Jillian Griffiths

ENSafrica, Port Louis

jgriffiths@ensafrica.com

 

Differences have arisen in the positions taken in various jurisdictions as to the scope of a supervisory court’s powers in setting aside proceedings where public policy concerns are raised. Interesting comparisons can be made between the decision of the Cour de Cassation earlier this year in Belokon v Kyrgyzstan (Cass. Civ. 1st, 23 mars 2022, n° 17-17.981) (Belokon) and the Mauritian decision of Betamax Ltd v State Trading Corporation [2021] UKPC 14 (Betamax). The position in France following Belokon seems to indicate that French courts are prepared to take a more interventionalist role, which could import wide-reaching implications. However, the Judicial Committee of the Privy Council made clear in Betamax that the Mauritian position will defer strongly to the findings of the tribunal and grants a very limited scope for review of an award on public policy grounds.

Belokon

Background

In the Belokon decision in 2022, the Court of Cassation upheld the Paris Court of Appeal's decision to set aside an award, on the basis of a violation of international public policy arising from allegations of money laundering. The applicant, Valeri Belokon, had been charged with – but not convicted of – money laundering offences. In the underlying proceedings, the tribunal determined that the money laundering allegations had not been proven and Belokon secured the award in his favour.

The Paris Court of Appeal set aside the award. The Court of Appeal said its enquiry was to determine whether the recognition or enforcement of the award would hinder the fight against money laundering, contrary to international public policy based on the Merida Convention. In doing so, the appeal court said that it was entitled to review the entire case, and that it was not confined in considering only the evidence presented to the tribunal and was not bound by the tribunal’s findings.

Belokon then appealed to the Court of Cassation, arguing that the Court of Appeal had exceeded its powers under Article 1520(5) of the Code of Civil Procedure by re-examining the merits of the case de novo.

Court of Cassation decision

The Court of Cassation dismissed the appeal. The Court confirmed the Court of Appeal’s view that an award may be set aside where its enforcement would allow a party to benefit from unlawful acts. This was because recognition and enforcement of such an award would necessarily be contrary to international public policy. In Belokon’s case, the Court found that enforcement of the award would allow him to benefit from the unlawful act of money laundering. In coming to this conclusion, the Court said that a criminal conviction was not required and deemed it sufficient that there were several ‘serious, precise, and concurring’ indicators of money laundering.

Significantly, the Court also confirmed that a supervisory court was entitled to undertake a de novo review to determine whether enforcement of an award would contravene international public policy. The Court of Cassation drew a distinction, however, between a review of the evidence, which the Court of Appeal had done, and a review of the merits (whether Belokon was actually guilty of money laundering), which it had not.

In adopting this position, the Court moved away from its historically ‘minimalist’ stance to the review of public policy violations and adopted a ‘maximalist’ approach. Under this maximalist approach, a supervisory court could consider any errors of fact or law made by the tribunal, where they reveal a violation of public policy. The Court also upheld the Court of Appeal's position that the de novo review was not limited a consideration of the evidence adduced before the arbitral tribunal, nor would the appellate court be bound by the tribunal's findings.

The Court in Belokon also introduced a new test in considering whether to annul or refuse to enforce an award on public policy grounds. Prior to Belokon, the Thalès test had been applied, requiring a ‘manifest, effective and concrete’ violation of international public policy to be shown. In Belokon, the Court of Cassation moved away from this and held that an award could be annulled or refused enforcement where there had been a ‘characterised breach of international public policy’. This is a far less stringent standard, which leaves open the question of which kinds of breaches of international public policy will warrant the setting aside of an award: could public policy breaches outside of criminal conduct be adequate? The Belokon decision seems to indicate that the French courts are prepared to take a more interventionalist role in the enforcement and setting aside of awards where public policy concerns are raised. This may dissuade parties from pursuing enforcement of arbitral awards in France where any public policy issues are raised or even suggested in the underlying proceedings. It could also potentially impact on the attractiveness of France as a choice of seat, particularly where contracts need to be entered into between parties from jurisdictions where concerns about money laundering and corruption are prevalent. Moreover, where the French courts do undertake a de novo review, it will undoubtedly add to the time and costs required to finally resolve the parties’ dispute.

Betamax

In Betamax, the Judicial Committee of the Privy Council held that a supervisory court was not permitted to review any errors of law that engaged public policy considerations. It strongly emphasised the importance of giving precedence to the finality of arbitral awards, whether right or wrong in fact or in law, absent the specified vitiating factors. In highlighting the limited scope for review of an award on public policy grounds, the Judicial Committee overturned the findings of the Supreme Court of Mauritius and upheld the decision of the arbitrator.

Background

The Respondent (STC) is a public company which operates as the trading arm of the Government of Mauritius. Throughout 2008 and 2009, STC was in negotiations with the appellant, (Betamax), as to the shipping of petroleum to Mauritius. The parties entered into a Contract of Affreightment (COA) on 27 November 2009, containing an arbitration clause. The COA provided that Betamax was to build and operate a tanker for 15 years, which STC could use for the transport of its petroleum products from India to Mauritius.

During the period of negotiations, public procurement legislation came into force: the Public Procurement Act 2006 (PPA) and the Public Procurement Regulations 2008 (PPR). The PPA and PPR were later amended in 2009. The public procurement legislation required approval of the Central Procurement Board for certain contracts to be entered into by public bodies.

