The Judicial Committee of the Privy Council (“JCPC”) has, on 14 June 2021, delivered its judgment in the case of Betamax v/s State Trading Corporation. The JCPC reversed the decision of the Supreme Court of Mauritius and restored an arbitral award which had found the trading arm of the Republic of Mauritius to be liable for USD 115.3 million plus interest and costs.
History
The dispute arose following the entry in 2009 of a contract of affreightment (“COA”) between Betamax Ltd (“Betamax”) and the State Trading Corporation (“STC”). In the various legal battles that ensued, the regime surrounding public procurement was a key element, with the Public Procurement Act 2006 (“PP Act”) and the Public Procurement Regulations 2008, as amended in 2009 (“PR Regulations”) being at the centre of it. If the public procurement regime applied to the COA, that contract would have then required the approval of the Central Procurement Board (“CPB”), established under the PP Act. STC contended that this was the case, while Betamax argued the contrary.
In 2015, STC signified to Betamax its intention to cease using freight services from Betamax under the COA. Betamax thereafter served a notice of termination of the COA in April 2015 and, in May 2015, it filed a notice of arbitration under the COA claiming damages of over USD 150 million for breach of the COA. Following arbitration hearings in 2016, the Arbitrator delivered his award in June 2017 holding that STC was liable to Betamax for USD 115.3 million plus interests and costs (the “Award”).
Later that year, STC applied to the Supreme Court of Mauritius (“Supreme Court”) to set aside the Award, on the grounds that the dispute was not arbitrable, that the arbitration agreement was not valid and that the Award was in conflict with the public policy of Mauritius. The Supreme Court found that the Award was indeed in conflict with the public policy of Mauritius, on the basis that the COA was an illegal contract because it was entered into without obtaining CPB approval under the PP Act. The Supreme Court, in so ruling, added that the PP Act is part of the fundamental legal order of Mauritius and the PP Regulations could not be interpreted in such a way as to exempt the CoA from its application.
Betamax appealed against the Supreme Court judgment.
Decision of the JCPC
The issues which the JCPC had to determine in this decision were threefold: (1) Was the Supreme Court entitled to review the Arbitrator’s decision set out in the Award that the COA was not subject to the provisions of the PP Act and PP Regulations? (2) If the Supreme Court was entitled to review that decision of the Arbitrator, was the COA illegal as having been entered into in breach of the PP Act and PP Regulations? (3) If the COA was illegal, was the Award giving effect to the COA in conflict with the public policy of Mauritius?
Issue (1)
When dealing with this issue, the JCPC pertinently observed that in light of the provisions of the International Arbitration Act (the “IAA”), the only route available to the Supreme Court to question the decision of the Arbitrator on the interpretation of public procurement laws was under section 39(2)(b)(ii), i.e. contravention to public policy of Mauritius. The JCPC also agreed that the nature and extent of the public policy of Mauritius was a matter to be decided by the Supreme Court itself.
The JCPC concluded however that the Supreme Court was mistaken in intervening in the Arbitrator’s decision that the COA was exempt from the provisions of the PP Act and the PP Regulations. It based its conclusion on two main arguments:
i. That the determination of the legality of the COA turned on questions of interpretation of the PP Act and the PP Regulations. These questions of interpretation did not give rise to any issue of public policy; ii. That the purport of section 39(2)(b)(ii) IAA would be significantly expanded if the Supreme Court’s intervention was upheld, and that this expansion was not in line with the spirit of the IAA, which was intended to uphold the finality of an Arbitral Tribunal’s decisions on the law and fact.
The JCPC disapproved statements from certain English and Singaporean cases on which the Supreme Court had relied in order to decide that it could intervene on the ground of public policy to set aside the Award.
Issue (2)
Given its decision on Issue (1), it was strictly not necessary for the JCPC to address Issue (2) but it nevertheless did so.
The key to determining this issue lied in the interpretation of a number of legislative provisions on public procurement, namely the meaning to be attributed to Regulation 2A of the PP Regulations (“Regulation 2A”) which provides that: “Nothing in these regulations shall be construed as excluding the application of the [PP] Act to a public body referred to in the First Schedule to these regulations and the Schedule to the [PP] Act in respect of a procurement contract to which the public body intends to be a party and which is specified in column 2 of the Schedule to the [PP] Act.”
The Supreme Court’s view was that Regulation 2A operated to prevent the COA from being exempted under the PP Regulations from the application of the PP Act. The JCPC disagreed with the Supreme Court’s interpretation of Regulation 2A of the PP Regulations on the basis that the latter’s interpretation, if adopted, would have meant that a number of provisions of the PP Regulations would have been incompatible with each other. The JCPC thus concluded that the purpose of Regulation 2A was to make it clear that the PP Act applied to all contracts made by public bodies, other than the contracts listed in the PP Regulations.
Conclusion
Putting aside the potentially adverse economic consequences of this judgment for Mauritius, it provides a welcome clarification on the permissible extent of intervention by the court of the seat of arbitration when considering the public policy ground. Although the court might feel differently about the arbitrator’s application and interpretation of legislation and determination on illegality of a contract, such intervention cannot extend to the court substituting its own findings of fact or law to those of the arbitrator.