Landmark decision of the Privy Council clarifies the broad power of an arbitrator

THE Privy Council in London has overturned the Mauritius Supreme Court judgment setting aside an arbitrator’s decision on public policy grounds. In the case of Betamax Ltd v State Trading Corporation, The Privy Council was faced with a decision made by the Supreme Court to set aside an arbitral award made under the auspices of the Singapore International Arbitration Centre (SIAC).

The sole arbitrator had found that a contract entered into between Betamax and the State Trading Corporation (STC) was legal and enforceable. As a consequence of the unlawful termination of the contract, the arbitrator awarded damages to Betamax in the sum of USD 115 million, with interest and costs. In reaching his conclusion, the arbitrator dealt with all matters of fact and law.

The Supreme Court of Mauritius held that the arbitrator had been wrong in his decision. It set aside the arbitrator’s decision on the basis that the Contract of Affreightment (COA) was illegal and, by enforcing the illegal agreement, the arbitrator breached the public policy of Mauritius. The Central Procurement Board did not approve the award of the contract. The issue in relation to legality was simply whether the COA was exempted from the provisions of the Public Procurement Act.

“The Privy Council’s decision makes clear that a court should not interfere with an arbitral award in guise of Public Policy considerations”

In considering the application to either enforce or set aside the arbitral award, the Supreme Court considered the existence of a potential public policy issue. In so doing, the Supreme Court conducted a ‘de novo exercise’, in which it comprehensively reviewed the parties’ substantive claims and arguments.

The Privy Council, in delivering its decision, held that the existence of a potential public policy issue should not automatically entitle the Supreme Court to re-open the arbitrator’s findings. To do so would be contrary to the principle of finality of arbitral decisions under the Mauritius International Arbitration Act.

The International Arbitration Act sets out the clear principles applicable in international arbitrations; amongst others, a “policy of minimal curial intervention”. This policy functions to fulfil two main purposes: First, there is a need to recognise the autonomy of the arbitral process by encouraging finality, so that its advantage as an efficient alternative dispute resolution process is not undermined. Second, having opted for arbitration, parties must be taken to have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the courts.

POLICY OF MINIMAL CURIAL INTERVENTION

Under the “policy of minimal curial intervention” the courts must not interfere with the conclusions an arbitrator has reached on the merits and “bail out” a party who, in the course of the arbitration, has become unhappy with the decision of the arbitrator. The Privy Council ruled that the Supreme Court was in error in reviewing the decision of the arbitrator. When the Supreme Court had scrutinized the reasoning of the arbitrator as to its correctness, it had departed from the path of minimal curial intervention.

Indeed, the practice of scrutiny by courts can be seen to encourage parties to tactically frustrate and delay the enforcement of the arbitral award. This runs contrary to one of the original aims of arbitration as an expedient alternative dispute resolution mechanism. However, this does not mean that courts will never intervene in the arbitral process. While there is no “appeal” from arbitral awards, the courts do supervise the fairness of the arbitral process and ensure that the arbitrator has not made a decision that is beyond the scope of the arbitration agreement or breach of natural justice.

CONCLUSION

The Privy Council’s decision is of great significance as it makes clear that a court should not interfere with an arbitral award in guise of public policy considerations. It reinforces the very high threshold that needs to be met for an award to be set aside. The decision also serves a cautionary tale that a court should respect the autonomy of arbitral proceedings and the finality of arbitral awards. In other words, arbitral awards are non-appealable on grounds of errors of law or fact.