Deborah Ruff On High Court’s Arbitration Rejection in “Tuna Bonds” Scandal

With the intention of developing its Exclusive Economic Zone through its fishing industry and exploitation of gas resources, the Republic of Mozambique entered certain supply contracts with Privinvest, financed by loans secured by sovereign guarantees. The Republic of Mozambique claims it was the victim of a conspiracy involving the defendants and brings claims for bribery, conspiracy, dishonest assistance, knowing receipt and proprietary claims.

As such, the African country alleges it has been exposed to potential liability of roughly $2 billion.

International Arbitration partner Deborah Ruff stated, “In its ruling, the Supreme Court has offered clarification on the approach to be taken by the courts when deciding whether they are required to grant a stay of litigation under section 9 of the Arbitration Act 1996 on the grounds that the proceedings fall within the scope of an arbitration agreement between the parties.”

The court must determine what matters the parties have raised or foreseeably will raise in court proceedings and whether each matter falls within the scope of the arbitration agreement. This involves looking at the claimant’s pleadings and any defense that has been filed, as well as any reasonably foreseeable defenses that may be raised. The “matter” need not encompass the whole of the dispute between the parties but it must be a substantial issue that is legally relevant to a claim or defense, or foreseeable defense, in the legal proceedings, and 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 defense, it is not a matter in respect of which legal proceedings are brought.

A common sense approach must be taken when evaluating the substance and relevance of the “matter.” It is not sufficient merely to identify an issue that is capable of constituting a dispute or difference within the scope of an arbitration agreement without carrying out an evaluation of whether the issue is reasonably substantial and whether it is relevant to the outcome of the legal proceedings of which a party seeks a stay.

Finally, the Supreme Court commented that the court should also have regard to the context in which the matter arises in legal proceedings when determining whether a matter falls within the scope of the arbitration agreement on its true construction.

Ruff noted that, “whilst the Supreme Court has recognized the pro-arbitration approach of the courts of England and Wales, it is notable that this 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.”

“Furthermore, it should also be noted that a claimant is entitled to decide which of several available claims it wishes to pursue in litigation. The fact alternative causes of action exist, which may fall within the scope of an arbitration agreement, will not bar a claimant from pursuing litigation in relation to other claims that do not,” she concluded.

Click here to read the full article.