Gas pipeline arbitration award
Posted: 29th November 2016
Commercial arbitration awards are not always enforced. In one case, however, the High Court gave unequivocal backing to a $74 million award in respect of a dispute concerning a gas pipeline in Indonesia.
Two natural resources companies entered into a gas transportation contract with the owner and operator of the pipeline. Tariffs in respect of the companies’ use of the pipeline were itemised in the contract. However, when the owner sought to substantially increase those agreed tariffs, a dispute arose that was referred to an arbitration panel that had its seat in London.
The panel accepted the owner’s arguments that the contractual tariffs had been overridden by higher tariffs that had been set subsequently by the Indonesian government in the form of mandatory legislation. However, in making the award to the companies, it found that the owner had breached its duty to perform its obligations under the contract in good faith. The award was designed to put the companies in the same position that they would have enjoyed had the tariffs not been raised.
In challenging the award under Section 68 of the Arbitration Act 1996, the owner argued that it was infected by serious procedural irregularities. It was, amongst other things, submitted that the panel had failed adequately to deal with the owner’s defence and that it had based its decision on an issue that had not been raised and that the owner had therefore had no opportunity to address.
However, in rejecting the owner’s complaints as untenable, the Court found that they should never have been put forward. The companies were granted permission to enforce the award in the same manner as a judgment of the Court and the owner was ordered to pay the substantial legal costs of the case.