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IN THE HIGH COURT OF DELHI AT NEW DELHI
NAVIN CHAWLA, J.
Steel Authority of India Ltd - Appellant
Versus
Seaspray Shipping Co Ltd - Respondent
Original Miscellaneous Petition No. 76 of 2015; Interlocutory Application No. 13588 of 2017
Decided On : 28-02-2019
ARBITRATION - AWARD - CHALLENGE - VALIDITY - INTERPRETATION OF CLAUSE 62 OF THE CONTRACT - POWER TO TERMINATE THE CONTRACT - WHETHER THE ARBITRAL TRIBUNAL IS RIGHT IN CONCLUDING THAT THE AGREEMENT DATED 04.12.2007 WAS A BINDING CONTRACT BETWEEN THE PARTIES AND NOT MERELY A MEMORANDUM OF UNDERSTANDING OR AN AGREEMENT TO ENTER INTO AN AGREEMENT IN FUTURE - WHETHER CLAUSE 62 OF THE AGREEMENT EMPOWERS THE PETITIONER TO TERMINATE THE AGREEMENT AT ITS CONVENIENCE - WHETHER THE LETTER DATED 11.09.2012 EXPRESSES THE INTENTION OF THE PETITIONER TO TERMINATE THE AGREEMENT - WHETHER SUCH TERMINATION CAN TAKE RETROSPECTIVE EFFECT FROM THE FIRST DEFAULT OF THE PETITIONER - WHETHER THE RESPONDENT IS ENTITLED TO DAMAGES - QUANTUM OF DAMAGES.
Fact of the Case:
The petitioner, a charterer, had engaged the services of the respondent, an owner, to ship a cargo of coal from Australia to India. Disputes arose between the parties due to non-supply of cargo under the contract by the petitioner, leading to invocation of arbitration. The arbitral tribunal held that the termination of the contract was invalid and that the respondent was entitled to damages. The petitioner challenged the award.
Finding of the Court:
The court held that: * Clause 62 of the contract empowers the petitioner to terminate the agreement at its convenience. * The letter dated 11.09.2012 expresses the intention of the petitioner to terminate the agreement. * The termination is effective from 13.09.2012, when the letter was communicated to the respondent. * The respondent is entitled to damages for the period from 13.09.2012 to the date of termination of the contract. * The award of interest is modified to the rate as granted by the Supreme Court in Vedanta Ltd. (supra).
Issues: 1. Whether the arbitral tribunal is right in concluding that the agreement dated 04.12.2007 was a binding contract between the parties and not merely a memorandum of understanding or an agreement to enter into an agreement in future? 2. Whether Clause 62 of the agreement empowers the petitioner to terminate the agreement at its convenience? 3. Whether the letter dated 11.09.2012 expresses the intention of the petitioner to terminate the agreement? 4. Whether such termination can take retrospective effect from the first default of the petitioner? 5. Whether the respondent is entitled to damages? 6. Quantum of damages.
Ratio Decidendi: 1. The court held that the agreement dated 04.12.2007 was a binding contract between the parties and not merely a memorandum of understanding or an agreement to enter into an agreement in future, as it contained all the terms necessary for the agreement, namely, the quantity to be shipped, period of contract, rate, and the manner in which the vessel is to be nominated and coking coal shipped. 2. The court held that Clause 62 of the agreement empowers the petitioner to terminate the agreement at its convenience, as it provides that the petitioner may "declare the contract as at an end without any liabilities on either side" in case of default by the respondent. 3. The court held that the letter dated 11.09.2012 expresses the intention of the petitioner to terminate the agreement, as it clearly states that the petitioner is "left with no option but to treat the subject agreement stood terminated under the 'Default Clause' which entitled SAIL to declare the contract at an end without any liabilities whatsoever on either side." 4. The court held that such termination cannot take retrospective effect from the first default of the petitioner, as Clause 62 of the agreement does not empower the petitioner to retrospectively terminate the agreement. 5. The court held that the respondent is entitled to damages for the period from 13.09.2012 to the date of termination of the contract, as the termination was effective from 13.09.2012, when the letter was communicated to the respondent. 6. The court held that the quantum of damages is to be calculated based on the difference between the contract rate and the spot rate for the period of default.
