Nov 2023
The UK Supreme Court in a recent decision has clarified the approach to be taken in determining when a matter ought to be referred to arbitration under an arbitration clause, and when such a matter falls outside of an arbitration clause. In doing so, the UK Supreme Court considered and endorsed the approaches found in other leading centres of international arbitration. The case will be highly persuasive on similar considerations before the BVI courts and so is worthy of note.
The Dispute
Republic of Mozambique (acting through its Attorney General) v Privinvest Shipbuilding SAL (Holding) and others [2023] UKSC 32 concerned claims by Mozambique that a group of companies, banks and various bank employees engaged in bribery, conspiracy to injure by unlawful means and dishonest assistance so as to procure the execution of a guarantee by the nation’s minister of finance, purportedly on behalf of the state. Some of the defendants applied for a stay of the proceedings, on the basis of an arbitration clause governed by Swiss law and a common provision in arbitration legislation (being s. 9 of the UK Arbitration Act in this case), which requires a stay if “the matter” before the court is to be referred to arbitration pursuant to an arbitration clause. The BVI has provisions to similar effect through a combination of sections 18(1) and (6) of the Arbitration Act 2013. The Supreme Court considered what amounts to “the matter” in these circumstances, and when “the matter” falls within the scope of an arbitration clause.
Leading Centres of International Arbitration
In considering the questions, the Supreme Court analysed the interpretation of similar provisions in “other influential centres of international arbitration”, including decisions from Australia, the Cayman islands, Hong Kong, and Singapore (which in turn referenced a decision from the BVI), and concluded that there is “a general international consensus among the leading jurisdictions involved in international arbitration in the common law world …on the determination of ‘matters’ which must be referred to arbitration”.
“The matter” and Arbitration Clauses
In determining whether a matter is to be referred to arbitration, the court must first distil what matters have already been raised in the proceedings, and what matters may foreseeably be raised by the parties. The court must then determine, on a true construction, whether each such matter falls within the arbitration agreement.
On the second limb, namely the determination of whether each of the matters identified falls within the agreement, the Supreme Court made the following key observations:
- A “matter” is a substantive issue, legally relevant to a claim or defence (or foreseeable defence). The concept does not extend to peripheral or tangential issues.
- The determination of what amounts to a matter is not a mechanistic exercise, but rather involves questions of judgement and the application of common sense.
- The context in which a matter arose in the legal proceedings must be considered. For example, a matter concerning the enforcement of a security, expressly stated to be governed by the law of a particular jurisdiction with exclusive authority given to the courts of that jurisdiction, may be excluded from the scope of an arbitration agreement which would seemingly encapsulate the matter.
In the circumstances of the case before it, the Supreme Court found that a stay was not warranted as “the matter” did not fall within the scope of the arbitration clause, and that the matter was to proceed to trial.
Practical Takeaways
Arbitration clauses may not be as all-encompassing as they appear on the face of it. Commercial parties should carefully consider, at the contracting stage, the types of disputes which may arise in the relationship. This should take into account choice of law and exclusive jurisdiction clauses which may be in related agreements. The BVI has a comprehensive and modern Arbitration Act with accompanying Rules, along with a fully developed International Arbitration Centre capable of hosting all levels of commercial matters. Interpretations such as this provided by the UK Supreme Court will assist in allowing parties to get what they bargained for, whether in the BVI or elsewhere.