NEW DELHI: An English commercial court has dismissed the government’s appeal against a $111 million international arbitration award in favour of Reliance Industries Ltd and BG (formerly British Gas, a now Shell subsidiary) in an 11-year-old dispute over recovery of costs for operating the Panna-Mukta and Tapti fields off the Mumbai coast.
This is the third legal challenge mounted against eight ‘final partial awards (FPAs)’ by an arbitration tribunal in a $1 billion dispute that began in December 2010 over cost-sharing provisions in two production contracts Reliance and BG’s predecessor, now defunct US energy major Enron, had signed with the government for the fields.
The contested award was given in January 2021, the latest by the arbitration tribunal of Christopher Lau of Singapore as chairman, Peter Leaver of the UK and former Supreme Court judge B Sudershan Reddy. It awarded Reliance and BG $111 million of the total $260 million in costs they had sought.
On June 9, justice Ross Cranston applied the English Arbitration Act 1996 and the principle set by a 19th Century English court ruling in a case — Henderson vs Henderson — to time-bar the government’s appeal and rejected its arguments under the English Arbitration Act 1996 against the award.
Justice Cranston held that the Henderson principle precludes parties from raising in subsequent proceedings matters that were not, but could and should have been, raised in the earlier proceedings. In other words, the court held the government should have raised its objections earlier when the arbitration tribunal had announced the award in 2021.
The government had argued that application of the Henderson principle on contracts governed by Indian law, without establishing that the principles were identical in the two legal systems, constituted substantial injustice. It also argued the English law did not bar a respondent to an arbitration claim from raising defences “merely because it could and should have” raised them at an earlier stage of the proceedings.
The dispute began when the companies sought to raise the limit of costs the they could recover before sharing revenue with the exchequer. There was also dispute over royalty and statutory dues. The government also raised counter claims over expenditure incurred, inflated sales, excess cost-recovery and short accounting.
The arbitration tribunal upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier. It also upheld the cost recovery limit of $545 million in Tapti gas field and $577.5 million in Panna-Mukta oil and gas fields in the respective contracts. The companies wanted the cost provisions raised by $365 million in Tapti and $62.5 million in Panna-Mukta.
The government used this award to seek $3.85 billion in dues from Reliance and BG Exploration & Production India Ltd and also used it to block Reliance’s proposed $15 billion deal with Saudi Aramco on grounds that the company owed money to it.
The companies challenged the 2016 FPA before the English High Court, which on April 16, 2018, remitted one of the challenged issues back to the Arbitral Tribunal for reconsideration. The arbitration tribunal ruled in favour of the two in a January 29, 2021 award.
Subsequently, both sides filed clarification applications before the tribunal, which on April 9, 2021 granted minor corrections requested by Reliance and Shell and rejected all of the government’s clarification requests. Thereafter, the government challenged the award before the English High Court.
This is the third legal challenge mounted against eight ‘final partial awards (FPAs)’ by an arbitration tribunal in a $1 billion dispute that began in December 2010 over cost-sharing provisions in two production contracts Reliance and BG’s predecessor, now defunct US energy major Enron, had signed with the government for the fields.
The contested award was given in January 2021, the latest by the arbitration tribunal of Christopher Lau of Singapore as chairman, Peter Leaver of the UK and former Supreme Court judge B Sudershan Reddy. It awarded Reliance and BG $111 million of the total $260 million in costs they had sought.
On June 9, justice Ross Cranston applied the English Arbitration Act 1996 and the principle set by a 19th Century English court ruling in a case — Henderson vs Henderson — to time-bar the government’s appeal and rejected its arguments under the English Arbitration Act 1996 against the award.
Justice Cranston held that the Henderson principle precludes parties from raising in subsequent proceedings matters that were not, but could and should have been, raised in the earlier proceedings. In other words, the court held the government should have raised its objections earlier when the arbitration tribunal had announced the award in 2021.
The government had argued that application of the Henderson principle on contracts governed by Indian law, without establishing that the principles were identical in the two legal systems, constituted substantial injustice. It also argued the English law did not bar a respondent to an arbitration claim from raising defences “merely because it could and should have” raised them at an earlier stage of the proceedings.
The dispute began when the companies sought to raise the limit of costs the they could recover before sharing revenue with the exchequer. There was also dispute over royalty and statutory dues. The government also raised counter claims over expenditure incurred, inflated sales, excess cost-recovery and short accounting.
The arbitration tribunal upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier. It also upheld the cost recovery limit of $545 million in Tapti gas field and $577.5 million in Panna-Mukta oil and gas fields in the respective contracts. The companies wanted the cost provisions raised by $365 million in Tapti and $62.5 million in Panna-Mukta.
The government used this award to seek $3.85 billion in dues from Reliance and BG Exploration & Production India Ltd and also used it to block Reliance’s proposed $15 billion deal with Saudi Aramco on grounds that the company owed money to it.
The companies challenged the 2016 FPA before the English High Court, which on April 16, 2018, remitted one of the challenged issues back to the Arbitral Tribunal for reconsideration. The arbitration tribunal ruled in favour of the two in a January 29, 2021 award.
Subsequently, both sides filed clarification applications before the tribunal, which on April 9, 2021 granted minor corrections requested by Reliance and Shell and rejected all of the government’s clarification requests. Thereafter, the government challenged the award before the English High Court.
