Privy Council tames the unruly “Public policy” horse

18/06/21

On 14^th June 2021 the Privy Council delivered judgment in Betamax Ltd v State Trading Corporation [2021] UKPC 14. The appeal concerned 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 essential question which the Privy Council had to consider was as follows: where the arbitrator had decided that a contract was not illegal, and so not in breach of public policy, could a court nevertheless reconsider the question whether the contract was illegal on the basis that if it was illegal such a contract would be in breach of public policy – in other words, was the decision of the arbitrator on the question of legality conclusive or not?

The appeal arose under s.39(2)(b)(ii) of Mauritius’ International Arbitration Act 2008 which is based on Article 34 of the UNCITRAL Model Law and which provided that an Award may be set aside if it is conflict with the public policy of Mauritius.

Betamax had entered a contract into a contract of affreightment on 27 November 2009 with State Trading Corporation (“STC”) an arm of the State responsible for the import of essential commodities in Mauritius. The contract contained an arbitration clause. In January 2015, after a change of Government, STC purported to terminate the contract on the ground that it had been entered into in breach of public procurement law.

The Arbritrator construed the relevant public procurement law and held that the contract had not been entered into in breach of it and so was not illegal or unenforceable.

The Supreme Court of Mauritius considered that public procurement law formed part of the State’s national legal order and reflected the public policy of Mauritius. Accordingly, it considered that it was free to review the decision of the Arbitrator as to whether or not the contract did or did not breach such public procurement law. It concluded that it did breach that law and, therefore, set aside the Award.

The Privy Council held that the Supreme Court of Mauritius had erred in its approach. Questions of interpretation of the public procurement law did not give rise to issues of public policy and fell within the remit of the arbitrator. The public policy provisions relating to set aside could not be used to review any decision of an arbitral tribunal on an issue of interpretation of the contract or of legislative provisions where, on one of the alternative interpretations of the contract or the legislative provisions, the result would be that the contract was illegal. The proper question for the court was whether, on the findings of law and fact made in the Award, there is any conflict between the award and public policy. The court was not entitled to use the guise of public policy to reopen issues relating to the meaning and effect of a contract or whether it complies with a regulatory or legislative scheme. For that reason the decision of the Supreme Court of Mauritius setting aside the Award fell to be reversed. (For good measure, the Privy Council also held that the Supreme Court of Mauritius was wrong in any event to have considered that the contract was in breach of public procurement law).

The judgment is here.