English Commercial High Court (QB): Criteria to appeal for errors of law committed by the Tribunal; Correct approach to the reading of awards; Reliance v Union of India

Sally Roberts court case

In the case of Reliance Industries Limited & BG Exploration And Production India Limited v. The Union of India [2018] EWHC 822 (Comm), the English High Court was approached under Section 67 (Challenging the award: substantive jurisdiction), 68 (Challenging the award: serious irregularity), & 69 (Appeal on point of law) of the English Arbitration Act, 1996 (the Act). The detailed case analysis is as follows:

Factual Matrix

The dispute between the parties arises under two Production Sharing Contracts (“PSCs”) entered by which the Union of India granted to the Contractor the exclusive right to exploit petroleum resources discovered in two areas off the west coast of India for a period of 25 years.  One area comprises fields known as “Mid Tapti” and “South Tapti”; the other, fields known as “Panna” and “Mukta”. The PSCs are in similar, but not identical, terms.  Tapti is a gas field, and Panna Mukta is principally an oil field albeit producing some associated natural gas.  The “Contractor” comprises the two Claimants and a third entity, Oil & Natural Gas Corporation Ltd (“ONGC”), for their participating interests of 30%, 30% and 40% respectively.  ONGC is controlled by the Government. The Claimants commenced arbitration in 2010. The arbitration is concerned with many disputes between the parties majority of which are discussed below:

Issues

  1. Whether the tribunal committed a serious irregularity by wrongly interpreting the meaning of “Development Costs” in the Investment Multiple?
  2. Whether the tribunal had the substantive jurisdiction under Section 67 of the Act to take into account pre-contractual negotiations between the parties while interpreting he “notional income tax” and whether by doing so the tribunal has committed a serious irregularity under Section 68 of the Act in exceeding its powers, failing to comply with its duty of fairness and impartiality or failing to comply with the procedure agreed by the parties?
  3. Whether the issue of Estoppel (the question of law which is challenged under Section 69) was properly addressed by the tribunal? In addressing the issue of Estoppel, the Tribunal articulated the three necessary ingredients as being (1) a common understanding between the parties, which (2) was relied upon by the Government, and in relation to which (3) it would be inequitable were the Claimants now to contend for some other meaning. It concluded that each was satisfied.
  4. Whether the tribunal’s failure to address and determine the issue related with some particular categories of costs which according to Claimants fell outside the scope of the recovery limit on the basis that the Government had specifically agreed that they should do so and that the costs should be recoverable in any event constitutes a serious irregularity.
  5. Whether or not the Tribunal lacked substantive jurisdiction (under Section 67 of the Act) to determine that the limits applied to works falling outside the scope of parties agreement because no such dispute had ever been submitted to the Tribunal and whether the Tribunal committed a serious irregularity under Section 68 giving rise to substantial injustice by exceeding their powers and/or by acting unfairly in determining a question which it did not give the parties any opportunity to address. Whether material mistakes in calculating the figures (as alleged by Claimants) can be termed as serious irregularity causing the Claimants substantial injustice.
  6. Whether the tribunal was right in holding that it did not have jurisdiction to decide whether the Claimant is entitled to payment withheld by the Government (the Withholding Claim) on the grounds that the Government was a principal debtor for the sales price for oil and gas supplied to GAIL and IOC? Whether the Withholding Claim is arbitrable?

Analysis

On Issue 1, the Court remarked that in reality the essence of the Claimants’ complaint is directed towards the manner in which the Tribunal analysed and deployed the various provisions which were in play.  That goes to the question of whether the Tribunal reached an erroneous conclusion, but there is no section 69 challenge on Issue 1, and the correctness or otherwise of the conclusion is irrelevant to the question of whether there has been a serious irregularity under section 68, which is concerned with process.

