In Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others  EWHC 2816 (Comm), the English High Court granted an anti-suit injunction (an ASI) to restrain Russian court proceedings brought by sanctioned counterparties. The Russian proceedings were brought in breach of a London seated LCIA arbitration clause, with the intention to benefit from the Russian law which allows the Russian courts to take exclusive jurisdiction over cases which involve sanctions. The English Court also granted an anti-anti-suit injunction (an AASI) to restrain the sanctioned entities from seeking countermeasures before the Russian court. This decision illustrates the importance of ASIs and AASIs as tools to try to ensure that arbitration agreements are enforced. This judgment follows hot on the heels of applications for ASIs in the English courts brought (with mixed success) by Deutsche Bank, Commerzbank and Unicredit respectively (see our blogpost here), as well as an interim ASI obtained by a German contractor, Linde from the Hong Kong courts pending an HKIAC arbitration (see our blogpost here).
Tag: Liz Kantor
The Law Society of England and Wales has recently launched a new initiative to highlight the attractions of English law and of England and Wales as a leading international legal centre, with key benefits including an independent judiciary, reliable courts and predictable outcomes.
Its International Data Insights Report 2023: Global Position of English Law is intended to be the first in a series of annual publications capturing the value that English law brings to the UK’s economy and evaluating the position of London’s courts and arbitration centres compared to competing bodies in other jurisdictions.
The King’s speech, which was delivered today (7 November 2023), confirmed that Parliament will consider the Law Commission’s recommendations for the reform of the Arbitration Act 1996 (the Act) in the forthcoming parliamentary session.
In Republic of Mozambique v Privinvest Shipbuilding SAL and others  UKSC 32, the Supreme Court has unanimously found the Republic of Mozambique (Mozambique)’s claims for, among other things, bribery, conspiracy and dishonest assistance against the defendants to be “matters” which fall outside the scope of the arbitration agreements in a number of related supply contracts, for the purposes of section 9 of the Arbitration Act 1996 (the Act). Accordingly, the claims brought in the English court will not be stayed and can proceed to trial.
This is the first time that the interpretation and application of the stay provisions of s9 of the Act have been considered by the Supreme Court.
The underlying dispute concerns three supply contracts for maritime projects developing Mozambique’s exclusive economic zone (the supply contracts). Mozambique established three Special Purpose Vehicles (SPVs) which entered into the supply contracts with several shipping companies (Privinvest). Each of these supply contracts was governed by Swiss law and contained Swiss-seated arbitration clauses.
Privinvest subcontracted its performance of the supply contracts. The SPVs took out loans and bonds from several banks (the loan agreements) to finance the sums they owed under the supply contracts. Mozambique guaranteed the SPVs’ performance of their obligations under the loan agreements by providing sovereign guarantees to the banks. The loan agreements and the guarantees were governed by English law and provided for the exclusive jurisdiction of the English courts.
Mozambique commenced proceedings in the English court against Privinvest and others in 2019 claiming it is a victim of a conspiracy by the defendants and alleging that Privinvest and its owner paid bribes to state and bank officials to procure the supply contracts and the loan agreements which were backed by the guarantees. Mozambique claimed that it had incurred c.$2 billion of liability under the guarantees due to these alleged actions. In response, Privinvest and its subcontractors commenced arbitrations against the SPVs and Mozambique under the supply contracts. Privinvest also made an application under s9 of the Act for a stay of the English court proceedings in favour of arbitration. The key issue was therefore whether the matters in the legal proceedings Mozambique brought before the English court were matters which the parties agreed to arbitrate within the scope of the arbitration clauses in the supply contracts.
The subcontractors (co-claimants in the arbitration) and Mozambique (co-respondents) were non-signatories to the supply contracts. However, the parties agreed that the English court was to decide the s9 application on the assumption that, as a matter of Swiss law (being the law of the arbitration agreements in the supply contracts), the non-signatories were bound by those arbitration agreements.
The High Court dismissed the stay applications under s9 of the Act, finding that Mozambique’s claims were not sufficiently linked to the supply contracts and there were no “matters” in respect of which those legal proceedings had been brought which fell within the scope of the arbitration clauses. This position was overturned by the Court of Appeal which considered the validity of the supply contracts to be a part of the dispute before it and that the dispute therefore fell within the scope of the arbitration agreements in the supply contracts.
The Supreme Court’s decision
Section 9 of the Act states that ” A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter” (emphasis added).
