, fail to apply the default choice of law under the New York Convention by reading in an implicit assumption of the parties’ choice based on the law of the main contract.[34]

Arbitration institutions are increasingly amending their rules, and they are generally doing so in a more uniform way.[35] An adoption of a uniform default choice of law rule for arbitration agreements would, therefore, not be out of line with the typical practice of arbitration institutions. Some arbitration institutions, such as the London Court of International Arbitration (LCIA), have already adopted default choice of law rules with respect to the arbitration agreement.[36] However, most institutional rules—including the ICC Rules, which governed the Kabab-Ji case—currently do not provide a default law.[37] Given the critical need for a uniform default rule, as illustrated by the Kabab-Ji case, arbitral institutions should adopt uniform default rules regarding the choice of law for international arbitration agreements as soon as possible.

  1. See, e.g., Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Sept. 28, 2022, Bull. civ. I, No. 20 (Fr.); Bulgarian Foreign Trade Bank Ltd v Al Trade Finance Inc., Case No. T1881–99 (Swedish Supreme Court Oct. 27, 2000), 26 Yearbook Com. Arb. 291 (2001), 293.  ↑
  2. See, e.g., Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [35] (appeal taken from Eng.); Enka v. Chubb [2020] UKSC 38, [170] (appeal taken from Eng.); MS Indtel Tech. Servs. Pvt. Ltd. v. W.S. Atkins Rail Ltd. (Indian Supreme Court Aug. 25, 2008), https://main.sci.gov.in/judgment/judis/32317.pdf. ↑
  3. Gary B. Born, International Commercial Arbitration 526 (3d ed. 2021). ↑
  4. Nigel Blackaby, Constantine Partasides, Alan Redfern, & Martin Hunter, Redfern and Hunter on

    International Arbitration 166 (6th ed. 2015) [hereinafter Redfern and Hunter]; Born, supra note 3, at 525. ↑

  5. Born, supra note 3, at 551-53. ↑
  6. Id. at 83–87. ↑
  7. Id. at 81–83. ↑
  8. Id. at 75–77. ↑
  9. Redfern and Hunter, supra note 4, at 4. ↑
  10. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 [hereinafter “New York Convention”]; Convention on the Recognition and Enforcement of Foreign Arbitral Awards, United Nations Treaty Collection, https://treaties.un.org/Pages/showDetails.aspx?objid=080000028002a36b&clang=_en (last visited Mar. 12, 2023). ↑
  11. New York Convention, supra note 10, art. V(1)(a). ↑
  12. See Leila Kazimi, Can’t Budge: The Curious Case of Kabab-Ji and the New York Convention, Kluwer Arbitration Blog (Nov. 15, 2021), http://arbitrationblog.kluwerarbitration.com/2021/11/15/cant-budge-the-curious-case-of-kabab-ji-and-the-new-york-convention. Compare Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [32]-[35] (appeal taken from Eng.) with Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Sept. 28, 2022, Bull. civ. I, No. 20 (Fr.). ↑
  13. Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [32]-[35] (appeal taken from Eng.); Enka v. Chubb [2020] UKSC 38, [129] (appeal taken from Eng.). ↑
  14. Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Sept. 28, 2022, Bull. civ. I, No. 20 (Fr.). ↑
  15. Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [37] (appeal taken from Eng.). ↑
  16. Id. at [6]. ↑
  17. Id. at [8]. ↑
  18. Id. ↑
  19. Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Sept. 28, 2022, Bull. civ. I, No. 20 (Fr.). ↑
  20. Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [75] (appeal taken from Eng.). ↑
  21. Id. at [93]. ↑
  22. Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Sept. 28, 2022, Bull. civ. I, No. 20 (Fr.). ↑
  23. Leila Kazimi, The Walking Dead: Double Life of the Kabab-Ji Award, Kluwer Arbitration Blog (Nov. 16, 2022), http://arbitrationblog.kluwerarbitration.com/2022/11/16/the-walking-dead-double-life-of-the-kabab-ji-award. ↑
  24. Born, supra note 3, at 75-77. ↑
  25. Id. at 523, 533. ↑
  26. Kazimi, supra note 12. But see Born, supra note 3, at 3787 (“National courts and arbitral tribunals have been particularly unwilling to apply the law chosen to govern the underlying contract to the arbitration agreement where doing so would invalidate the arbitration agreement”); Maxi Scherer & J. Ole Jensen, Empirical Research on the Alleged Invalidity of Arbitration Agreements: Success Rates and Applicable Law in Setting Aside and Enforcement Proceedings, 39 J. Int’l Arb. 331, 346 (2022) (finding that only three out of 171 challenges to an arbitral award found the law of the main contract to be the implied choice of law). ↑
  27. See Vienna Convention on the Law of Treaties, arts. 39–40, May 31, 1969, 1155 U.N.T.S. 331. ↑
  28. Raid Abu-Manneh, Dany Khayat, Jawad Ahmad, Nil Daver, & Lisa Dubot, The Anglo-French Clash over the Law Governing the Arbitration Agreement: Why this is Important, Mayer Brown (Dec. 6, 2022), https://www.mayerbrown.com/en/perspectives-events/publications/2022/12/the-anglo-french-clash-over-the-law-governing-the-arbitration-agreement-why-this-is-important?utm_source=mondaq&utm_medium=syndication&utm_term=Litigation-Mediation-Arbitration&utm_content=articleoriginal&utm_campaign=article (last visited March 12, 2023). ↑
  29. See Singapore International Arbitration Centre, Why SIAC, https://siac.org.sg/about-us/why-siac (last visited Mar. 12, 2023). ↑
  30. Born, supra note 3, at 190. ↑
  31. See id. at 192. ↑
  32. Id. at 195. ↑
  33. Id. at 2301. ↑
  34. Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [32]-[35] (appeal taken from Eng.); Enka v. Chubb [2020] UKSC 38, [129] (appeal taken from Eng.). ↑
  35. Meng Chen, Emerging Internal Control in Institutional Arbitration, 18 Cardozo J. Conflict Resol. 295 (2017). ↑
  36. London Court of International Arbitration Rules, art. 16(4) (effective Oct. 1, 2020), https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx. ↑
  37. Kabab-Ji SAL v. Kout Food Group [2021] UKSC 48, [5], [45] (appeal taken from Eng.). ↑