18 OCTOBER 2017

 
         

Litigation E-Newsletter


Juristconsult Chambers is pleased to share with you this e-newsletter which emphases on specific areas of law namely:

1.       Procurement

2.       Tax

3.       Tortious/Contractual liability 

4.       Restrictive covenants in Employment Law
 

Procurement

Should a party feel that the bid of a selected bidder is abnormally low and the capacity of the latter to perform competently a procurement contract[i] is questionable, the party may have a case before the Independent Review Panel (the “IRP”). Section 40(1) of the Public Procurement Act 2006 (the “Act”) provides that a public body shall only award a procurement contract to the bidder who has submitted not only the lowest bid but also the “substantially responsive bid which meets the qualification criteria specified in the prequalification or bidding documents”.

Having submitted the lowest bid, a bidder is not de facto the selected bidder. The section 40(1) is to be read cumulatively as a section that holds a two-fold requirement. Reference can be made to the case of Atics Ltd v The District Council of Pamplemousses (Cause No. 02/17/IRP) where one of the grounds of the challenge/review was that the bid of the selected bidder was ‘abnormally low’ inasmuch as the capacity of the latter to perform competently the procurement contract was ‘debatable’. In its analysis, the IRP disagreed with the Respondent’s view (i.e. the District Council of Pamplemousses) that “the lower the bid, the better it is for the Public Body, and by extension, the taxpayer”. In ordering a re-evaluation of bids, the IRP stressed that the public body shall ensure that the Selected Bidder shall be able to meet all his obligations under the procurement contract in accordance with the bidding documents. A Public Body, including the Bid Evaluation Committee, has to be inquisitive, if not analytical, by asking clarifications and not simply relying on written undertakings, especially if the figures quoted by a bidder are suspicious and abnormally low for a full and efficient performance of the procurement contract. It can also be averred that the sine qua non element of a successful procurement proceeding is the interest of the public body, and by extension the Government and taxpayer.

In the case of Ramtoola Papers Ltd v Government Printing Office (Cause No. 12/14/IRP), the IRP ruled in favour of the Applicant, notwithstanding the fact that its quoted price was much higher than that of the successful bidder for the supply of papers. The Applicant successfully justified its high cost on the ground that its papers were of the highest ecological standards for recycled paper and, of all the bidders, only the Applicant had proposed recycled paper in line with the Government general campaign for Ile Maurice Durable.  It was the view of the IRP that it would be unfair to deprive the Applicant of the benefit of the award as doing so would be against the Government policy, if not interest, of using recycled paper.

The number of applications for review before the IRP is expected to rise in the coming years. Mauritius shall soon become a vast “chantier de construction” as the Government is to invite bids for various projects. It can be expected that not all bidders will be satisfied with the decisions of the relevant public bodies and proceed with a challenge and appeal of such decisions.
 
[i] To perform the procurement contract in full compliance and adherence to all requirements of the bidding documents.

Tax


Case Commentary: JPMORGAN SICAV INVESTMENT COMPANY (MAURITIUS) LIMITED v THE ASSESSMENT REVIEW COMMITTEE & ANOR 2017 SCJ 27 
[appeal by of case stated from a determination of the Assessment Review Committee]

The JPMorgan case ruffled many feathers earlier this year as the Supreme Court upheld the decision of the Assessment Review Committee (“ARC”) in the apportionment of deductible expenses related to income and gains deriving from investments. 
 
The Appellant Company, a GBC1 company, primarily invested in equity and equity related securities of Indian companies. The Company derived income from dividends paid by the Indian investee companies and from interest from bank, and also realised gains or losses on disposal of its investment. The Appellant Company claimed deduction of the total expenditure incurred in relation to these fees paid to custodians and sub-custodians for the holding of its investments. The Mauritius Revenue Authority (“MRA”) objected to this assessment and proceeded to disallow and apportion part of these fees on the basis that these expenses were suffered by the Appellant Company to generate both capital gains (gains derived from the disposal of its investments) on the one hand and dividends and income on the other.
 
This case raises several interesting issues as further explored below:

(1)   Apportionment formula under section 18 ITA 
 
Pursuant to section 18 of the ITA:

Any expenditure or loss shall be deductible from the gross income, other than gross income specified in section 10(1) (a), of a person in the income year in which it is incurred to the extent to which it is exclusively incurred in the production of his gross income, other than gross income specified in section 10 (1) (a), for that income year.

