Mozambique v Privinvest: Beware! Bribery claims may be heard in a public court

What you need to know

• If a party is sued in England, but argues that the claims against it should be heard in arbitration, it can apply to the English court for a stay of court proceedings under section 9 of the English Arbitration Act (theAct).
• There is a two-stage process in considering applications for a stay under section 9: (1) identify the "matters" in respect of which the legal proceedings are (or will be) brought; and (2) ascertain whether those matters fall within the scope of the arbitration agreement.
• The UK Supreme Court has found inRepublic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors[2023] UKSC 32that the bribery, unlawful means conspiracy and dishonest assistance claims advanced by Mozambique in English court proceedings, and defences in relation to those claims, are not "matters" which fall within the scope of relevant arbitration agreements. Accordingly, it has overturned a previous Court of Appeal judgment and refused the partial stay of court proceedings in favour of arbitration under section 9 of the Act. The substantive claims will be heard in court this autumn.
• This case serves as an important reminder that bribery claims (and claims of a similar nature) brought in the context of a relationship governed by an arbitration agreement will not necessarily be determined in the (generally) private forum of arbitration, particularly where there are multiple parties and agreements involved. Parties considering bringing claims of this nature, and indeed parties on the receiving end of those claims, need to consider carefully the risk and impact of a 'public trial' in the event that such claims are found to be outwith an arbitration agreement.

Background to the disputes

In the context of the development of fishing and gas exploration in Mozambican waters, several special purpose vehicles (SPVs) wholly owned by the Republic of Mozambique (Mozambique) entered into supply contracts for various vessels and associated infrastructure (Supply Contracts) with Privinvest Shipbuilding SAL and related companies (Privinvest). The Supply Contracts were governed by Swiss law and provided for dispute resolution by arbitration in Geneva. The SPVs obtained financing for the Supply Contracts through loan agreements, in respect of which Mozambique provided sovereign guarantees (Guarantees). The Guarantees were governed by English law and provided for dispute resolution in the English courts.

The SPVs brought arbitration proceedings in Switzerland in respect of the Supply Contracts (the details of which are largely confidential). In 2019, Mozambique brought proceedings in the English courts against Privinvest and others (theCo-Defendants) under the Guarantees comprising claims of bribery, conspiracy to injure by unlawful means, dishonest assistance, and knowing receipt, and related proprietary claims. Mozambique alleges it is exposed to a potential liability of US$2 billion under the Guarantees.

Application for a stay under section 9

The Co-Defendants applied for a stay of the court proceedings under section 9 of the Act, which provides that a party may apply for a stay in proceedings in so far as they concern a "matter", which under the arbitration agreement is "to be referred to arbitration”。法院必须授予停留,除非arbitration agreement is null and void, inoperative or incapable of being performed.

The issue in this case is, in essence, whether Mozambique's claims (and the defences in relation to those claims) are "matters" which fall sufficiently within the ambit of the relevant arbitration agreements in the Supply Contracts such that the court proceedings must be stayed. The High Court's answer was "No", with which the Court of Appeal disagreed. The Court of Appeal found that "matters“在被尊重的诉讼by Mozambique include the question of whether the Supply Contracts were valid and genuine commercial contracts and that question was sufficiently within the scope of the arbitration agreements in the Supply Contracts. Although Mozambique was not a signatory to the Supply Contracts, the Co-Defendants argued that as a matter of Swiss law, it was bound by the arbitration agreements.

Overturning the decision of the Court of Appeal, inRepublic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors[2023] UKSC 32the Supreme Court held that neither the claims advanced by Mozambique in the court proceedings, nor the defence in relation to those claims, are "matters" which fall within the scope of the arbitration agreements in the Supply Contracts, and accordingly, section 9 of the Act does not apply and there should not be a partial stay of the court proceedings.

The Supreme Court's reasoning

The Supreme Court reiterated that a consideration of a section 9 application involves a two-stage process. The first step is to identify the "matters" in respect of which the legal proceedings are (or will be) brought. The second step is to ascertain whether those matters fall within the scope of the arbitration agreement.

(1) Step one – the meaning of a "matter"

The Supreme Court noted the importance of considering jurisprudence of several countries as guidance to the interpretation of section 9 in so far as those countries have statutory provisions which are worded similarly and, like section 9, intended to give effect to Article II of the New York Convention. Accordingly it referred to case law from Hong Kong, Singapore, Australia, the Cayman Islands and the British Virgin Islands.

In determining the "matters" in respect of which the legal proceedings are (or will be) brought, the court must ascertain the substance of the dispute. In this regard, it is worth noting that the Supreme Court, by focusing on the substance of the dispute, intends to render ineffective a party's "artificial manipulation…of its pleadings to circumvent an arbitration agreement which covers that substance”。For an issue to qualify as "matter", it also needs to be legally relevant to the outcome of the court proceedings of which a party seeks a stay, whether in whole or in part. When ascertaining the meaning of a "matter", the court should take into account both parties' formulation of the disputes, but without giving deference to them. The court should also apply a common-sense approach. In addition, a "matter" needs not encompass the whole of the dispute between the parties. In other words, a stay should be granted even if only one issue being brought in the court proceedings is subject to the arbitration agreement.

Turning to the facts of the case, the Supreme Court found that the substance of Mozambique's claim was compensation and indemnity in respect of its loss and damages caused by bribery, unlawful means conspiracy, dishonest assistance and knowing receipt. This did not require a consideration of the validity of the Supply Contracts, nor would a defence that the Supply Contracts were valid and on commercial terms be relevant. The Supreme Court accepted that the quantification of the loss and damage allegedly suffered by Mozambique was a significant part of the dispute between the parties but found it unnecessary to decide whether or not it was a "matter" in light of its conclusion at 'step two'.

(2)第二步- o范围f an arbitration agreement

The Supreme Court agreed with the High Court that Mozambique's claims do not fall within the scope of the arbitration agreements in the Supply Contracts. The remaining question was whether the partial defence on quantum in relation to those claims gave rise to a dispute referable to arbitration under the arbitration agreements. It held that in ascertaining the scope of an arbitration agreement, the court must have regard to what rational business people would contemplate. Applying the governing law of the Supply Contracts (i.e., Swiss law, which it remarked is analogous to the approach under English law), the Supreme Court noted that rational business people are likely to intend that any dispute arising out of their contractual relationship be decided by the same tribunal (and indeed in most cases the matter covered by the arbitration agreement would encompass claims made in the legal proceedings). However, in this case rational business people would not intend the quantification of Mozambique's damages, which was a subordinate factual issue to Mozambique's damages claims, to be subject to arbitration. Importantly, both the High Court and the Supreme Court placed emphasis on the fact that the arbitration agreements in the three Supply Contracts are different and on this basis the parties must have intended that each provision was a dispute resolution procedure principally intended for that particular contract.

What does this mean in practice?

The decision of the Supreme Court serves as a useful reminder to parties that bribery claims (and claims of a similar nature) brought in the context of a relationship governed by arbitration agreements will not necessarily be brought in the (generally) private forum of arbitration proceedings. Parties considering advancing such claims, as well as parties on the receiving end of them, will need to think carefully about the impact of a 'public trial', including the impact on their reputation and relationships with other counterparties. Indeed, as with theMozambiquevPrivinvestcase, the party advancing the claims may be in favour of them playing out in a public forum. In our experience this is not always the case.

Authors: Amy Cable, Senior Expertise Lawyer;Matthew Saunders, Partner; Tom Cummins, Partner; Jenny Zhang, Associate