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27 February 2020
Arbitration in Belize is governed by the Arbitration Act.(1) As the act was last amended in 1980 (1980 Ordinance), it has become somewhat outdated. However, the 1980 Ordinance assisted in Belize's assimilation of a modern arbitration enforcement regime by incorporating the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) into domestic law.
With respect to local arbitration, the act makes standard provision for parties to submit disputes to arbitration and for applications to be made to stay court proceedings pending arbitration.(2) Among other things, the act:
Under the act, foreign awards are governed by three international conventions, which have expressly been incorporated into domestic law by way of insertion as schedules to the act:
While Belize is not a party to the New York Convention, the Caribbean Court of Justice (CCJ), Belize's final appellate court, has held that the provisions of the convention embodied in the act by the 1980 Ordinance give effect to the convention in domestic law.(6)
This article looks at recent arbitration developments in the local courts. For an overview of key legislative developments, please see "International arbitration: key legislative developments".
Qualifications of or challenges to arbitrators
Belize Bank Ltd v the Attorney General of Belize(7) centred on the fact that Belize Bank Ltd funded the expansion of Universal Health Services Co Ltd (UHS), which was guaranteed by the Development Finance Corporation (DFC), a statutory body in Belize. The DFC ran into financial difficulty and the government guaranteed the debt as part of its policy to reform Belize's healthcare system. A loan note was issued to Belize Bank Ltd in March 2007 to settle the government's liabilities with respect to the UHS debt.
In Belize Bank Ltd v The Association of Concerned Belizeans,(8) the Judicial Committee of the Privy Council, formerly the final appellate court of Belize, determined that the loan note on its true construction was a promissory note which was enforceable by the bank against the government. In April 2007 the government defaulted on the loan note and Belize Bank Ltd initiated proceedings for arbitration in accordance with the arbitration agreement in the loan note. In July 2013 Belize Bank Ltd successfully obtained an award on conclusion of the arbitration in the London Court of International Arbitration (LCIA). The arbitral award amounted to Bz$36,895,509.46 plus interest, and the costs of the arbitration amounted to £78,943.30 and £457,874.41. Belize Bank Ltd then applied to the Supreme Court for enforcement of the award.
At the Supreme Court level,(9) the government resisted the action for enforcement of the arbitral award and argued that the tribunal had not been appointed in accordance with the parties' agreement as the government had not been afforded the opportunity to nominate an arbitrator. Further, the government argued that the appointment of Professor Zachary Douglas, a member of the panel, was tainted by an appearance of bias, which resulted in the breach of a term existing by necessary implication in the agreement – namely, that the appointment of an arbitrator must be free from bias or any appearance thereof.(10)
The court did not favour these arguments. It held that the government had irrevocably waived its right to nominate an arbitrator in accordance with the parties' agreement by virtue of its non-participation in the arbitration proceedings. The court then considered the government's arguments that there was an appearance of bias with respect to Douglas's presence on the panel. The government alleged apparent bias because Douglas was a member of Matrix Chambers and other members of those chambers often advised or were sought out by Lord Ashcroft, who had interests in BCB Holdings Limited, Belize Bank Ltd's parent company, in connection with two other matters in the United Kingdom that bore connections to Belize. The trial judge eventually held that there was no appearance of bias because Ashcroft's interaction with other members of Matrix Chambers had occurred in 1994, 16 years prior to the arbitration proceedings in question. The assertion that barristers from Matrix Chambers may have been consulted by or advised Ashcroft in proceedings in the United Kingdom also did not sit well with the court. This was because the barristers who were allegedly consulted were never identified, and it was also never alleged that those particular barristers had participated in the arbitration proceedings. The court also criticised the government's delay in grounding this challenge.
Although the trial judge rejected the argument that the panel had not been properly constituted, enforcement was refused on the basis that it would offend public policy in Belize. Although this position was upheld by the majority of the panel of Court of Appeal judges,(11) it was overruled at the CCJ level (see below).
The government has been involved in arbitration proceedings with local and international investors. In two particular instances where legal entities successfully obtained foreign arbitral awards, the government opposed enforcement of these awards on the basis that such enforcement would offend public policy. Section 30(3) of the Arbitration Act empowers the court to do this. The CCJ refused enforcement of the arbitral award in BCB Holdings v the Attorney General of Belize,(12) but ordered that the award holder was at liberty to enforce the award in the same manner as a judgment or order of the Supreme Court in Belize Bank Ltd v the Attorney General of Belize.(13)
BCB Holdings v the Attorney General of Belize
In this case, the CCJ held that it would be contrary to public policy to recognise an award issued to Belize Bank Ltd and declined to enforce it because the deed on which the award was based (settlement deed) was implemented without parliamentary approval, in violation of Belize's fundamental law, particularly the doctrine of separation of powers.
