Cairn Energy India Pty Ltd v The Government of India 6 MLJ 795 [2009]

Cairn Energy India Pty Ltd v The Government of India 6 MLJ 795 [2009]

Cairn Energy India Pty Ltd and the Government of India entered into a production sharing agreement. Disputes arose between the parties and the matter was eventually referred to arbitration. The production sharing contract was governed by Indian law and the arbitration agreement was governed by English law. The place of the arbitration was specified as Malaysia and the procedural law of the arbitration was that of Malaysia (the Arbitration Act 1952).

The dispute was decided in favour of Cairn Energy India Pty Ltd and the Government of India challenged the award in Malaysia on the basis that there was manifest error on the face of the award. The issue before the High Court was whether the companies were entitled to include in the accounts, for the purposes of post-tax rate of return calculations, sums paid by the companies in accordance with Article 3.3 of the production sharing agreement.

The High Court held that there was an error of construction of the relevant provisions of the production sharing agreement, which came about as the principles applied were not countenanced by law. Further, the High Court held the reference to commercial sense in construing the relevant provision to be erroneous in the face of the clear commercial wording of the relevant provisions in the agreement.

The Government of India succeeded in the High Court and the award was set aside on the basis that the majority arbitrators had made a manifest error in construing the relevant provision of the production sharing agreement, and had ignored the plain meaning of the words found therein. Cairn Energy India Pty Ltd appealed this decision to the Court of Appeal.

The Court of Appeal took the view that there was nothing improper in the majority arbitrators being persuaded by Cairn Energy India Pty Ltd construction of the relevant provisions, and that they could not be said to have acted so erroneously that a court must set aside their finding. The Court of Appeal held that the issue which concerned an interpretation of the production sharing agreement was a question of construction and therefore a specific question of law with which there should be no curial interference. Even if the issue before the High Court was a mixed question of law and fact, it was still not permissible for the High Court to reopen the issue as it had no appellate powers. Further, an error of construction was held to be an insufficient ground for setting aside the award.

This decision is a reflection of the Malaysian courts’ approach towards arbitrations and their desire to circumscribe narrowly the grounds for interference with an arbitral award.

Government of India v Cairn Energy Pty Limited [2009]

Government of India v Cairn Energy Pty Limited [2004]

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