IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE V.RAMKUMAR & THE HONOURABLE MR. JUSTICE P.Q.BARKATH ALI WEDNESDAY, THE 14TH DECEMBER 2011 / 23RD AGRAHAYANA 1933 Arb.A.No. 44 of 2011() ---------------------- OP (Arbitration) 505/2011 of District & Sessions Court, Ernakulam APPELLANT/PETITIONER ------------------- BOARD OF TRUSTEES OF PORT OF COCHIN, A MAJOR PORT CONSTITUTED UNDER THE MAJOR PORT TRUST ACT HAVING ITS OFFICE AT WILLINGDON ISLAND, COCHIN-682 009, REPRESENTED BY ITS CHAIRMAN, SRI.PAUL ANTONY. BY ADVS. M/S.JOSEPH KODIANTHARA, SENIOR ADVOCATE, V.JOSEPH MARKOS, MATHEWS K.UTHUPPACHAN, BINU MATHEW, TERRY V.JAMES,B.J.JOHN PRAKASH, & TOM THOMAS (KAKKUZHIYIL) RESPONDENT(S): --------------- JAISU SHIPPING COMPANY PRIVATE LIMITED, A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956, HAVING ITS REGISTERED OFFICE AT KEWAL REMANY HOUSE, DINSHAW BUILDING ROAD, NEDAR CUSTOM HOUSE, KANDLA PORT, GUJARAT-370 220 AND BRANCH OFFICE AT LINK HORIZON, MARINE DRIVE,ERNAKULAM,KOCHI-682031. Addl. R2 JAISU DREDGING AND SHIPPING LTD. REGISTERED OFFICE : ROOM NO. 1 & 2 “KEWAL RAMANI HOUSE”, DINSHAW BUILDING ROAD, NR. CUSTOM HOUSE, KANDLA PORT (GUJRAT) INDIA - 370 220 ( IMPLEADED AS ADDL. R2 AS PER ORDER IN I.A. NO. 2557 OF 2011 DATED 4-10-2011) ADV. SRI.K.L.VARGHESE, SENIOR ADVOCATE SMT.SANTHA VARGHESE CAVEATOR ADVS. M/S. SUMATHY DANDAPANI, (Sr) & MILLU DANDAPANI FOR ADDL.R2. THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 03-12-2011 & 07/12/2011, THE COURT ON 14/12/2011 DELIVERED THE FOLLOWING: -:2:- “CR” V. RAMKUMAR & P.Q. BARKATH ALI, JJ. ........................................................ Arbitration Appeal No. 44 of 2011 ......................................................... Dated: 14-12-2011 CONTENTS Sl. No. INNER TITLES Para No. 1 The parties 2 2 The background facts in chronological order (from 31-01-2005 to 7-12-2011) 5 3 Argument of the appellant 6 4 JUDICIAL EVALUATION 7 to 23 Pre-requisites for a conditional order of attachment before judgment 8 CIRCUMSTANCES AGAINST THE APPELLANT a) No specific pleading in the O.P. in terms of Order 38 Rule 5 C.P.C. 9 b) No manifest intention shown to go for arbitration and no pleading also in that behalf 10 to 17 c) The conduct of the appellant 18 d) Sustainability of the appellants' demand for Rs. 259.97 crores by way of compensation for the alleged breach of contract 19 e) Prima facie breach of the guiding principles for awarding compensation 20 f) Balance of convenience and comparative hardship 21 g) The Ist respondent has no attachable interest 22 OUR CONCLUSION 23 Arbitration Appeal No. 44 of 2011 -:2:- Judgment Ramkumar, J. In this appeal filed under Sec. 37 (1) (a) of the Arbitration and Conciliation Act, 1996 (“the Act” for short), the appellant i.e. the Board of Trustees, Port of Cochin, challenges the order dated 5- 09-2011 passed by the District Judge, Ernakulam dismissing on merits O.P. (Arbitration No. 505/2011) filed by the appellant under Sec. 9 of the Act. THE PARTIES 2. The appellant is a major Port constituted under the Major Port Trusts Act, 1963 having its office at Willingdon Island, Kochi - I and is represented by its Chairman Sri. Paul Antony. The first respondent i.e. Jaisu Shipping Company Private Ltd. is company incorporated under the Companies Act, 1956, having its registered office at Kewal Remany House, Dinshaw Building Road, Nedar Custom House, Kandala Port, Gujrat - 370 220 and having a branch office at Link Horizon, Marine Drive, Ernakulam . The additional second respondent i.e. Jaisu Dredging and Shipping Ltd., Gujrat got itself impleaded as per the order dated 4-10-2011 in I.A. 2557/2011 and claims ownership rights over the dredgers and equipments in respect of which the appellant sought a conditional order of attachment . 3. As per the impugned order the learned District Judge dismissed on merits the original petition filed by the appellant under Sec. 9 of the Act. Hence, this appeal. Arbitration Appeal No. 44 of 2011 -:3:- 4. We heard Sr. Advocate Sri. Joseph Markos, the learned counsel appearing for the appellant and Sr. Advocate Sri. K.L. Varghese, the learned counsel appearing for the first respondent and Advocate Sri. Millu Dandapani, the learned counsel appearing for the 2nd respondent. THE BACKGROUND FACTS 5. Before analysing the rival contentions of the parties it may be necessary to have an insight into the background facts . The following is the chronological narration of the undisputed facts leading to the final hearing of this appeal:- 31-01-2005 The appellant (Board of Trustees, Port of Cochin) executed an agreement with India Gateway Terminal (P) Ltd., (IGTPL for short - a subsidiary of Dubai Port World) for development, operation and management of an International Container Transhipment Terminal (ICTT) at Vallarpadom in