11 March 2020

by James Kwan , Seri Takahashi , Amy Wei , Nigel Sharman , Alvina Lui and Zoe Dong

Hogan Lovells

As the world welcomes in the Year of the Rat, we take a look back at five recent decisions that made big waves in the Year of the Pig in their different ways, across Hong Kong, Singapore, and England.

In the decisions, the courts got to grapple with fundamental issues such as governing law, the arbitral seat, the limitation period for commencement of arbitration, and when it might be appropriate to grant an anti-suit injunction restraining court proceedings in another jurisdiction. Please click on the links highlighted to access full case summaries.

Silence is not so golden

In Kabab-Ji S.A.L (Lebanon) v. Kout Food Group (Kuwait) [2020] EWCA Civ 6, the English Court of Appeal was invited to determine the governing law of an arbitration clause where the clause itself was silent on this issue. The clause provided for arbitration in Paris, but was contained within a main agreement which was expressly governed by English law.

The appellant Kabab-Ji SAL entered into a franchise development agreement on 16 July 2001 (the FDA) for a period of 10 years with Al Homaizi Foodstuff Company (AHFC), which later became a subsidiary of the respondent Kout Food Group (KFG) after reorganization.

A dispute arose under the FDA which the appellant referred to arbitration before the International Chamber of Commerce (ICC) in Paris. The arbitration was only commenced against KFG, not AHFC. The tribunal therefore had to consider, as a preliminary issue, whether KFG had become an additional party to the arbitration agreement under the FDA and therefore was subject to the tribunal's jurisdiction.

The Court of Appeal ruled that the law governing the main contract also applied to the arbitration agreement. It specifically rejected the argument that the principle of separability could be relied upon to divorce the arbitration agreement from the main contract. Instead, the court clarified that the purpose of the separability principle is to ensure that the arbitration agreement (a dispute resolution mechanism chosen by the parties) can survive the main contract becoming unenforceable (for example, because of fraud or misrepresentation).

Key takeaways

Due to the nature of international arbitration, there may be various applicable laws governing different aspects of the arbitration proceedings, including: the law governing the substantive contract; the law governing the arbitration agreement; the procedural law of the arbitration; and the law of the place where the award will be enforced.
The governing law of the arbitration agreement is of particular importance and is relevant to matters including the formation, existence, scope, validity, legality, interpretation, and enforceability of the arbitration agreement.
In the absence of the parties specifying the governing law of the arbitration agreement, the governing law could follow the governing law of the underlying contract1, or the governing law of the seat.2
Substantive costs may be incurred in determining this preliminary issue.
We recommend that clients stipulate the governing law of the arbitration agreement in their arbitration clauses where the law of the substantive contract and the law of the seat are different, for example, People's Republic of China substantive governing law of contract and Hong Kong seat of arbitration. The Hong Kong International Arbitration Centre (HKIAC) model arbitration clause provides for the governing law of the arbitration agreement.

Luck of the draw

Singapore's highest court, the Court of Appeal, prevented the enforcement of a US$200 million arbitral award on the grounds that the arbitrators incorrectly chose Singapore instead of Macau as the arbitral seat. According to the Court of Appeal, the award should not be recognized as it was "not the result of the arbitration that the parties bargained for."

The decision of the three-person panel in ST Group Ltd v. Sanum Investments Limited [2019] SGCA 65 reversed a 2018 High Court decision that had permitted Sanum Investments Ltd., a Macau gambling company, to enforce a 2016 Singapore International Arbitration Centre (SIAC) award against four related Laos-based parties and a Laos citizen who was behind the dealings with Sanum that led to the arbitration.

The Court of Appeal agreed with the judge at first instance that the dispute did indeed arise from a breach under a master agreement (MA) between the parties and that the arbitration agreement contained within it should have been the basis for the arbitral proceedings. The correct seat of the arbitration was Macau.

The Court of Appeal considered the choice of seat as "one of the most important matters for parties to consider" as the seat "carries with it the national law under whose auspices the arbitration shall be conducted." The choice of seat impacted the external relationship with national courts and was vital in governing issues relating to the validity and finality of the award.

The Court of Appeal confirmed that it was not necessary for a party resisting enforcement to demonstrate actual prejudice. It was sufficient that had the arbitration been correctly seated, a different supervisory court would have been available to the parties.

Footnotes

Such as in Arsanovia v. Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm); [2013] 1 Lloyd's Rep 235 and Sulamerica Cia Nacional De Seguros S.A. and Ors -v- Enesa Engenharia S.A. [2012] 12.EWCA Civ 638.

Such as in C v. D. [2007] EWCA Civ 1282; [2008] All ER (Comm) 1001.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.