In January 2015, a new government in Mauritius announced that it would terminate the COA on account of it being allocated unlawfully. A month later, STC gave notice to Betamax that it could no longer use its services under the COA. In April 2015, Betamax terminated the COA and proceeded to file a notice of arbitration in May 2015. STC claimed that the COA contravened the PPA, and so was both illegal and unenforceable.

Procedural history

The Arbitrator ultimately found that the COA was exempt from the application of the PPA and consequently the COA was not illegal, and also found in favour of Betamax on all other grounds.

Betamax and STC then proceeded to file applications with the Supreme Court of Mauritius to enforce and to set aside the award respectively. STC claimed that the award ought to be set aside on several grounds, including that the award was in conflict with the public policy of Mauritius, pursuant to s 39(2)(b)(ii) of the International Arbitration Act 2008 (IAA) (mirroring Article 34(2)(b)(ii) of the UNICTRAL Model Law).

The Supreme Court set aside the award under s 39(2)(b)(ii), determining that the COA was not exempt from the PPA and had been entered into in breach of it. The Court held that the COA was therefore flagrantly illegal and in conflict with the public policy of Mauritius.

Betamax appealed to the Judicial Committee of the Privy Council, which considered three questions:

1. Was the Supreme Court entitled to review the Arbitrator’s decision that the COA was not subject to PPA and it was not illegal (Issue 1)?

2. If yes, was the COA entered into in breach of the PPA and so illegal (Issue 2)?

3. If the COA was illegal, was the award giving effect to the COA in conflict with the public policy of Mauritius (Issue 3)?

Judicial Committee findings: Issue 1

Betamax argued that the question of whether the COA was exempt from the PPA and whether there was any illegality, had already been determined in the arbitration. The finality of the arbitrator’s decision precluded the Supreme Court from subsequently redetermining these questions. STC contended that the Supreme Court was permitted to review any errors of law which engaged public policy considerations.[1]

The Judicial Committee rejected STC’s argument. It held that this approach was inconsistent with the purpose of the IAA and modern international arbitration policy. These required the tribunal’s decision to be upheld as final, whether right or wrong in fact or in law, absent the specified vitiating factors.[2] That the IAA did not permit a right of appeal on a question of law was also significant.[3] The Judicial Committee observed that if STC was correct, a right to appeal on an issue of law would in effect arise wherever one party had alleged illegality in the arbitration, but it had been rejected by the tribunal. Such an approach would significantly increase the ambit of the court’s intervention permitted under s 39(2)(b)(ii) of the IAA.[4]

The Judicial Committee stressed that s 39(2)(b)(ii) gave the court a ‘limited supervisory role’ in which the finality of awards must be respected.[5] In carrying out this role, the Supreme Court could only apply public policy to the findings of law and/or fact made in the award.[6] It could not, ‘under the guise of public policy’, reopen issues relating to the meaning and effect of the COA or its compliance with a legislative scheme.[7] The Judicial Committee ultimately held that the tribunal’s decision finding the COA to be exempt from the PPA was final and binding, and the Supreme Court had not been entitled to review it.[8]

Judicial Committee findings: Issues 2 and 3

In determining Issue 2, the Judicial Committee undertook an extensive interpretative analysis of the public procurement legislation. It held that properly interpreted, the COA fell within the exemptions provided for under the regulatory regime as amended. Accordingly, the COA was not illegal and the Arbitrator’s decision had been correctly made.

In consequence of its findings on Issues 1 and 2, the Judicial Committee declined to consider Issue 3, stating that it would be ‘neither necessary nor helpful’ to do so.[9] In so doing, the Judicial Committee reaffirmed Mauritius’ pro-arbitration stance and its unwillingness to give a wide ambit to public policy review powers. In contrast to Belokon, the Betamax decision upheld the status quo and the attractiveness of arbitration in respecting the finality of awards.

Conclusion

Belokon and Betamax show there to be a clear divergence in approaches to the powers of a supervisory court in set aside applications concerning public policy violations. The Mauritian courts (and by extension the courts of England and Wales) have signalled that strong deference will be given to the findings of the tribunal, except in very limited circumstances. The French courts, however, will determine contraventions of international public policy under a ‘maximalist’ approach that permits a de novo review of the proceedings and consideration of fresh evidence. It remains to be seen where the French courts will draw the lines as to the permittable scope of the maximalist approach.

It also remains to be seen whether the behaviour of parties will be influenced at the enforcement stage, where public policy violations have been suggested in the proceedings. Will parties seeking to enforce such an award be deterred from commencing enforcement proceedings in France, where other options are available? Or conversely, will the Belokon decision embolden unsuccessful parties to pursue annulment proceedings in the French courts? Given France’s pro-arbitration stance, it seems unlikely that Belokon will lead to any considerable increase in annulments of awards. Instead, the decision will likely reflect an additional limited control to be employed by the French courts, and one which is expected to be applied strictly. The frequency in which the French courts undertake these de novo reviews will also likely impact the attractiveness of France as a seat of choice. Where these de novo reviews are performed exceptionally, there should be no impact to France’s attractiveness. However, more frequent instances will likely reduce France’s appeal, given the added time and costs required to finally resolve the parties’ dispute. ​​​​​​​