Public policy

In Tamil Nadu Electricity Board v ST-CMS Electric Co Private Ltd [2007] EWHC 1713 (Comm) the underlying question for Mr Justice Cooke was whether an arbitration clause governed by English law, and applicable to a contract governed by Indian law, was valid and enforceable in England even though Indian law required the dispute to be resolved by a statutory procedure in India. Cooke J, giving primacy to the separability principle, confirmed that the arbitration clause remained valid.

Tamil Nadu: the contractual arrangements

Under a Power Purchase Agreement (PPA) entered into originally in November 1993 and in a modified form in November 1996, TNEB (the state Electricity Board for the Indian State of Tamil Nadu) agreed to obtain from ST-CMS (an Indian company operated by foreign investors), for a thirty-year period, energy generated by a plant constructed by ST-CMS. The PPA was governed by the law of India. Under the PPA the amounts to be paid were calculated in accordance with a tariff based on the capital cost of completing the project, a fixed capacity charge, a variable fuel charge, an incentive performance payment, monthly adjustments and end of year corrections. The term ‘capital cost’ was closely defined as meaning the cost incurred by ST-CMS in completing the project, provided that costs in excess of a capital cost ceiling were not to be included unless approved by a regulatory body, the CEA, established by the Indian Electricity (Supply) Act 1948. The Agreement was expressly stated to be subject to the terms of that Act.