Mozambique v Privinvest Shipbuilding: UK Supreme Court Decision on Stay of Court Proceedings

At a Glance

• The ruling provides clarity on the interpretation of Section 9 and under what circumstances a stay in favour of arbitration should be granted — and likely will be considered by practitioners in other jurisdictions with similar statutory provisions.
• As demonstrated by this ruling, it cannot be guaranteed that disputes based around contracts that include arbitration agreements will not be heard in the public courts in certain circumstances.

In September, the Supreme Court overturned a decision by the Court of Appeal to grant a stay of proceedings in the case of Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) and others [2023] UKSC 32. The Supreme Court ruled that the Court of Appeal was wrong in its interpretation of Section 9 of the Arbitration Act 1996 (the Act).

Background

The case centres on the “Tuna Bond” scandal in Mozambique. Three special purpose vehicles (SPVs), wholly owned by the Republic of Mozambique (Republic), entered into supply contracts with the Privinvest Shipbuilding (Privinvest) companies. These contracts included supplying ships and aircraft, amongst other infrastructure, to aid the Republic in policing its coastline and exclusive territorial waters. The SPVs entered loan agreements to finance the supply contracts. The Republic granted sovereign guarantees over these agreements, subject to English and Welsh law and dispute resolution in the courts of England and Wales.

The Republic brought proceedings in the High Court at first instance, accusing Privinvest of exposing the Republic to approximately US$2 billion liability under the guarantees. This resulted from the alleged bribery by Privinvest of the Republic's officials. Privinvest argued that as the supply contracts were governed by Swiss law and provided for dispute resolution by arbitration, the legal proceedings should be stayed under Section 9 of the Act. The Republic was not a signatory to the contracts, but Privinvest argued that it was a party under Swiss law as a beneficiary. The question considered by the courts was whether the Republic's claims were “matters” which fell within the scope of the arbitration agreements under Section 9 and therefore if the proceedings should be stayed and referred to an arbitral tribunal. At first instance, the High Court held that the claims were not “matters” that fell within such a scope. The Court of Appeal disagreed and granted the stay under Section 9. The Republic then appealed this judgment in the Supreme Court.

Supreme Court Decision

A stay of court proceedings under Section 9 is not discretionary and must be granted if the “matter” falls within the scope of the arbitration agreement unless the court is satisfied that the arbitration agreement is void, inoperative or incapable of being performed. The burden of proof is on the party seeking the stay, and it must be proved on the balance of probabilities. The court takes a two-stage approach to this question:

Stage 1: To identify the “matters” in respect of which proceedings are brought.

The court considered the claims in dispute, including bribery, unlawful means conspiracy and dishonest assistance. The court found it unnecessary to decide whether the quantification of the Republic's financial claims could be a “matter” in the legal proceedings due to its analysis at the next stage.

Stage 2: To assess whether those matters are “matters” which the parties have agreed are “to be referred to arbitration.”

The Supreme Court found that the Republic's claims did not fall within the scope of the three arbitration clauses under consideration. The court had regard to what rational businesspeople would contemplate in the use of such clauses. It found that the allegations made by the Republic did not fall within their scope. It also found that the partial defence on quantum advanced by Privinvest — that each supply contract gave something of considerable value which the Republic squandered — did not fall within the scope. The court's analysis set out that where the main claims of the case would be subject to legal proceedings, rational businesspeople would not seek arbitration over a minor factual issue such as the partial defence on quantum. Therefore, the stay of proceedings was overturned and the trial will take place this autumn.

Impact

The ruling provides clarity on the interpretation of Section 9 and under what circumstances a stay in favour of arbitration should be granted. In his judgment, Lord Hodge evaluated a variety of global case law. In turn, it is likely that this Supreme Court decision will be considered by practitioners in other jurisdictions with similar statutory provisions. Furthermore, as demonstrated by this ruling, it cannot be guaranteed that disputes such as bribery claims based around contracts that include arbitration agreements will not be heard in the public courts in certain circumstances. This is despite English and Welsh law's usual encouragement of arbitration and the privacy that likely comes with such proceedings.