Reliance Industries Ltd & Anor v The Union of India

A challenge for serious irregularity under Arbitration Act 1996 section 68 has a deliberately high threshold. A tribunal may develop its own reasoning on a disputed issue where the essential building blocks were in play. It must, however, decide every material issue submitted to it unless that issue has properly been reserved or rendered unnecessary.

Foreign act of state rules concerning legislative and executive acts affecting property within the foreign state apply in an English-seated arbitration as principles of private international law. A general arbitration agreement does not itself waive those rules, although the parties may expressly or subsequently submit an act of state issue to arbitration.

The claimants challenged nine parts of a partial arbitration award arising from two petroleum production sharing contracts with the Union of India. The contracts were governed principally by Indian law, while their arbitration agreements were governed by English law and the agreed seat was London.

The challenges were brought under sections 67, 68 and 69 of the Arbitration Act 1996. They concerned contractual construction, estoppel, cost recovery, withheld petroleum-sale proceeds, accounting adjustments, document production and a reserved production-loss counterclaim. The principal questions were whether the tribunal lacked substantive jurisdiction, committed serious procedural irregularities, or made appealable errors of law.

1. Challenges 1 to 3 and 5 to 9 failed. Challenge 4 succeeded. The parties were to be heard on the form of relief.

2. A section 68 challenge is concerned with the fairness of the arbitral process, not the correctness of the tribunal's conclusion. Where contractual construction was squarely in issue, the tribunal could formulate its reasoning from provisions and arguments already in play. Fairness did not require every analytical step to be put separately to the parties. The reference in article 15(1) of the UNCITRAL Arbitration Rules to a full opportunity to present a case imposed no materially higher standard than the reasonable opportunity required by section 33 of the Arbitration Act 1996.

3. The earlier partial award had not finally determined the admissibility of pre-contractual material for every subsequent construction issue. The tribunal therefore retained jurisdiction and procedural power to admit and use that material when deciding the notional tax issue. The attempted estoppel appeal under section 69 impermissibly challenged findings of fact. The tribunal had identified and applied the necessary requirements of a communicated common understanding, reliance and inequity.

4. The tribunal did commit a serious irregularity by failing to determine the claimants' distinct case that particular development costs were recoverable under specific agreements. The tribunal's statement that the issue no longer fell for determination meant naturally that it had not decided it. The estoppel finding did not logically dispose of that separate case. Substantial injustice was established because the tribunal might have allowed claims of significant value had it addressed them.

5. The withholding dispute required adjudication upon the validity or effect of Indian legislative and executive acts affecting property in India. Under [2017] UKSC 3, those questions engaged foreign act of state principles and were non-arbitrable under the applicable rules of English private international law. A general agreement to arbitrate did not waive the objection. The Government raised it as soon as the relevant challenge emerged and had not otherwise submitted the issue to arbitration.

6. A tribunal exercising its power to make a partial award may reserve an issue for later determination. Reserving liability concerning delayed drilling, together with consequential questions of causation and loss, was not a failure to deal with the issue.

The proceedings were first-instance statutory challenges to a partial arbitral award rather than an appeal from a court judgment.

• High Court (Commercial Court): upheld eight of the nine challenged parts of the award and found serious irregularity in the tribunal's failure to determine the Agreements Case.
• Arbitral tribunal: issued the challenged Final Partial Award on 12 October 2016 following earlier consent, arbitrability and cost-recovery awards. The form of relief following the successful challenge remained to be determined.