Reflecting on Tunabond

Three months on from the handing down of the judgment in the "Tunabond" case, we reflect on the outcome of the trial and consider some practical issues arising from this uniquely complex international dispute.

Introduction

Between 2012 and 2016, the Republic of Mozambique established vehicle companies which borrowed massive sums (all told, about US$1.5 billion) from banks including Credit Suisse and VTB, for the purpose of projects to exploit and protect Mozambique's "ocean economy". The projects included establishing a tuna fishing fleet, improved port infrastructure, radar monitoring and a paramilitary coastguard force to protect operations in Mozambican waters. The suppliers under the contracts were Privinvest, a group of companies owned by Lebanese businessman Mr Iskander Safa. Mozambique gave state guarantees for the indebtedness of the companies.

In 2016, it emerged that these projects had not been declared to Mozambique's parliament, or to its lending banks and the IMF. When the extent of Mozambique's exposure became clear, the revelation crashed Mozambique's economy, devaluing its currency and causing its debts to be called in. Since a bond was issued for the debt related to the tuna fishing fleet, the affair became known as the "Tunabond" scandal, or "hidden debts" affair.

Following investigations by private companies and state prosecutors, documents emerged which appeared to show that Privinvest had agreed to pay huge bribes to government officials, employees of Credit Suisse, and others, in order to procure the project and to secure extensions to the borrowing. 

Relying on this evidence to allege corruption against Privinvest, Credit Suisse and others, Mozambique brought proceedings in the English Commercial Court, seeking to avoid the guarantees it gave for the borrowing, and claiming billions of dollars in damages to compensate it for the losses due to the effect of the collapse caused by the affair being revealed.

Secrecy

Whether it was the concealment of the government-backed guarantees from the IMF, the private payments found to have been made by Privinvest to Mozambican government officials, or the central involvement of Mozambique's intelligence and security service (SISE), the Tunabond case was peppered with instances of "secrecy".

Key to the actual litigation was the issue of "state secrecy", particularly in the context of disclosure from Mozambican governmental bodies. Mozambique's position was that documents which were considered secret, either by virtue of emanating from SISE, or by reason of their content, could not be disclosed or even viewed by Mozambique's lawyers, without an offence being committed. The battle over the legitimacy of this approach culminated in a judgment by Mr Justice Robin Knowles CBE (Knowles J) in which he decided that Mozambique could, under its own law, have found a way to make the documents available to its lawyers for review, but was choosing not to do so.

Knowles J noted in his judgment that whilst it was "obvious that there would likely have been relevant documents with the Office of the President and SISE… almost no documents were available at trial from those sources within Mozambique." This was notwithstanding the Judge's offer, in the course of case-managing the proceedings, to discuss "special arrangements for those documents" which were said to be affected by issues of national security.

Relying on the Judge's finding that Mozambique should have found a way around the secrecy problem, other parties applied to strike out Mozambique's case. However, the Judge refused the application even though he agreed that Mozambique was in breach of its disclosure obligations. He instead deferred the matter to trial, noting that a "calibrated response to the poverty of Mozambique's disclosure" was required. Inferences of fact were ultimately made against Mozambique, which included that the projects were at all material times known about and supported by several individual officials and office holders, including SISE and the former and current presidents of the Republic. The Judge noted that he confined himself to drawing necessary and material inferences. In view of the shortcomings of Mozambique's disclosure, he also made certain allowances in favour of some of the defendants.

In a case where the Judge was satisfied that the disclosure given by Mozambique was severely deficient, he nevertheless took a measured approach to the breaches, refusing to take the nuclear option of strike out in favour of waiting to consider the impact in the round. 

In doing so, and by offering to open a dialogue with the Republic during case-management to find a solution, the Judge offered a reminder to parties dealing with states that, where interests of national security and comity arise, the English court may show some leniency and proportionality even having found serious breaches of disclosure obligations. However, the Judge's approach also shows that the English court will not accept blindly assertions that national security or state secrecy justify a state failing to participate in the disclosure requirements of English court proceedings like any other party.

Parallel International Criminal Proceedings

A large part of the evidence available to the English court was uncovered by the efforts of US prosecutors who prosecuted some of the individuals allegedly involved in the corruption, in the criminal courts of New York. It was a notable feature of the case that, without that documentary material and the investigatory powers of the US Justice Department, it seems likely that the other proceedings would not have been possible due to a lack of direct documentary evidence of the corrupt payments.

At the same time as the English proceedings, several of the Mozambican individuals accused of participating in the conspiracy were tried before the Mozambican criminal courts. This had a direct impact on the English proceedings because significant time and effort was devoted in the Commercial Court to seeking disclosure of documents which were before the Mozambican criminal courts.

Mozambique's position was that it should not be considered as one and the same as the prosecutor or the Court in Mozambique, and that it therefore could not provide disclosure of the documents on which the prosecution relied in Court. Mozambique also relied on the "criminal confidentiality" which it said attached to the documents in the criminal file lodged with the Court by the prosecutor. 

This led to the somewhat bizarre situation in which Mozambique was seeking criminal findings from a Court in Mozambique which overlapped fully with the issues in London, but where it claimed to be unable to provide in disclosure in London copies of very the documents which its prosecutors had relied upon in the criminal proceedings.

Whilst this appears not to have led to any particular difficulties in London (albeit there is a pending appeal by the Privinvest parties, who were found to have instigated the corruption), the potential for this situation to lead to inconsistency, or unfairness, is very clear. 

Participation by some, but not all, defendants

Several of the Defendants in the London proceedings did not participate in the case at all. Apart from Ms Lucas, whom we represented, this included all of the Mozambican government officials who were alleged to have accepted bribes. 