Kochi. As per the terms of the agreement the appellant undertook to carry out capital dredging (fresh dredging) of a Berth Basin and approach channels so as to provide 14.5 meter draft (depth) required for 8000 +TEU capacity container vessels. IGTPL, however, insisted subsequently that in order to enable them to meet their project cargo requirements an interim depth at the basin area should be achieved and that they will themselves undertake the work of dredging for that purpose from December 2008 till July 2009. The work so undertaken by IGPTL was the dredging of the channel in front of the quay and retaining wall and in between the piles. Arbitration Appeal No. 44 of 2011 -:4:- 15/12/2008 Appellant entered into Ext.A1 Agreement No. 52 of 2008-2009 (containing General Conditions of Contract) with the first respondent (Jaisu Shipping Company Ltd.) for carrying out the work of “capital dredging for deepening and widening of outer channel of Group B of Cochin Port Trust, deepening of inner channel of Group B leading to ICTT and creating a basin in front of ICTT for providing sufficient depth required for 14.5 m. draft container vessels and maintenance dredging for maintaining specified depths in the Group C channels of Cochin Port Trust during the period from 1-9-2008 to 31-12- 2010 by deploying Trailing Suction Hopper Dredgers (TSHDs) of suitable capacity and other type of dredgers, if required, and carrying out survey works as stipulated“. The length of the proposed outer channel from the channel mouth till Buoy 10 was 13.2 kms. and the length of the proposed inner channel from Buoy 10 to the basin was 1.8 kms. The contract amount was Rs. 525.50 crores. The appellant termed as the “employer” and the first respondent termed as the “contractor” were the “parties” to the contract. The contract period as originally fixed was from 1-9-2008 to 31-01-2010. Ext.A2 is the Special Conditions of Contract specially mentioning the scope of the work. Article 2.39 of Ext.A2 Special Conditions of Contract provides for resolution of any dispute or difference between the parties by arbitration under the Arbitration and Conciliation Act, 1996 (“the Act” for short) if attempts by the parties to settle the disputes or differences, fail. Article 2.39 reads as follows:- Arbitration Appeal No. 44 of 2011 -:5:- “2.39 Settlement of Disputes & Arbitration 2.39.1. Except where otherwise provided in the Contract all questions and disputes relating to the meaning of the “Specifications, design, Drawings and instructions here - in before mentioned and as to the quality of workmanship or equipments used on the Work or as to any other question claim, right, matter or thing whatsoever in any way arising out of or relating to the Contract, designs, Drawings, Specifications, estimates, instructions, orders or these conditions or otherwise concerning the Works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter. 2.39.2 If the Contractor considers any Work demanded of him to be outside the requirements of the Contract, or disputes any Drawings, record or decision given in writing by the Engineer on any matter in connection with or arising out of the Contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Engineer in writing for written instruction or decision. Thereupon, the Engineer shall given his written instructions or decision within a period of one month from receipt of the Contractor's letter. 2.39.3. If the Engineer fails to give his instructions or decisions in writing within the aforesaid period or if the Contractor is dissatisfied with the instructions or decision of the Engineer, the Contractor may within 15 days of the receipt of Engineer's decision, appeal to the Chairman. The Chairman shall hear the Contractor and dispose off the appeal within 15 Days of receipt of the appeal. The Chairman may constitute an Expert Committee to assist him to dispose off the appeal in his absolute discretion. 2.39.4. If the Chairman did not dispose off the appeal within 15 Days of receipt of appeal or his order is not satisfactory to the Contractor, the dispute may be referred for arbitration under the clause 2.39.6 (Arbitration) below. Arbitration Appeal No. 44 of 2011 -:6:- 2.39.5. Before commencement of arbitration, both Parties shall attempt to settle the dispute amicably. