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Court provides guidance on application of Henderson v Henderson principle to arbitration proceedings

Rick Gal
Gal Rick
Rick Gal

Senior Associate

London

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22 August 2022

The Commercial Court has provided important guidance on the applicability of the Henderson v Henderson principle to arbitration proceedings. It found that the principle, that a party must bring the whole of its case at the appropriate time or risk being precluded from doing so later, does apply to London seated arbitration proceedings.

Arbitration arising from Indian law governed contracts

The parties are involved in a long-running London-seated arbitration that was commenced in 2010 and has led to eight partial awards. The dispute arises from two Indian-law governed production sharing contracts that were entered into in 1994 in respect of the Tapti and Panna Mukta oil and gas fields, located off the cost of Mumbai.

A key area of dispute in the arbitration relates to a numerical cost recovery limit (CRL) in the PSCs, which caps cost recovery by the Contractor to a specific sum. Reliance/BG argued in the arbitration that the Government had agreed that certain costs would be recoverable notwithstanding the CRL (known as “the Agreements Case”).

Three awards leading to three challenges

The history of the Agreements Case is convoluted but is necessary background for understanding why the Tribunal applied the Henderson v Henderson principle in its 2021 award. The Agreements Case has, remarkably, led to three arbitration awards and three English court judgments.

In 2016, the Tribunal decided that it did not need to determine the Agreements Case. Reliance/BG challenged this finding and Popplewell J (as he then was) agreed that this amounted to a serious irregularity (Reliance Industries v Union of India). The Tribunal was required to determine the Agreements Case and had failed to do so, leading the court to remit this part of the award back to the Tribunal.

In 2018, the Tribunal decided the Agreements Case on remission. One part of the award related to the expanded plan of development (the EPOD) project. The Tribunal awarded Reliance/BG partial cost recovery for this project, but rejected the balance sum. It refused recovery of part of the project costs because the documents relied upon had not been referred to for this purpose prior to the 2016 award, although they were on the record. Reliance/BG challenged this part of the award.

In a second court judgment, Knowles J found in favour of Reliance/BG and remitted part of the award back to the Tribunal on the basis that it had made a jurisdictional error. The court found that the Tribunal did have jurisdiction to consider documents that were on the record prior to the 2016 award despite not having been referred to before in the context of the Agreements Case (Reliance Industries v Union of India).

This led to a second remission before the Tribunal. In a January 2021 award, the Tribunal determined that Reliance/BG were entitled to cost recovery of a further sum of EPOD costs. In the application that is the subject of this judgment, the Government sought to challenge parts of the 2021 award under s.68 of Arbitration Act 1996 (the Act) and raised an appeal on a point of law under s.69.

The Government’s application for permission to appeal

Appeal on two questions of law

At the time of the second remission, the Government raised various threshold arguments that it said defeated the Agreements Case to the extent of the balance EPOD project costs. They included arguments that Reliance/BG’s claim would be contrary to principles of Indian law and public policy.

As a threshold matter, the Tribunal determined that it could not consider the Government’s arguments, as the principle in Henderson v Henderson was a complete answer to them. The Government’s threshold arguments applied to the whole of the Agreements Case rather than being limited to one part of the EPOD Agreements Case. As such, they could and should have been raised at an earlier phase of the arbitration.  

Further, the Tribunal considered that it was misplaced for the Government to rely on Indian case law on the scope of this principle. As the seat of the arbitration was London, matters of res judicata would be determined applying the laws of England and Wales.

The Government sought permission to appeal on two questions of law (under s.69(3) of the Act):

  • Question 1: Was the Tribunal correct to determine that the specific question of res judicata with which it was concerned should be decided according to English law, merely because the seat of arbitration is London?
  • Question 2: If so, is the doctrine applicable to earlier phases in the same arbitration proceedings (as opposed to separate proceedings)?

Application of the principle in Henderson v Henderson

The court considered first whether the Tribunal’s findings on the two questions were either obviously wrong or open to serious doubt (s.69(3)(c)). It concluded that there could be no question about the correctness of the Tribunal’s approach.

