Privy Council rules on public policy and illegality in international arbitration 

15 June, 2021

On Monday 14 June 2021, the Privy Council handed down judgment in Betamax Ltd v State Trading Corporation (Mauritius) [2021] UKPC 14. The case has important ramifications for the extent to which a court can set aside or refuse to enforce an international arbitration award on the basis that it conflicts with public policy.

The appeal was brought from a judgment of the Supreme Court of Mauritius. The Supreme Court had set aside an international arbitration award made in favour of Betamax on the grounds that the Award conflicted with the public policy of Mauritius, because the underlying contract between Betamax and STC had (it was said) been entered into in breach of the public procurement law of Mauritius.

By contrast, the tribunal had ruled that the underlying contract had not been in breach of the public procurement law – a decision which (it was common ground) had fallen within the tribunal’s jurisdiction. The tribunal found STC liable to Betamax for breach of contract and had granted Betamax substantial damages, of over US$115 million.

Betamax appealed to the Privy Council to set aside the Supreme Court’s judgment and enforce the Award on the grounds that:

(1) the Supreme Court was not entitled to re-open and review the arbitrator’s decision on whether the contract was in breach of Mauritian public procurement laws;

(2) if it was so entitled, the Supreme Court’s decision that the contract was in breach of Mauritian public procurement laws was in any event wrong; and

(3) even if the contract was in breach of the public procurement law, it did not conflict with the public policy of Mauritius (properly analysed).

The Privy Council agreed with Betamax on grounds (1) and (2) and held that it did not need to decide ground (3).  It therefore allowed the application of Betamax to enforce the Award.

The Board’s reasoning on ground (1), which surveys the key English Court of Appeal decisions in Soleimany v Soleimany, Westacre and RBRG v Sinocore, and the leading Singapore Court of Appeal decision in AJU v AJT, is likely to be of considerable interest to international arbitration practitioners both in England and abroad.

It is likely to have a major influence on the approach to the public policy ground of non-enforcement or setting aside in most leading arbitral jurisdictions: Section 39(2)(b)(ii) of the Mauritian International Arbitration Act , which provides that an award may be set aside if “in conflict with the public policy of Mauritius”, enacts the equivalent provision of the Model Law into Mauritian law, and is thus also reflected in the legislation of many leading arbitration jurisdictions, in Sections 68(2)(g) and 103(3) of the English Arbitration Act, and in Article V(2)(b) of the New York Convention. Importantly, the Privy Council’s judgment makes it clear (at para. 21) that there is no reason of principle to adopt a different approach to public policy in setting aside cases (such as the appeal in Betamax) and in enforcement cases under the New York Convention.

In short, the Board held that the intervention of a supervisory court addressing a challenge based on public policy under section 39(2) of the Mauritian International Arbitration Act was strictly limited, and that the respect owed to the finality of the award meant that the court was not permitted to re-open issues determined by the tribunal relating to the meaning and effect of a contract, or whether it complied with a regulatory or legislative scheme, under the guise of public policy.

Instead, the supervisory court had to take the findings of law and fact made in the award and within the jurisdiction of the tribunal as they stood.

Thus, where a tribunal has expressly considered issues which have required it to inquire into circumstances suggesting illegality, and held that there was no such illegality, that decision was final and could not be reopened (absent fraud, a breach of natural justice or any other vitiating factor).

Mark Howard QC of Brick Court Chambers, Salim Moollan QC and Siddharth Dhar, instructed by Mark Buckley of Fladgate LLP, acted for the appellant, Betamax.

The judgment can be found here