AMERICAN METALLURGICAL COAL PTY LTD. versus MMTC LTD.
[2020] 14 S.C.R. 510, Supreme Court of India, 2020
Outcome: Appeal(s) allowed (Granted)
Segment: Facts
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ANGLO AMERICAN METALLURGICAL COAL PTY LTD.
v.
MMTC LTD.
(Civil Appeal No.4083 of 2020)
DECEMBER 17, 2020
[ROHINTON FALI NARIMAN AND K. M. JOSEPH, JJ.]
Arbitration and Conciliation Act, 1996: International
commercial arbitration – The present case is that of an international
commercial arbitration, the Majority Award being delivered in New
Delhi on 12.05.2014 – Case was argued on the basis of the law as
it stood before the Arbitration and Conciliation (Amendment) Act,
2015 which added two explanations to s.34(1) and sub-section (2A)
to s.34 of the Arbitration Act, in which it was made clear that the
ground of “patent illegality appearing on the face of the award” is
not a ground which could be taken to challenge an international
commercial award made in India after 23.10.2015, when the
Amendment was brought into force – Given the parameters of judicial
review laid down in Associate Builders, neither the ground of
fundamental policy of Indian law, nor the ground of patent illegality,
have been made out in the facts of this case, given the fact that the
Majority Award is certainly a possible view based on the oral and
documentary evidence led in the case, which cannot be
characterized as being either perverse or being based on no
evidence – Majority Award, after reading the entire correspondence
between the parties and examining the oral evidence, has come to a
possible view, both on the Respondent being in breach, and
on the
quantum of damages – Majority Award is certainly a possible view
of the case, and thus, cannot in any manner, be characterised as
perverse.
Evidence Act, 1872: s.92, proviso (6) and illustration (f); s.94
and s.95 – Interpretation of documents exchanged between the parties
in the performance of a contract – Reading together proviso (6)
and illustration (f) to s.92, s.94 and s.95 of the Evidence Act show
that when there are a number of documents exchanged between the
parties in the performance of a contract, all of them must be read
as a connected whole, relating each particular document to “existing
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facts”, which include how particular words are used in a particular
sense, given the entirety of correspondence between the parties –
Thus, after the application of proviso (6) to s.92 of the Evidence
Act, the adjudicating authority must be very careful when it applies
provisions dealing with patent ambiguity, as it must first ascertain
whether the plain language of a particular document applies
accurately to existing facts – If, however, it is ambiguous or
unmeaning in reference to existing facts, evidence may then be given
to show that the words used in a particular document were used in
a sense that would make the said words meaningful in the context
of the entirety of the correspondence between the parties – In the
instant case, the three critical emails have to be read in the
surrounding circumstances of the entirety of the LTA and the
correspondence which ensued between the parties – Once that
exercise is undertaken, as was undertaken by the Majority Award,
it was not possible to hold that the Majority Award was not a possible
view on the facts of this case – The reliance of the Majority Award
upon the correspondence between the parties buttressed by evidence
on behalf of appellant, was not therefore flawed.
Evidence Act, 1872: ss.92, 94, 95 – A “patent ambiguity”
provision, as contained in s.94 of the Evidence Act, is only applicable
when a document applies accurately to existing facts, which includes
how a particular word is used in a particular
sense – Given that, in
the facts of the present case, there was no mention of the price at
which coal was to be supplied in the three “crucial” emails, these
emails must be read as part of the entirety of the correspondence
between the parties, which would then make the so-called
“admissions” in the emails apply to existing facts – Once this is
done, it is clear that there is no scope for the further application of
the “patent ambiguity” principle contained in s.94 of the Evidence
Act, to the facts of the present case – However, s.95 of the Evidence
Act, dealing with latent ambiguity, when read with proviso (6) and
illustration (f) to s.92 of the Evidence Act, could apply to the facts
of the present case, as when the plain language of a document is
otherwise unmeaning in reference to how particular words are used
in a particular sense, given the entirety of the correspondence,
evidence may be led to show the peculiar sense of such language –
Thus, if this provision is applied, the Majority Award cannot be
faulted as it has accepted the evidence given by Mr. Wilcox, wherein
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he explained that the three emails would only be meaningful if they
were taken to refer to “mixed” supplies of coal, and not supplies of
coal at the contractual price.
Law of evidence – Latent ambiguity and patent ambiguity –
Distinction between.
Allowing the appeal, the Court
HELD: 1.1 There is a finding of fact by the Majority Award
that the Appellant was able to supply the contracted quantity of
coal for the Fifth Delivery Period, at the contractual price, and
that it was the Respondent who was unwilling to lift the coal,
owing to a slump in the market, the Respondent being conscious
of the fact that mere commercial difficulty in performing a contract
would not amount to frustration of the contract. It was for this
reason that the Respondent decided, as an afterthought, in reply
to the Appellant’s legal notice dated 04.03.2010, to attack the
Appellant on the ground that it was the Appellant that was unable
to supply the contracted quantity in the Fifth Delivery Period.