On Question 1, the court rejected the Government’s argument that the principle in Henderson v Henderson is one of substantive English law, such that Indian law principles of res judicata would apply. The court referred to Lord Sumption’s comments in Virgin Atlantic v Zodiac and Takhar v Gracefield Developments that: 

  1. while the principle in Henderson v Henderson has been treated as part of the law of res judicata, it is better analysed as part of the principle of abuse of process; and 
  2. whereas res judicata is a rule of substantive law, abuse of process is a concept which informs the exercise of the court’s procedural powers. 

The court therefore found that “English law is plainly that the Henderson v Henderson principle is properly characterised as procedural” and that, in the case of an arbitration, the seat governs its exercise.

The court then went a step further by considering the Government’s argument that the consensual nature of arbitration proceedings means that the Henderson v Henderson principle has a limited application as compared to court proceedings. The court confirmed that the Henderson v Henderson principle does apply to arbitration proceedings, albeit with some limits. This is because there is a need for a procedural power to guard against abusive and duplicative proceedings in the arbitration context, as in the court context. The court found that this power has a basis in s.33 of the Act, which is a mandatory provision that was introduced “in the public interest”.

On Question 2, the court rejected the Government’s argument that the Henderson v Henderson principle does not apply across different phases of the same proceedings. The court confirmed that, although there may be no binding precedent, there is substantial judicial support for the proposition that the principle in Henderson v Henderson can apply to all stages of the same proceedings, and to defences as well as claims.

Other reasons for rejecting the application

The court also found against the Government on the other limbs required for permission to appeal:

  • The Tribunal was not asked to determine the two questions (s.69(3)(b)). The court noted that a tribunal may have been asked to determine a question of law even if the court struggles to identify precisely how it was put or what question the tribunal was asked. This was not the case here.
  • The Tribunal’s determination did not substantially affect the Government’s rights (s.69(3)(a)). The court clarified that to succeed under s.69(3)(a), unlike s.68(2), an applicant must demonstrate that a determination of the question “would” lead to a different result, not that it “might” do. The Government was unable to meet this requirement, as it was not clear that the application of the Henderson v Henderson principle under Indian law may or would lead to a different outcome.
  • It was not just and proper for the court to determine the two questions (s.69(3)(d)). The Government had benefitted from the principle in Henderson v Henderson in an earlier phase of the arbitration; it was not entitled to take an inconsistent approach before the court.

The Government’s challenge to the award for serious irregularity

Having rejected the Government’s application for permission to appeal, the Tribunal considered the Government’s arguments that the 2021 award contained serious irregularities under s.68 of the Act. The court rejected the s.68 challenges:  

  • S.68(2)(a): The Tribunal had not acted unfairly by shutting out the Government’s threshold arguments. The court noted that it did not matter for the purposes of assessing fairness that one of the parties was a sovereign state, or that its case was based on mandatory provisions of the Indian Constitution.
  • S.68(2)(d): The Tribunal had not failed to deal with certain issues when it went on in the 2021 award to consider and reject the Government’s threshold arguments on their merits. The court was not troubled by the brief manner in which the Tribunal dealt with the Government’s arguments.
  • S.68(2)(g): The court was not satisfied that this ground of challenge could be used to argue that a tribunal got it wrong on points of foreign public policy. The judge observed that to allow parties to attack the conclusions of tribunals on matters of foreign law using this ground might open up the floodgates to challenges.

Commentary

This judgment is of particular interest in the clarity that it provides on the application of the principle in Henderson v Henderson to arbitration proceedings. It follows hot on the heels of the recent observation by Foxton J that the principle is a matter of controversy in the arbitration context (PJSC National Bank Trust v Boris Mints, para. 25(v)).

The court confirmed unequivocally that the principle:

  • does apply to arbitration proceedings
  • can apply between separate phases of a single proceeding
  • can operate against both defences and claims
  • is a procedural rule such that the law of the seat, rather than the governing law of the contract, will determine its scope

It is a reminder to parties to arbitration proceedings that they must bring forward their whole case at the appropriate time, or risk being precluded from doing so in a subsequent phase/proceeding. It is also yet another example of the English courts’ support for the finality of arbitration proceedings.

Note: Allen & Overy LLP represented Reliance/BG in these proceedings

Judgment: Union of India v Reliance Industries Ltd and another