UNION OF INDIA

V/S
RELIANCE INDUSTRIES LIMITED AND OTHERS.
CITATION: (2014) 3 SCC (CIV) 737

FACTS
A dispute between Reliance Industries Limited and BG Exploration and Production India
Limited (the Claimants) and Union of India (the Government or the Defendant) arose
under two production sharing contracts (PSCs) by which the Defendant granted to the
Claimants the exclusive right to exploit certain petroleum resources. The PSCs provided for
the Claimants to recover their “development costs” from the volume of petroleum produced
and provided a formula by which to calculate the profit. The petroleum was sold to two
government nominees (the Nominees). The PSCs were governed by Indian law save that the
arbitration agreement in each of them was governed by English Law. They provided for
arbitration to be conducted in accordance with the UNCITRAL Arbitration Rules 1976 and
the seat was agreed to be London.

WHAT WAS HELD

In the present judgment, the Supreme Court of India overruled the Delhi High
Court stating that it had “wrongly intermingled issues relating to the challenge
to the arbitral proceedings or the arbitral award” which is exactly the issue my
learned colleague points out as a logical inconsistency in the decision when he
says “it should be immaterial whether the set aside proceedings are based on
grounds of non-arbitrability or public policy. The nature of the challenge does
not interfere with the jurisdiction of the courts of the seat to set aside an award.”
The SCI went on to hold that even though the case had to be decided based on
the position of law as laid down in Bhatia International (Bhatia International v
Bulk Trading, (2002) 4 SCC 105 (Supreme Court of India)), the applicability of
Part I of the Act had been impliedly excluded since London had been
designated as the seat of arbitration and the parties had agreed upon
approaching the Permanent Court of Arbitration and not the Chief Justice of
India for appointment of the Chairperson of the arbitral tribunal and the
arbitration proceedings had to be conducted as per the UNCITRAL rules.
THE AWARDS THAT WERE MADE BY THE TRIBUNAL OR THE ISSUES

The tribunal made five awards. The award being challenged was the “Final Partial Award”
dated 12 October 2016 (the Award). Nine challenges to the Award were made in total.

Challenge 1: Claim of serious irregularity under s68(2)(a) and s68(2)(c) in the way the
tribunal reached its conclusion on the meaning of “development costs” in the PSCs

The Claimants argued that the tribunal reached its conclusion on the appropriate meaning of
“development costs” on the basis of a new point that had never been advanced by the
Defendant or explored by the tribunal with the parties at any stage. The Claimants argued that
this was seriously unfair to them because they had not been given a “full opportunity” to deal
with the point in accordance with Article 15(1) of the UNCITRAL Rules. They also alleged a
failure by the tribunal to (i) comply with its general duty under s68(2)(a); and (ii) conduct
proceedings in accordance with the procedure agreed by the parties under s68(2)(c).

The Court held that there had been no serious procedural irregularity in the way that the
tribunal had reached its conclusion. Article 15(1) did not impose any higher burden of
procedural fairness on the tribunal in the context of this challenge than that required under
s33(1)(a) of the Act (which refers to a “reasonable”, rather than “full”, opportunity of putting
one’s case). Further, Article 15 relates to the ability of a party to present its own case, not the
opportunity of a party to deal with the opponent’s case (which is what the challenge was
founded upon).

The Court confirmed that there is nothing in the nature of a point of construction which
requires it, in all cases, to be treated as falling into an entirely different category from any
other point so as to exempt the tribunal from the overriding duty of fairness imposed by s33.
However, where a point of construction is squarely in play and addressed by both parties, the
tribunal is not obliged to put to the parties all aspects of their analysis in order to fulfil the s33
duty. As the “essential building blocks” of the tribunal’s reasoning had been in play, there
had been no serious procedural irregularity under s68(2)(a). The tribunal had complied with
Article 15 of the UNCITRAL Rules so there was no irregularity under s68(2)(c).

