UK Supreme Court allows Mozambique bribery suit to proceed

The UK Supreme Court has held that bribery claims brought by Mozambique in a US$2 billion suit against an Abu Dhabi shipbuilder don’t fall within the scope of Swiss-law arbitration agreements – the first time it has ruled on the stay provisions in the Arbitration Act 1996.

In a judgment today delivered by Lord Hodge on behalf of a unanimous five-judge bench, the court found that Mozambique’s allegations against Privinvest and its affiliates were not “matters” falling within the scope of arbitration agreements in a set of supply contracts.

Overturning a 2021 ruling by the Court of Appeal in London, it said Mozambique’s claims of bribery, conspiracy and dishonest assistance did not require the English courts to examine the validity of any of the contracts.

As a team from Brick Court observes, this is the first time the Supreme Court has considered article 9 of the 1996 Act, which governs stays of legal proceedings in favour of arbitration.

The state's lawsuit is listed to be heard at trial by Mr Justice Knowles of the Commercial Court from 2 October. 

Mozambique is represented in the UK courts by Peters & Peters. Nathan Pillow KC of Essex Court led its barrister team for the Supreme Court appeal, while Joe Smouha KC of Essex Court and Jonathan Adkin KC of Serle Court are leading in the litigation before the Commercial Court.

Privinvest is using Signature Litigation in London with trial counsel led by Duncan Matthews KC of Twenty Essex.

Mozambique accuses Privinvest and its ultimate owner, Iskander Safa, of paying bribes worth over US$136 million to corrupt state officials and Credit Suisse bankers. It alleges the bribes were used to procure three contracts with state-owned entities as well as bank loans backed by sovereign guarantees.

The contracts were for the supply of ships, aircraft and infrastructure to promote tuna fishing and gas exploration in Mozambican waters.

The state says it has incurred liabilities of US$2.1 billion because of the alleged fraud, which has become known as the “tuna bonds” scandal. Three former Credit Suisse employees pleaded guilty to US criminal charges over the affair in 2019.

After Mozambique sued Privinvest and others in London in 2019, companies in the group and some of its subcontractors launched a set of ICC and Swiss Rules arbitrations against the state-owned entities, also naming the state as a respondent.  

The shipbuilder then sought a stay of the litigation in favour of arbitration. It was agreed that the English court should assume that as a matter of Swiss law Mozambique and various Privinvest subcontractors were bound by the arbitration agreements despite being non-signatories.

In 2020, Mr Justice Waksman in the Commercial Court ruled as a preliminary issue that the state’s claims were insufficiently connected to the supply contracts to fall within the scope of their arbitration clauses.

This was reversed the following year by the Court of Appeal, which criticised the “fundamental artificiality” of seeking to strip out the question of the contracts’ validity from the litigation.  

While Mozambique’s appeal to the Supreme Court was pending, all the arbitrations were ultimately discontinued last year without any determinations on the merits. The cases were all before the same tribunal consisting of Bernard Hanotiau as chair, Hamid Gharavi and John Beechey. White & Case acted for Mozambique in the arbitrations while German boutique Busse Disputes took over as counsel to Privinvest from Quinn Emanuel. 

In the latest ruling, the Supreme Court considered case law from Hong Kong, Australia, Singapore and the Cayman Islands and said there was a general international consensus in interpreting what constituted a “matter” for arbitration justifying a stay.

It said the court should look at the matters that are likely to be raised in the litigation and whether each of them falls within the scope of the arbitration agreement. He said the court must ascertain the substance of the dispute without being overly respectful to the formulation of the litigation claimant’s pleadings.

The Supreme Court said that a matter did not have to encompass the whole dispute but would be an essential element of or relevant defence to the lawsuit, which could be determined by an arbitrator discretely. It also said the test required the application of “common sense”.

It concluded that Mozambique’s claims would not require consideration of the validity of the underlying contracts and that a defence that the contracts were valid would not be relevant to the question of Privinvest’s liability. The issue would only be relevant to the quantification of loss suffered by Mozambique and “rational businesspeople” would not seek to send such a “subordinate factual issue” to arbitration.

