The UK Supreme Court’s guidance on applying for a stay under section 9 of the Arbitration Act 1996
In the recent case of Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32, the UK Supreme Court provided important guidance concerning the interpretation and application of section 9 of the Arbitration Act 1996 concerning the mandatory stay of proceedings which are brought in breach of an arbitration agreement. The decision will be of interest to practitioners those who choose London as their seat of arbitration as well as those in jurisdictions with similar statutory provisions. The appeal, stemming from a pre-trial matter in ongoing Commercial Court proceedings, involves the Republic alleging a conspiracy entailing bribery and corruption to secure purported sovereign guarantees of around $2 billion. At the time of writing, the trial is ongoing and is scheduled to last three months.
Factual background
The dispute concerns complex litigation involving the Republic, Privinvest and its affiliates, and London-based banks Credit Suisse and VTB Capital plc. The dispute relates to three transactions concerning special purpose vehicles (SPVs) which are owned by the Republic and which borrowed money to finance purchases related to the Republic’s Exclusive Economic Zone development. The borrowing was secured by sovereign guarantees. The contracts are each governed by Swiss law and contain arbitration agreements. The guarantees, meanwhile, are governed by English law and provide for disputes to be resolved by the English courts.
The Republic alleges it is a victim of a conspiracy involving Privinvest and its owner, Mr. Iskandar Safa. It is alleged that Mr. Safa paid substantial bribes to officials of the Republic and employees of Credit Suisse. The conspiracy allegedly exposed the Republic to a potential liability of approximately US$2 billion under the guarantees. The Republic commenced proceedings for bribery, conspiracy to injure by unlawful means, dishonest assistance, and knowing receipt in the English courts. However, the Privinvest defendants sought a stay of the proceedings under section 9 of the Act on the basis that the subject matter of the action was a matter properly to be decided by arbitration pursuant to the arbitration agreements in the contracts. The preliminary issue for the Commercial Court concerned the scope of the relevant arbitration agreements and whether the matters in the legal proceedings before the English courts were matters which the parties have agreed to send to arbitration.
Section 9 of the Act
The relevant aspects of section 9 of the 1996 Act provides that (i) a party to an arbitration agreement against whom legal proceedings are brought 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 (section 9(1)); and a court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed (section 9(4)).
Judgments of the courts below
Privinest argued that all of the Republic’s claims fell within the arbitration agreements and, as a consequence, a stay should be granted. However, Waksman J dismissed the application and concluded that, except for the ‘Instrument of Fraud Allegation’ of the Republic’s claims, the claims did not fall within the scope of any of the arbitration agreements. He held that there were no “matters” in respect of which the legal proceedings had been brought which were subject to the arbitration agreements and therefore he dismissed Privinvest’ s application for a stay.
The Court of Appeal allowed Privinest’s appeal and granted a stay. Carr LJ recognised the importance and of giving effect to the parties’ agreement to arbitrate and the mandatory nature of the stay if a “matter” fell within the scope of the arbitration agreement. Carr LJ held that there was a sufficient connection between the IFA and each of the causes of action, and the arbitration agreements for those matters to be within the scope of the arbitration agreements.
The Supreme Court decision
Lord Hodge, giving the unanimous decision of the court, held observed that “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.” Drawing on international authorities and practice, Lord Hodge held that section 9 requires a two-step approach which included considering the substantive “matter” raised by the claim, and whether that matter is within the scope of the arbitration agreement. He explained that the court must ascertain the substance of the dispute and not simply consider the pleadings, and must also consider the defences raised. Lord Hodge explained that the “matter” did not need to encompass the whole of the dispute between the parties and, as a consequence, a qualified stay can be obtained. He elaborated that a “matter” is a substantial issue that is legally relevant to a claim or foreseeable defence and is one which is susceptible to be determined by an arbitrator as a discrete issue in dispute. Lord Hodge also explained that ascertaining the relevance of a “matter” is an exercise of common sense and should not be a mechanistic judicial exercise. Following the decision in Lombard North Central plc v GATX [2013] Bus LR 68, Lord Hodge recognised that an application for a stay under section 9 would be refused if a party “could have no real or proper purpose” for requesting that stay.
The judgment provides clarity to a highly important legal and procedural issue in commercial arbitration which has previously been mired in conflicting and somewhat ambiguous decisions of the lower courts. By referring to international arbitration authorities and practice, the Supreme Court was able to find a “general international consensus among the leading jurisdiction on the determination of ‘matters’ which must be referred to arbitration” and, as a consequence, was able to provide the necessary clarity and guidance in the interpretation and application of section 9 which will be of interest and assistance to the wider international commercial arbitration community. (This article was published in New Law Journal on 15 December 2023 and is available here.)
