Government loses UK battle over $111m award to RIL-BG in 11-year oilfield dispute

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NEW DELHI: An English commercial court has dismissed the government’s appeal against a $111 million international arbitration award in favor of Reliance Industries Ltd and BG (formerly British Gas, now a Shell subsidiary) in an 11-year dispute over cost recovery for operating the Panna-Mukta and Tapti fields off the coast of Mumbai.
This is the third legal challenge brought against eight ‘Partial Final Awards (FPAs)’ by an arbitral tribunal in a billion dollar dispute which began in December 2010 over provisions of cost sharing in two production contracts. Enron, had signed with the government for the fields.
The contested award was made in January 2021, the latest by the arbitral tribunal of Christopher Lau of Singapore as president, Peter Leaver of the UK and former Supreme Court Justice B Sudershan Reddy. He awarded Reliance and BG $111 million of the total $260 million in costs they had claimed.
On June 9, Judge Ross Cranston applied the English Arbitration Act 1996 and the principle established by a 19th century English court decision in a case – Henderson v Henderson – to bar the government’s appeal and dismissed his arguments under English arbitration law. 1996 against the price.
Justice Cranston held that the Henderson principle precludes parties from raising issues in later proceedings that were not raised, but could and should have been raised in earlier proceedings. In other words, the court held that the government should have raised its objections earlier when the arbitral tribunal announced the award in 2021.
The government had argued that applying the Henderson principle to contracts governed by Indian law, without establishing that the principles were identical in the two legal systems, constituted a substantial injustice. He also argued that English law did not prohibit a defendant to a claim for arbitration from raising defenses “merely because he could and should have” raised them at an earlier stage in the proceedings.
The dispute began when the companies sought to raise the limit on costs they could recover before sharing revenue with the Treasury. There was also a dispute over royalties and statutory rights. The government has also made counterclaims relating to incurred expenses, inflated sales, recovery of excess costs and overdraft accounting.
The arbitral tribunal confirmed the government’s view that the profit from the fields should be calculated after deducting the current tax of 33% and not the 50% rate that previously existed. He also confirmed the cost recovery limit of $545 million in the Tapti gas field and $577.5 million in the Panna-Mukta oil and gas fields in the respective contracts. The companies wanted cost provisions increased by $365 million at Tapti and $62.5 million at Panna-Mukta.
The government used this reward to demand $3.85 billion in dues from Reliance and BG Exploration & Production India Ltd and also used it to block Reliance’s proposed $15 billion deal with Saudi Aramco on the grounds that the company owed him money.
The companies challenged the 2016 FPA in the English High Court, which on April 16, 2018 remitted one of the disputed issues to the arbitral tribunal for reconsideration. The arbitral tribunal ruled in favor of both in an award dated January 29, 2021.
Subsequently, both parties filed requests for clarification in court, which on April 9, 2021 granted minor corrections requested by Reliance and Shell and denied all government requests for clarification. The government subsequently challenged the decision in the English High Court.



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