Republic of Mozambique (acting through its Attorney General) v Privinvest Shipbuilding SAL (Holding) and others

On an application under section 9 of the Arbitration Act 1996, the court first identifies the matters raised, or foreseeably to be raised, in the proceedings. It then decides whether each matter falls within the arbitration agreement.

A matter is a substantial issue which is legally relevant to a claim or defence and can be determined as a discrete dispute. It must be more than a peripheral issue which may arise for decision. The court examines the substance of the dispute, foreseeable defences and the context in which each issue arises. Construction of the arbitration agreement requires practical common sense. A subordinate dispute about quantum does not fall within an arbitration clause merely because performance of the underlying contract affects the damages claimed.

The Republic of Mozambique alleged that Privinvest, Credit Suisse personnel and Mozambican officials participated in bribery and a conspiracy connected with three supply transactions. Special purpose vehicles owned by the Republic entered supply contracts containing Swiss arbitration agreements. Loans financing those contracts were supported by purported sovereign guarantees governed by English law and subject to English jurisdiction clauses.

Privinvest sought a mandatory stay under section 9 of the Arbitration Act 1996. Waksman J dismissed the applications in [2020] EWHC 2012 (Comm). The Court of Appeal allowed Privinvest's appeal in [2021] EWCA Civ 329, holding that all the Republic's claims fell within the arbitration agreements because the validity and commerciality of the supply contracts would arise in Privinvest's defence.

The Republic ceased pursuing allegations that the supply contracts were instruments of fraud or shams. The central questions were how a court identifies a “matter” under section 9 and whether the surviving liability claims, or a partial defence concerning the value supplied and quantum of loss, fell within the arbitration agreements.

1. The appeal was allowed unanimously. Lord Hodge gave the judgment, with which Lord Lloyd-Jones, Lord Hamblen, Lord Leggatt and Lord Richards agreed. The surviving claims and Privinvest's partial defence on quantum did not require a stay under section 9 of the Arbitration Act 1996.

2. Section 9 requires a two-stage inquiry. First, the court identifies the matters raised, or reasonably foreseeable, in the legal proceedings. Secondly, it determines whether each matter falls within the arbitration agreement on its true construction. The court examines the substance of the pleadings and any pleaded, skeletal or reasonably foreseeable defence. Artificial pleading cannot circumvent an agreement to arbitrate.

3. A “matter” is a reasonably substantial issue which is legally relevant to a claim or defence and is susceptible to determination by an arbitrator as a discrete dispute. It need not encompass the whole proceedings because section 9 permits a pro tanto stay. It must nevertheless be more than a peripheral or tangential issue which merely might arise for decision. The assessment calls for judgment and practical common sense. To the extent that Sodzawiczny v Ruhan [2018] EWHC 1908 (Comm) suggested that identifying any issue within an arbitration clause was sufficient, its summary was erroneous.

4. At the second stage, the court considers both the true nature of the matter and the context in which it arises. Broad arbitration language and the pro-arbitration principle reflect the likely intention that disputes arising from a contractual relationship should be resolved in one forum. They do not justify sending to arbitration a subordinate factual issue which rational businesspeople would not have intended to separate from non-arbitrable claims.

5. The validity and commerciality of the supply contracts were not essential elements of, or relevant defences to, the surviving claims for bribery, unlawful means conspiracy and dishonest assistance. Those matters affected, at most, the quantification of loss beyond the alleged bribes. The Court of Appeal therefore erred by treating validity and commerciality as substantial matters without asking whether they were essential to a relevant defence.

6. The court left open whether a dispute solely about quantification could itself be a “matter” at the first stage. Even assuming that it could, the partial defence that valuable goods and services had been supplied did not fall within the arbitration agreements in the context of legal liability claims outside their scope. There was accordingly no partial stay. The court further observed that a party may lack entitlement to a stay where it has no real or proper purpose for seeking arbitration, although that issue did not determine the appeal.

1. United Kingdom Supreme Court: In [2023] UKSC 32, unanimously allowed the Republic's appeal and held that no section 9 stay should be granted for the surviving claims or the partial defence on quantum.

2. Court of Appeal: In [2021] EWCA Civ 329, allowed Privinvest's appeal and declared that all the Republic's claims fell within the arbitration agreements.

3. High Court, Commercial Court: In [2020] EWHC 2012 (Comm), Waksman J dismissed the applications for a mandatory stay under section 9 of the Arbitration Act 1996 and the associated case-management applications.