On challenge under Section 67 in Issue 2, the Court noticed Section 67 provides that a party may seek an order varying or setting aside an award or part of it or a declaration that it is of no effect where the tribunal has no “substantive jurisdiction”. Section 82(1) provides that the phrase “substantive jurisdiction” refers to “the matters specified in section 30(1)(a) to (c), and references to the tribunal exceeding its substantive jurisdiction shall be construed accordingly”. The matters specified in section 30(1)(a) to (c) are “(a) whether there is a valid arbitration agreement, (b) whether the tribunal is properly constituted, and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement”.  It was common ground that the grounds for a challenge under s. 67 are comprehensively circumscribed by the list of matters referred to in s. 30.

The Court further noticed that the admission and use of pre-contractual negotiations is a matter entirely within the discretion of the Tribunal under Article 25(6) of the UNCITRAL Rules and Section 34 of the Act. The Tribunal can be deprived of that power and discretion in the context of the determination of the notional tax issue if it decided that such evidence was not admissible for that purpose and in the facts of the case it does not do so, and does not purport to do so.

On challenge under Section 68 in Issue 2, the court held that the Claimants were aware that the Government had made submissions concerning pre-contractual documents on this issue and were relying in this context on the Final Fiscal Proposal. The Claimants not only had the opportunity to address the point, but recognised the opportunity and took it. Therefore there was no serious irregularity in the Tribunal’s failure to warn the Claimants that it was going to take into account pre-contractual negotiations and documents in this context.

On issue 3, the Court commented that Section 69 of the Act requires that the Claimants must establish (1) a question of law; (2) on which the arbitrators were obviously wrong (it not being suggested in this case that there is any question of general public importance); (3) which the tribunal was asked to determine; (4) determination of which will substantially affect the rights of the parties; and (5) which it is just and proper for the Court to determine despite the agreement of the parties to have it determined by their chosen arbitral tribunal. The Court mentioned the dicta of Geogas SA v Trammo Gas Ltd (The Baleares) [1993] 1 Lloyd’s Rep 215, wherein Steyn LJheld that the restriction of appeals to errors of law must be rigorously applied in order to give effect to the principles of party autonomy and minimum court intervention enshrined in sections 1(b) and (c) of the Act. The arbitrators’ findings of fact cannot be appealed, however wrong they may appear to the court to beThe arbitral tribunal is master of all issues of fact; by choosing arbitration the parties have bound themselves to honour the arbitrators’ award on the factsIt is not generally permissible to argue that there has been an error of law because there was insufficient evidence to support the tribunal’s findings of fact.

The court will be astute to discern and discourage attempts to appeal what are in reality findings of fact by seeking to dress them up as questions of law.  Moreover, where a tribunal has not expressly stated the legal principles in terms which are obviously erroneous, it will be difficult for a would-be appellant to identify an error of lawIf the arbitrators have stated the correct legal principle, the court will start from the assumption that that is the principle which has been applied.   If the law is not stated, or not fully stated, the court will nevertheless start from the assumption that the law has been correctly understood and applied; tribunals are not to be treated as in error if they do not spell out the law, and to require them to do so would be contrary to the desideratum of speedy finality which underpins the Act.  It is occasionally possible to infer an error of law which is not explicit on the face of the award, but only where a correct application of the law to the facts found would inevitably lead to one answer, whereas the arbitrator has arrived at another. Similar rigour must be applied to the criterion that the tribunal was “obviously wrong”. An arguable error will not be enough; the error must be clear and transparent.

Under Issue 3, the Claimant contended that the Tribubal identified the wrong test as to common understanding, in particular failing to identify and apply a requirement that the understanding must have been communicated by the Government to the Claimants. To this the Court observed that this is not a legitimate criticism of the formulation of the principles by the Tribunal, nor of their application.  It is clear that when the tribunal talked of a common understanding it meant a shared understanding in the sense of one communicated between the parties.  There was no need to spell out communication as a separate ingredient because what the Government relied upon to establish the shared understanding was to a significant extent what had occurred at Management Committee meetings which had been attended by representatives of all parties.  It was implicit in both that the expression “common understanding” meant a shared communicated understanding, an element which had been spelled out elsewhere in submissions and not been in issue as a matter of law.