In considering the appeal, the Supreme Court reviewed the jurisprudence in relation to s9 and other similarly worded statutory provisions in other leading arbitral seats including Hong Kong, Australia and Singapore (recognising in particular that this was appropriate when the text of a legislative provision had its roots in an international convention, in this case the New York Convention 1958). It then summarised the consensus position on the determination of “matters” which must be referred to arbitration, as follows:
- S9 involves a two-stage approach. First, the court must identify the matter or matters in respect of which the legal proceedings are brought. Second, the court must ascertain whether the matter or matters fall within the scope of the arbitration agreement.
- In carrying out this exercise, the court must ascertain the substance of the dispute or disputes between the parties, looking at the claimant’s pleadings and foreseeable defences. However, the “matter” need not encompass the whole dispute between the parties.
- A “matter” is a substantial issue that is legally relevant to a claim or defence, or foreseeable defence. If the “matter” is not an essential element of the claim or is peripheral or tangential to the subject matter of the legal proceedings, then it is not a matter in respect of which the legal proceedings are brought and does not, therefore, require a stay.
- The evaluation of the substance and relevance of the “matter” is a question of judgment and common sense. It is not sufficient merely to identify that an issue is capable of constituting a dispute within the scope of an arbitration agreement without carrying out an evaluation of whether the issue is reasonably substantial and whether it is relevant to the outcome of the legal proceedings of which a party seeks a stay whether in whole or in part.
- On the question of whether the “matter” falls within the scope of the arbitration agreement, the court must have regard not only to the true nature of the matter but also to the context in which the matter arises in the legal proceedings. While it may not yet be a point on which there is international consensus, existing jurisprudence and common sense supported this final point.
Application to this case
Mozambique’s claim involved allegations against Privinvest and others of, amongst other things, payment of bribes, conspiracy to injure Mozambique, unlawful means conspiracy, dishonest assistance and knowing receipt. In essence, Mozambique claimed that it did not get value for money from the guarantees. The Supreme Court noted that Mozambique, having withdrawn certain of its claims, did not challenge the validity of the supply contracts.
The Supreme Court assessed each of the grounds of claim, alongside Privinvest’s defences, in turn. It found that it was not necessary for the court to examine the validity of the supply contracts in order to assess Mozambique’s claims in the proceedings. The validity and genuineness of the supply contracts were not an essential part of Privinvest’s defence to Mozambique’s claims and the question of Privinvest’s knowledge of providing “substandard goods and services at inflated prices” was not an essential part of Mozambique’s claims (and proving the opposite was true was not an essential part of Privinvest’s defence to such claims).
The Supreme Court concluded that the commerciality of the supply contracts or the value for money of those contracts were not “matters” in respect of which the legal proceedings were brought. Accordingly, the claims and defences brought in the legal proceedings were not “matters” which were to be referred to arbitration and a stay under s9 should not be ordered.
Did a partial defence on quantum claimed affect the Supreme Court’s view?
Privinvest argued that the quantification of Mozambique’s claims was, itself, a “matter” in the legal proceedings. Privinvest asserted that it provided valuable goods and services under the supply contracts that Mozambique had “squandered”, and that this value should reduce any damages claimed by Mozambique. The question before the court was whether, under Swiss law, this dispute and Privinvest’s partial defence to the damages claimed was within the scope of the arbitration agreements.
The Supreme Court found that in adopting a common-sense approach to the substance of a commercial dispute, the extent of loss and damage allegedly suffered by the claimant may be a substantial matter which is in dispute between the parties and that in this case, the loss allegedly suffered by Mozambique which arises from the implementation of the supply contracts was a significant part of the commercial dispute between the parties. However, the court found it was unnecessary to decide whether or not this is sufficient to make it a “matter” within the legal proceedings because of the Supreme Court’s interpretation of the scope of each of the three arbitration agreements.
The Supreme Court agreed with the High Court’s view that the existence of multiple different arbitration clauses in each of the supply contracts meant that the parties must have intended that each provision was intended principally only for that particular contract. This “narrow approach” was a “common sense proposition” in a dispute involving many parties and many contracts. Accordingly, the Supreme Court considered that it must have regard to what “rational businesspeople” would think when ascertaining the scope of an arbitration agreement. In this case, the partial defence arose in the context of legal proceedings where the claims advanced were outside the scope of the arbitration agreement, so, in this context, rational businesspeople would not intend or want such a “subordinate factual issue” to be arbitrated. The arbitration agreements must be construed accordingly.
