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Shearman and Shepherd to battle out $5.6bn Cairn Energy tax arbitration against India

Oil and gas exploration and development company Cairn Energy has picked lawyers from Shearman & Sterling and Shepherd and Wedderburn, as well as former India solicitor general Harish Salve, to bring a $5.6bn arbitration claim against India over a disputed tax assessment.

The claim has been brought through Cairn UK Holdings, a direct subsidiary of London-listed Cairn Energy, under a bilateral investment treaty between the UK and India. The arbitration will be seated in The Hague in the Netherlands with hearings set to begin in 2017. The disputes follows a tax crackdown by India on offshore subsidiaries, often demanded retroactively.

Cairn Energy bought a concession in the Indian state of Rajasthan for $7.5m in 2002 from Anglo-Dutch energy giant Shell and subsequently discovered a vast oil deposit. The Scottish company sold a majority stake in Cairn India, which it had incorporated in Jersey, for $8.5bn to Vedanta, which is majority owned by billionaire Anil Agarwal’s Indian mining group Vedanta Resources.

Cairn’s long drawn out sale of its remaining 9.8% stake in Cairn India to Vedanta was blocked by Indian tax authorities on the grounds that Cairn owes the government $1.6bn in taxes on the original venture, as well as $2.8bn in interest.

Cairn said in a recent London Stock Exchange filing: ‘Cairn has also commenced international arbitration proceedings against the Republic of India under the UK-India Bilateral Investment Treaty on the basis that India’s actions have breached the Treaty by (1) expropriating Cairn’s property without adequate and just compensation, (2) denying fair and equitable treatment to Cairn in respect of its investments and (3) restricting Cairn’s right to freely transfer funds in connection with its investment. Based on detailed legal advice, Cairn is confident that it will be successful in such arbitration.’

Shearman & Sterling’s team for Cairn includes London-based international arbitration partner Mark McNeill and San Francisco-based Robert Nelson. They are being supported by lawyers at UK firm Shepherd and Wedderburn and Indian firm S&R Associates, with Cairn having also enlisted Harish Salve, a former solicitor general of India, to wage its legal battle. Blackstone Chambers barrister Salve recently acted on a similar dispute with the Indian tax authorities, advising for Vodafone India on a $2.6bn dispute over unpaid capital gains tax currently in international arbitration.

Read more on the oil & gas industry in: ‘Power struggles – the challenges facing counsel in the $5trn oil and gas industry’