Further under Issue 3, the Claimant contended that the tribunal failed to identify the right facts to be taken into account to determine whether or not there had been reliance in two material aspects. The first was that the conclusion that there had been reliance was based on the documentary evidence, whereas this had been held to be inconsistent and inconclusive as to any shared understanding; accordingly once the Tribunal found the inconsistency in the documentary evidence as to common understanding, it inevitably followed that no reliance on some common understanding could be shown by reference to that same documentary evidence. The Court held that this argument is misplaced because it is based on a misreading of the Award. The second aspect which is said to show “a failure to identify the right facts” is an alleged failure to identify when the estoppel came into existence. The Court rejected this argument observing that the conclusion is expressed by tribunal without any limitation as to the period of its application and therefore, it does not assist claimant’s Section 69 challenge.

Lastly under Issue 3, the Claimant argued that the tribunal failed to identify the right facts to be taken into account to determine whether or not there had been inequity. The Court held that this does not support a challenge based on an error of law: the findings of the tribunal in this regard are clearly capable in law of fulfilling the requirement of inequity.

While dealing with Issue 4, the Court discussed the principles governing the approach to the reading of awards that the courts do not approach awards “with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards with the object of upsetting or frustrating the process of arbitration”. Where the tribunal has correctly identified the issues which fall to be decided, the usual inference will be that those issues have been decided. On the given facts of the case, the Court concluded that this issue fell for determination and the Tribunal failed to address it.  That is a serious irregularity.  It gives rise to a substantial injustice.

On Issue 5, the Court held that failing to take an opportunity does not give rise to a serious irregularity.  In the particular circumstances of the case, there was neither unfairness under Section 68(2)(a) of the Act nor a failure to comply with the agreed procedure under Section 68(2)(c). Equally Section 67 affords no grounds for relief because the issue was in dispute before the tribunal which had substantive jurisdiction to deal with it; for similar reasons it cannot be said that the Tribunal lacked the power under Section 68(2)(b) to proceed as it did.  This aspect of the challenge must fail.

On Issue 6, the Court concluded that the Withholding Claim could only be resolved in the Claimants’ favour by resolving issues which would not be justiciable in an English court under the foreign act of state doctrine. The principle that the validity and effectiveness of legislative and executive acts of a sovereign state in relation to property within its jurisdiction is not justiciable, is a hard-edged principle of English private international law, and that its rationale derives from the very concept of sovereignty which recognises the power and right of a state to determine the property rights of those whose property is situate within its territory. The Court concluded that there is no good reason why the principle should be any less applicable in arbitration than in litigation before an English court.

The Court further observed that the Tribunal has a general power to make an award which was not determinative of every issue before it pursuant to section 47(2) of the 1996 Act and Article 32(1) of the UNCITRAL Rules.  When a tribunal exercises its power under Section 47 of the Act to reserve an issue for future determination, it cannot be said to have failed to “deal with” that issue.

Conclusions

The held as under:

  • That there has not been a serious irregularity under Section 68(2)(a), nor a failure to conduct the proceedings in accordance with the UNCITRAL Rules so as to engage s. 68(2)(c).
  • That the tribunal retained its substantive jurisdiction and power to have regard to pre-contractual negotiations and documents when addressing the notional tax issue should it so wish, and therefore had jurisdiction to decide as it did.
  • That the question of substantial injustice does not arise given that the Court has found that there was no serious irregularity.
  • That there is no arguable error of law in the Tribunal having identified and applied the correct legal principle.
  • That Issue 4 above fell for determination by the tribunal and it failed to address it which is a serious irregularity and further gives rise to a substantial injustice.
  • That there was neither unfairness nor a failure to comply with the agreed procedure on the part of the tribunal.
  • That the principle that the validity and effectiveness of legislative and executive acts of a sovereign state in relation to property within its jurisdiction is not justiciable is applicable in arbitrations. Accordingly, the decision of the Tribunal that it lacked jurisdiction was correct and there are no valid grounds of challenge under Section 67 or Section 68 of the Act.

 

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