Privy Council considers relationship between findings of illegality and public policy
In Betamax Ltd v State Trading Corporation (Mauritius)  UKPC 14, the Privy Council provided helpful guidance on the extent to which, where illegality is alleged, a domestic court may review an arbitral award on public policy grounds. The case was on appeal from the Mauritian Supreme Court after a challenge had been brought to set aside an award in the underlying arbitration.
Following a Mauritian seated arbitration under the SIAC rules, a sole arbitrator awarded the appellant (“Betamax”) damages of approximately US$120 million against the respondent (“STC”), a public company operating as the commodities trading arm of the Government of Mauritius (the “Award”). The Award held that the Mauritian law-governed contract of affreightment (the “COA”) in question was exempted from the procurement regime in Mauritius, namely the Public Procurement Act 2006 (“PP Act”) and the Public Procurement Regulations 2008 (“PP Regulations”), did not breach the PP Act and, therefore, was not illegal.
Competing applications to set aside and enforce the Award were made to the Supreme Court of Mauritius (the “Supreme Court”), which held that the Award should be set aside on the public policy ground of section 39(2)(b)(ii) of the Mauritian International Arbitration Act (section 39 being the provision of the IAA enacting Article 34 of the UNCITRAL Model Law). This was because, in its view, the COA breached the PP Act and was therefore illegal.
The principal issue considered
On appeal to the Judicial Committee of the Privy Council (the “Board”), the main issue was whether this public policy ground allowed the Mauritian courts to review the arbitrator’s decision that the COA was not subject to the provisions of the PP Act and PP Regulations and was not therefore illegal.
The Board held that the Supreme Court was in error in so acting. The principal reason for this was that the Award had already concluded that the COA was not illegal. Respecting the principle of finality, the Supreme Court was not entitled to use s.39(2)(b)(ii) as a gateway to review any allegations of illegality, as, properly interpreted, s.39(2)(b)(ii) afforded only a limited determination of whether there was any conflict between the award and public policy. STC’s arguments were based on a view that, where the law of the contract and the curial law were the same then a decision on its legality engages public policy. Upholding this position would, however, effectively, allow an appeal on a point of law (under the guise of public policy grounds) whenever there is alleged illegality; a significant expansion of s.39(2)(b)(ii).
In reaching this conclusion, the Board had regard to the English Court of Appeal’s judgment in RBRG Trading (UK) Ltd v Sinocore International Co Ltd. This was also a case where the arbitral award considered allegations of illegality, decided there was no illegality and the award was challenged at the enforcement stage. The Court of Appeal had, in those circumstances, refused to reopen the tribunal's ruling. That decision, and the majority’s views in Westacre Investments Inc v Jugoimport SPDR Holding Co. Ltd, another English Court of Appeal case which enforced an award on the basis that the arbitrator had jurisdiction to decide that there was no illegality, were preferred to the (minority) view of Waller LJ in Westacre and (obiter) in Soleimany v Soleimany (discussed below) on which the Supreme Court had relied. The Singapore Court of Appeal’s judgment in AJU v AJT was also considered, as it in turn considered both Westacre and Soleimany, with that court also concluding that the court could not reopen, on public policy grounds, the tribunal’s findings of no illegality, as the tribunal had already adequately considered the issue (and dicta in that case which might support a wider reading was explained by the Board as, in fact, supporting the view that absent extreme factors such as fraud, such a decision should not be reviewable on a public policy basis).
The Board was clear that its conclusions were consistent with the judgments referenced above. By contrast, this was not a case where the tribunal had found that a contract was illegal and the question was whether to give effect to the award. That was the situation in Soleimany and it was common ground that, in such a situation, a court could invoke public policy to resist the award.
This judgment provides helpful guidance on s.39(2)(b)(ii) / Article 34 of the Model Law and the ambit of a court’s power to review arbitral awards, which have considered illegality of an award, on public policy grounds at the set aside/enforcement stage. In particular it makes clear that this is not to be conflated with an appeal on a point of law. The judgment may also be persuasive in the context of s.68(2)(g) of the English Arbitration Act 1996, a provision which also permits, in English seated arbitrations, a challenge to an arbitral award on public policy grounds; several of the cases relied upon by the Board being English authorities.Click here for the judgment