This judgment clarifies the English courts’ approach to determining whether matters fall within the scope of an arbitration agreement for the purposes of a stay under s9 of the Act. It demonstrates that the court will analyse the substance of claims rather than the way they are presented by the parties. If a “matter” is not an essential element of the claim, or relevant defence to that claim, then it is not a “matter” which requires a stay.
A broadly drafted arbitration clause will usually encompass most possible disputes between contracting parties. However, this case highlights the particular challenges which may be presented by fraud or corruption claims, particularly where the factual matrix is broader than the contract containing the arbitration agreement. These claims can raise more substantive jurisdictional issues as to whether or not they fall within the scope of the arbitration clause and the outcome can, as in this dispute, be highly fact and case specific. Parties are advised to be aware of this point and the attendant risk of disputes across more than one forum.
While this is a decision of the Supreme Court of the United Kingdom, the judgment recognises that s9 of the Act has its roots in an international treaty, the New York Convention 1958. The careful consideration of the jurisprudence of other jurisdictions and the Supreme Court’s interpretation and application of similarly worded stay provisions may therefore give this decision a wider international relevance.
This judgment means that the litigation brought by Mozambique against Privinvest and others will now proceed to trial, currently scheduled to start in early October.
For more information, please contact Craig Tevendale, Partner, Hannah Ambrose, Partner, Vanessa Naish, Professional Support Consultant, Liz Kantor, Professional Support Lawyer or your usual HSF contact.
The authors would like to thank Sihame Sebbar for her contribution towards this post
In Viking Trading OU v Louis Dreyfus Suisse SA  EWHC 2160 (Comm) the English Commercial Court clarified its discretionary power to grant costs of defending a s69 application under the English Act (Act) for permission to appeal an arbitral award, even if costs were not initially sought.
This decision provides helpful guidance on best practice for recovering costs in this and other arbitration-related claims.
In SQD v QYP  EWHC 2145 (Comm), the English Commercial Court refused to issue an anti-suit injunction (ASI) and anti-enforcement injunction to stop proceedings commenced by a claimant in its home country in breach of an arbitration agreement. The court reasoned that such an injunction would be inconsistent with the French courts’ approach to ASIs and the parties’ choice of Paris as the seat of arbitration. Continue reading
The Law Commission today published its much anticipated Final Report on the English Arbitration Act (the Act), accompanied by a draft Bill. Although the Law Commission has emphasised that “root and branch reform is not needed or wanted“, the report nonetheless makes several significant recommendations for change and proposes other more minor amendments. The main recommendations are as follows:
- Codifying an arbitrator’s duty of disclosure
- Strengthening arbitrator immunity around resignation and removal
- Introducing a power of summary disposal
- Improving the framework and procedure for challenges under section 67
- Introducing a new rule regarding the governing law of an arbitration agreement
- Clarifying court powers in support of arbitral proceedings and in support of emergency arbitrators
These are discussed and summarised below. It is also noteworthy that the Law Commission has decided not to make any recommendation for reform in certain other areas, including appeals on a point of law, confidentiality and discrimination. This Final Report follows a rigorous and extensive consultation process, which we reported on here and here.
This week the Law Commission published a second Consultation Paper as part of its review of the English Arbitration Act (the Act).
The Paper raises three issues for consultation: (1) how the proper law of the arbitration agreement should be determined under English law; (2) the procedure for jurisdictional challenges before the English court under section 67 of the Act; and (3) tackling discrimination in arbitral appointments and procedure.
Issue (1) was not addressed by the Law Commission in its first Consultation Paper. However, thirty-one responses raised this as something that was in need of review and potential reform. Although issues (2) and (3) were addressed in the first Consultation Paper, the Law Commission’s thinking on these topics has developed following the initial round of responses. As a consequence, it has taken the opportunity to tweak its original proposals and, in the case of issue (3) on discrimination, identify new topics of potential reform. We set out below a summary of the new proposals and questions raised by the Law Commission.
The English High Court has handed down judgment in another case concerning trades on a cryptocurrency exchange. The case of Chechetkin v Payward Ltd and others  EWHC 3057 (Ch) is a further illustration of the procedural and substantive complexity that can arise from arbitrating disputes in a consumer context.
In DHL Project & Chartering Ltd v Gemini Ocean Shipping Co. Ltd  EWCA 1555, the Court of Appeal considered whether an arbitration agreement was binding on the parties in circumstances where a pre-condition to the effectiveness of the contract had not been satisfied. In dismissing the application to set aside the arbitral award for lack of jurisdiction under s67 of the English Act (the Act), the Court provided useful guidance on the correct forum for disputes concerning both the formation of contracts and their validity.