On 22 March 2005 BCB Holdings Limited, Belize Bank Ltd's parent company (the appellants), the minister of finance (who signed for himself as well as on behalf of the government) and the attorney general (acting on behalf of the state) entered into a settlement deed. This settlement deed created a unique tax regime that altered and regulated the manner in which the appellants should discharge their statutory tax obligations. This tax regime was not legislated, but was honoured by the government for two years. A dispute arose thereafter between the parties to the settlement deed, and the appellants claimed that the government had breached and repudiated the settlement deed (as amended). The appellants then commenced arbitration, seeking declarations and awards on the basis of the breach.
The LCIA determined that the government should pay damages for dishonouring the terms of the settlement deed. The tribunal found the government in breach and awarded damages against the government in addition to arbitration costs and legal, professional and other fees (award). The award totalled approximately Bz$44 million and carried interest at the rate of 3.38%, compounded annually.
The thrust of the government's argument for non-enforcement was that it had never been bound by the agreement that had given rise to the settlement deed because implementation of the same without parliamentary approval violated the country's fundamental law, and enforcement of such an award would be contrary to public policy. In deciding this issue, the Honourable Justice Saunders cautioned that parties often invoke an argument of public policy to prevent the enforcement of a foreign award.(14) However, he carefully considered the parameters of the public policy exception. Essentially, the courts should apply the public policy exception in a more restrictive manner in instances where a party is seeking to enforce a foreign or convention award compared with instances where public policy is being considered in a purely domestic scenario. This should be done in light of international comity considerations, to demonstrate faith in and respect judgments of foreign tribunals. According to Saunders, "only where enforcement would violate the forum state's most basic notions of morality and justice would a court be justified in declining to enforce a foreign award based on public policy grounds".(15) He stressed that the public policy exception should be made only when the relevant matter lies at the heart of fundamental principles of justice or the rule of law and must represent an unacceptable violation of those principles. Therefore, the threshold to be met is high.(16)
Although the LCIA had already ruled on the legality of the settlement deed, the CCJ determined that it was within its jurisdiction to consider the provisions of the settlement deed in order to weigh the provisions against fundamental principles and rules of law. On undertaking this examination, the CCJ found that the provisions of the settlement deed were designed to alter the appellants' current and future tax obligations under the revenue laws of Belize for 15 years, without being sanctioned by legislation. The CCJ found that such provisions offended the sacrosanct doctrine of separation of powers, since the executive exercised a power to grant exceptions to statutory obligations without obtaining parliamentary approval thereof. In addition, the CCJ highlighted that where the exercise of a governmental function is regulated by statute, any prerogative power that could have been previously exercised is superseded by that statute. In this case, the relevant statute was Section 95 of the Income and Business Tax Act, with which the CCJ noted that the minister of finance had not complied. According to the court, to allow the minister to act as he did would be to disregard the Constitution completely.(17) The court held that it would have been necessary for the National Assembly to intervene so that legislation consistent with the Constitution could be enacted to give force to the newly created tax regime for the appellants.
The CCJ stated that even if a lower court determines that there are features of an award that may seem inconsistent with public policy, it does not follow that the court must decline to enforce the award.(18) A balancing exercise would have to be conducted. The CCJ then assessed the nature, quality and seriousness of the matters alleged to give rise to the public policy concerns, weighed those concerns and placed them alongside its desire to promote finality and certainty with respect to arbitral awards. Given the importance of tax laws ascribed by the Constitution, the CCJ determined that the facts of this case warranted the exercise of its jurisdiction to refuse enforcement of the award, stating that the sovereignty of Parliament, subject only to the supremacy of the Constitution, along with the principle of separation of powers, are core constitutional values. According to the court, the facts of this case justified the exercise of its power to refuse the enforcement of the award.(19)
Belize Bank Ltd v the Attorney General of Belize
At the Supreme Court level, Justice Griffith also grappled with the invocation of the public policy exception to refuse the enforcement of an arbitral award in Belize Bank Ltd v the Attorney General of Belize.(20) As stated above, this case involved a loan note that was not honoured by the government. The legal issues differed from BCB Holdings in that the legal instrument in this case (ie, the loan note) was perfectly lawful. However, as Griffith explained in her judgment, the debt created by the loan note was not charged on the public revenue by the Constitution or any other law. Parliamentary approval is required for financial transactions exceeding certain amounts, and no such parliamentary approval was obtained for the loan note which exceeded Bz$36 million. Thus, the absence of authorisation rendered any payment on the loan note unconstitutional and illegal. Griffith held that the executive branch did not possess the authority to bind the government to the resulting expenditure caused by the loan note without parliamentary approval. Consequently, Griffith determined that any enforcement of an award obtained by virtue of the loan note would be contrary to public policy.
