Offshore jack-up drilling rig and gas production platform in Indian waters. Credit: Jevgenijs/Adobe Stock

Scott Stiegler
Vinson & Elkins, London
sstiegler@velaw.com

Rupert Coldwell
Vinson & Elkins, London
rcoldwell@velaw.com

Rebecca Hilton
Vinson & Elkins, London
​​​​​​​rhilton@velaw.com

Introduction

The English Commercial Court in Union of India v Reliance Industries Limited and another [2022] EWHC 1407 (Comm) recently dismissed a challenge of an arbitral award under sections 68–69 of the Arbitration Act 1996 (the ‘Arbitration Act’). The case provides an important addition to the jurisprudence for challenges to arbitral awards in the English courts and yet further guidance on the scope and application of sections 68–69 of the Arbitration Act.

The parties and underlying contracts

The underlying contracts were production sharing contracts (PSCs) between two energy contractors, Reliance Industries Limited (‘Reliance’) and BG Exploration (‘BG’), and the Union of India, acting by its Joint Secretary (Exploration) of the Ministry of Petroleum and Natural Gas (the ‘government’). The PSCs concerned the granting of exclusive rights of exploitation in respect of the Tapti (gas) and Panna Mutka (oil/natural gas) fields off the west coast of India. The PSCs were governed by Indian law, and provided for London-seated arbitration pursuant to the UNCITRAL Arbitration Rules 1976. Numerous disputes arose under the PSCs, culminating in long-running proceedings involving several awards and related court proceedings.

The relevant arbitral award

In the award in question, the arbitral tribunal held that, on the basis of the principle of res judicata under English law, which encompassed the abuse of process principle in the well-known English authority Henderson v Henderson,¹ the Government was precluded from relying on matters that could and should have been raised earlier in the proceedings. In particular, the Government was not permitted to rely on certain threshold arguments said to arise under Articles 297 and 299 of the Indian Constitution concerning the vesting of natural resources located in Indian waters, and certain formalities in respect of the execution of Government-related contracts.

The arbitral tribunal made extensive reference to the reasoning in Henderson v Henderson and the 2013 UK Supreme Court decision in Virgin Atlantic.² By reference to these authorities, the arbitral tribunal clarified that res judicata applied (except in special cases):

‘…not only to points on which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time’.³

The Tribunal concluded that parties to an arbitration were required to bring forward their entire case, and unless there were special circumstances, a party was not permitted to ‘reopen the same subject of arbitration in respect of the part omitted from its case’.⁴

The arbitral tribunal went on to explain the multi-principle nature of res judicata, which included (relevantly) the abuse of process principle in Henderson v Henderson which ‘precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones’.⁵ On this basis, the arbitral tribunal concluded that, given the arbitration was seated in London, ‘the matter of res judicata is to be determined applying the laws of England and Wales’,⁶ and that the Henderson v Henderson rule provided a complete answer to the Government’s threshold arguments under the Indian Constitution.⁷

Following the award, the Government requested the arbitral tribunal to clarify whether, under Articles 35–36 of the UNCITRAL Rules, it had applied the Henderson v Henderson principle ‘as a matter of substantive law or procedural law’.⁸ The arbitral tribunal responded by stating that such a question had not been argued before them prior to the award, whether in written or oral submissions, and therefore that it was not able to effectively decide the matter (the ‘Clarification Decision’).

The Government’s challenges under Sections 69–68 of the Arbitration Act 1996

The Section 69 challenge

The Government’s appeal of the award under section 69 of the Arbitration Act 1996 gave rise to two questions:⁹

1.  Whether the Tribunal was correct to determine that the specific questions of res judicata should be decided according to English law merely because the seat of arbitration is London?

2.  If the answer to Question 1 was yes, was the doctrine applicable to earlier phases in the same arbitration proceedings (as opposed to separate proceedings)?

In respect of the first question, the Government raised several arguments which essentially sought to demonstrate that the Court should not apply the principle in Henderson v Henderson, as the arbitral tribunal had done, including because it was a point of substantive, not procedural, law such that the arbitral tribunal should have tried the Government’s threshold arguments under Indian substantive law, not English procedural law.¹⁰ If the arbitral tribunal had wrongfully applied English law, this could constitute an error of law and a ground to challenge the award. The Government accepted, however, that if it was found that the arbitral tribunal had correctly applied the Henderson v Henderson principle as a matter of procedural law, this would have been a valid approach because procedural matters are ordinarily determined according to the seat of arbitration (being, in this case, London).¹¹

The Court found that Lord Sumption’s characterisation in Virgin Atlantic of the Henderson v Henderson principle as a matter of procedural law was to be followed, and accordingly, in the case of an arbitration, it is the seat of the arbitration that governs its exercise, whatever the proper law of the contract.¹² The Court found, therefore, that the arbitral tribunal had correctly exercised its procedural power by applying English law not Indian law, when dismissing the Government’s threshold matters.¹³

