On 14 June 2021, the Judicial Committee of the Privy Council of the United Kingdom (the "Board") issued a decision in Betamax Ltd v State Trading Corporation ("Betamax v STC")1 on the scope of application of the public policy ground for setting aside an arbitral award pursuant to section 39(2)(b)(ii) of the Mauritian International Arbitration Act (the "MIAA").
The Board's decision – which draws on the provisions applicable in, and experience of, other jurisdictions such as England & Wales and Singapore on similar matters – is significant since it is indicative not only of the approach that the English courts would likely take when presented with an application to set aside an award in England & Wales when faced with allegations of illegality (whether by reason of bribery, corruption or otherwise), but also the approach that would likely be taken in other common law jurisdictions and other jurisdictions which have adopted the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law").
In the underlying arbitration (commenced by Betamax after it terminated a contract on the basis of a repudiatory breach by the State-owned STC following a change in Government), the sole arbitrator held that, contrary to the assertions of the Respondent STC, the entry into a long-term contract of affreightment for the transportation of Mauritius' entire needs for petroleum products from a refinery in India by a specially designed vessel (the "COA") did not contravene the relevant applicable legislative provisions relating to procurement. It was common ground between Betamax and STC that this issue was within the Tribunal's jurisdiction.
Betamax was awarded damages and applied to the courts of Mauritius to enforce the resultant award. STC applied to the courts of Mauritius (as the courts of supervisory jurisdiction) to set aside the award pursuant to Section 39 of the MIAA (which replicates Article 34 of the Model Law) on the basis that the award was contrary to the public policy of Mauritius.
In granting STC's application to set aside the award, the Mauritian Supreme Court disagreed with the sole arbitrator, holding (albeit without any reference to an analogous case) that "the enforcement of an illegal contract of such magnitude, in flagrant and concrete breach of public procurement legislation enacted to secure the protection of good governance of public funds, would violate the fundamental legal order of Mauritius. Such a violation breaks through the ceiling of the high threshold which may be imposed by any restrictive notion of public policy."2
It nevertheless granted permission for an appeal to the Board.3
Issues before the Board & Parties' Positions
The appeal before the Board involved the following related issues:
- Whether the Mauritian Supreme Court was entitled to review the arbitrator's decision that the COA was legal and could have been entered into without complying with certain procurement legislation.
- If it was so entitled to review the arbitrator's decision, whether the COA was in fact illegal or entered into in breach of the relevant procurement legislation.
- If the COA was in fact illegal or entered into in breach of the relevant procurement legislation, whether the award was in conflict with the public policy of Mauritius.
As to whether the Mauritian Supreme Court was entitled to review the arbitrator's decision that the COA was legal, Betamax argued that the Supreme Court was not entitled to do so.4 It argued, and the Privy Council noted, that the Supreme Court had skipped this step by failing to consider whether it was indeed permissible for the challenge to be made at all.5 Betamax relied on AJU v AJT – a decision from the Court of Appeal of Singapore6 – in which the Court of Appeal held that "[u]nless its decision or decision-making process is tainted by fraud, breach of natural justice of any other vitiating factor, any errors made by an arbitral tribunal are not per se contrary to public policy ".7
STC, on the other hand, argued that that "[w]hen the Supreme Court's inquiry was directed at whether the Award conflicted with the public policy of Mauritius, it was not in any way bound by what the Arbitrator had determined in the Award" (emphasis added) and that "[t]he scope and nature of the relevant public policy was determinative of and inextricably linked with the issue of illegality." 8 STC's argument was simple — if the court was not entitled to review the decision as to whether or not the contract was illegal, it could simply not consider whether the award was in conflict with the public policy of Mauritius.
STC placed reliance on the English Court of Appeal decision in Soleimany v Soleimany.9 In that case, an arbitration before the Beth Din, the Court of the Chief Rabbi, resulted in a decision to apply Jewish law that effectively ignored the illegalities arising out of the export control legislation. The Court of Appeal found that the award could therefore not be enforced. However, in this decision, Waller LJ had identified, obiter, that in cases where a tribunal had considered the question of legality and found that the underlying contract to be legal "there is a tension between the public interest that the awards of arbitrators should be respected, so that there be an end to lawsuits, and the public interest that illegal contracts should not be enforced".10 Somewhat problematically, the Court of Appeal – although the appeal was not before them – also gave suggestions that "an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should inquire further to some extent. Is there evidence on the other side to the contrary? Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an inquiry? May there have been collusion or bad faith, so as to procure an award despite illegality?".
The Board answered issue (a) in the negative, finding instead that the permitted scope of review was very narrow. It held that:
- the Supreme Court "cannot, under the guise of public policy, reopen issues relating to the meaning and effect of the contract or whether it complies with a regulatory or legislative scheme";1112 and
- where the arbitral tribunal has expressly enquired into circumstances suggesting illegality, and sets out their reasons for holding as a matter of fact and law that there was no illegality, that decision could not subsequently be reviewed on appeal.13
Relying on AJU v AJT, and whilst finding that the guidance in Soleimany v Soleimany contained in it has "rightly not been followed", the Board did nevertheless find that that ratio of Soleimany v Soleimany was consistent with the position that "if an arbitral tribunal decides that an agreement is illegal, but makes an award which enforces the agreement, the court is entitled to set aside the award". 14
The decision in Betamax is significant by reason of the fact that it pits the scope of application of the public policy exception against the principle of the finality of awards; and, in doing so, carves out a very specific sub-rule.
