The decision confirms that UNCITRAL Rules do not impose a higher procedural fairness burden than the Arbitration Act and that the foreign act of state doctrine applies in arbitrations.
The Commercial Court considered various challenges to an arbitral award under the Arbitration Act 1996 (the Act) in Reliance Industries Ltd and another v Union of India  EWHC 822 (Comm). Practitioners will welcome the Court’s important decisions on a technical difference between the UNCITRAL Arbitration Rules 1976 (the Rules) and the Act, and on the applicability of the foreign act of state doctrine in arbitration proceedings in England.
The claimants entered into two production sharing contracts with the Indian government for the exclusive right to exploit a number of petroleum resources. These contracts provided for disputes to be referred to arbitration under the Rules, with London as the seat of arbitration.
A number of disputes arose, and were accordingly submitted to arbitration. The tribunal found in the government’s favour on a number of issues. The claimants challenged the tribunal’s award on various grounds under s. 67 (substantive jurisdiction), s. 68 (serious irregularity), and s. 69 (appeal on a point of law) of the Act. Practitioners will find the following challenges particularly relevant:
- The claimants alleged a serious procedural irregularity under ss. 68(2)(a) and/or (c) of the Act, as they were not given a full opportunity to present their case with regards to the construction of a term, as required by Art. 15(1) of the UNCITRAL Rules.
- The tribunal had erred in finding that it lacked jurisdiction to determine whether the government had been entitled to direct withholding of payments, on the basis that the foreign act of state principles of non-justiciability do not apply to arbitration.
Determining the burden of procedural fairness
Art. 15 of the Rules requires that “each party is given a full opportunity of presenting his case”. The claimants perceived this requirement to go further than the obligation to give parties a “reasonable” opportunity to present their case, as required under s. 33(1)(a) of the Act.
The claimants argued that the tribunal did not give them a “full” opportunity to present their case on the construction of a term under the disputed contracts. Further, the claimants argued that the standards of procedural fairness that the tribunal had to meet should have been based on Art. 15(1) of the Rules, rather than on s. 33(1)(a) of the Act — arguably requiring that the parties be given a better opportunity to present their case. Popplewell J in the Commercial Court considered this point, commenting that:
“While I recognise that the words ‘full’ and ‘reasonable’ can mean different things, I do not regard the difference as imposing any higher burden on the Tribunal so far as relevant to the current challenge”.
Popplewell J’s comments are not surprising, given that s. 34 and Art. 15 of the Rules both confirm that arbitrators are in control of their own procedure, and the guiding principle of minimal court intervention is codified in s. 1 of the Act. However, Popplewell J’s decision provides welcome guidance, and avoids any future dispute over this minor difference in terminology between the Act and the Rules.
Determining jurisdiction under the foreign act of state doctrine
The foreign act of state doctrine is the principle that the UK courts cannot determine the lawfulness or validity of sovereign acts of foreign states. Popplewell J considered this doctrine in light of the tribunal’s decision that it lacked jurisdiction to determine whether the government had been entitled to direct withholding of payments.
Addressing this issue, Popplewell J first established that the foreign act of state doctrine would have caught the issues in question, confirming that the issues would not have been justiciable in an English court. He then considered whether the foreign act of state doctrine applied to arbitration, and whether the tribunal had been incorrect in finding that they lacked jurisdiction to determine whether the government had been entitled to perform an act relating to the contracts.
Popplewell J ultimately held that the issues did not provide any good reason why the foreign act of state doctrine should apply any less in arbitration than in litigation before an English court. Popplewell J formed this view on the basis that English private international law recognises the sovereignty of nations within recognised spheres.
Practitioners will welcome Popplewell J’s sensible clarification on the foreign act of state doctrine, as the previous arbitration-specific case law on the doctrine (See Republic of Serbia v ImageSat International NV  EWHC 2853 (Comm)) contained only obiter dicta, which expressed the opposite view.
This post was prepared with the assistance of Ciara Faughnan-Moncrieff in the London office of Latham & Watkins.