This meant that there was a significant gap in the evidence before the Court, because Ms Lucas was the only witness giving evidence who was personally involved in the administration of the transactions in question. However, Ms Lucas' role was as Director of Treasury, and so she was not involved in the design and specification of the projects, or the assessment of their viability. On the other side was the evidence from senior figures in the Privinvest group, which evidence was contested by Mozambique and was found by the Judge to be unreliable and dishonest in several respects.

It would have been difficult to secure the participation of the other former government officials: two were in prison, and others who worked for SISE would almost certainly have argued that they could not assist the Court without breaching their obligations of secrecy by virtue of the positions they held. However, it was striking that there was so little evidence before the Court at trial from individuals who had actually been party to the transactions in question. 

The Judge dealt with this, amongst other techniques, by restricting his findings to matters which were sufficient in themselves to establish the outcome of the case. He found that bribes had been paid to and accepted by Mr Chang, the former Minister of Finance, but did not make findings about other officials. In that way, the Judge minimised the extent to which he made findings about individuals who did not participate and defend themselves. Mr Chang's involvement was sufficient to establish Mozambique's case, given his senior government position and pivotal role in the transactions.

Immunity

As is often the case when states litigate abroad, matters of public international law rear their head.  In this instance, two aspects of immunity arose – first, in respect of Mozambican officials who had been joined as Part 20 defendants to the proceedings, and second, in the context of the Republic as a defendant itself to claims brought by banks and syndicated lenders under the guarantees.

Ahead of trial, the matter of the President's immunity from proceedings whilst he was Head of State (pursuant to s20 of the State Immunity Act 1978) was considered. The Part 20 claim against him related to actions he had allegedly taken before he became President. The President did eventually participate in the proceedings in order to contest jurisdiction, but only in May 2023, a few months before trial. His application, which challenged the timing of service of the Part 20 claim as well as jurisdiction, was expedited and was heard in early August 2023. It succeeded at first instance and on appeal. The Court of Appeal's judgment reconfirmed the immunity of a Head of State whilst in post, and highlighted the importance of considering domestic rules, any orders giving permission to serve out, and local rules when dealing with service of English proceedings in a non-Hague Convention state.

The Republic's liability was also in the spotlight as it defended claims brought by banks under the guarantees it had provided on the basis it enjoyed sovereign immunity. The question for the court was whether Mozambique could assert its presumptive sovereign immunity under s1 of the State Immunity Act 1978 or whether either of the two exceptions (submission to jurisdiction and commercial transaction, under s2 and s3 of the Act respectively) were applicable. The banks' position was that the Republic had submitted to the jurisdiction by virtue of the guarantees containing an English-exclusive jurisdiction clause, a clause providing for process in England, and a clause broadly waiving state immunity. The banks also contended that the guarantees were relevant "commercial transactions" and that in making certain representations in the course of the guarantee negotiations, the Republic's conduct constituted activity of a private nature which arose in a purely commercial setting. 

Mozambique argued that the guarantees were not valid or binding because Minister Chang, the former Minister of Finance, lacked actual authority to enter into them. Although these arguments were run to trial, this aspect of the proceedings was resolved shortly before judgment by way of a settlement which saw the Republic pay the banks approximately $220 million in respect of their claims – a cut of 84% of the banks' total claims, according to the current Minister of Finance.

Judgment

Notwithstanding the lengthy cast list, Mozambique's path to victory at trial was ultimately down to the Judge's findings in respect of the corruption on the part one individual – the former Minister of Finance, Mr Chang. His actions alone, the Judge found, were "sufficient to provide an element of a route to liability on the part of Mr Safa and the Privinvest Companies to Mozambique." The Judge noted that he could not reach the same finding in the case of other Mozambican ministers who had similarly been accused of taking bribes, because that was "the position that results from the evidence, and the limits to the evidence available… at trial." 

In an echo of his sentiments expressed in the judgment in the earlier case of Nigeria v P&ID, the Judge also refrained from making findings on collateral issues and as to parties between whom settlements had been reached. This was notably the case for Ms Lucas; the Judge noted that Ms Lucas had denied that she received or benefitted from any payments from Privinvest, and made no finding as to those matters given that Ms Lucas had reached agreement with the parties who made the allegations against her, and had successfully struck out the case of Privinvest against her which relied on such allegations.

Whilst only making findings "to explain the case or to decide the issues that remained", the Judge commented that the absence of findings in relation to other individuals did not mean that there were not others "with much to answer for". Although this was centrally a case of corruption, the Judge noted that it was also a case about the "overall absence of standards that went far wider", in which, the Judge said, certain individuals put "self interest and… personal financial reward… over any sense of responsibility". This included persons both within the administration of the Republic and at external bodies, such as the banks who financed the corrupt schemes. 

In the latter respect, the Judge said that there had been an opportunity for them to show the good that ethical banking practices could do for a developing nation such as Mozambique, but instead their focus appeared to be on exploiting the opportunity for themselves. Even if there was no positive obligation to assist Mozambique to avoid becoming a victim of corruption, the Judge felt that the banks should have done more to scrutinise the projects and to draw attention to the fact that they appeared likely to fail. He also questioned the arrangements in place between the banks and the IMF and what a more healthy dialogue between the two could have done to flag Mozambique's exposure sooner. The Judge also observed that a lack of a relevant regulatory framework was not an excuse – that is not the only source of standards and a "far greater sense of responsibility was required".

Conclusion

The litigation arising out of the Tuna Bond affair represented a hugely challenging task for the legal teams involved, and the case raised several novel issues. Ultimately the decisions made were narrower than they might have been because Mozambique settled with Credit Suisse before trial, the case broke new ground in multiple respects before the settlement, and the judgment deserves reading to see how the Judge dealt with the tricky procedural issues in resolving a highly sensitive case involving a massive corrupt scheme.