Supreme Court Guidance on Staying Proceedings Under S.9 of Arbitration Act

The Supreme Court has clarified when proceedings can and cannot be stayed in arbitration proceedings, in a first-of-its-kind decision about the meaning of section 9 of the Arbitration Act 1996.

Complex litigation is ongoing between the Republic of Mozambique (the Republic) and Credit Suisse International and Privinvest Shipbuilding entities (Privinvest). The substantial proceedings began in February 2019 in which the Republic is bringing claims for bribery, conspiracy to injure by unlawful means, dishonest assistance, and knowing receipt and proprietary claims.

The allegations concern a $2 billion corruption scandal accusing Privinvest of bribing Credit Suisse bankers into fraudulent loans and bond issues, which eventually led Mozambique into a financial crisis. The 3-month trial is due to begin in a few weeks, in October 2023.

Before the trial begins, the Supreme Court was asked to rule on a preliminary point. Privinvest contended that the Republic’s claims against it fall within the arbitration agreements contained in the supply contracts. With that being the case, Privinvest says it is entitled it to a mandatory stay of the legal proceedings under section 9 of the Arbitration Act 1996.

At first instance^[1], the High Court agreed with the Republic’s argument that the claims in the substantive litigation were not within the scope of the arbitration agreements, and so the stay should be refused.

The Court of Appeal overturned that decision^[2] and said that the entire claim was due to be arbitrated because Privinvest’s defence to the liability could be an arbitral matter.

The Supreme Court decision^[3] reverts to the outcome at first instance, determining that the claims will be heard in the English courts rather than in arbitration in Switzerland.

A ‘matter’ of interpretation

The decision revolves around the interpretation of a ‘matter’ under section 9 of the Arbitration Act 1996.

Section 9(1) allows a party to stay legal proceedings if a matter under the agreement is to be referred to arbitration. Pursuant to section 9(4), the court will grant the stay unless the arbitration agreement is null and void.

The exact wording is:

s. 9(1) 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.

s. 9(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.

In the Court of Appeal, Carr LJ clarified that a “matter” is not the same as a cause of action and that section 9(4) of the Arbitration Act 1996 allowed for a pro tanto stay. A “matter”, she stated “includes any issue capable of constituting a dispute under the relevant arbitration agreement.”

With that in mind, the Court considered the Republic’s claims and foreseeable defences. Carr LJ thought that the Republic was trying to bring its claims outside of the supply contracts in an artificial way. Her view was that the allegations of corruption were directed at the suite of contracts, which included the supply contracts containing the agreement to arbitrate. The foreseeable defences included the validity and genuineness of the supply contracts.

General international consensus

Lord Hodge’s view in the Supreme Court decision was there is now a general international consensus among the leading jurisdictions involved in international arbitration in the common law world which are signatories of the New York Convention on the determination of “matters” which must be referred to arbitration:

1. Adopt a two stage process:
   1. Identify the matters which the parties have raised in the court proceedings.
   2. Determine whether it falls within the scope of the arbitration agreement.
2. The “matter” need not encompass the whole of the dispute between the parties.
3. A “matter” is a substantial issue that is legally relevant to a claim or a defence in the legal proceedings, and is susceptible to be determined by an arbitrator as a discrete dispute.
4. The exercise for evaluation the substance and relevance of the “matter” requires a question of judgment and the application of common sense, rather than a mechanistic exercise.

Were the ‘matters’ in scope?

In first instance, Wakling J held that the Republic’s claims in (i) bribery, (ii) dishonest assistance (iii) knowing receipt and (iv) unlawful means conspiracy did not fall within the scope of any of the arbitration agreements. He considered that the disputes within and arising from the Republic’s claims did not have a sufficient connection with the individual supply contracts.

The Supreme Court agreed. In relation to these claims, Lord Hodge held that it did not require an examination of the validity of any of the supply contracts.

Accordingly the Supreme Court allowed for the trial to be heard in the courts of England and Wales.

Summary

While the English law continues to adopt a pro arbitration approach, when it comes to section 9 of the Arbitration Act 1996 and staying proceedings, there is now a clear test to guide the decision.

It is likely that the court will still stay proceedings if the court proceedings involve resolution of any issue which falls within the scope of the arbitration agreement between the parties. But when the issues fall outside of scope, court proceedings may continue.

Sources:

1. The Republic of Mozambique v Credit Suisse International & Ors [2020] EWHC 2012 (Comm)
2. [2021] EWCA Civ 329
3. The Republic of Mozambique (acting through its Attorney General) v Privinvest Shipbuilding SAL (Holding) & Ors [2023] EWHC 2215 (Comm)