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth Day after the Day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made. 2.39.6. Arbitration (i) Arbitrators Failing amicable settlement and/or settlement with the assistance of Expert, the dispute or differences or claims, as the case may be, shall be finally settled by binding Arbitration under the Arbitration and Conciliation Act, 1996. The Arbitration shall be by a panel of three Arbitrators, one to be appointed by each Party and the third to be appointed by the two Arbitrators appointed by the Parties. A Party requiring Arbitration shall appoint an Arbitrator in writing, inform the other Party about such appointment and call upon the other Party to appoint its Arbitrator. If the other Party fails to appoint its Arbitrator, the party appointing Arbitrator shall take steps in accordance with Arbitration and Conciliation Act, 1996. ii) Place of Arbitration The place of Arbitration shall be Kochi. iii) English Language The request for Arbitration , the answer to the request, the terms of reference, any written submissions, any orders and rulings shall be in English and, if oral hearings take place, English shall be the language to be used in the hearings. (iv) Procedure (a) The arbitration proceedings under this clause and the rule of evidence, which are to apply, shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made there under and for the time being in force. (b) It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chairman of the appeal. Arbitration Appeal No. 44 of 2011 -:7:- (c ) It is also a term of this Contract that if the Contractor does not make any demand for appointment of arbitrator in respect of any place in writing as aforesaid within 120 Days of receiving the intimation from the Engineer that the final bill is ready for payment, claim of the Contractor shall be deemed to have been waived and absolutely barred and the Employer shall be discharged and released of all liabilities under the Contract in respect of these claims. (d ) It is also a term of this Contract that the arbitrator shall give separate award against each dispute and claim referred to him an in all cases where the total amount of the claims by any party exceeds Rs. 1,00,000/-, the arbitrator shall give reasons for the award. (e) It is also a term of this contract that in case interest is allowed on arbitration amount it shall be limited to PLR + 2%. (v) Fees and Expenses The fees and expenses of the Arbitrators and all other expenses of the Arbitration shall be equally shared by the Parties. (vi) Performance during Arbitration Pending the submission of and/or final decision on a dispute, difference or claim or until the Arbitral Award is published, the Parties shall continue to perform of all their obligations under this Agreement, without prejudice to a final settlement in accordance with such Award”. A reduced copy of the plan made available to us by the appellant's counsel showing the scheme for capital dredging of the basin area and the outer and inner channels of Group B channel, is given below:- Arbitration Appeal No. 44 of 2011 -:8:- Arbitration Appeal No. 44 of 2011 -:9:- (Contract period was mutually extended till 30-04- 2010 and by that time capital dredging of the approach channel of Group B channel was completed by the first respondent . The period for completion of the Basin Area capital dredging was extended till 30-09-2010). 15/12/2008 The Ist respondent entered into a time-charter agreement with the 2nd respondent (Jaisu Dredging and Shipping Ltd., Gujrat) for taking on hire, 8 vessels together with the crew belonging to the 2nd respondent for operating Ext.A1 contract on payment of hire charges. The 8 vessels are:- 1. Hopper Barge “M.V. Sahayak” 2. Hopper Barge “M.V. Kiran” 3. Hopper Barge “M.V. Kabir” 4. Anchor handling Barge “M.V. Kamal XXXII” 5. Survey Boat “M.T. Jai Jhulelal” 6. Crew Boat “M.T. Kamal XVI” 7. Motor Vessel “M.V. Saraswathi” 8. Mooring Launch “Kamal XI” 03/10/09 Contrary to the undertaking given by IGTPL that they will start the dredging of the channel in front of the quay and retaining wall and in between the piles in December 2008, IGTPL started the work only from 3-10-2009 . On account of the deployment Back hoe dredgers (BHD dredgers) and other equipments used by the contractors engaged by IGTPL, the first respondent was unable to carry out the capital dredging as scheduled. Even a massive bucket dredger with 5 long sling wires each 200 m. long and barges (for removing the dredged material) used by the first respondent had to be demobilised. (Vide Annexure R-VI). Arbitration Appeal No. 44 of 2011 -:10:- 12/12/09 Due to the prolonged occupation of the dredging area by the IGTPL, the first respondent was asked to demobilise a large bucket dredger mobilised by it as per the time schedule given by IGTPL . This was to prevent collision between the crafts of the two contractors. 