In Republic of Mozambique v Credit Suisse International and others  EWHC 1709 (Comm) here, the English High Court gave directions to proceed to a hearing of an application for a stay of English court proceedings under s9 of the 1996 Arbitration Act (the “Act“). The court rejected arguments brought by a number of defendants that determination of the s9 application should be deferred until the arbitrators in ongoing Swiss arbitrations had decided the question of jurisdiction. The court considered the effect on those defendants who were not party to the arbitrations and also the realistic timescale of 2.5-3 years before the arbitral proceedings would be completed. Based on that analysis, the court gave directions for the hearing of the s9 application in January 2021.
The underlying dispute relates to supply contracts of various vessels and a shipyard concluded between special purpose vehicle companies (the “SPVs“) established by the Republic of Mozambique (“Mozambique“) and several shipping companies (“Privinvest“). Privinvest subcontracted the performance of the supply contracts. The total sums due under the supply contracts were financed by a number of banks, including Credit Suisse, through loan agreements with the SPVs. Mozambique guaranteed the SPVs’ performance of their respective obligations under the loan agreements by separate sovereign guarantees.
The SPVs did not make payment and Privinvest received payment in full for the contracts directly from Credit Suisse and the other banks. Mozambique accordingly accrued liability under the guarantees. The SPVs initiated arbitration in Switzerland in accordance with the arbitration clauses in the supply contracts. The exact details about and the scope of the Swiss arbitrations were not disclosed in the s9 application due to the confidentiality of the proceedings, but the parties indicated that the arbitrations were expected to conclude in June 2022.
Meanwhile, Mozambique commenced proceedings in the English court against Privinvest and others in its shipping group, the ultimate beneficial owner of that group, the subcontractors to Privinvest, Credit Suisse and a number of Credit Suisse employees. Mozambique alleged that that the supply contracts were one-sided and amounted to “shams” or ”instrument of fraud” and that bribes were paid to certain officials and individuals in Mozambique, and the lead salesman and negotiator of Privinvest. Mozambique claimed that there was a conspiracy to render it liable under the guarantees and that the defendants were jointly and severally liable for damages for that conspiracy. Mozambique also sought declarations regarding the enforceability or validity of one of the guarantees.
Privinvest and the subcontractors (the “Co-Defendants“) applied to the court under s9 of the Act to stay the proceedings commenced by Mozambique. Under s9 of the Act, the court will stay proceedings brought in breach of an arbitration agreement unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. The Co-Defendants argued that the Privinvest entities were parties to the arbitration agreements as set out in the supply contracts, and that (1) as a matter of scope, both forms of arbitration clause covered the claims made by Mozambique in litigation (the “Scope Point“); (2) although the direct contracting parties in the supply contracts were the SPVs, Mozambique was a party to the arbitration agreements as a matter of Swiss law because it was the beneficiary of the underlying contracts; and that (3) the subcontractors, though not parties to the arbitration agreements expressly, could invoke the arbitration clauses under Swiss law because they “interfered with” the contracts in the sense that they performed them.
The Co-Defendants argued that any consideration of the s9 challenges should be deferred until after the arbitrators had decided the question of jurisdiction and that Mozambique’s claims against the Co-Defendants should be stayed. The Credit Suisse parties argued that the claims against them and against the Co-Defendants were inextricably linked and that, if the claims against the Co-Defendants were deferred pending the outcome of the arbitrations, it would not be practical or fair to continue with the claims against the Credit Suisse parties. Mozambique argued that the hearing of the s9 application should proceed.
The Court’s decision
The court referred to the decision of the Court of Appeal in Ahmad Al-Naimi v Islamic Press Agency Incorporated  1 Lloyd’s Law Reports 522 on how the court should approach a section 9 application and to Golden Ocean Group Ltd v Humpuss Intermoda Transportasi TBK Ltd & Anr (“The Barito”)  2 Lloyd’s Rep 421 on the factors to be taken into account when considering whether to defer a hearing of a s9 application pending a decision of an arbitral tribunal. These factors include whether the court’s ruling might cause prejudice to the underlying substantive dispute or the question of arbitrability only, the likely length and cost of the arbitral proceedings, the strength of arguments on the arbitrability issue, the level of connection between the issue of arbitrability and England, and last but not the least, the nature and quality of the arbitral process and the tribunal.
The court considered it important to its analysis that there would be a delay of 2.5-3 years if the s9 challenge were deferred until the end of the arbitrations. Further, the Credit Suisse parties were not parties to those arbitrations. It would not be possible to try the conspiracy claims against the Credit Suisse parties only without the involvement of Co-Defendants as the claims were inextricably linked. A deferral would therefore cause considerable prejudice to the Credit Suisse parties. The court also considered that the issues raised in the s9 application would not prejudice the merits of the arbitrations and that it was well used to applying civil law concepts and principles where issues of Swiss law were relevant to its determination. Finally, it observed that the Co-Defendants considered they had a very strong case on the s9 challenge, which would favour a speedy disposal of the issue rather than deferral. For all of those reasons, the court found an “overwhelming case against the deferral” and thereby rejected it.
The court directed that it would hear arguments based on the Scope Point at the forthcoming procedural hearing because this was a very self-contained point involving the interpretation of the arbitration clauses under Swiss law. All other issues would be left to the trial of the s9 application, scheduled for January 2021.
This judgment illustrates the court’s pragmatic approach in dealing with the procedural issues in s9 challenges under the Act. The court will consider a number of factors in assessing whether or not to defer a s9 application. The English court is highly experienced in dealing with foreign law questions about the validity and scope of arbitration agreements and, as indicated in this judgment, did not consider the application of Swiss law to certain issues raised to be a significant factor in favour of deferral to the arbitral tribunal on this issue. In this instance, while the court noted that it was important not to trespass on the tribunal’s jurisdiction on the substantive issues of the dispute, the need to avoid a lengthy delay and give all parties fair opportunities to present their case weighed heavily in favour of proceeding with hearing the s9 application.
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