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UK Supreme Court rules Mozambique Tuna Bonds case can be tried in England

Head of Dispute Resolution Robin Henry comments on the UK Supreme Court’s ruling for the Mozambique Tuna Bonds case.

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Published 21 September 2023

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On 20 September 2023, the UK Supreme Court (“UKSC”) handed down a significant judgment in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32 (aka the “Tuna Bonds” case). The judgment concerns the question of whether claims brought in the English court by Mozambique against a number of defendants (the “Privinvest” companies) should be stayed in favour of arbitration in Switzerland under section 9 of the Arbitration Act 1996 (which gives effect to Article II(3) of the New York Convention).

The background is a US$2 billion claim in which it is alleged that bribes were paid to facilitate Mozambique’s entry into guarantees of bank financing of supply contracts for the development of Mozambique’s tuna fishing industry and gas resources.

The UKSC had to decide whether Mozambique’s proceedings under the English law guarantees should be stayed in favour of arbitration dictated by the Swiss law contracts. This involved a consideration of whether, under s.9, Mozambique’s claims were “matters” which the parties would raise in the court proceedings and whether those matters fell within the scope of the arbitration agreements between the parties.

The UKSC held that none of Mozambique’s claims were “matters” which fell within the scope of the arbitration agreements. The Court found that “a “matter” was a substantial issue that is legally relevant to a claim or a defence, or foreseeable defence, in the legal proceedings”. The Court found that Mozambique, in seeking damages from entering into the guarantees, was asserting that it did not get value for the obligations it had entered into and in considering its claims of bribery and fraud, it would not be necessary to examine the validity of the supply contracts. A defence that the contracts were valid would not affect the defendants’ liability and so would not be a “matter” for the purposes of s.9 of the Arbitration Act.

The only partial defence which would arise as a result of the validity of the contracts affected the quantification of Mozambique’s claim. However, the Court held that s.9 had to be applied with common sense. Regard had to be given to the fact that rational businesspeople were likely to intend that any disputes arising out of their contractual relationship should be decided by the same tribunal. Since the arbitration agreements clearly did not extend to the issue of the defendants’ liability for Mozambique’s allegations, rational businesspeople would not seek to have the issue of quantification alone sent to arbitration.

The judgment is significant not only for clarifying s.9 under English law but also for other common law signatories to the New York Convention because, following a review of several jurisdictions’ case law, the Court found a “general international consensus” on the determination of “matters” which must be referred to arbitration”.

For more information, visit our Commercial Litigation page.

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Longer Reads

UK Supreme Court rules Mozambique Tuna Bonds case can be tried in England

Head of Dispute Resolution Robin Henry comments on the UK Supreme Court’s ruling for the Mozambique Tuna Bonds case.

Published 21 September 2023

Associated sectors / services

Authors

On 20 September 2023, the UK Supreme Court (“UKSC”) handed down a significant judgment in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32 (aka the “Tuna Bonds” case). The judgment concerns the question of whether claims brought in the English court by Mozambique against a number of defendants (the “Privinvest” companies) should be stayed in favour of arbitration in Switzerland under section 9 of the Arbitration Act 1996 (which gives effect to Article II(3) of the New York Convention).

The background is a US$2 billion claim in which it is alleged that bribes were paid to facilitate Mozambique’s entry into guarantees of bank financing of supply contracts for the development of Mozambique’s tuna fishing industry and gas resources.

The UKSC had to decide whether Mozambique’s proceedings under the English law guarantees should be stayed in favour of arbitration dictated by the Swiss law contracts. This involved a consideration of whether, under s.9, Mozambique’s claims were “matters” which the parties would raise in the court proceedings and whether those matters fell within the scope of the arbitration agreements between the parties.

The UKSC held that none of Mozambique’s claims were “matters” which fell within the scope of the arbitration agreements. The Court found that “a “matter” was a substantial issue that is legally relevant to a claim or a defence, or foreseeable defence, in the legal proceedings”. The Court found that Mozambique, in seeking damages from entering into the guarantees, was asserting that it did not get value for the obligations it had entered into and in considering its claims of bribery and fraud, it would not be necessary to examine the validity of the supply contracts. A defence that the contracts were valid would not affect the defendants’ liability and so would not be a “matter” for the purposes of s.9 of the Arbitration Act.

The only partial defence which would arise as a result of the validity of the contracts affected the quantification of Mozambique’s claim. However, the Court held that s.9 had to be applied with common sense. Regard had to be given to the fact that rational businesspeople were likely to intend that any disputes arising out of their contractual relationship should be decided by the same tribunal. Since the arbitration agreements clearly did not extend to the issue of the defendants’ liability for Mozambique’s allegations, rational businesspeople would not seek to have the issue of quantification alone sent to arbitration.

The judgment is significant not only for clarifying s.9 under English law but also for other common law signatories to the New York Convention because, following a review of several jurisdictions’ case law, the Court found a “general international consensus” on the determination of “matters” which must be referred to arbitration”.

For more information, visit our Commercial Litigation page.

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