Supreme Court finds bribery claim brought by Mozambique against contracting companies did not fall into scope of arbitration agreement

Supreme Court finds bribery claim brought by Mozambique against contracting companies did not fall into scope of arbitration agreement

The Supreme Court has determined that a legal claim brought by the Republic of Mozambique arising from supply contracts entered into by three state-owned corporate vehicles for the development of the country’s exclusive economic zone was not capable of falling within the scope of an arbitration agreement contained in the contracts.

Mozambique had accused the Privinvest group of companies of paying bribes to Mozambique’s officials and exposing it to potential liabilities in excess of 2 billion US dollars. The respondents contended that, as a matter of the governing law of the contract, it was bound by the arbitration agreements and thus sought a stay in proceedings.

The appeal was heard by Lord Hodge, Lord Lloyd-Jones, Lord Hamblen, Lord Leggatt, and Lord Richards. Nathan Pillow KC, Richard Blakeley, and Ryan Ferro appeared for the appellant. Duncan Matthews KC, Ben Woolgar, and Frederick Wilmot-Smith appeared for the respondents.

Victim of conspiracy

Between 2013 and 2014, three special purpose vehicles (SPVs) wholly owned by Mozambique entered into contracts, governed by Swiss law, with companies in the Privinvest group. Funds for the purchase of equipment were borrowed by the SPVs from various banks for which Mozambique granted sovereign guarantees governed by English law. Two of the contracts provide for dispute resolution by arbitration of “all disputes arising in connection with” the relevant project governed by the contract, while the third contract provides for dispute resolution by arbitration of “any dispute, controversy or claim arising out of, or in relation to” the relevant contract.

It was claimed by Mozambique that it was the victim of a conspiracy involving the defendants paying very substantial bribes to corrupt officials of the Republic and employees of Credit Suisse involved in the funding of the transactions. It therefore brought claims for bribery, conspiracy to injure by unlawful means, dishonest assistance, and knowing receipt, and makes proprietary claims.

While Mozambique itself was not a signatory to the contracts, Privinvest contended as a preliminary issue that, as a matter of Swiss law, Mozambique is bound by the arbitration agreements within them. On that basis, Privinvest sought a stay of all its claims per section 9 of the Arbitration Act 1996. Mozambique contested that the proceedings were “matters” which fell within the scope of those agreements.

At first instance, the High Court found in favour of the Republic and held that the claims were not sufficiently connected to the contracts as to fall within the arbitration clauses. However, the Court of Appeal took the reverse position, on the basis that the allegation that the supply contracts were instruments of fraud or shams was sufficiently connected. It was argued on appeal that the Court of Appeal had erred in its analysis of the connection between the claim and the supply contracts.

Legally relevant

In a judgment with which the whole court agreed, Lord Hodge said of the meaning of “matter”: “A ‘matter’ is a substantial issue that is legally relevant to a claim or a defence, or foreseeable defence, in the legal proceedings, and is susceptible to be determined by an arbitrator as a discrete dispute. If the ‘matter’ is not an essential element of the claim or of a relevant defence to that claim, it is not a matter in respect of which the legal proceedings are brought.”

Applying this to the present case, he said: “The components of a claim for bribery are (i) that a secret payment or other inducement has been made to an agent which gives rise to a realistic prospect of a conflict between the agent’s personal interest and that of his principal, and (ii) the recipient of the bribe must be someone with a role in the decision-making process in relation to the transaction in question. But the payment need not be linked to a particular transaction, it is sufficient that the agent is tainted with bribery at the time of the transaction between the payer of the bribe and the principal.”

He continued: “It is clear from this description of a claim for bribery that the Republic’s claim based on bribery does not require an examination of the validity of any of the supply contracts. Nor is it necessary to prove dishonesty or that any fraudulent representation was made to the principal. Further, a defence that the supply contracts were valid and were on commercial terms would not be relevant to the question of a defendant’s liability to account for the bribe.”

Lord Hodge concluded: “A defence that the supply contracts were valid and were on commercial terms would not be a relevant defence in relation to the unlawful means asserted. The validity of the contracts is no longer in question. In the context where it is alleged that very large bribes were paid both to senior Mozambican officials and to the CS team, it would be fanciful to suggest that the uncontested payments, which the Republic claims were bribes and Privinvest asserts were legitimate, did not enhance the price of the supply contracts.”

The appeal was therefore allowed.

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