DO NOT UNDERESTIMATE THE IMPORTANCE OF THE LAW APPLICABLE TO THE ARBITRATION AGREEMENT
In the cut and thrust of negotiations, all too often parties will give very little thought to the precise wording of their arbitration agreements, let alone stipulate the law applicable to them. A recent judgment of the UK Supreme Court, delivered on 27 October 2021, which marks the latest development in the now-famous Kout Food saga, should alert parties and their legal advisers to the dangers of ignoring this issue.
Much ink has already been spilled on this saga. However its importance extends beyond the theoretical discussions that it has inspired – the outcome has very real practical consequences that should be considered by all those who find themselves negotiating an arbitration agreement.
For those unfamiliar, the saga concerned the post-award developments of an International Chamber of Commerce (ICC) award on either side of the English Channel: enforcement proceedings initiated by the award creditor in London, and set-aside proceedings initiated by the award debtor in Paris, on the basis that they were not party to the arbitration agreement.
Faced with the same facts, English and French courts have taken diametrically opposed approaches to the question of the law applicable to the arbitration agreement, and, by corollary, whether the award debtor was party to the arbitration. The unfortunate aftermath of this saga is a party, after investing significant time and money, being left with a valid arbitral award in France that cannot be enforced in England. Unless there are assets elsewhere in a jurisdiction that would adopt a similar approach to that of the French courts, a pyrrhic victory indeed.
Jul-Sep 2022 issue
Reed Smith LLP