International arbitration in Mauritius: country update

Mushtaq Namdarkhan

BLC Robert & Associates, Mauritius

Mushtaq.Namdarkhan@blc.mu

Dipna Gunnoo

MCCI Arbitration & Mediation Center, Mauritius

Introduction

Mauritius continues to be a pro-arbitration jurisdiction. In recent months, two decisions have shown that the courts will not easily uphold challenges to arbitral awards. The first one is the decision of the Judicial Committee of the Privy Council (JCPC) to restore an arbitral award in the case of Betamax Ltd v/s State Trading Corporation (2021) UKPC 14. In the second case of Essar Steel Limited v ArcelorMittal USA (2021) SCJ 249, the Supreme Court of Mauritius deliberated on an application to stay the enforcement of an International Chamber of Commerce arbitral award. This article provides overview of both cases.

The Betamax judgment

On 14 June 2021, the JCPC delivered its judgment in the case of Betamax v/s State Trading Corporation. The JCPC reversed the decision of the Supreme Court and restored an arbitral award which had found the trading arm of Mauritius to be liable for US$115.3m plus interest and costs.

History

The dispute arose following the entry in 2009 of a contract of affreightment (COA) between Betamax Ltd and the State Trading Corporation (STC). In the various legal battles that ensued, the regime of the Public Procurement Act 2006 (PP Act) and the Public Procurement Regulations 2008 (as amended in 2009, the PP Regulations) was central. If the PP Act applied to the COA, that contract would have then required the approval of the Central Procurement Board (CPB). STC contended that this was the case, while Betamax argued that the COA was exempted from the PP Act by the PP Regulations.​​​​​​​

In 2015, STC signified its intention to cease using freight services from Betamax under the COA. Betamax served a notice of termination of the COA and filed a notice of arbitration under the COA, claiming damages of over US$150m for breach of contract. Following arbitration hearings in a Mauritius-seated arbitration administered under the SIAC Rules, the arbitrator delivered his award holding that STC was liable to Betamax for US$115.3m plus interests and costs.
STC applied to the Supreme Court to set aside the award, on the grounds that the dispute was not arbitrable, that the arbitration agreement was not valid and that the award was contrary to the public policy of Mauritius. The Supreme Court upheld the argument that the award contravened public policy on the basis that the COA was illegal because it was entered into without obtaining CPB approval under the PP Act. The Supreme Court, in so ruling, considered the PP Act to be part of the fundamental legal order of Mauritius, and that the PP Regulations could not be interpreted in such a way as to exempt the COA from its application. Betamax appealed the Supreme Court judgment.

Decision of the JCPC

1. Was the Supreme Court entitled to review the arbitrator's decision that the COA was not subject to the provisions of the PP Act and PP Regulations?
2. If in the affirmative, was the COA illegal as a result of being entered into in breach of the PP Act and PP Regulations?
3. If the COA was illegal, was the Award giving effect to the COA in conflict with the public policy of Mauritius?

Issue 1

The JCPC observed that the issue in the appeal was the scope of Section 39(2)(b)(ii) (the ground on contravention to public policy) of the International Arbitration Act (the IAA) – specifically, in relation to a decision of an arbitral tribunal which decided that a contract was not illegal based on its interpretation of legislative provisions and regulations that were applicable to a contract. The JCPC also agreed with the Supreme Court that the nature and extent of the public policy of Mauritius was a matter to be decided by the Supreme Court itself.

The JCPC concluded that the Supreme Court was mistaken in interfering with the arbitrator's decision. It based its conclusion on two main arguments:​​​​​​​

• that the determination of the legality of the COA turned on questions of interpretation of the PP Act and the PP Regulations which did not give rise to any issue of public policy; and
• that the purport of section 39(2)(b)(ii) of the IAA would be significantly expanded if the Supreme Court's intervention was upheld. Such an expansion was not in line with the spirit of the IAA, which was intended to uphold the finality of an arbitral tribunal's decisions on the law and facts.

The JCPC disapproved the Supreme Court’s reliance on the English decision of Soleimany, given that the latter related to an arbitral tribunal making an award about a contract which it concluded was illegal, and on the Singaporean decision of AJU v AJT, given that the Singaporean Court of Appeal’s dictum about the scope of the court’s intervention went further than what was required in that case and was inconsistent with the rest of that judgment as a whole.

Issues 2 and 3

On the second issue, the JCPC’s interpretation exercise led it to conclude, unlike the Supreme Court, that the COA was exempt from the PP Act. As a result, the third issue did not need to be decided.

​Overall conclusion

The Betamax judgment suggests that, even when the subject matter of an arbitration concerns the legality of a contract under legislation having a public law element, it will be very difficult to overturn the conclusion of the arbitral tribunal on the legality of the contract under that legislation on grounds of public policy.

​​​​​​​The Essar Steel judgment

History

In this judgment, the Supreme Court had to consider whether to refuse to recognise an ICC award delivered in the United States on grounds that the arbitration debtor had been deprived of an opportunity to present its case.