30-04-2010 IGTPL was able to complete their part of the dredging work at the ICTT berth basin only by 30-4-2010 i.e. after a delay of 9 months. By that time the Ist respondent had completed the capital dredging of the approach channels of Group B channel. When the appellant conducted a survey along with MPSO on 30-4-2010 it was noticed that the IGTPL had not achieved the designated dredging targets of 16 M depth and even a vessel with 10m draft could not be successfully berthed. (See Annexure R VI). June- 2010 While conducting capital dredging in the berth frontage area, the dredgers of first respondent picked up several blocks of concrete, timber logs, steel scrap and other construction debris in front of the berth. (Vide Annexure A18). 12/07/10 Ext.A1 agreement was amended by executing Ext.A3 Amendment Agreement modifying certain terms and conditions specified in Ext.A2 Special Conditions of Contract. The contract period was extended till 31-3- 2011. But there was no amendment made to the arbitration clause in Ext.A2. 15-07-2010 When a vessel M.V. Zen Hua 10 was brought along the side berth she had met with patches of hard material and other obstructions necessitating diversion of the vessel to Q 5 berth of Ernakulam wharf . Thereafter the first respondent had to mobilise a mechanical grab dredger from Mumbai and also hire the appellants' dredger GHD Nehru Shatabdi for tackling the hard-material in front of the berth. (See Annexure A18). Arbitration Appeal No. 44 of 2011 -:11:- 09/02/2011 The Vallarpadom ICTT was formally inaugurated by the Prime Minister Sri. Manmohan Singh. The ICTT was not fully commissioned at that time. 21/03/2011 Appellant sent Ext.A4 letter to the first respondent accusing the latter for not completing the capital dredging in the Basin and not achieving the specified depths in the channels and directing the first respondent to continue the work of capital dredging achieving the specified depths in the Group B channels till attaining the required depth or till 15-5-2011 whichever was earlier reserving the right of the appellant to claim compensation. 23/03/2011 The first respondent sent Ext.A5 reply to Ext.A4 letter and refuted the allegation therein and stated that as on 30-4-2010 the first respondent had completed capital dredging of the inner and outer channels and had commenced maintenance dredging from 1-5-2010 and relying on clause 22 of Ext.A3 demanded payment for the work based on the hopper volume of the dredged material. 23/03/2011 The appellant sent Ext.A6 reply to ExtA5 letter reiterating the appellants' contentions and stating that as per clause 2.46 of ExtA3 amendment agreement it was for the first respondent to ensure the completion of capital dredging in the Basin and to achieve the specified depth in the Group B channel with liability to pay compensation to the appellant for the left over quantity of the work. The appellant also denied the applicability of clause 22 of Ext.A3. 25/03/2011 First respondent sent Ext.A7 reply to Ext.A6 letter and reiterated its earlier stand and its inability to continue the dredging work and told the appellant that the first respondent will stop the work and demobilise the dredgers on 31-3-2011. Arbitration Appeal No. 44 of 2011 -:12:- 26/03/2011 As per Ext.A8 letter the appellant informed the first respondent that the attempt to stop the work will be treated as a default on the part of the first respondent . 28-03-2011 The first respondent sent Ext.A9 letter to the appellant reiterating its earlier stand and indicating that the matter of payment relating to dredging beyond 31-3- 2011 could be referred to arbitration if the dispute cannot be settled amicably. 31-03-2011 The first respondent removed a dredger TSHD KAMAL XXXIII from the dredging site 01/04/2011 The appellant filed O.P. (Arbitration) 442 of 2011 before the District Court, Ernakulam under Section 9 of the Act seeking a temporary injunction restraining the first respondent from removing the dredgers and equipments from the Cochin Port Area. Appellant alleged that the first respondent which was directed to do the work till 15-5-2011 had carried away one dredger from the dredging site, detrimentally affecting the right of the appellant to seek specific performance of the contract which was breached by the Ist respondent. 02/04/2011 The District Court granted an ex-parte order of injunction. 02/04/2011 The appellant issued Ext. A12 (Ext.B1) termination notice to the first respondent giving 14 days' notice to the first respondent to the effect that the first respondent had unilaterally abandoned the work with effect from 1-4-2011 and had unlawfully taken away one dredger from the Cochin Port Trust Limits and that the appellant proposes to carry out the remaining work at the risk and cost of the first respondent and on the expiry of the notice period, the contract shall stand terminated with the harsh consequences indicated therein. NOTE: The notice period would expire on 16-4-2011. 04/04/2011 The appellant issued a show cause notice for blacklisting the first respondent for a period of 5 years. Arbitration Appeal No. 44 of 2011 -:13:- 05/04/2011 The appellant issued Ext.B5 re-tender notice inviting tenders for re-arranging the balance work . This was issued even before 16-4-2011 which is the date of expiry of the notice period in Ext.A12. 