The Republic of Mozambique (Acting through its AG) v Privinvest Shipbuilding Sal (Holdings) and others  EWCA Civ 329
Today, the Court of Appeal (Carr LJ, with whom Henderson and Singh LJJ agreed) has reversed a decision regarding the Scope of Arbitration agreements (“the Scope Application”) in a multi-party, high value litigation involving issues of bribery and sovereign guarantees. The case clarifies the stance on the scope of arbitration agreements in a stay of proceedings application pursuant to s. 9 of the Arbitration Act 1996.
The dispute concerns three transactions concluded between Republic of Mozambique SPVs and Privinvest entities for the supply of vessels and other systems to enable the Republic to assert sovereignty over and generate revenue from its offshore exclusive economic zone and other natural resources. The payment obligations of the SPVs in the supply contracts were backed by loans which were guaranteed by the Republic.
The Privinvest companies contend that the Supply Contracts were performed fully by them save to the extent prevented by the Republic. The Republic contend that the transactions were shams, procured by unlawful payments. These claims are denied by Privinvest.
This substantial litigation is set to continue for some time, embroiling these parties in addition to the Lenders under the Loans and individuals working at the time for the Lenders. Part 20 claims have also been issued and are in the process of being served in relation to individuals including beneficiaries of payments said to be unlawful.
The hearing in question dealt with the scope of the arbitration agreements and whether they encompassed the claims in the litigation.
The Appellants, the Privinvest companies, contended that the claims against them in the litigation should be stayed under s. 9 in favour of Swiss Arbitrations. They reasoned that the claims were within the scope of arbitration agreements contained in the Supply Contracts to which they were parties.
The Republic denied that the claims were within the scope of the Arbitration Agreements. They also contend that it and some of the Privinvest companies were not party to the arbitration agreements in the first place, but that issue remains to be determined.
In July 2020, Waksman J handed down a decision which determined the Scope Application in favour of the Republic. The Court of Appeal has reversed that decision.
Court of Appeal decision
The Court of Appeal confirmed the two stage test (derived from Popplewell J in Sodzawiczny and the Singapore Court of Appeal in Tomolugen). The first stage is to identify the matter and secondly to decide if the parties have agreed the matter can only be arbitrated. The Court of Appeal however recognised that the considerations may overlap and it may be convenient to consider the questions together.
The Court of Appeal acknowledged that the Republic could not artificially manipulate the way it sought to bring its claims so as to focus on the Guarantees to the exclusion of the Supply Contracts. The focus appeared to be an attempt to bring the claims outside the scope of the Supply Contract arbitration agreements, when the allegation of corruption was in reality directed in an undifferentiated way at the suite of contracts (Supply Contract, loans and guarantees).
The Court of Appeal also recognised the need to take account not only of the claims but also of likely defences. It reasoned that the defences to any allegations of corruption in relation to the Guarantees would inevitably or at least foreseeably encompass a staunch defence of the legitimacy of the Supply Contracts from which everything else would flow.
The Judgment emphasised that this was an appeal by way of review and not a rehearing. Accordingly, the position had to be assessed by reference to the position before the Judge at the time of his decision, not in light of the subsequent amendments to pleadings made by the Republic which sought to further distance their claims from the Supply Contracts. There was additional emphasis that the focus was on substance not form and as such the amendments to the pleadings could not alter the outcome where there was no change to the substance of the claims.
The Court of Appeal also agreed that the English Court would respect the sanctity of the parties’ agreement and give full effect to any arbitration agreement which was invoked, even though this may have particularly acute and unwelcome case management implications.
As Carr LJ records in her concluding remarks, it now remains to be seen whether the Republic and some of the Privinvest companies are indeed party to the arbitration agreements.
Duncan Matthews QC (who was not instructed below) was instructed by Signature Litigation LLP (Graham Huntley, Tom Snelling and Neil Newing) to act for the Appellants, the Privinvest companies. Ben Woolgar and Frederick Wilmot-Smith, both at Brick Court Chambers, were also instructed on the counsel team for the Appeal.