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1940 Supreme(SC) 32
Privy Council At Jammu
M.R. Jayakar, Sir Lancelot Sanderson, Justice Lord Russell of Killowen, JJ.
Raneegunge Coal Association Ltd. -Appellant
Versus
Tata Iron and Steel Co. Ltd. -Resopndent
Privy Council Appeal No. 14 of 1939
Decided On : 18-06-1940
Allen, Stanley Johnson, Cassavetti Coustas and Co., J.M. Parikh, A.T. Miller, L.M. Jopling, S. Hyam, H.V. Willink
When a contract clause contains literal inconsistencies, the court should adopt a construction that reconciles them. If a specific date is mandated for price settlement, the conditions for determining that price must be evaluated as of that settlement date.
Headnote:(A) Interpretation of Contracts - Construction of pricing clause - Reconciliation of inconsistent provisions - Mandatory timing for price settlement - Where a contract clause contains two provisions that, if construed according to their literal and grammatical meaning, are inconsistent with each other, a construction that reconciles these inconsistencies should be adopted if it is reasonably possible.
(B) Contractual Interpretation - Meaning of temporal references - If a clause mandates that a price be settled and adjusted by a specific date, any reference to the "then latest" contracts must refer to the point of time specified for that settlement. The conditions for determining the price must be evaluated as of the date of settlement to maintain the mandatory precision of the agreement. (Paras 8, 9)
Facts of the case:
An agreement for the supply of coal provided that the price for each contract year (commencing April 1st) be settled and adjusted in the preceding January. The price was to be based on the latest contract of a specific authority; however, if no purchase had been made by that authority for nine months prior to the commencement of the contract year, the price was to be based on market contracts. A dispute arose when no contract by the authority existed between July 1st and January 31st, but a contract was entered into by the authority between February 1st and March 31st.
Findings of Court:
The court found that the entire clause is governed by the mandatory requirement that the price be settled in January. Therefore, the inquiry into whether the authority had made a purchase within the preceding nine months must be conducted at the time of settlement in January, rather than at the end of the nine-month period.
Issues: Whether the price for the subsequent contract year must be settled by the end of January based on the contracts available at that time, or whether the window for considering the authority's contracts extends until the commencement of the contract year on April 1st.
Ratio Decidendi: The court ruled that to reconcile the apparent inconsistency between the January settlement date and the nine-month look-back period, the latter must be read as "if no purchase shall, at the time of the settlement and adjustment in January, have been made... for nine months prior to the commencement of such year." This construction preserves the mandatory nature of the January settlement date and avoids the absurdity of settling a price based on events that cannot be ascertained until two months after the settlement date.
Result: Appeal dismissed.
The point for decision on this appeal is the true construction of one clause in an agreement dated 16th January 1919 and made between the appellants and the respondents. By the agreement the appellants (called therein “the sellers”) sell to the respondents (called therein “the buyers”) the output of coal from certain seams in their collieries, for a period which commenced on 1st April 1921 and which has still a few years to run. The clause in question is cl. 4 which runs as follows :
In the month of January immediately preceding the commencement of a year (which term shall for the purpose of this Agreement be deemed to mean a period of 12 calendar months commencing on the first day of April and ending on the thirty-first day of March) the price payable by the Buyers for the coal to be delivered during such year shall be settled and adjusted at eight annas per ton above the price payable under or in respect of the then latest contract for the purchase of first class Jharriah coal loaded into wagons at Colliery Siding entered into by the Railway Board or if that Board shall have been abolished then by such authority as shall be constituted or established in its place or if no such authority shall be established or if no purchase shall have been made by such Board or authority for nine months prior to the commencement of such year then by Purchasers in the Calcutta Market, provided nevertheless that the price so to be settled and adjusted as aforesaid shall in no case be less than Rs. 3 and 12 annas per ton.
A consideration of the clause reveals the fact that it contains two features or provisions, which, if construed according to their literal and grammatical meaning, are inconsistent with each other, viz. (1) Part 1, ending with the words “Railway Board,” is a provision that the price for each contract year shall be settled and adjusted in the preceding month of January on the basis of the then latest contract of the Railway Board; whereas (2) the substituted provision for that settlement and adjustment in the month of January being made on the basis of Calcutta market contracts, is brought into operation in an event, the happening or non-happening of which cannot be ascertained until two months later than the end of January. The difficulty which may arise is obvious; and it did in fact arise in connexion with the contract year commencing on 1st April 1932. The Railway Board made no contracts of the kind specified in the clause (which may conveniently be called relevant contracts) at any time between 1st July 1931 and 31st January 1932; but the Railway Board did enter into relevant contracts after 31st January 1932 and before 1st April 1932. A difference thereupon arose between the parties, and it became necessary to have the clause authoritatively construed; and for that purpose the respondents instituted the present suit in which, as ultimately settled by the Court, the relief sought took the following form :
(a) Whether on the true construction of cl. 4 of the agreement of 16th January 1919 and on the basis of there being no contract for the purchase of first class Jharriah coal made by the Railway Board or any similar authority between 1st July and 31st January following the plaintiffs are entitled to have the price of the coal supplied by the defendant under the agreement in the year commencing from the following 1st April calculated on the footing of the latest purchasers contract in the Calcutta market entered into during the said period i.e., between 1st July and 31st January following; or on what other basis such price should be calculated.
It will be observed that what is sought is to have the clause construed without reference to the events of any particular year, but upon a specified basis. The plaintiffs contended that by the clause, the price for the subsequent contract year has to be settled and adjusted by the end of January by reference to the then latest Railway Board relevant contract, b