As the MRA argued both at ARC and appeal level that the expenses incurred by the Appellant Company generated both capital gains and income, it moved to disallow and apportion part of the “expenditure”, i.e. the custodian fees. The Appellant Company contended that the formula that the MRA used at the ARC level was not contained in section 18 of the ITA (but rather in section 26 ITA, which dealt with exempt income) and that therefore, that this was unfair to the apportionment exercise. 
 
The MRA argued that it was not precluded from relying on the other sections of the ITA and that the Director General had the discretion to make an assessment of the chargeable income of a taxpayer based on his best judgment. 
 
The Supreme Court agreed with the MRA and stated that section 26 and section 18 were not mutually exclusive.
 
(2) Capital Income v Exempt Income
 
The Appellant Company also submitted during the course of the appeal that expenses directly attributable to capital gain are not allowable, yet expenses indirectly attributable to capital gain and gross income should be allowed in their totality. The point underlying this argument was that the expenses relating to custodian fees were set whether capital gains were realised or not.

The Supreme Court dismissed this ground, in effect implying that capital gains and exempt income should be treated in a similar way.  
 
(3) Expenses incurred exclusively in the production of gross income

The crux of the case was addressed under this issue. The Appellant Company valiantly submitted that the sole requirement imposed under section 18 was that the expenditure be “exclusively” attributable to the production of gross income, which according to the Appellant Company, established a less stringent test in terms of allowable expenditure as this shows a more flexible approach from the legislators. The Appellant Company referred the Court to the English case of Mallalieu v Drummond 1983 2 AC 861, an oft quoted case when grappling with allowable expenditure.

The Supreme Court dismissed this ground by applying a narrow interpretation of the term “exclusively” and ruling that as the expenditure contributed to the production of two types of income [revenue and capital gain], it cannot be said that it was exclusively incurred for the production of gross income.

Conclusion

Rather unfortunately, the Appellant Company did not appeal to the Judicial Committee of the Privy Council. The conclusions drawn by the Supreme Court implies that a capital item and exempt income should be treated in the same way for the purposes of the ITA without any detailed rationale as to why this ought to be the case. The precedent set by this case has impacted a number of similar cases which were being disputed at MRA and ARC level and has broader implications on the Mauritius global business industry. 
 

Tortious / Contractual liability


Mediterranean Shipping Company v Sotramon Limited [2017] UKPC 23
 
After 18 years of court battles between the Mauritius Shipping Company Ltd and Sotramon Limited, the decision of the Board of the Judicial Committee of the Privy Council (the “JCPC”) brought an end to this long and outstanding dispute. The JCPC held that, under Mauritian law, a party to a contract could not sue the other party in tort for non-performance of the contract even if the said failure to perform amounted to a ‘faute lourde’ (gross negligence). 
 
The main issue before the JCPC’s determination was whether, under Mauritian law, a party to a contract could sue the breaching party in tort for non-performance of the contract, even if the said failure to perform amounted to a ‘faute lourde’ (gross negligence). In reviewing the decision of the Court of Appeal, the JCPC considered in extenso the “principe de non-cumul de la responsabilité contractuelle et délictuelle” (the “Principle”). 
 
This Principle simply provides that a party cannot sue the other party for damages both in tort and in contract. As pertinently held in Kinoo v Currunthaulee and Anor [1977] MR 363, “a plaintiff cannot have recourse to ‘cumul’ in such a way as to recover damages both under the contract and in respect of the tort, for in that case he would be indemnified twice for the prejudices he has suffered”. 
 
This Principle which has been established in French case law, has also been granted recognition by the Mauritian courts in the following cases: TFP International Ltd v Itoola [2002] SCJ 147, Air Austral v Hurjuk [2010] SCJ 202, Hong Kong & Shanghai Banking Corporation v. Mamad Safii Sairally [2002] SCJ 227 and L’Inattendu Co. Ltd v Cargo Express Co. Ltd [2001] SCJ 7.
 
However, as pointed out by the Court of Appeal, there are conflicting authorities as to whether this Principle should be extended to amount to a ‘principe de non-option’. It was held that there are numerous Mauritian case law which have endorsed the French authorities to the effect that a party to a contract may sue another party to the contract in tort only if the breach of contract amounts to a ‘faute lourde’.  Cases such asL’Inattendu Co. Ltd v Cargo Express Co. Ltd [2001] SCJ 7, Cascadelle Distribution et Cie Ltée v Nestlé Products (Mauritius) Ltd [2016 SCJ 371], La Patinoire Ltée v Lakepoint Ltd [2013] SCJ 344 were relied upon but also showed that an action in tort is receivable irrespective of the parties’ contractual relationship if the breach also amounts to a distinctive faute dolosive, faute intentionnelle or faute lourde.
 