12/04/2011 District Court passed Ext.B7 order dismissing O.P. (Arb) 442 /2011 and vacated the ad interim injunction holding that the appellant which obtained the ad interim injunction on the ground that the appellant wanted the contract to be specifically enforced, had, by terminating the contract, sought to sustain the O.P. (Arb) with unclean hands. NOTE: No arbitration proceedings were commenced by the appellant during the period between 1-4-2011 and 12-4-2011. 12/04/2011 On the same day of dismissal of O.P. (Arb) 442/2011 , the appellant filed the present O.P. (Arb) 505/2011 for a direction to the first respondent to furnish security for Rs. 300 crores and in the meanwhile to pass an order of conditional attachment of the dredgers and equipments of the first respondent . (No averment that the appellant proposes to go for arbitration). The appellant also filed I.A. No. 2015 of 2011 for an ex parte order of conditional attachment. No ex-parte order of attachment granted As per I.A. 2014/2011 the appellant also sought the appointment of an advocate commission for conducting hydrographic survey to ascertain the dredging depth with the assistance of a Government approved hydro graphic agency. 20/04/2011 R1 filed its counter affidavit in O.P. (Arb) 505/11 contending inter alia that there was no basis at all in the claim of the appellant for furnishing security for Rs. 300 crores. 26/04/2011 Appellant terminated the contract of the first respondent Arbitration Appeal No. 44 of 2011 -:14:- 28/04/2011 Appellant issued Ext.B8 work order for maintenance dredging to M/s. Dredging Corporation of India for three years from 1-4-2011 onwards for Rs. 319.50 crores. 03/05/11 A London based company by name Clashmore Holdings Ltd. filed a Writ Petition as W.P. (C) No. 12392/2011 before the High Court of Kerala and obtained an order for release of two dredgers TSHD KAMAL XXXV and TSHD KAMAL XXXVI which they had hired to first respondent. 06/05/2011 Appellant filed Arb. Appeal 27/2011 before the High Court challenging the order of the District Court dismissing O.P. (Arb) 442/2011. NOTE: No arbitral proceedings were commenced by the appellant even on the date of appeal. 09/05/2011 Appellant issued Ext.B9 work order for the balance capital dredging work to M/s. Mercator Lincs Ltd. for a total cost of Rs. 60.80 crores. 17/05/2011 Writ Appeal No. 566/2011 filed by the appellant against the release order of 2 dredgers granted to Clashmore Holdings, dismissed by the Division Bench. 19-05-2011 Appellant sent Ext.A15 letter (Annexure A15 in this appeal) to first respondent calling upon the first respondent to remit within 7 days of receipt of the letter Rs. 259.97 crores after arriving at a total compensation of Rs. 308.68 crores - Annexure to Ext.A15 shows the break up of the compensation. A sum of Rs. 192.86 crores is computed as compensation recoverable as per certain clauses of Ext.A3 amended agreement. Another sum of Rs. 3.98 crores is shown as associated claims. A further sum of Rs. 111.83 crores is shown as consequential claims. From the grand total of Rs. 308.68 crores constituting the above claims of compensation, Rs. 48.71 crores shown as payable to the first respondent, is deducted to arrive at Rs. 259. 97 crores . There is a threat in the letter that if the amount is not paid within 7 days it will bear interest at the rate of 18 percent per annum and that the appellant will also be constrained to initiate appropriate legal proceedings for recovery of the amount. Arbitration Appeal No. 44 of 2011 -:15:- 23-05-2011 Since the dredgers and other vessels of second respondent were lying idle in the Cochin Port area incurring heavy expenditure and also since those vessels were required by second respondent for their work in the Port of Goa, the second respondent applied to the appellant for a clearance to remove those vessels. No action on the said application. 26-05-2011 Second respondent filed W.P. (C ) No. 14331/2011 seeking release of their vessels from the Cochin Port Area. After detailed argument, Judgment has been reserved in that case. 26-05-2011 The appellant filed I.A. No. 2742/2011 in O.P. (Arb) 505/2011 again seeking conditional attachment over 11 more equipments including 3 dredgers. 08/06/2011 As per Annexure - R-V judgment, Arbitration Appeal 27/2011 was disposed of by the High Court allowing the appellant to withdraw O.P. (Arb) 442 of 2011. The Division Bench also set aside Ext.B7 order dated 12-04-2011 passed by the District Court dismissing O.P. (Arb.) 442/2011. It was however made clear that the option of the first respondent to comment upon the alleged unfair