STC-Betamax, CEB-IPPs/BWSC and Public Procurement Governance
We have to look anew at the safe, accountable and transparent procedures when long-term contractual obligations can tie the hands of future governments and the Mauritian population
By Jan Arden
A full bench of the Privy Council, our final body of appeal, has ruled on the case filed by Betamax against the Supreme Court judgment this 14th of June 2021. The judgment, available online for every interested reader, has been ably commented upon both by political commentators, experienced editorialists and legal minds attuned to commercial law in an international context. We will not delve on the issue, which was aptly described in last week’s editorial as ‘a Multi-Billion Rupee Disaster’, but cannot help but to flag some questions.
The 2015 cabinet which included such experienced political and legal minds as Ivan Collendavelloo, Ravi Yerrigadoo (Attorney General), Anil Gayan, Etienne Sinatambou, Roshi Bhadain, Nando Bodha and Pravind Jugnauth, now PM, was led by SAJ who had a reputation for abiding with legal advice, protocol and procedures. Having furrowed the electoral campaign that the contract awarded by the STC to Betamax was tainted by proximity of the company’s CEO, Vickram Bhunjun, with the outgoing PM and was somehow a procedurally flawed or a tailor-made “jackpot”, SAJ seemed nonetheless to have been fully conscious of the need to tread with legal caution.
At the first Alliance Lepep press conference of 10th January, as reported in Le Mauricien, he stated that “les représentants des compagnies concernées ont été convoqués pour en discuter. Ces derniers ont accepté de renégocier le contrat. Les discussions commenceront mercredi prochain au ministère des Finances.” He added further to press questions that “le gouvernement n’avait pas révoqué le contrat car voulant procéder ‘de manière civilisée’” or that choice of “dossiers qui feraient l’objet d’enquêtes sera fait avec discernement afin de ne pas avoir à payer des dommages considérables, mettant ainsi l’économie en difficulté.”
The “maniere civilisée” SAJ claimed could not have been simply about moral and ethical considerations as nobody in government could ignore the importance of “permanence de l’Etat” in respecting contractual obligations, particularly those with clear international dimensions, while finding legally respectful avenues of course correction or conciliation. Both common and legal sense indicate that there are three alternatives open to an incoming government, unsatisfied with any major contract entered into by an outgoing government: (a) renegotiate terms that are deemed unfavourable or incompatible with new policies, it is the least costly option for the public purse; (b) terminate the agreement with adequate compensation for the investments made and projected earnings; every contract of such magnitude would undoubtedly contain such a termination clause and most probably would have been vetted by our able SLO; in the case of Betamax the negotiated compensation according to the press might have amounted to some Rs 1.5 bn with the STC inheriting the Red Eagle, a Rs 700-800 m worth ship; (c) the last alternative verges on a rogue state, through the termination of a bona fide international contract without compensation on charges of malfaisance, often mere political lipstick on a pig as the saying goes.
SAJ had obviously chosen the wisest course and it is common knowledge that the SLO and other expert legal advice favoured the second option only if negotiations were refused or broke down. There is concrete evidence that the Betamax CEO offered to review jointly with government those contractual clauses the latter felt uncomfortable with. There was therefore clearly no reason to forego the first two options.
So the questions remain about the mystifying events that would lead to that incomprehensibly disastrous decision by SAJ’s cabinet on 30th January 2015 to unilaterally terminate the Betamax-STC contract, a decision for which the population is ultimately called upon to pay the heavy price of near Rs 6 bn in the midst of a tottering economy and severely handicapped personal finances for the majority of us. That’s bleeding every family on the island by some Rs 30,000.
Judgment at SIAC
The authorities here knew full well that Betamax was a joint venture with a Singapore firm (15% we gather) bringing the expertise for maritime transport and ship handling between Mangalore refinery and Mauritius. Had the authorities sufficiently weighed in this triangular international aspect that would almost inevitably lead a unilateral contractual termination to an International Arbitration as per the contractual provisions?
The authorities were also fully cognizant that Mauritius was vying since 2011 through the London Chamber of Commerce-Mauritius International Arbitration Centre (LCC-MIAC) agreement to position itself as an international arbitration centre, giving birth in 2018 to the MIAC, with its autonomous rules, regulations and procedures adopted from world best practices. A 2018 MIAC Article lifted from those international rules states clearly that “all awards shall be made in writing and shall be final and binding on the parties. The parties shall carry out all awards without delay.”
Even if the STC, hard-pressed by the January 30th Cabinet decision, could remotely give judicial credence to some of government’s allegations, there was no certainty in an International Arbitration Court, in India, Singapore (or even at the LCC) that international contractual commercial obligations would be easily superseded or swept aside by local politico-economic reasoning.