Speaking on behalf of Mozambique, Peters & Peters says today’s judgment validates the state’s decision to bring proceedings against Privinvest and Safa in a public forum.

They add that the state “looks forward to proving its case” in the trial.

Privinvest and Signature Litigation were contacted for comment.

Head of international arbitration at Mishcon de Reya Louis Flannery KC tells GAR this is an “excellent judgment” and that the “result and reasoning look wholly unassailable”.

He comments that Lord Hodge “looked carefully at many Commonwealth authorities, derived support from the pro-arbitration bias adopted in many countries’ courts when examining arbitration agreements, but rightly ended up cutting down the scope of the agreements to exclude large bribery, dishonest assistance, conspiracy claims etc”.

Deborah Ruff, partner at Pillsbury in London, says, the scope of arbitration agreements is a “common source of disputes” and welcomes the Supreme Court’s “clear guidance”.

She says it is notable that the pro-arbitration approach in England and Wales “does not extend so far as to require the referral to arbitration of every dispute that has a tangential connection with an agreement containing an arbitration clause. The courts must have regard to the substance of the dispute between the parties.”

Senior legal researcher Helen Taylor of legal charity Spotlight on Corruption says that the ruling is a “major win for Mozambique” since it allows their claims to be heard “in a public trial in London rather than the secrecy of Swiss arbitration”.

She adds: “Open justice is absolutely essential in this case given the overwhelming public interest in ensuring there is proper scrutiny of a corruption scandal that has left the Mozambican people on the hook for billions of dollars.”

Privinvest and the other defendants have denied Mozambique’s allegations against them. Credit Suisse has admitted that improper payments were made to its former employees and has brought claims of its own against Privinvest and others.

Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2021] UKSC 32

Before the UK Supreme Court

Bench

• Lord Hodge
• Lord Lloyd-Jones
• Lord Hamblen
• Lord Leggatt
• Lord Richards

Counsel for Mozambique

• Peters & Peters

Partners Emma Ruane, Keith Oliver, Sarah Gabriel and Jason Woodland in London

• Nathan Pillow KC of Essex Court Chambers
• Richard Blakeley of Brick Court Chambers
• Ryan Ferro of 3 Verulam Buildings

Counsel for Privinvest companies

• Signature Litigation

Partners Tom Snelling and Neil Newing in London

• Duncan Matthews KC of Twenty Essex
• Ben Woolgar and Frederick Wilmot-Smith of Brick Court Chambers

In the Court of Appeal of England and Wales

• Lord Justice Henderson
• Lord Justice Singh
• Lady Justice Carr DBE

Counsel to the Republic of Mozambique (acting through its Attorney General)

• Nathan Pillow KC of Essex Court Chambers
• Richard Blakeley of Brick Court Chambers
• Ryan Ferro of 3VB
• Peters & Peters Solicitors

Partners Keith Oliver and Sarah Gabriel in London

Counsel to the Privinvest companies

• Duncan Matthews KC of Twenty Essex
• Ben Woolgar and Frederick Wilmot-Smith of Brick Court Chambers
• Signature Litigation

Partners Graham Huntley and Tom Snelling and counsel Neil Newing in London

Expert witnesses on Swiss law

• Sébastien Besson of Levy Kaufman-Kohler (for Privinvest)
• Corinne Widmer Lüchinger of the University of Basel (for Mozambique)

In the ICC/Swiss Chambers arbitrations

Tribunal

• Bernard Hanotiau (chair)
• Hamid Gharavi
• John Beechey

Counsel to the Privinvest companies

• Busse Disputes

Partner Daniel Busse, counsel Sven Lange and Sibylle Herberg, senior associates Allison Torline and Manuela Doughan, associate Daniel Wisehart* and foreign associate David Cambridge in Frankfurt

*Now at Dentons

Counsel to Mozambique

• White & Case

Partners Charles Balmain and Swati Tripathi in London, Andrew McDougall QC in Paris, Jorge Mattamouros in Houston and Alexandre Mazuranic in Geneva

Counsel to the Mozambican state entities - Proindicus, Empresa Moçambicana de Atum (Ematum) and Mozambique Asset Management (MAM)

Not disclosed