The recent decision of the Supreme Court of the United Kingdom (the final court of appeal in the UK for civil cases) in Republic of Mozambique (acting through its Attorney General) v. Privinvest Shipbuilding SAL (Holding) and others [2023] UKSC 32, is a telling reminder to commercial parties to take care when drafting arbitration agreements.
The Mozambique case
The appeal in this case – arising out of the well-publicised Mozambique “tuna bond” or “hidden debt” allegations involving circa. US$2 billion of bank loans and bonds – was whether certain claims, including alleged bribery/dishonest assistance/unlawful means conspiracy (“Claims”), were “matters” that should be arbitrated in Switzerland in accordance with Swiss law pursuant to the terms of three supply contracts (“Supply Contracts”) alleged to bind Mozambique or instead could be heard in the Commercial Court in London.
At first instance, the Commercial Court found that the Claims were not matters within the scope of the arbitration agreements. The Court of Appeal disagreed, holding that they were within the scope. Five Justices of the Supreme Court have now unanimously overturned the Court of Appeal’s decision.
Why does the decision matter?
The case is important to dispute resolution practitioners as it is thought to be the first time the Supreme Court has considered stays of proceedings under section 9 of the Arbitration Act 1996 and, in particular, the meaning of “matter.”
However, it is an equally important warning to commercial parties that despite the decision being very much “pro-arbitration,” simply having a well-drafted arbitration clause in broad terms in a contract may not guarantee the so-called “one-stop shop” expected in the event of disputes – particularly in complicated transactions where there are a number of contracts and no overarching dispute resolution provision.
Leaving aside the issue of whether Mozambique was in fact a party to the Supply Contracts (not a question before the Supreme Court), a significant factor in the decision was a finding that the Claims did not have a sufficient connection with the Supply Contracts. This was despite the fact that two arbitration clauses provided for the following matters to be arbitrated; “all disputes arising in connection with this Project” and the third “any dispute, controversy or claim arising out of or [in] relation to this contract.”
Although not explicitly approved by the Supreme Court, they did note the statement of the judge in the Commercial Court that:
“The more disparate and disjointed the collection of dispute resolution clauses…the more one should conclude that so far as is consistent with the language of the relevant arbitration clauses, they should be confined to their immediate contractual context.”
In the Mozambique case, the first Supply Contract was – as stated by the judge in the Commercial Court – “for the supply of ships and aircraft and local infrastructure so as to enable Mozambique to police its very extensive coastline and exclusive territorial waters.” The second was for “the supply of a large fishing fleet” and the third was for “the creation of shipyard and related services and further vessels.” Thus, all very different things, even if making up the composite parts of a “project.”
Practical guidance
The terms of the arbitration clauses in the Mozambique case were broad and the disputes were complex. In a two-party one-contract situation, an allegation about a matter such as bribery will – as a matter of English law – likely be caught by a broadly drafted arbitration clause.
However, in more complicated situations with more parties and contracts with very different purposes, simply replicating a clause (even if well drafted) across several contracts may not give the desired result. Careful thought should therefore be given at the contracting stage to the sort of disputes that could arise, however unlikely they may seem; how such disputes could affect the contracts in question and how the parties want those disputes dealt with (including governing law) in an attempt to avoid having a dispute about the correct forum in which to hear the substantive disputes.
Client Alert 2023-242