Essar Steel Limited (ESL), a company incorporated in Mauritius, was the holding company of Essar Steel Minnesota LLC (ESML). ESL and ESML entered into an agreement with Arcelormittal USA LLC (AMUSA) for the supply by ESML and purchase by AMUSA of iron ore pellets over a ten year-year period. AMUSA terminated the contract for anticipatory and repudiatory breach by ESML. Thereafter, ESML entered into bankruptcy proceedings in the US; AMUSA initiated arbitration proceedings against ESL pursuant to the ICC Rules of Arbitration and with a seat of Minnesota, ESL being the guarantor of ESML’s obligations under the agreement.

An arbitral tribunal appointed by the ICC International Court of Arbitration ultimately awarded damages in the sum of US$1.38bn with costs and interest in favour of AMUSA. AMUSA subsequently obtained a provisional order for the recognition and enforcement of the award from the Supreme Court.

ESL’s application

ESL applied to set aside the Provisional Order and stay enforcement of the award on the following grounds:

• under Article V(1)(b) of the New York Convention, that ESL was unable to present its case; and
• under Article V(2)(b) of the New York Convention, that recognition or enforcement of the award would be contrary to the public policy of Mauritius.

It was ESL’s contention that it was unfairly treated by the arbitral tribunal, as a result of which it was unable to prepare its defence and to properly present its case. During the arbitral proceedings, ESL had informed the tribunal that it would not be able to participate in the arbitration or assist the tribunal further. As a result, it did not participate in the evidentiary hearings that preceded the issue of the award. ESL argued that:

• Given the complexity of the dispute, the six-month timeframe imposed by the arbitration clause in the agreement (from execution of the terms of reference to completion of the evidentiary hearings) was unrealistic, inappropriate and unreasonable.
• The arbitration clause was meant to deal with disputes over delivery of iron-ore pellets rather than disputes relating to the entire performance of contract.
• ESL was unable to access documents from ESML since the latter was undergoing bankruptcy proceedings and was not a party to the proceedings. In addition, the volume of documents provided by AMUSA required several weeks before a meaningful defence could be prepared and ESL did not have access to any current or former employees of ESML.
• ESL could not review any of the documents provided by AMUSA because of the terms of a confidentiality order issued by the tribunal during the proceedings in respect of ‘highly confidential’ information.

ESL contended that the above were serious fundamental procedural defects. Since it was unable to present its case, this also amounted to a contravention of the public policy of Mauritius.

The Supreme Court’s determination

The Supreme Court rejected ESL’s challenge and considered that it had failed to make a persuasive case under either ground. In assessing the first ground, the Court held that:

• ESL had more than six months to collect evidence in order to defend itself, as the request for arbitration was issued nearly 14 months before the start of evidentiary hearings.
• The fact that ESML’s former CEO (and ESL’s representative in the arbitration proceedings) believed that documents had been deleted from his laptop undermined ESL’s contention that it could not access documents due to an allegedly inappropriate timeline.
• ESL did not consult the documents which were provided to it by AMUSA. Moreover, ESL could have applied for arbitral subpoenas and availed itself of the tribunal to obtain documents.
• Owing to the nature of its activities and the generality of the arbitration clause, ESL should have been aware of the complexity of the contract and could not therefore invoke the non-applicability of the arbitration clause to avoid compliance with the six-month timeframe from execution of the terms of reference to completion of evidentiary hearings.
• Article 22(3) of the ICC Rules grants the tribunal discretion to determine its own process. Accordingly, it was not improper for the arbitration tribunal to impose the confidentiality order in relation to price-sensitive information.
• ESL did not avail itself of the mechanism under clause 10 of the confidentiality order to seek a declaration from the tribunal which could have allowed its lawyer to discuss any confidential information.

Regarding the public policy ground, the Supreme Court found that ESL was unable to show that there was any breach of the ‘most basic notions of morality and justice’ by the way in which the arbitral proceedings were conducted. ESL therefore failed to establish a contravention to the public policy of Mauritius.

The Supreme Court confirmed that a very limited notion of public policy should apply to the recognition of foreign arbitral awards. This ground will therefore require a very high threshold to be satisfied before the Supreme Court would consider intervening to refuse recognition of an award.

Conclusion

It is worth mentioning that another appeal is currently pending before the JCPC in the matter of Flashbird Limited v Compagnie de Securite Privee et Industrielle (2018) SCJ 402.

In this case, an arbitration clause referred to the fact that Mauritius had a court of arbitration at its chamber of commerce and industry, and stated that the arbitration would be governed by the ICC Rules. When the dispute was referred to the Mauritius Chamber of Commerce and Industry Arbitration Centre (MARC), the appointed arbitrator interpreted the arbitration clause, deciding that the reference to the ICC Rules was a misnomer and that the parties had intended to refer to the MARC Rules.

Following the delivery of the award, the appellant challenged the award before the Supreme Court on the ground that the composition of the tribunal (being one arbitrator instead of three) and the arbitral procedure (applying the MARC Rules instead of the ICC Rules) were not in accordance with the agreement of the parties. IN 2018, The Supreme Court rejected the challenge and upheld the arbitrator’s decision; the court considered that there was no evidence that the ICC would have come to a different decision than the MARC Court in appointing a sole arbitrator instead of three, and that the appellant had not otherwise established any prejudice to it as a result of the application of the MARC Rules instead of the ICC Rules.

The decision of the JCPC would likely be significant in giving guidance on how to interpret such ‘pathological’ arbitration clauses.