British court upholds Privinvest appeal in case over $2 billion Mozambique debt scandal

JOHANNESBURG (Reuters) - Mozambique's claims against shipbuilder Privinvest, at the centre of a $2 billion debt scandal, fall under an ongoing arbitration process, Britain's appeals court found on Thursday, in a blow to Mozambique's efforts to remove its liability for part of the money.

Mozambique is suing Privinvest, its billionaire Chief Executive Iskandar Safa, and international investment bank Credit Suisse in London's High Court over $2 billion in government-guaranteed loans raised in 2013 and 2014, a hefty chunk of which went missing according to authorities.

Privinvest, the sole contractor to a series of projects the money was ostensibly raised for, has separately launched arbitration proceedings against three state-owned companies in Mozambique at the centre of the affair, claiming compensation for breach of contract.

Britain's High Court recently rejected Privinvest's arguments for a stay on proceedings because Mozambique's claims against it, namely that Privinvest paid hefty bribes to officials to secure the deal, were covered by the arbitration process. But on Thursday, another court upheld Privinvest's appeal against the High Court's decision.

"The republic's claims against the Privinvest companies fall within the scope of the arbitration agreements," the written judgement seen by Reuters said.

The debt scandal prompted donors including the International Monetary Fund to cut off support to Mozambique, triggering a currency collapse and debt default in 2016.

The country remains on the hook for the money. It is using the case in the High Court to try and get a government guarantee for a $622 million loan made by Credit Suisse revoked and seek compensation for other debt and economic losses, with this decision frustrating its efforts.

Keith Oliver, partner and head of international at Peter's & Peter's solicitors, which is working with Mozambique's Attorney General's Office on its case, said the country will appeal and that proceedings against other defendants including Safa, Credit Suisse and its former bankers would continue.

"We remain committed to seeking open justice for the people of Mozambique," he said in an emailed statement.

Credit Suisse, along with Russia's state-owned VTB, provided or arranged the loans for the projects. Three former Credit Suisse bankers pleaded guilty to charges including conspiracy to violate U.S. anti-bribery laws in a separate case launched by U.S. authorities.

Credit Suisse, which declined to comment on Thursday, has issued a counter claim in London against Mozambique and previously said the former employees hid their contacts from the bank.

A Privinvest spokesman welcomed the decision, saying it reflected Privinvest's view that the claims should never have been brought in the London courts and the "artificiality" of Mozambique's case.

"Privinvest continues to reject the Republic's meritless claims," he added. Privinvest argues it delivered on all of its obligations under the contracts - though Mozambique failed to make use of boats and other assets it provided - and any payments it made were legal under Mozambique law.

(Reporting by Emma Rumney; Editing by Kirsten Donovan and Marguerita Choy)