Final Decision: The petition is partially allowed in the above terms, with no order as to cost.
NAVIN CHAWLA, J.
1. This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act") challenging the Arbitral Award dated 20.08.2014 passed by the Arbitral Tribunal adjudicating the disputes that had arisen between the parties in relation to the Agreement dated 04.12.2007 executed between the parties.
2. In the order dated 22.02.2017 passed by this Court, it was observed that the Arbitral Tribunal has not given reasons for its conclusions in respect of issues at paragraphs 71.5 to 71.7 of the Award. Consequently, it was directed that the Arbitral Tribunal which gave the Award will, for the limited purpose of giving the reasons in respect of the conclusions in the Impugned Award with regard to the paragraphs (issues sic) 71.5 to 71.7, reconvene and furnish reasons to the Court.
3. In compliance with the above directions, the Arbitral Tribunal has passed an Additional Award dated 10.06.2017 giving reasons in support of its conclusions in paragraphs (issues sic) 71.5 to 71.7 of the Award dated 20.08.2014. The petitioner has thereafter filed I.A. No.13588/2017 challenging the Additional Award and the reasons given therein.
4. The disputes between the parties are in relation to the Contract of Affreightment dated 04.12.2007 (hereinafter referred to as the "COA") whereby the petitioner as Charterer had engaged the services of the respondent as owners to ship a Cargo of 2,000,000 MT 5% more or less in Charterer's Option (5% Charterer Option to be declared latest on 30.09.2012) of Coking Coal in bulk from Queensland, Australia for discharge at the East Coast in India. The Shipment period was April, 2008 to December, 2012. The Shipment was provided to be on "evenly spread per month basis".
5. Disputes arose between the parties due to non supply of cargo under the COA by the petitioner, leading to invocation of Arbitration.
6. The petitioner thereafter, by an e-mail dated 11.09.2012 exercised its option to reduce the quantity of shipment by 5%. Immediately thereafter, by a separate Fax Message dated 11.09.2012, the petitioner terminated the Agreement invoking "Default Clause" in the Agreement. This gave rise to a dispute between the parties, with the respondent claiming that the petitioner had no unilateral right to terminate the Agreement, and the petitioner claiming that such right was vested in it as per Clause 62 of the COA.
7. The respondent filed its claims before the Arbitral Tribunal, which have been allowed by the Arbitral Tribunal by its Award dated 20.08.2014 holding that the termination of the Contract was invalid and that the respondent was entitled to damages of USD 14,596,890.11 less 2.5% address commission for the petitioner and 1.25 % brokerage to be deducted and paid to the Indian Broker as per Clause 48 of the COA. The Arbitral Tribunal further directed the payment of interest at the rate of 6% p.a. from 01.12.2012 to the date of the Award and thereafter at the same rate till the date of payment.
8. As noticed above, pursuant to the order dated 22.02.2017 passed by this Court, the Arbitral Tribunal by its Additional Award dated 10.06.2017 supplied reasons for its conclusions on issues in paragraphs 71.5 to 71.7 of the Award. In the said Additional Award, the Arbitral Tribunal held that Clause 62 of the COA has to be read in context with the other provisions of the COA and when so read, it could apply only to circumstances constituting frustration of the Agreement and is directed at the Supplier of coal in Australia rather than the petitioner. The Arbitral Tribunal further held that even assuming that Clause 62 of the COA was to be read as empowering the petitioner to unilaterally terminate the Agreement, the notice dated 11.09.2012 cannot be termed as a notice under Clause 62 of the COA and therefore, termination of the Agreement was not valid.
9. As far as the consequential damages are concerned, the Arbitral Tribunal found that the respondent need no
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