The Supreme Court then sought to weigh enforcement against the public interest of the executive's adherence to the regulations governing the expenditure of public funds, which impose checks and balances to certain financial transactions entered into by the government so as to "secure transparency, accountability and to uphold the rule of law by maintaining the separation of powers between the executive and the legislature as it pertains to authorising expenditure from the Consolidated Fund". The Supreme Court eventually held that the incurrence of debt above certain prescribed amounts is restricted by the Constitution and other legislation without the intervention of legislation by the National Assembly.(21) After pitting this conclusion against arguments supporting the pro-enforcement bias, the court determined that it should decline to enforce the award. At the Court of Appeal,(22) the majority agreed with the reasoning of the trial judge, with Blackman JA dissenting.
At the CCJ level, the court ruled that the enforcement of the award would not be contrary to public policy since the loan note was based on an agreement which had been lawfully entered into by the government. In making this determination, the CCJ pointed out that there was a difference between the making of a contract and the enforceability of that contract against the state, noting that the lower-level courts had conflated these matters.(23)
The CCJ went on to note that Belize's act does not refer to 'registration' but rather 'enforcement' of awards. Notwithstanding this, the court opined that an order to enforce a foreign award has essentially similar effects to its registration within the domestic sphere – namely, that the foreign award would be treated as a judgment or order of the domestic court.(24) The result of this is that even though an order may be made for enforcement of an award, the award holder may still need to take additional procedural steps to execute on the judgment.(25)
The CCJ refused to grant an order sought by Belize Bank Ltd for the issuance of a certificate that would compel payment by the government pursuant to the Crown Proceedings Act. This is because, according to the CCJ, such an order was, at the time, premature in light of the Crown Proceedings Act for two reasons. First, there were conditions prescribed in the Crown Proceedings Act that had to be first satisfied by Belize Bank Ltd before a certificate would be issued. Second, there was a presumption that judicial orders will always be obeyed by those affected, including the government.(26) Thus, the CCJ reasoned that an order which compelled payment would anticipate that the government would not comply with the CCJ's ruling. The CCJ instead ordered that Belize Bank Ltd was at liberty to enforce the LCIA award in the same manner as a judgment or order of the Supreme Court.
After the CCJ granted Belize Bank Ltd leave to enforce the LCIA award, Belize Bank Ltd requested that the registrar of the CCJ issue a certificate containing the particulars of the order made by the CCJ in accordance with the Crown Proceedings Act. The certificate was issued with identical terms to those in the LCIA award and certified that payment of interest was to be calculated at a rate of 17%, compounded monthly until the date of payment.
Thereafter, by way of an application dated 23 January 2018,(27) the attorney general sought an order to correct the certificate to provide for post-judgment interest to run at the statutory rate of 6% and not the 17% interest compounded monthly provided for under the award, as the issuance of the certificate was tantamount to a Supreme Court judgment.
The CCJ granted the application and held that the issuance of the registrar's certificate was in effect the judgment on the award.(28) Consequently, once the certificate was issued, judgment rate interest started to accrue at the domestic rate applicable to civil judgments in Belize instead of the rate set out in the original award. The CCJ noted that there is an exception to this rule where the parties have specifically agreed and expressly stated the post-judgment interest rate payable on any judgment.(29) This exception was not applicable in the present case, and the CCJ held that the applicable post-judgment interest was the statutory rate of 6% simple interest from the date of the certificate. This ruling is important, as it alerts award holders that interest rates given in arbitration awards can be significantly reduced after a successful application is made for the award's enforcement in the domestic courts.
For further information on this topic please contact Eamon Courtenay or Stacey Nichole Castillo at Courtenay Coye & Co by telephone (+1 501 223 1476) or email (firstname.lastname@example.org or email@example.com). The Courtenay Coye & Co website can be accessed at www.courtenaycoye.com.
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