ENGLISH COURT AGREES WITH TRIBUNAL: RELYING ON A SUBMISSION LATER THAT COULD HAVE BEEN RAISED EARLIER IN THE ARBITRATION WOULD BE AN ABUSE OF PROCESS

In Union of India v Reliance Industries Ltd and another [2022] EWHC 1407 (Comm), the Union of India (the “Government”) challenged an award under ss.68 and 69 of the Arbitration Act 1996 (“Act”). In the award, the Tribunal had found that, as a matter of English law, the Government was precluded from relying on matters that could have been raised earlier in the proceedings (namely certain principles of Indian constitutional law) on the basis that they were res judicata. In appealing the award under s69, the Government argued that the Tribunal erred as a matter of law by applying English law to decide the issue of res judicata. In challenging the award under s68, the Government argued there had been “serious irregularity” in this case creating “substantial injustice” by virtue of the Tribunal failing to apply principles of Indian constitutional law.

The English Commercial Court (the “Court”) held that the Tribunal was correct to apply English law to the question of whether India was permitted to raise a matter that could, and should, have been brought in previous proceedings. More specifically, the Court confirmed that the principle from Henderson v Henderson - that a matter that could and should have been raised in previous proceedings, cannot later be relied on in court - was one of procedure, rather than substantive law, applied to arbitration, and could apply to defences as well as claims. The s68 challenge also failed.

Background

Reliance Industries Limited (“Reliance”) and BG Exploration and Production India Limited (“BG”) were participants in two production sharing contracts (the “PSCs”) with the Government, relating to two gas fields off the Indian west coast. The PSCs were subject to Indian law, with arbitration agreements governed by English law and the seat of arbitration in each case was agreed to be London. The 1976 UNCITRAL Arbitration Rules applied. The PSCs have been the subject of various arbitration proceedings between the parties, and the “Final Partial Award” issued in 2021 (“2021 Award”) was the subject of the Government's application in this case. You can read more on the background of the parties’ disputes and decisions made in previous rulings here and here.

The 2021 Award determined the question of the balance of certain costs owed to Reliance after a previous award in the case. The Government had raised certain threshold objections, including under Indian substantive law. The Tribunal held that it could not consider these objections because they applied to Reliance’s earlier case which had been determined in a 2018 award and should have been raised then. Parties to an arbitration are required to bring forward their entire case and unless there were special circumstances, a party cannot reopen the same subject of arbitration in respect of the part omitted from its case. The Government brought a challenge to this decision before the court under s68 and s69 of the Act.

Decision

Challenge under section 69

The Court cited at length Lord Sumption’s discussion of the principle of res judicata and its five strands (including the Henderson v Henderson principle) in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited [2013] UKSC 46, [2014] AC 160 (“Virgin Atlantic”). Specifically, the Court referred to the conclusion that the Henderson v Henderson principle “empowers the court to restrain abuses of its process… Whereas res judicata is a rule of substantive law” (Virgin Atlantic at [62]).

The Court concluded that:

(i) the Tribunal exercised a procedural power, applying English law (rather than Indian law), and it was not “obviously wrong”, nor was it open to serious doubt, so as to satisfy s69(3)(c);

(ii) the Henderson v Henderson principle applies to “both arbitral and court proceedings”;

(iii) for the same proceedings, Henderson v Henderson is applicable at every stage; and

(iv) the principle applies to “defences as well as claims”

Neither was the requirement of s.69(3)(b) met: the Tribunal was not asked to decide whether the issue of res judicata should be determined by English law. Similarly, the Court found that the Government’s rights had not been substantially affected, so s.69(3)(a) was not satisfied.

The Government was unsuccessful on all aspects of the appeal under section 69.

Challenge under section 68

There was no “serious irregularity” causing “substantial injustice” under s.68:

(i) s.68(2)(a): There was no unfairness in the Tribunal prohibiting the Government from putting forth defences as a result of Henderson v Henderson.

(ii) s.68(2)(d): The high threshold for failure to deal with issues was not met. The Tribunal found in effect that the Government’s case was addressed.

(iii) s.68(2)(g): The award was not contrary to public policy and s.68(g) was not an avenue to re-argue the merits.

Comment

Against the complex and lengthy procedural history of this dispute, this decision provides an example of the pro-arbitration attitude of the English courts. This case also emphasises that arbitral tribunals will apply the same policy considerations apply as support the application of the principle of Henderson v Henderson in court proceedings, preventing an abuse of process where a party seeks to make submissions in later proceedings that could have been made previously. Practically, this judgment is also a reminder of the onus that falls on the parties and their legal representatives to ensure that a case is brought in full at the first opportunity.

For more information, please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.