In so doing, the Court concluded that the Henderson v Henderson principle applies in the conduct of both arbitral and court proceedings, and that it is encapsulated within section 33(1)(b) of the Arbitration Act, which imposes a duty on the arbitral tribunal to adopt procedures avoiding unnecessary delay or expense.¹⁴ For an arbitral tribunal ‘to allow a party to advance a claim, a defence or an argument that could have and should have been argued at an earlier phase of an arbitration or in an earlier proceeding’ could constitute a breach of the duty (as well as offend the principle of Henderson v Henderson).¹⁵

Several other pertinent points were raised:

•   The Court rejected the Government’s submission that the principle in Henderson v Henderson must be one of substantive law because it can be used as a defence to a claim, on the basis that procedural powers can too be used as a claim, defence and argument.¹⁶

•   Guided by the arbitral tribunal’s Clarification Decision, the Court also held that the Government had not raised before the arbitral tribunal, even implicitly, the question of whether the Henderson v Henderson principle was one of procedure or substance; indeed, the Court noted that the issue of res judicata had been raised before in previous stages in the proceedings, and that the arbitral tribunal had decided that procedural issues were to be determined by English law – as such, it was not likely to be the case that the Government was ‘blind-sided’ by the arbitral tribunal’s award in this respect.¹⁷

•   Further, the Court found that the arbitral tribunal’s determination did not substantially affect the Government’s rights, on the basis that the case law appeared to show that the laws in India and England followed similar approaches in relation to the principle in Henderson v Henderson, and that regardless it was impossible to say how res judicata under Indian law would be ‘trumped’ by Articles 297 and 299 of the Indian Constitution.¹⁸

The section 68 challenge​​​​​​​

The Government’s secondary point on appeal was that, under section 68 of the Arbitration Act, there had been a ‘serious irregularity’ caused by the arbitral tribunal’s failure to apply principles of the Indian Constitution, which had caused a ‘substantial injustice’.

The Government argued that the arbitral tribunal did not act fairly as required under section 68(2)(a) on the basis that it prevented the Government from raising new defences/objections, and that Reliance/BG had been allowed to rely on documents not used in the previous case. The Court found no such unfairness on several bases, including that the arbitral tribunal was correct to decide that it was prevented from considering the Government’s threshold matters/objections by virtue of the Henderson v Henderson principle.¹⁹

In addition, the Government failed to establish grounds under section 68(2)(d), under which it argued that ‘issues arising from Articles 297 and 299 of the Constitution were central and decisive, […], but in the award were treated as incidental and peripheral’.²⁰ The Court noted this element had a high threshold which the Government had not met: the arbitral tribunal had dealt with the constitutional points, albeit briefly.

Finally, the Court dismissed the Government’s challenge under section 68(2)(g) that the award was contrary to Indian public policy, whilst raising concerns that public policy arguments were being used to re-open the merits of the matter. Indeed, the Court endorsed Reliance/BG’s argument that ‘the sub-section was never intended to allow parties to attack the conclusions of arbitration tribunals on matters of foreign law under the auspices of public policy, since to do so might open the floodgates to challenges’.²¹

Comment

Most prominently, Reliance emphasises to parties the importance of making their case and raising relevant arguments as soon as they are able to in proceedings, or risk losing their right to rely on those arguments later in the proceedings. The Court’s decision and reasoning provides further clarity that the abuse of process principle in Henderson v Henderson is a matter of procedural, not substantive, law, and that the principle applies to arbitration and court proceedings alike. More broadly, however, the case serves as a reminder of the high hurdle facing a party wishing to challenge an arbitral award in the courts in England and Wales, and the general deference a court will give to the decision-making of an arbitral tribunal.

Notes

1 Henderson v Henderson (1843) 3 Hare 100, 67 ER 313.

2 See Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46.

3 See para 36 in Union of India v Reliance Industries Ltd & Anor [2022] EWHC 1407, citing para 18 of Lord Sumption’s judgment in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46.

4 See para 37 in Union of India v Reliance Industries Ltd & Anor [2022] EWHC 1407.

5 Ibid, citing para 17 of Lord Sumption’s judgment in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46.

6 See para 39 in Union of India v Reliance Industries Ltd & Anor [2022] EWHC 1407.

7 Ibid.

8 Ibid, paras 47–49.

9 Ibid, para 50.

10 Ibid, paras 59–64.

11 Ibid, para 53.

12 Ibid, para 59.

13 Ibid, para 58.

14 Ibid, para 61.

15 Ibid.

16 Ibid, para 63.

17 Ibid, para 71.

18 Ibid, para 76.

19 Ibid, paras 90–91.

20 Ibid, para 92.

21 Ibid, para 95.