In the landmark case of the Republic of Mozambique v Privinvest Shipbuilding SAL and others, the Supreme Court handed down an important judgment clarifying the proper approach to applications under Section 9 of the Arbitration Act 1996 (the Act). It concluded that Mozambique’s claims were not ‘matters’ falling within the scope of the arbitration agreements and accordingly, that the claims brought in the English court will not be stayed and could proceed to trial.
This is the first time that the Supreme Court has considered the interpretation and application of the stay provisions of Section 9 of the Act.
The Law
Arbitration is an alternative course of action from court litigation for resolving commercial disputes. Where court proceedings are brought against a party to an arbitration agreement, in respect of a matter that is to be referred to arbitration in accordance with that agreement, a party can apply to the court under Section 9(3) of the Act for a stay of proceedings.
A court’s stay of proceedings is a ruling that stops or suspends a trial temporarily or indefinitely.
Background
The Supreme Court’s judgment stems from the ongoing ‘tuna bonds’ litigation before the commercial court. This concerned claims by Mozambique against Privinvest Shipbuilding (and other defendants) relating to a $2 billion (US dollars) fraud allegedly committed by the defendants. Mozambique contended that it was a victim of several economic torts, including bribery and conspiracy, as a result of the defendants’ conduct.
The Privinvest defendants, a sub-group of the defendants, argued that Mozambique’s claims were ‘matters’ falling within the scope of arbitration agreements in Swiss-law governed supply contracts between the Privinvest Defendants and three Mozambique companies wholly owned by Mozambique.
Although Mozambique was not a party to these supply agreements, the defendants contended that it was bound by the arbitration agreements in these supply agreements. They therefore applied for a mandatory stay of proceedings under Section 9 of the Act.
The question for the court revolved around the interpretation of a ‘matter’ under Section 9 of the Act. In the first instance, the High Court agreed with Mozambique’s argument that the claims in the substantive litigation were not within the scope of the arbitration agreements and that, as a result, the stay should be refused. However, the Court of Appeal overturned that decision, finding that a possible defence to Mozambique’s claims, as to the validity of the supply contract, created a sufficient connection between the scope of the arbitration agreements. The stay sought by Privinvest was therefore granted.
Mozambique appealed to the Supreme Court.
The Supreme Court’s Decision
The Supreme Court unanimously overturned the Court of Appeal’s decision, finding that Mozambique’s claim did not fall within the scope of the arbitration agreements. Therefore, the English courts will hear the claims rather than them being privately heard by an arbitral tribunal.
In reaching this decision, the Supreme Court held that Section 9 of the Act encompasses a two-stage approach. First, the court needs to identify the matter or matters in respect of which the legal proceedings are brought. Second, the court must establish whether the matter or matters fall within the scope of the arbitration agreement.
The Supreme Court also noted that the following points should be taken into account:
- the substance of the dispute or disputes between the parties should be ascertained by looking at the claimant’s pleadings and any foreseeable defence
- the ‘matter’ need not encompass the whole dispute between the parties
- a ‘matter’ is a substantial issue that is legally relevant to a claim or defence, or a foreseeable defence. However, if the ‘matter’ is not an essential element of the claim or is incidental to the subject matter of the legal proceedings, then it is not a matter in respect of which the legal proceedings are brought and does not, therefore, require a stay
- whether a particular issue constitutes a ‘matter’ for the purposes of Section 9 is a question of judgment and involves applying common sense. The court should evaluate whether an issue is reasonably substantial and whether it is relevant to the outcome of the proceedings of which a party seeks a stay whether in whole or in part
- when addressing the second stage of the test, the court should have regard to the context in which the ‘matter’ arises in the legal proceedings
Key Points
The Supreme Court’s analysis provides helpful guidance as to what might be considered a ‘matter’ for the purposes of Section 9. Of course, the decision is fact-specific, but it does serve as an important reminder that disputes such as bribery claims and other claims of a similar nature based around contracts that include arbitration agreements will not necessarily be determined in the generally private forum of arbitration, especially where there are multiple parties and agreements involved. This is in spite of the law’s usual encouragement of arbitration and the privacy that likely comes with such proceedings.
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