Caribbean court holds LCIA arbitration award unenforceable on ground of public policy

The Caribbean Court of Justice (the ‘CCJ’) has held that an LCIA arbitration award should not be enforced on the basis that to do so would be contrary to the public policy of Belize. The CCJ recognised that enforcement of a foreign arbitral award should be refused only in the rarest of circumstances and, accordingly, the intrusion upon public policy must violate core principles of justice and the rule of law for this exception to be engaged. The CCJ held that this high threshold was met in this case and that enforcement should be refused.

Why the decision is interesting to practitioners

The case is of interest to arbitration practitioners as an example of a senior appellate court refusing to enforce a foreign arbitral award on the ground that to do so would be contrary to public policy. The CCJ is clear in its judgment that courts should adopt a 'pro-enforcement bias' in New York Convention ('Convention') cases and that the threshold for non-enforcement of arbitral awards remains high. Nonetheless, the CCJ held that the public policy exception was successfully engaged on the facts of this case.

The CCJ's willingness to consider, in detail, the merits of the LCIA tribunal's decision regarding the Government of Belize's ability to enter into the Tax Deed with the Companies is unusual and contrasts with, for example, the less interventionist approach of the English courts. In this regard, the decision appears to be highly fact-specific and, although the CCJ's judgment regarding the invocation of the public policy exception will provide useful guidance in similar cases, the decision should be evaluated in this context.

The facts

The CCJ (hearing an appeal from the Court of Appeal of Belize) held that an LCIA award should not be enforced in Belize on the basis that to do so would be contrary to public policy.

The appellants were BCB Holdings Limited and The Belize Bank Limited (the 'Companies') and the respondent was the Attorney General of Belize (the 'State of Belize). The Companies and the State of Belize had previously entered into a Tax Deed which provided that the Companies should benefit in Belize from a separate and tailored tax regime. In return, the Companies' legal claims against the State of Belize would be settled. The Tax Deed was concluded between the Companies and Belize's Minister of Finance on behalf of the Government of Belize. A dispute arose which was referred to LCIA Arbitration. The State of Belize did not participate in the arbitration. The tribunal made an award in favour of the Companies totalling approximately $44 million plus interest.

The Companies sought to enforce the award in Belize where the trial judge held that the award could be enforced by the Companies. The State of Belize successfully appealed to the Court of Appeal of Belize. The Companies then appealed the decision to the CCJ (which in 2011 replaced the Judicial Committee of the Privy Council as Belize's ultimate appellate court). The CCJ refused to enforce the award on public policy grounds.

The public policy exception—what the CCJ decided

As part of its award, the LCIA tribunal found that the Tax Deed between the parties was valid on the basis that:

  • the Belize Government had a wide prerogative power to enter into contracts and that none of the restrictions on the exercise of this prerogative had been abused
  • the Belize Government, through its Minister of Finance, was authorised expressly by section 95 of the Income and Business Tax Act to make and guarantee the promises made in the Tax Deed (paragraphs 9–11 of the judgment)

The CCJ accepted that to claim the public policy exception successfully the matters cited in support of non-enforcement must 'lie at the heart of fundamental principles of justice or the rule of law and must represent an unacceptable violation of those principles'. The CCJ considered that it was empowered to re-examine the legality of the Tax Deed even though the LCIA tribunal had addressed this matter and found it to be valid.

The CCJ referred to the principle in Westacre (a decision of the English High Court) that the estoppel preventing a reconsideration of this issue 'must yield to the public policy against giving effect to transactions obviously offensive to the court'. The court went on to state that because the State of Belize had advanced credible allegations of illegality it needed to examine the Tax Deed against the backdrop of fundamental principles and rules in order to determine whether the Tax Deed was 'obviously offensive'.

The CCJ found that the Tax Deed was 'obviously offensive' and went so far as to state that this was a case where the court had a duty to invoke the public policy exception. On the facts, the public policy exception was successfully invoked for the following reasons:

  • the Tax Deed created a tailored tax regime that was applicable only to the Companies and which was expressed to be unalterable by the Belize legislature
  • even if the Minister of Finance had authority to enter into the Tax Deed, its implementation without legislative approval (which was not sought or granted) was unlawful
  • the Tax Deed purported to alter and regulate taxation, which, under the Belize Constitution, could only be done validly by the Belize legislature
  • to allow the Belize Government to assume a legislative function beyond its constitutional or statutory authority would put democracy at peril. The CCJ stated that the 'implementation of the provisions of the [Tax Deed], without legislative approval and without the intention on the part of its makers to seek such approval, is indeed repugnant to the established legal order of Belize'

Accordingly, the CCJ found that the Tax Deed was illegal, void and contrary to public policy and the enforcement of the LCIA award should be refused.

Should non-participation in the arbitral process preclude the invocation of the public policy exception?

The CCJ reached the above conclusion even though the State of Belize had failed to participate at all in the original LCIA arbitration and the tribunal had been forced to bring balance to the proceedings on its own initiative with the Companies' assistance. On this point, the CCJ stated that it did not consider that in each case a failure to participate in the arbitral process should preclude a party from successfully arguing the public policy exception at the enforcement stage. The court stated that the case law on this issue 'is far from coherent and it would not be right to lay down hard and fast rules'.

The CCJ recognised the State of Belize's non-participation in the original proceedings as a matter for its consideration, but did not give it much weight. Neither did the CCJ explain why the case law on this matter is incoherent as claimed. If the State of Belize had participated in the initial LCIA arbitration then the arguments which it advanced in the later enforcement proceedings regarding the illegality of the Tax Deed may have come to light sooner and a different decision may have been reached by the LCIA tribunal; however, this point was not considered in the judgment.

Filed Under: Arbitration

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