Through government’s rash decision, the STC was thus fully landed in scalding water at the Singapore International Arbitration Centre where, despite its weighty legal team, it could not defend its case that the contract was either illegal, tainted by allegations of malfaisance or contrary to public policies that could justify government’s rash termination. The STC was accordingly condemned on 5 June 2017 to pay damages and legal costs that amounted to some Rs 4.7 bn payable from STC and the public purse. That award, as with our own MIAC, was binding and final and could not be appealed or re-litigated on matters of law or evidences produced, except for a very restricted public policy/order proviso.
An attempt to re-open and re-judge the case in our local courts would be clearly trying to take two bites at the same cherry, flouting the very essence and nature of international arbitration towards which we were patiently gearing up and possibly quite damaging for the credibility of MIAC. Again, although SAJ admitted in 2017 that there was no alternative other than to pay from public purse those consequential damages, government decided to appeal the arbitration award to the Supreme Court. The latter opined that the Betamax contract was made in flagrant breach of the Public Procurement Act (PPA), illegal and in conflict with public policy of Mauritius and set aside the arbitration award, providing huge (albeit temporary) relief to government’s stalwarts.
Judgment of the Law Lords
The Privy Council judgment was a double whammy for our SC bench and a government that seems to have been caught off-guard. It reiterates that international arbitration awards are judged for merits and decided on through a jointly agreed mechanism that cannot and should not be subject to a second bite of the cherry at local courts. Consequently, the Law lords made clear their first ruling that “the Supreme Court was not entitled to review the decision of the Arbitrator on the legality of the contract of affreightment (COA) under Mauritian public procurement laws”. The case might have ended there, but the Lords examined in some depth the question of legality of the COA between STC and Betamax, concluding that “the COA was not in breach of Mauritian public procurement laws”.
This judgement should be an important piece of jurisprudence and a costly reminder to our body politic that adversarial politics end when the electoral results designate a legitimate winner. The primary job of an elected government should be to get on with running the country rather than hounding opponents through abuse of levers of authority and power. Malfaisance allegations during electoral campaigns are rife in most elections but unless thoroughly investigated, cannot be the basis of crude political witch-hunting backed by trumped up provisional charges. The monumental gaffe of 2015 in the Betamax case would have cost the population Rs 4.7 bn in 2017, but delays and procrastination since then have added a further Rs 1 bn or more for a politically motivated wild goose chase.
Public procurement governance
The Betamax affair raises numerous questions. Those relating to public procurement procedures, their resilience and robustness with many demonstrable lapses and insufficient accountability over the years, should be one such key area of concern. We cannot explore those for want of space, but, for instance there have been suggestions that Government to Government contracts, frequently accompanied by confidentiality clauses, which may be justified only for commercially sensitive or national security considerations, should not hinder tomorrow’s quest for a more open and transparent state that treats its citizens as adults, democratic values as a cardinal principle and annual inspection by Audit as a governance imperative. Exemptions granted to large government-funded body corporates or their creative subsidiaries (the CEB comes to mind) from the Public Procurement Act should remain the exception rather than the frequent rule.
Some legal juggernauts of 2015 made much fuss that the STC-Betamax contract contained highly unusual or even “exorbitant” commercial features. Were they not aware that the long-term CEB contracts with Independent Power Procedures were rife with far more unusual, exorbitant and leonine features that were denounced in the press for the past twenty years? We have to look anew at the safe, accountable and transparent procedures when long-term contractual obligations can tie the hands of future governments and the Mauritian population. From the CEB-IPP contracts to the ongoing Safe City project, at some Rs 19 bn spread over 17 years, they are enough cases in point for our best brains to ponder. A thorough review of our blanket emergency procedures that have given rise to cringe worthy deviations during the Covid-19 pandemic, is equally warranted.
As is a strengthening of the Audit’s powers and a more general reconsideration of the perception of immunity of the politico-administrative nexus taking major decisions on our behalf. The most recent scandal, the multi-billion dollar CEB contract to a favoured supplier (Burmeister & Wain Scandinavian Contractor — BWSC) has only reached our shores through an anonymous overseas denunciation that led to prompt enquiry and action by the Scandinavian firm and the African Development Bank, while the investigation and closure against local officials and agents is still sputtering on here. Are our investigative agencies up to the task and their capacities for independence and credibility a reliable indicator of our continued dishonourable status with FAFT, the EU or the UK? More need not be said but should our best brains and other patriots in office take note and attempt to remedy what can still be salvaged of the country’s reputation?
* Published in print edition on 22 June 2021
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