In its conclusion, the JCPC expressed the view that the judgment of the Court of Appeal was unsatisfactory and wrong. Furthermore, they were of the opinion that “the concept of tortious liability in a contract and a tort which arises out of non performance of the normal obligations contained in a contract was inherently problematic”. They thus overturned the Court of Appeal’s decision and held that “the Mauritian system of liability does not permit a cumul de la responsabilité contractuelle et de la responsabilité delictuelle” -TFP International Ltd v Itoola [2002] SCJ 147, Hong Kong & Shanghai Banking Corporation v. Mamad Safii Sairally [2002] SCJ 227 and Air Austral v Hurjuk [2010] SCJ 202
 
This landmark decision of the JCPC in the Sotramon case did not only overturned the decision of the Court of Appeal and several previous decisions of the Supreme Court but also reaffirmed a cardinal principle of the Mauritius civil law inspired by French law. In the recent case of Data Communications Ltd v The State of Mauritius & Anor [2017] SCJ 319 it was made clear that “there is now a well established doctrine and jurisprudence with regards to this “principe de non-cumul”.”  The Court further held that “it is now settled that where there is a breach of contractual obligation, any claim must be grounded on the basis of contractual liability and there is no option to sue in tort instead”.


Restrictive covenants in Employment Law


Restrictive covenants in the employment context

A restrictive covenant is a contractual clause restricting the post-employment professional activities of an employee. It is to protect the former employer’s legitimate business interests for a limited period of time. The restrictive covenant can relate to non-competition, non-dealing, non-solicitation, non-poaching, non-disclosure of confidential information or a combination of these.
 
In the case of Corporate and Chancery Group Ltd v Tegally [2007 SCJ 78] which concerns the enforcement of a restrictive covenant, the Judge in Chambers, following French case law, adopted the established practice that for a restrictive covenant to be valid, three criteria has to be established, namely that: (a) it is restrictive in time and space; (b) that the restriction should not be such as to prevent an employee from earning a living; and (c) the aim of such restriction is to protect the legitimate interest of the business of the employer. The judge further opined that restrictive covenants were to be interpreted restrictively and held in the circumstances of this particular casethat the employee had not breached the restrictive covenant of his contract of employment.
 
An example where the restrictive covenant passes the above test is in the case of Automatic Systems Ltd v Komarsingh [2007 SCJ 319] where seven employees left their employment to take employment with a competitor to perform the same job, in a sector where there was a duopoly, in breach of a restrictive covenant. The restrictive covenant, which was for a period of one year, did not prohibit the employee from working, but he had to seek the prior written approval of the employer before taking up any new employment with a competitor. The court found that the restrictive covenant passed the test of legality and granted the injunction in favour of the employer who suffered an exodus of 7 trained employees.
 
A one-year non-compete clause restricted to the territory of Mauritius only was upheld as being valid in the case of Medical Computer Communication Caraibe Limited  v Inder [2015 SCJ 298], inasmuch as it was “not too wide in scope as to prevent the employee from earning a living.”
 
A restrictive covenant which is wider than what is reasonably necessary to protect the legitimate business interests of the employer is at risk of being unenforceable. Restrictive covenants are interpreted restrictively so that they are not detrimental to employees. Of particular importance is this dictum from Pro Deco Limited v Labonne [2009 SCJ 228], where the Judge in Chambers stated that “one should be cautious in interpreting any departure of employees to better climes as though they were carrying the fortunes of their previous employees. The liberty to choose one’s employ and employer is fundamental in such matters”. In this case, the wording of the purported restrictive covenant which was for a period of three years prohibiting an ex-employee from taking employment with any employer, was so wide both in terms of time and space that it was found to be unreasonable and therefore invalid.
 
French case law adds a fourth condition to the validity of such a clause, which is a “contrepartie financière” but our courts have not yet opined on whether this fourth condition would apply in Mauritius.
 
To conclude, clauses that restrict the freedom of trade and industry and the freedom to work would only be exceptionally regarded as valid where they are absolutely necessary for the protection of the enterprise against particular risks. Therefore, care should be exercised when drafting such clauses to maximize the chances of its enforceability. 



For more information, please contact:

Juristconsult Chambers

Level 12,
Nexteracom Tower II,
Cybercity, Ebène,
72201, Mauritius 
T +(230) 465 0020
jurist@intnet.mu
www.juristconsult.com


 

 
The information is published for general information purposes and is not intended to constitute legal advice. Specialist legal advice should always be sought in relation to any particular situation. Juristconsult Chambers will accept no responsibility for any actions taken or not taken on the basis of this publication.

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