UK Supreme Court guidance on staying court proceedings in favour of arbitration

Republic of Mozambique (acting through its Attorney General) (Appellant) v Privinvest Shipbuilding SAL (Holding) and others (Respondents) [2023] UKSC 32.

The Supreme Court has offered clear guidance on the meaning of “matters” which must be referred to arbitration when considering an application for a mandatory stay of court proceedings under section 9 of the Arbitration Act 1996. This is an important statutory provision designed to protect an agreement to arbitrate by holding parties to their agreement to do so.

The Supreme Court was asked to rule on the interpretation and application of section 9 of the 1996 Act to deal with a question of whether matters in legal proceedings before the English courts were matters which fell under arbitration agreements into which the parties had entered.

Consistent with the English court’s pro-arbitration approach, section 9 of the 1996 Act provides that:

“(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”

Section 9 gives effect to Article II (3) of the New York Convention which 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.”

To confirm its guidance on section 9, the Supreme Court looked to the jurisprudence of countries including Australia, Hong Kong and Singapore that have equivalent statutory provisions which are worded in a similar way to give effect to Article II (3) of the New York Convention. 

The focus of the judgment is on the meaning of the word “matter”, which is not the same as a cause of action and necessitates an evaluation of substance over form. 

An earlier review of the international jurisprudence from the Singapore court in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57; [2016] 1 SLR 373 concluded that the construal of a “matter” must not be overly broad or unduly narrow. This was a helpful steer, but it was fair to say that more comprehensive guidance was needed. It is now here.

The Supreme Court judgment offers guidance based on the “general international consensus among the leading jurisdictions involved in international arbitration in the common law world which are signatories of the New York Convention on the determination of ‘matters’ which must be referred to arbitration” (paragraph 71). 

There are five key elements of the consensus.

1. Two-stage process: when considering an application for a stay of court proceedings, the court will adopt a two-stage process. First, the court must determine what the matters are 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 is not tied to the strict formulations in the pleadings but must look to the substance of the claims and all reasonably foreseeable defences. In looking at substance over form, the court will be alert to attempts to avoid arbitration by artificial means: a party might not be entitled to a stay of court proceedings if it has no real or proper purpose for seeking a stay.
2. Stay pro tanto: the court proceedings will be stayed only to the extent (pro tanto) that a “matter” has been, or is to be, referred to arbitration. The “matter” need not encompass the whole of the dispute between the parties.
3. Substantial issue of legal relevance: a “matter” requiring a stay does not extend to issues which are peripheral or tangential to the subject matter of the legal proceedings, it must be a substantial issue that is legally relevant to a claim or defence (or reasonably foreseeable defence) and susceptible to be determined by an arbitrator as a discrete dispute.
4. Common sense: common sense judgment is required in order to evaluate the substance and relevance of a “matter”. A mechanistic approach will not assist the court.
5. Context: the court must have regard not only to the true nature of the matter but also to the context in which the matter arises in the court proceedings and a party’s autonomy to choose which of several claims it wishes to advance in litigation. The Supreme Court cautioned that there is perhaps not yet international consensus on this fifth element, but it is where the common sense approach takes us.

Comment

The Supreme Court judgment promulgates the English court’s pro-arbitration approach in that it gives clear guidance to the international community. We have a relatively straightforward two-stage process and accompanying reassurance that the court will look to substance over form and take a common-sense approach. Truly cynical abuses of the section 9 regime will be weeded out where possible.

That said, there are limits and the court has made it crystal clear that bifurcation and partial stays are a real possibility. One can see that these are most likely to arise in cases just like the one at hand which concerned claims of fraud, bribery and corruption not captured by the arbitration agreements in the relevant contracts.  In those cases, the risk of having multiple proceedings in different fora is a real one.