Appeal on a Question of Law - Section 69 Arbitration Act 1996

Reliance Industries Ltd v Enron Oil & Gas India limited [2002] 1 All ER (Comm) 59

A Commercial Court decision which will have relevance to international arbitrations with their seat in England or Wales. Mr Justice Aikens considered the application of section 69 of the Arbitration Act 1996 in relation to appeals from arbitration awards. The decision clarifies the position in relation to the application of English law principles in proceedings where the dispute is to be determined under foreign law.

Three companies, Reliance Industries Limited ("Reliance"), Enron Oil & Gas India Limited ("Enron") and Oil & Natural Gas Corporation Limited were parties to arbitration proceedings concerning the operation of two offshore oil and gas fields on India’s continental shelf. Enron was appointed Operator of the fields under two Joint Operating Agreements ("JOAs").

Disputes had arisen under the JOAs in relation to the construction of the accounting provisions of the JOAs, in particular, regarding procedures relating to the making and paying of cash calls and the raising of Authorisations for Expenditure. The JOAs provided that they should be "construed, interpreted and applied in accordance with the laws of India." The JOAs also contained arbitration agreements which provided that disputes should be submitted to arbitration under the UNCITRAL rules. The arbitration agreements were governed by English law and the seat of any arbitration was to be in London. In order to resolve the disputes that had arisen between the parties, Enron referred the disputes to arbitration. The tribunal ordered that preliminary issues on construction of the JOAs should be heard. At the hearing, it was common ground between the parties that for the purpose of construing and interpreting the provisions of the JOAs there was no difference between English and Indian law and that the principles of construction set out by Lord Hoffman in the recent cases of Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 and Bank of Credit & Commerce International SA v Ali and Others [2001] 2 WLR 735 were authoritative. Following the hearing, the tribunal made two Partial Awards on the preliminary issues of construction.

Reliance sought leave from the Commercial Court to appeal the Partial Awards on questions of law, under section 69(1) of the Arbitration Act 1996 (the Act). Section 82(1) of the Act defines a "question of law" as "a question of the law of England and Wales." It was, therefore, necessary for Mr Justice Aikens to make a decision on the threshold question of whether a question on the law of England and Wales arose in the construction of the JOAs, before the application for leave could be considered on its merits.

Reliance submitted that none of the parties at the arbitration hearing had adduced evidence or argument on the principles of Indian law governing the questions of construction before the tribunal. Therefore, the tribunal was entitled to apply English law. Reliance argued that, because the tribunal had proceeded on the basis that English law was for all practical purposes the same as Indian law, it had therefore applied English law principles.

Enron submitted that all of the questions raised in the appeal were questions of construction of the JOAs and so were questions of Indian law because the JOAs were governed by Indian law. As the parties agreed that Indian law applied and the parties had not agreed to vary the contract terms (either before the disputes arose or subsequently in the arbitral process), the tribunal had to apply Indian law to construe the contract. Although it had been agreed that Indian and English law principles of construction were the same, the tribunal had applied Indian law. Enron submitted that the correct analysis was that the tribunal had accepted that English law on construction could be considered to discover the correct principles of construction according to Indian law, but that those principles had been adopted as a matter of Indian law.

Mr Justice Aikens did not accept Reliance’s submissions. He noted that the parties had agreed that Indian law governed the JOAs but that in drafting the JOAs they had been careful to ensure that English law would be the procedural law applicable to any arbitral proceedings that were commenced. Consequently, if and when disputes were referred to arbitration under the JOAs, as a matter of English law (the procedural law), the tribunal had to decide those disputes in accordance with the proper law of the JOAs chosen by the parties, i.e. Indian law. The Judge found that, in the circumstances, the parties had agreed that principles of construction under Indian law equated with those under English law. The tribunal took those principles and applied them as principles of Indian law, in order to construe the JOAs. This is what the tribunal was required to do under English law which governed the procedure of the arbitration.

Therefore he refused to grant leave to appeal the Partial Awards on the grounds that no question of the law of England and Wales arose and so the English Courts did not have the jurisdiction to grant leave under section 69 of the Act.

This case clarifies the position in relation to the availability of appeals to the Commercial Court under section 69 of the Act. This has important implications where the common approach in international arbitrations with their seat in London of applying English law principles without the need for evidence or submissions on the foreign law which governs the dispute is adopted. Mr Justice Aikens’ decision establishes that in these circumstances, the application of English law principles by the tribunal will not make the award subject to appeal on the basis that they concern questions of the law of England and Wales. The decision will be welcomed by the arbitration community in London as promoting commercial certainty and a benign climate for parties to agree on London as a seat for international arbitrations.

This decision clearly indicates that parties must consider the importance of applicable law to govern the substance of their relations when drafting their contract.

Article by John Gilbert

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