Challenge 2: Claim of serious irregularity, and lack of substantive jurisdiction, because the
tribunal took into account pre-contractual negotiations to construe the PSCs

The Claimants argued that the tribunal reached a decision on an issue by considering pre-
contractual negotiations between the parties, despite the fact that the tribunal had (it was
alleged) determined in an earlier award that recourse to pre-contractual negotiations as an aid
to construction of the PSCs was not permissible. The Claimants sought relief under: (i) s67
on the basis that the tribunal did not have substantive jurisdiction to take into account the pre-
contractual documentation (the previous award having finally disposed of the dispute in
relation to the admissibility of the pre-contractual documentation); (ii) s68(2)(b) on the basis
of excess of powers for the same reason as the s67 challenge; or (iii) s68(2)(a) and (c)
because, to the extent that the tribunal was intending to depart from the earlier award, it
should have so indicated and given the parties a reasonable opportunity to present their cases.

The Court rejected this challenge. Subject to the effect (if any) of the earlier award, the
tribunal had the power to admit and rely on pre-contractual negotiations in construing the
PSCs under Article 25(6) of the UNCITRAL Rules and s34 of the Act. The earlier award had
not decided that for all subsequent questions of construction of the PSCs no use could be
made of pre-contractual negotiations. The tribunal thus retained its jurisdiction and power to
have regard to pre-contractual documents when addressing this particular issue. Moreover,
the Court considered that the Claimants were aware that the Respondent was relying on pre-
contractual negotiations and documents on the issue. Indeed, the Claimants not only had the
opportunity to address the point, but had addressed it.

Challenge 3: Application for permission to appeal on an error of law under s69 regarding
the tribunal’s finding of estoppel

The tribunal determined in the Award that the Claimants were estopped from relying on a
point of interpretation found by the tribunal in an earlier award on the basis that such
interpretation was inconsistent with the parties’ common understanding throughout the
implementation of the PSCs. The Court addressed the Claimants’ three contentions as to how
the majority had erred in law in relation to its conclusion on estoppel and found that the
requirements in s69 for leave to appeal were not satisfied (in particular, the tribunal’s
decision on these points was not “obviously wrong”). Leave to appeal under s69 was
therefore not granted.

Challenge 4: Claim of serious irregularity in the tribunal’s conclusion that a particular

issue “no longer falls for determination” when it, in fact, needed to be addressed

In the arbitration the Claimants had argued that some categories of “development costs” fell
outside the scope of a contractual cap on the basis that the Defendant had specifically agreed
that they should do so (the “Agreements Case“). Having reached its conclusion on estoppel,
the tribunal determined that the Agreements Case “no longer fell for determination“. The
Claimants contended, however, that the estoppel case was not dispositive of its Agreements
Case and that this failure by the tribunal to address it constituted a serious irregularity under
s68(2)(d).

ANALYSIS

This was the only one of the nine challenges raised before the Court to succeed. The natural
meaning of the words “no longer falls for determination” was that the issue was not being
addressed and decided, rather than that it was being decided by reference to other findings of
fact. The failure to address this issue was therefore a serious irregularity giving rise to a
substantial injustice. The Claimants also met the threshold of establishing that the Tribunal
might have reached a decision in their favour had it actually addressed the point. the English
commercial court (the Court) considered a number of challenges to parts of an arbitration
award brought under sections 67, 68 and 69 of the Arbitration Act 1996 (the Act).

The decision provides useful guidance regarding the requirements to be satisfied should a
party wish to challenge an award due to a “serious irregularity” under the Act. In particular,
the Court confirmed that the general duty under S 33 of the Act to give each party a
reasonable opportunity to present its case was satisfied if the “essential building blocks” of
the tribunal’s analysis and reasoning were in play in relation to an issue, even where the
argument (in this case on a point of construction) was not articulated in the way adopted by
the tribunal.
In addition to the issues discussed above, the Court considered the foreign act of state
doctrine.

CONCLUSION

The decision highlights the reluctance of the English courts to interfere with the decisions of
arbitral tribunals, except in limited circumstances. The main point of interest arises out of
Challenge 1. The Court rejected the contention that there was a “hard and fast rule” that there
can be no serious irregularity where the tribunal has decided against a party based on a point
of construction that had not been expressly raised by the other party or developed during the
proceedings. Any such question will therefore fall to be determined on a case-by-case basis.