Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) and Ors – UKSCBlog

In this post, Eilidh Douglas, Senior Associate in the ICE Disputes team at CMS, previews the case of Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) and Ors, which was heard by the UK Supreme Court on 24 and 25 January 2023.

Factual Background

The appellant is the Republic of Mozambique (“the Republic”). The case relates to the development of the Republic’s economy and in particular, the opportunities afforded by its coastline and territorial waters for tuna fishing and gas exploitation.

Through three special purpose vehicles (the “SPVs”) wholly owned by the Republic, it entered into three contracts (the “Contracts”) with Privinvest Shipbuilding SAL and related companies (the “Privinvest Defendants”) for the supply of various vessels and associated shipping infrastructure. The SPVs borrowed the purchase funds for the Contracts, and the Republic granted sovereign guarantees (the “Guarantees”) over the borrowing. The Contracts are each governed by Swiss law and contain an arbitration agreement. The Guarantees, henceforth, are governed by English law and provide for disputes to be resolved by the English courts.

In what came to be known as the “Tuna Bond Scandal”, the Republican alleged that the Privinvest Defendants and related individuals had bribed corrupt officials to the tune of at least $143 million. The alleged corruption, in turn, exposed the Republic to potential liability under the Guarantees. The Republic commenced an action against the Privinvest Defendants in the English courts. However, the Privinvest Defendants sought a stay of that action, on the basis that the subject matter of the action was a matter properly to be decided by arbitration pursuant to the Contracts’ arbitration agreements.

Appellate History

In February 2019, the Republic commenced proceedings against the Privinvest Defendants in England in respect of the alleged bribery and corruption. Meanwhile, Privinvest commenced arbitration against the SPVs and the Republic in Switzerland pursuant to the arbitration agreements in the Contracts (although the Republic was not a signatory, Privinvest argued that as a matter of Swiss law the Republic was nevertheless deemed a party to the Contracts) .

In November 2019, the Privinvest Defendants sought a stay of the English proceedings, pursuant to Arbitration Act 1996, s 9, which provides at ss (1) that:

A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

At first instance, the High Court [2020] EWHC 2012 (Comm) held that the claims in the English proceedings were not matters falling within the scope of the arbitration agreements in the Contracts. The claims in respect of bribery and corruption were not “sufficiently connected” with the Contracts and the remedies sought were not concerned with the purchase prices under the Contracts.

The Privinvest Defendants appealed to the Court of Appeal [2021] EWCA Civ 329, which overturned the decision of the High Court. The Court of Appeal noted (at paragraph 63) that a “matter” is not the same as a cause of action; it includes any issue capable of constituting a dispute under the relevant arbitration agreement.” This includes potential defenses. The English proceedings would necessarily (in the context of the Privinvest Defendants’ defense that the Contracts were genuine commercial transactions) consider the validity of the Contracts; this was a “matter” referrable to arbitration under the arbitration agreements. The Republic’s claims against the Privinvest Defendants therefore fall within the scope of the arbitration agreements.

The Republic appealed to the Supreme Court and the case was heard by the Supreme Court on 24 and 25 January 2023.

Comment

This appellate history of this case illustrates differing approaches to the interpretation of the Arbitration Act 1996, s 9, and whether proceedings “concern” a “matter”in respect of” which an arbitration agreement applies. A narrow approach such as that adopted by the High Court has the potential to impact the sanctity of parties’ agreement to arbitrate disputes; a broad approach such as that adopted by the Court of Appeal, henceforth, may produce “unwelcome case management complications” for English proceedings where parts of a claim falling within an arbitration agreement are to be stayed. The Supreme Court’s decision will, it is hoped, provide clarity as to the correct approach.


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