In Betamax Ltd v State Trading Corporation  UKPC 14, the Privy Council of England, in an appeal from the Mauritius Supreme Court, considered the extent of permissible intervention by a court in an international arbitration where public policy was raised as a ground for setting aside an award, holding that where a tribunal had expressly considered issues which 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).
In the arbitration, the tribunal ruled that the underlying contract between Betamax and STC had not been in breach of the public procurement law – a decision which was within the tribunal’s jurisdiction. The tribunal found STC liable to Betamax for breach of contract and granted Betamax substantial damages of over US$115 million.
Mauritius Supreme Court
The Mauritius Supreme Court set aside an award on the ground that the Award conflicted with the public policy of Mauritius, because the underlying contract had been entered into in breach of the public procurement law of Mauritius.
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), thereby allowing the application of Betamax to enforce the Award.
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 (which is reflected in the legislation of many leading arbitration institutions and based on Article V(2)(b) of the New York Convention), was strictly limited – 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.
The judgment considered the decisions in:
- Soleimany v Soleimany  QB 785, where the English Court of Appeal refused to enforce an award on the basis that it was clear from the award (and the tribunal had accepted) that the contract was illegal (with Waller LJ dissenting on the basis 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.
- Westacre Investments Inc v Jugoimport SPDR Holding Co. Ltd.  QB 288, where the English Court of Appeal upheld the first instance decision that since the arbitral tribunal had jurisdiction to determine the issue of illegality and had determined it on the evidence presented to it, the courts of England and Wales should prima facie enforce the award; balancing all the considerations of public policy including finality, the prior determination of the issue of illegality before the arbitrators and the need to combat corruption, the award should be enforced (with Waller LJ dissenting, followed the approach he had suggested in Soleimany and would have reopened the issues relating to bribery);
- AJU v AJT  SGHA 41, where the Singapore Court of Appeal concluded that it did not agree with the approach taken by Waller LJ in Soleimany, and that the decision in Westacre was consonant with the legislative policy in Singapore; it held that the arbitral tribunal had not ignored illegality; whilst accepting that an agreement with the objective of stifling a prosecution would be illegal, it reached the conclusion that the relevant agreement was not an agreement to stifle a prosecution.
- RBRG Trading (UK) Ltd v Sinocore International Co Ltd  EWCA Civ 838, where the English Court of Appeal both Soleimany and Westacre, and found that where the tribunal has jurisdiction to determine the relevant issue of illegality and has determined that there was no illegality on the facts, the English court should not allow the facts to be reopened, save possibly in exceptional circumstances. The English Court of Appeal considered that the judgment in Westacre was to be preferred to Waller LJ in the same case and in Soleimany.” That said, in considering whether and, if so, to what extent public policy was engaged, the Court of Appeal said that the degree of connection between the claim sought to be enforced and the relevant illegality would be important. On the facts of the case, the connection between the seller’s fraud in presenting forged bills of lading and the enforcement of the award in favour of them was not sufficient to engage public policy or, if public policy was engaged, to justify refusal of enforcement. The court would therefore not go behind the findings of the tribunal.
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). The court stated [@47-49]:
“47. In these circumstances, the argument advanced by STC, if correct, would enable section 39(2)(b)(ii) to be used as a means of reviewing any decision of an arbitral tribunal in an award 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 was that the agreement was illegal. That is because the argument has as its premise that, where the law governing the contract and the curial law are the same law, the question of the legality of a contract (either on its terms or its compliance with state regulation or other legislative provisions) gives rise to public policy considerations in relation to the award. The acceptance of this premise would involve a significant expansion of section 39(2)(b)(ii) of the International Arbitration Agreement. It would result in there being in effect an appeal on an issue of law wherever one party had alleged illegality in the arbitration but the arbitral tribunal had rejected the contention, despite the clear provisions of the International Arbitration Act. As the alleged illegality of a contract not infrequently arises in relation to the interpretation of regulations or other legislative provisions said to be applicable to the contract, the ambit of the court’s intervention would be increased significantly by this route to a review of an award under section 39(2)(b)(ii) of the International Arbitration Act.”
“48. This would be inconsistent with the purpose of the International Arbitration Act and the Model Law. The Model Law is premised on the principle that where a matter has been submitted to an arbitral tribunal and is within the jurisdiction of the arbitral tribunal, the arbitral tribunal’s decision is final whether the issue is one of law or fact. The parties have so agreed in their contract to submit the dispute to arbitration. It is therefore the policy of modern international arbitration law to uphold the finality of the arbitral tribunal’s decision on the contract made within the arbitral tribunal’s jurisdiction, whether right or wrong in fact or in law, absent the specified vitiating factors.”
“49. The intervention of the court is specifically limited to setting aside the award on the grounds set out in section 39(2) of the International Arbitration Act. In relation to the issue of whether the award conflicts with public policy, the court’s intervention proceeds on the court’s application of public policy to the findings (whether of fact or law) made in the award. To read section 39(2)(b) more widely would be contrary to the clear provisions as to the finality of awards. The provision can be given full application by respecting the finality of the matters determined by the award and confining the ambit of the section to the public policy of the state in relation to the award. The question for the court under section 39(2)(b)(ii) is whether, on the findings of law and fact made in the award, there is any conflict between the award and public policy. For example, if the Arbitrator had held that the COA had been concluded in breach of the PP Act, but the contract was enforceable as it was not contrary to public policy, the court would be entitled to determine under section 39(2)(b)(ii) whether that decision by the Arbitrator conflicted with the public policy of Mauritius. The effect of section 39(2)(b)(ii) is simply to reserve to the court this limited supervisory role which requires the court to respect the finality of the award. It 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.”
“52. The issue in this appeal is the scope of section 39(2)(b)(ii) of the International Arbitration Act in relation to a decision of an arbitral tribunal which decided that a contract was not illegal on the basis of its interpretation of legislative provisions and regulations that were applicable to a contract. There may be unusual circumstances where different considerations may apply. More likely, as appears from the decided cases and observations made in them, are cases where 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. In cases of that kind, 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. In the light of experience, it would not be helpful to seek in this appeal to go further by delineating possible circumstances or making observations about them. There would be a risk that such observations could be deployed in the cases which are in practice likely to arise in misguided attempts to expand the ambit of intervention under section 39(2)(b)(ii) of the International Arbitration Act / article 34 of the Model Law.”
“53. The Board therefore considers that the Supreme Court was in error in reviewing the decision of the Arbitrator that the COA was exempt from the provisions of the PP Act and PP Regulations. That decision was final and binding on the parties and therefore no issue arose under section 39(2)(b)(ii) of the International Arbitration Act as to whether the Award was in conflict with the public policy of Mauritius.”
Importantly, the Privy Council also held that is was no reason of principle to adopt a different approach to public policy in setting aside cases (as in this case) and in enforcement cases under the New York Convention, stating [@21]:
“Article 34 of the Model Law, as the UNCITRAL Explanatory Note to the Model Law makes clear, contains an exclusive list of grounds for setting aside an award. This is essentially the same list as that contained in the provision in article 36 of the Model Law for the recognition and enforcement of arbitral awards which was itself taken from article V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”). As “public policy” is determined in the courts of the state before which proceedings are brought, there may well be differences in the view taken as to the nature and scope of the public policy between a supervisory court which is considering setting aside the award and a court enforcing the award in a different state. However, there is no reason for difference as to the extent of a court’s right of intervention in respect of public policy under articles 34 and 36 and the decisions in this respect on enforcement are applicable in respect of applications to set aside.”
See also the Privy Council’s Summary