Article II(3) of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) provides:
The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
What is the meaning of a “matter” in this provision? This is the question that the UK Supreme Court addressed in its judgment of 20 September 2023 in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding)  UKSC 32.
In 2013 and 2014, three special purpose vehicles wholly owned by the Republic of Mozambique entered into supply contracts with three of the respondents in this case for the development of Mozambique’s exclusive economic zone. The contracts are governed by Swiss law and contain broad arbitration clauses. The arbitration clauses in two contracts cover “all disputes arising in connection with” the contracts and the arbitration clause in the third contract covers “any dispute, controversy or claim arising out of, or in relation to” to the contract.
The SPVs borrowed money from various banks and Mozambique granted sovereign guarantees for the borrowing. The guarantees are governed by English law and provide for dispute resolution in English courts.
Mozambique accuses the three respondent companies and some other persons of bribing its officials and exposing it to a potential liability under the guarantees. It brought a claim for damages against the respondents in England in 2019.
The respondents argue that Mozambique is bound by the arbitration clauses and seek a stay of proceedings under section 9 of the Arbitration Act 1996, which implements Article II(3) NYC into English law.
Is the matter in dispute in the English proceedings a “matter” within the meaning of section 9 of the 1996 Act/Article II(3) NYC? This is the preliminary question that the court addressed in its judgment. For the purposes of the preliminary question, it was assumed that Mozambique was bound by the arbitration clauses.
Lord Hodge gave the judgment, with which Lord Lloyd-Jones, Lord Hamblen, Lord Leggatt and Lord Richards agreed.
The UKSC provided an interpretation of the concept of a “matter” in this context that is based on five principles. In doing so, it considered other countries’ (HK, Singapore, Australia, and Cayman Islands) jurisprudence on this issue.
First, in applying section 9 of the 1996 Act, the court adopts a two-stage process: first, the court must identify the matter or matters which the parties have raised or foreseeably will raise in the court proceedings, and, secondly, the court must determine in relation to each such matter whether it falls within the scope of the arbitration agreement. The court must ascertain the substance of the dispute(s) between the parties, without being overly respectful to the formulations in the claimant’s pleadings, and have regard to the defences raised or reasonably foreseeable.
Secondly, the “matter” need not encompass the whole of the dispute between the parties. Partial stays of court proceedings are possible.
Thirdly, a “matter” is a substantial issue that is legally relevant to a claim or a defence which is susceptible to determination by an arbitrator as a discrete dispute, rather than an issue which is peripheral or tangential to the subject matter of the proceedings. 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.
Fourthly, the process entails a matter of judgment and the application of common sense rather than a mechanical exercise.
Fifthly, when turning to the second stage of the analysis, the court must have regard to the context in which the “matter” arises in the legal proceedings.
The substance of the dispute in the English proceedings was whether the contracts and the guarantees were obtained through bribery, and whether the respondents had knowledge of this at the relevant times. The court found that it was not necessary to examine the validity of the contracts and that a defence that the contracts were valid and on commercial terms would not be relevant to the question of the respondents’ liability. This defence would only be relevant in relation to the quantification of the loss suffered by Mozambique. As the validity and commerciality of the contracts were not essential to any relevant defence, the court held that they were not “matters” within the meaning of section 9 of the 1996 Act in relation to the question of the respondents’ liability. The court further found that there was no case law in which section 9 had been invoked to obtain a stay only in relation to a dispute about the quantification of a claim.
The court also dealt with the issue of scope of the arbitration clauses. It held that there was no question of the arbitration clauses extending to cover Mozambique’s allegations on which it relied to establish the respondents’ liability. With respect to the dispute over the partial defence to the quantification of Mozambique’s claim, rational businesspeople would not seek to send such a subordinate factual issue to arbitration. In other words, this partial defence fell outside the scope of the arbitration clauses and the court did not have to decide whether it was a “matter” within the meaning of section 9 of the 1996 Act.
English law adopts a pro-arbitration approach. But the judgment in Mozambique v Privinvest Shipbuilding SAL (Holding) shows that there are limits to this approach.
The judgment is also important because it offers an authoritative interpretation of the concept of a “matter” within the meaning of Article II(3) NYC. This is one of the ways in which English law (see also the recent proposed changes to the 1996 Act) makes an important contribution to the comparative law of international commercial arbitration.