Union Of India v. Reliance Industries Limited & BG Exploration and Production India Limited

Judgement Name: Union Of India v. Reliance Industries Limited & BG Exploration and Production India Limited

Citation: [2022] EWHC 1407 (Comm)

Court: High Court Of Justice, Business And Property Courts Of England & Wales (QBD)

Coram: Sir Ross Cranston

Date: 9th June 2022

Keywords: Arbitration, Government of India, United Kingdom, English High Court, Reliance, BG, Res Judicata, UK Arbitration Act 1996.


Facts

In February 1994, a Reliance-Enron group was awarded a 25-year lease on the Panna-Mukta and Tapti oil fields. In 2002, British Gas (“BG”) took over Enron’s stake in the Production Sharing Contracts (“PSC”), expiring on 21st December 2019. Adhoc arbitration proceedings commenced under the UNCITRAL Rules in 2010 in London. Reliance and BG claimed an increase in field operation costs that they may deduct from oil and gas sales as expenses before declaring the profit that would be split with the government. In September 2012, a Final Partial Award (“FPA”) ordered the Government of India to refund the Reliance-BG partnership an amount of $11.4 million. In 2014, the bench comprising S S Nijjar and A K Sikri, JJ. of the Supreme Court of India ruled in favour of Reliance-BG, holding that the dispute concerning the oil fields should be resolved in London and not India. In the 2016 FPA, the Arbitral Tribunal ruled in favour of the Government of India, holding that the profit from the oil fields should be calculated after deducting the prevailing tax of 33%, and not the 50% rate that existed earlier. It also upheld the validity of the existing Cost Recovery Limit (“CRL”). The PSCs entitled Reliance-BG to recover its costs from the total volume of petroleum produced, but this recovery was capped by the CRL, valued at $545 million for Tapti and $577.5 million for Panna-Mukta.


In 2016, Shell acquired BG. The Government of India moved to enforce the 2016 FPA in the Delhi HC, whereas Reliance and BG appealed it in the High Court of England and Wales. In its 2018 judgment, the High Court of England and Wales asked the Arbitral Tribunal to re-examine the CRL, and the Tribunal’s 2018 FPA allowed Reliance and Shell to recover the costs. The Government of India disputed the 2018 FPA before the English High Court, which was rejected by the Court thereinafter. Even Reliance-Shell objected to the 2018 FPA and appealed before the English High Court, where the Court upheld their challenges and remitted the issue to arbitration. In 2021, the Tribunal gave its final Award and held in favour of the concerns raised by Reliance-Shell.


The Government of India challenged the Award given by the Arbitral Tribunal in 2021, and the English High Court announced its ruling on 9th June 2022.


Issue

Was the Arbitral Tribunal correct in applying English Law, and specifically, the principle in the Henderson case and res judicata in the 2021 Award?


Analysis

The Arbitral Award of 2021 made in favour of Reliance and Shell (BG) was of $111 million (out of the $260 million sought by them), and the High Court of England & Wales ruled against the Government of India’s Appeal.


The Arbitral Tribunal applied the principle propounded in the Henderson v. Henderson case in deciding one of the issues in the 2021 Award. As per Henderson, all parties are required to bring their whole case to court in a single set of proceedings. The High Court bench of Ross Cranston, J. analysed the Appeal made by India on the basis of Section 69 of the English Arbitration Act 1996 (“the Act”). Firstly, India claimed that the Henderson principle is a substantive English Law principle, whereas the contract is to be governed by Indian laws. Here, on the basis of Section 69(3)(c)(ii), India argued that the determination of the nature of the principle is a question of ‘general public importance’. The Court ruled that the principle pertained to procedural law and not substantive law and thus, can be applied by the Arbitral Tribunal.


Secondly, India argued that under Section 69(3)(b) of the Act, the Tribunal was implicitly asked to determine the question of the applicability of the Henderson case, but the Court ruled that India was unable to support this argument from any paragraph of the Award.


Thirdly, India argued that if Indian law were to be applied instead of English law, Articles 297 and 299 of the Indian Constitution would supersede Henderson, which would materially affect India’s rights. Thus, they argued that on the basis of Section 69(3)(a) of the Act, the Appeal should be allowed. However, the Court ruled that India did not demonstrate how a different outcome could have been reached if Indian law were to be applied and further recognised the Supreme Court of India’s decision in Canara Bank v. N.G. Subbaraya Setty and held that Indian and English laws were along similar lines.


Lastly, India argued that it would be ‘just and proper’ for the Court to determine the question based on Section 69(3)(d) of the Act. Here the Court ruled that since India had invoked res judicata and the principle in the Henderson case before the arbitral tribunal in their 2019 Award, it would be improper for this question to be considered by the Court.


Conclusion

The High Court of Justice, Business And Property Courts Of England & Wales dismissed the Government of India’s Appeal and ruled in favour of Reliance-BG. According to the author, the English Court was correct in its ruling as it had applied the relevant precedents to reach its decisions. If the Government of India could have demonstrated how a different verdict could be reached upon the application of Indian Law, the decision by the English Court might have been different qua Section 69(3)(a) of the Act.


[This case note has been authored by Aryan Tulsyan, who is a Junior Editor at Mapping ADR.]

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