![Reliance and BG award for US$ 111 million against Government of India upheld.](http://media.assettype.com/ficl%2F2022-06%2Fca308f44-2df3-48ca-9c6a-fb81b972715e%2FUntitled_design__3_.png?w=480&auto=format%2Ccompress&fit=max)
In Union of India v Reliance Industries Limited and another [2022] EWHC 1407, the English Commercial Court considered whether an English-seated arbitral tribunal was right to reject a submission made by the Government of India, on the basis that the submission should have been raised earlier in the arbitration. The court agreed with the tribunal that it was an abuse of process for the submission to have been made, when it could have been made earlier, and the court also said that the tribunal’s decision was in accordance with its duty under the English Arbitration Act 1996 to avoid unnecessary delay or expense in an arbitration. As a result, the tribunal’s award of US$ 111 million against the Government of India was upheld.
Facts
This case is part of the long-running dispute between the Government of India and two oil and gas companies, Reliance and BG (which is now part of Shell). The dispute concerns production sharing contracts (PSCs) for some gas and oilfields off the west coast of India which are being developed by Reliance and BG.
As is typical with such contracts, Reliance and BG must share revenues from the fields with the Government, but before they do so, they can recover their exploration and production costs. However, a dispute has arisen over whether the actual costs claimed are recoverable under the PSCs. Reliance and BG started an arbitration in relation to these costs in 2010. The arbitration is seated in England and is still ongoing, but via a series of partial awards (eight in total, so far) the tribunal has already decided that Reliance and BG can recover over US$ 400 million.
The Government of India’s argument
The Government’s application to the Commercial Court in London related to the latest of the partial awards, which was issued in January 2021. This award followed an earlier court application, after which the Commercial Court had referred an issue back to the tribunal for reconsideration. When the tribunal invited submissions from the parties on that issue, the Government argued that the claims did not fall within the scope of the PSCs. Reliance and BG responded that this argument could have been raised earlier in the case, prior to a previous award which had been made in 2016; and since the Government had not done so, it was now barred from raising the argument by virtue of res judicata.
The Government replied that under Indian law, which was the governing law of the PSCs, res judicata could not prevent it raising this argument because what was being considered was the protection of natural resources under the Constitution of India, which overrides any res judicata obstacle. The tribunal rejected this submission. The Government therefore applied to the Commercial Court under section 69 of the Arbitration Act (appeal on a point of law) and section 68 (serious irregularity leading to a substantial injustice).
The Commercial Court judgment
The first issue related to whether the res judicata point was a question of substantive law or procedural law. If it was substantive, then Indian law (the governing law of the PSCs) would apply; if it was procedural, English law (the law of the seat of the arbitration) would be applicable. The court concluded that this was a procedural matter, following the analysis of the UK Supreme Court in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited [2013] UKSAC 46. Lord Sumption explained there that “res judicata” is a term which covers several different legal principles, among which is the procedural rule first formulated in Henderson v Henderson (1843) 3 Hare 100 that a party is precluded from raising in subsequent proceedings matters which were not, but could and should have been, raised earlier.
The Commercial Court said that this procedural rule applies to both judicial and arbitral proceedings and is supported by the duty in s.33 of the Arbitration Act 1996 under which a tribunal must adopt procedures to avoid unnecessary delay or expense. It applies not only to different set of proceedings, but also within the same arbitration: so if a party could have raised an argument earlier in the timetable and has not done so, the tribunal would be entitled to dismiss the argument as an abuse of process. In addition, the Government had not shown that the outcome would have been any different even if the Indian law relating to res judicata had applied, with the Commercial Court noting that the Indian courts had endorsed Lord Sumption’s analysis in the Virgin Atlantic case. This disposed of the Government’s application under section 69 of the Arbitration Act.
As for the Government’s challenge under section 68 of the Arbitration Act, the Commercial Court decided that the tribunal had not acted unfairly in dismissing the Government’s argument, and the tribunal had addressed the issue in its award even if it had done so very briefly. Finally, while section 68(2)(g) allows challenges to awards on the grounds of public policy, that is a reference to English public policy and not to the public policy of a foreign law. An argument that the public policy of India had been breached could not be the basis of challenging the award under section 68.
Comment
This is a very useful judgment that confirms the analysis of the Supreme Court in the Virgin Atlantic case applies to arbitral proceedings (including to attempts to raise arguments late within the same arbitral proceedings). The judgment also highlights that the duty of the tribunal under the Arbitration Act 1996 to avoid unnecessary delay and expense implies a power to curb abuses of the process by the parties which, in English-seated arbitrations, should encourage arbitrators to manage cases robustly. It reiterates that parties have to overcome a high hurdle in order to challenge an award in England under section 68 of the Arbitration or to appeal an award on a question of law under section 69.
On the other hand, this is a clear message to parties that if they want to raise an argument in an arbitration, they must do it at the appropriate time and not leave it in the hope that it can be brought in later in the proceedings.