On first glance, the Board's finding clearly subordinates the application of the public policy ground to the desire for finality in arbitral awards — and, as a result, has been heralded as a pro-arbitration decision. It found:
"the arbitral tribunal's decision on fact and on law is a decision for the arbitral tribunal, if within its jurisdiction; if it holds that the contract is not illegal, then that decision will be final, in the absence of fraud, a breach of natural justice or any other vitiating factor. There may be some exceptional cases, where the court under the Model Law provision may be entitled to review the decision on legality, but it is not easy to think of such a case arising in practice" (emphasis added).15
However, this bar to a review is very specific and limited to cases in which:
- "the arbitral tribunal has expressly considered issues which have required the arbitral tribunal to inquire into circumstances suggesting illegality"; and
- "set out their reasons for holding as a matter of fact and of law that there was no illegality" (emphasis added).16
This limitation to the bar to a review must be put in context. The bar only applies when the court of supervisory jurisdiction is effectively asked to reconsider a point on which the tribunal has already rendered a decision. This is only likely to occur when the governing law of the contract is the same law under which any public policy objection falls to be assessed by the court of supervisory jurisdiction at the seat of the arbitration. In Betamax, the governing law was Mauritian law, and the public policy objection was assessed by a Mauritian court in its capacity as the court of supervisory jurisdiction as a matter of Mauritian law.
The direct relevance of the Betamax decision is therefore likely to be limited to situations where the governing law of the contract and the law of the seat coincide. And it is indeed difficult to conceive of situations where a tribunal would be called upon to determine the legality of a contract under a law other than that which applies to the contract in question. For instance, a Mauritius-seated tribunal determining a dispute under an English law-governed contract would not normally be expected to consider, let alone rule on, Mauritius law-based arguments as to why the contract might be invalid as a matter of Mauritian law. That would serve no purpose and would be irrelevant to the English law result the tribunal is tasked with reaching. In this situation, the decision in Betamax would not apply by reason of the English- and Mauritian-law 'mismatch'.17
However, the applicability of the Betamax decision is less clear in situations where a tribunal (for whatever reason) renders a finding on lack of illegality under the law of seat, even when the law of the seat differs from the law governing the underlying contract. Such situations may be rare but cannot be excluded. For instance, tribunals may be asked or prompted to engage in such an exercise either because the law applicable to the contract is not expressly stated or is unclear, or where terms in the contract themselves invite an assessment of legality under the law of another state.
Further, our experience suggests that when a party adopts an all-or-nothing approach and argues illegality based not only on the basis of the law applicable to the contract, but also on the basis of the law of the seat, tribunals feel constrained to respond in kind, rendering findings on such arguments on an alternative or "in any event" basis. In such circumstances, it is unclear how the bar to considering whether or not to set-aside the award would operate where the tribunal may have rendered a finding it was not strictly "required" to do (as part of the first condition). Whilst, on one view, the rule set out in the Betamax decision would apply since the tribunal would have considered and ruled on the issue of illegality, it would conceivably be arguable either way.
A key takeaway from this is that a Claimant party which believes a contract under consideration would fall foul of the public policy of the seat, but not be illegal under the law governing the contract, may be better advised to resist the temptation to invite the tribunal to consider the effect of the law of the seat on the merits of the dispute for fear of engaging the rule set out in Betamax and arming an unsuccessful Respondent with an additional ground on which to seek to set-aside the resultant award.
It would also be interesting to see what effect the decision in Betamax would have outside the set-aside context, for instance in applying the public policy exception under Article V(2) of the New York Convention. It is unclear if findings of a tribunal in an English law governed contract would enjoy deference and immunity from review by English courts on questions of legality under English law, regardless of the location of the seat of arbitration.
It is fair to suggest that while the decision in Betamax breaks new (and, perhaps, intuitive) ground in the jurisprudence relating to the scope of review under the public policy exception – it also gives rise to a number of questions likely to be debated in the courts of many jurisdictions – including in England and Wales – for some time to come.
1.  UKPC 14.
2. Betamax v STC, ¶ 28.
3. Under Mauritian law, there is an automatic right to appeal against set aside decisions arising out of international arbitration, but the practice is for permission to be sought and granted by the Supreme Court (Betamax v STC, ¶15).
4. Id., ¶ 25.
5. Id., ¶ 26.
6.  4 SLR 739;  SGCA 41.
7. AJU v AJT, ¶ 66.
8. Betamax v STC, ¶ 29 (emphasis added).
9.  QB 785, 800.
10. Betamax v STC,, ¶ 32.
11. Id., ¶ 49.
12. Whilst it therefore did not need to turn its mind to issues b) and c) – which therefore lie beyond the immediate scope of this note – the Board did nevertheless hold find that, on the facts, the COA was indeed legal.
13. Id., ¶ 52.
14. Id., ¶ 39.
15. Id., ¶ 52.
17. This is the logical corollary of the STC's primary submission (accepted by the Board) when it argued that "[t]he interdependence [between the decision of the tribunal and standard of review to be applied by the Mauritian court] arose from the fact that the law of Mauritius was the governing law of the COA and the application to set aside the Award was being determined under the law of Mauritius by the Supreme Court of Mauritius as the supervisory court for the arbitration."
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