Parties should avoid uncertainties by stipulating the applicable law to the arbitration agreement.
The decision in J (Lebanon) v. K (Kuwait)[i] provides a useful analysis of which law (i.e., the law of the arbitration agreement or the law of the seat) governs the issue of whether a non-party has become party to the arbitration agreement and, more broadly, how to determine which law governs the arbitration agreement if there is no express choice. While in this case there was an express choice, the judgment highlights the uncertainties that arise if the parties have made no express provision regarding the law of the arbitration agreement. Moreover, the case demonstrates the jurisdictional difficulties that arise when arbitration proceedings are brought against a non-party to an arbitration agreement.
The English High Court adjourned the claimant’s (J’s) application to enforce an arbitral award against a non-party to an arbitration agreement (K), pending the outcome of set aside proceedings at the seat of the arbitration in Paris. The Court overturned the tribunal’s decision that the law of the seat (French law) should determine whether K was bound by the arbitration agreement contained in a franchise development agreement (FDA). Rather, the court held that the question was one of English law, as the law governing the arbitration agreement. Applying English law, the Court held that K had not become party to the arbitration agreement in the FDA by novation or joinder, and accordingly adjourned the enforcement of the award pending the decision of the Paris Court of Appeal. Continue Reading