Case Digest: Mozambique v Privinvest Shipbuilding SAL (Holding) [2025] EWCA Civ 198

<center><span class="news-text_italic-underline">Judgment Date: 20 September 2023</span></center>

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Summary

The English Court of Appeal ruled that claims for bribery, conspiracy and fraud, arising from loans and guarantees linked to supply contracts, did not fall within the scope of the Swiss arbitration clauses contained in those contracts. As a result, the proceedings were not stayed under Section 9 of the <span class="news-text_italic-underline">Arbitration Act 1996</span>, which allows a court to stay proceedings if they are subject to an arbitration agreement.

Abstract

The Republic of Mozambique (“<span class="news-text_medium">M</span>”) appealed a decision that its claims against Privinvest Shipbuilding SAL (“<span class="news-text_medium">P</span>”) for bribery, conspiracy to injure by unlawful means, dishonest assistance and fraud - arising from loans and guarantees associated with supply contracts - fell within the scope of the Swiss arbitration clauses contained in those contracts. M argued that it had been the victim of a conspiracy involving P, which allegedly involved the payment of bribes and other illicit activities, leading to potential liability under sovereign guarantees signed by M's Finance Minister.

In 2018, the US Department of Justice initiated criminal proceedings against employees of Credit Suisse, acknowledging improper payments, including bribes to M's officials. In response, P applied for a mandatory stay of the legal proceedings under Section 9 of the <span class="news-text_italic-underline">Arbitration Act 1996</span>, arguing that the arbitration clauses in the supply contracts covered M’s claims. The Court of Appeal, in a preliminary ruling, found that M’s allegations were sufficiently connected to the supply contracts, such that the claims fell within the scope of the three arbitration agreements and should be stayed.

The main issues addressed by the Court of Appeal were:

1. <span class="news-text_medium">Scope of the Arbitration Agreement:</span> Whether the claims for bribery, conspiracy and fraud, which were largely non-contractual, could be covered by the Swiss arbitration clauses in the supply contracts.
2. <span class="news-text_medium">Section 9 of the Arbitration Act 1996:</span> Whether the court should stay proceedings under Section 9, which compels parties to resolve their disputes through arbitration if the dispute falls within the scope of an arbitration agreement.

Held

The appeal was allowed, with the Court of Appeal ruling that the claims did not fall within the scope of the arbitration agreements and that the proceedings should not be stayed under Section 9. The Court made several key observations:

1. The Court clarified that the claims of bribery, conspiracy and fraud related to the supply contracts did not require an examination of the contracts themselves. The claims were based on the unlawful actions of the parties involved, rather than on the validity of the supply contracts.
2. The Court rejected the argument that the legal proceedings were part of the same contractual dispute, highlighting that the claims for fraud, conspiracy and bribery were separate legal issues and not merely connected to the supply contracts.
3. The Court found that the question of whether the supply contracts had given value to Mozambique was a subordinate factual issue not connected to the core legal claims of fraud or bribery. As such, there was no need to bifurcate the dispute and refer the damages issue to arbitration.
4. The Court determined that the arbitration agreements did not extend to the legal claims of fraud and conspiracy, which were based on allegations of unlawful actions, rather than on the validity of the contracts themselves. The Court stated that the scope of the arbitration agreement should not be broadly construed to cover unrelated allegations of criminal conduct.

Key Practical Takeaways:

1. <span class="news-text_medium">Scope of Arbitration Clauses:</span> The case reinforces that arbitration agreements should be interpreted in the context of the dispute at hand, with clear consideration of the distinction between contractual and non-contractual claims.
2. <span class="news-text_medium">Separate Claims:</span> The Court clarified that claims of fraud, bribery and conspiracy could not be compelled to arbitration if they were not closely tied to the underlying contract.
3. <span class="news-text_medium">No Automatic Stay:</span> A stay under Section 9 of the <span class="news-text_italic-underline">Arbitration Act 1996</span> is not automatic; the court must assess whether the claims fall within the scope of the arbitration agreement and whether staying the proceedings is appropriate.

In conclusion, the Court of Appeal’s decision in <span class="news-text_italic-underline">Mozambique v Privinvest Shipbuilding SAL (Holding)</span> underscores the importance of clearly delineating the scope of arbitration agreements and ensuring that non-contractual claims, such as fraud and bribery, are not automatically subjected to arbitration unless explicitly covered by the agreement.