Once this becomes clear, it is obvious that the Majority Award,
after reading the entire correspondence between the parties and
examining the oral evidence, has come to a possible view, both
on the Respondent being in breach, and on the quantum of
damages. [Para 17][545-A-D]
1.2 The entire approach of the Division Bench is flawed.
First and foremost, to cherry-pick three emails out of the entire
correspondence and to rest a judgment on those three
emails
alone, without having regard to the context of the LTA and the
correspondence, both before and after those three emails, would
render the judgment of the Division Bench fundamentally flawed.
Further, the finding that there was “no evidence” that the
Respondent demanded stems of coal at a reduced rate vis-à-vis
the contractual rate, flies in the face of at least three different
exchanges between the parties, being the Respondent’s letters
dated 20.11.2008, 27.11.2009 and 03.12.2009. Equally, the finding
of the Division Bench that no evidence had been led to show that
the Appellant had availability of the balance quantity of 454,034
metric tonnes of coal to supply to the Respondent during the
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Fifth Delivery Period, again completely fails to appreciate Mr.
Wilcox’s evidence given by way of an Additional Affidavit dated
03.09.2013 and in response to questions in cross-examination
before the Arbitral Tribunal on 23.09.2013, together with two
letters exchanged between the parties on 21.09.2009 and
25.09.2009. All of these aspects were considered in the Majority
Award of the Arbitral Tribunal. The finding that there is “no
evidence” to prove market price of coal at the time of breach,
and that therefore, quantum of damages could not be fixed, again
completely ignores Mr. Wilcox’s evidence in chief and cross
examination; Respondent’s letters dated 25.09.2009, 27.11.2009
and 03.12.2009; as also the Appellant’s re-negotiated contracts
with SAIL/RINL. All these aspects have been considered by the
Majority Award in great detail. [Paras 18, 19, 20][545-D-H;
546-A]
1.3 The crucial fact was that no price for the coal to be
lifted was stated in any of the emails or letters exchanged during
this period. This is in fact what the Majority Award adverts to
and fills up by having recourse to the evidence given by Mr.
Wilcox, stating that the ambiguity qua price was resolved by the
fact that no coal was available for lifting at a price lower than the
contractual price. The Majority Award found, relying upon Mr.
Wilcox’s evidence, that the supplies that were sought to be made
in August and September, 2009 were therefore, also in the nature
of “mixed” supplies,
i.e., coal at the contractual price, as well as
coal at a much lower price. This is a finding of fact that cannot be
characterised as perverse, as it is clear from the evidence led,
the factual matrix of the setting of there being a slump in the
market, in which the performance of the contract took place, as
well as the ambiguity as to whether the correspondence referred
to contractual price or “mixed” price, and thus, is a possible view
to take. [Para 21][546-C-E]
2. Section 92 of the Evidence Act refers to the terms of a
“contract, grant or other disposition of property or any matter
required by law to be reduced to the form of a document”.
Illustration (f) of section 92 of the Evidence Act indicates that
facts, which may on the face of it, be ambiguous and vague, can
be made certain in the contextual setting of the contract, grant
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or other disposition of property. Section 94 of the Evidence Act,
then speaks of language being used in a document being “plain
in itself”. It is only when such document “applies accurately to
existing facts”, that evidence may not be given to show that it
was not meant to apply to such facts. Likewise, the obverse
situation is contained in section 95 of the Evidence Act, which
then states that when the language used in a document is plain in
itself, but is “unmeaning in reference to existing facts”, only then
may evidence be given to show that it was used in a peculiar
sense. When sections 92, 94 and 95 of the Evidence Act are
applied to a string of correspondence between parties, it is
important to remember that each document must be taken to be
part of a coherent whole, which happens only when the “plain”
language of the document is first applied accurately to existing
facts. [Paras 27, 28][549-F-H; 550-A-B]
3.1 A “patent ambiguity” provision, as contained in section
94 of the Evidence Act, is only applicable when a document applies
accurately to existing facts, which includes how a particular word
is used in a particular sense. Given that, in the facts of the present
case, there was no mention of the price at which coal was to be
supplied in the three “crucial” emails, these emails must be read
as part of the entirety of the correspondence between the parties,
which would then make the so-called “admissions” in
the
aforementioned emails apply to existing facts. Once this is done,
it is clear that there is no scope for the further application of the
“patent ambiguity” principle contained in section 94 of the
Evidence Act, to the facts of the present case.  However, section
95 of the Evidence Act, dealing with latent ambiguity, when read
with proviso (6) and illustration (f) to section 92 of the Evidence
Act, could apply to the facts of the present case, as when the
plain language of a document is otherwise unmeaning in reference
to how particular words are used in a particular sense, given the
entirety of the correspondence, evidence may be led to show the
peculiar sense of such language. Thus, if this provision is applied,
the Majority Award cannot be faulted as it has accepted the
evidence given by Mr. Wilcox, wherein he explained that the
three emails would only be meaningful if they were taken to refer
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to “mixed” supplies of coal, and not supplies of coal at the
contractual price. [Paras 31, 32][552-E-H; 553-A-B]
3.2 When proviso (6) and illustration (f) to section 92,
section 94 and section 95 of the Evidence Act are read together,
the picture that emerges is that when there are a number of
documents exchanged between the parties in the performance
of a contract, all of them must be read as a connected whole,
relating each particular document to “existing facts”, which include
how particular words are used in a particular sense, given the
entirety of correspondence between the parties. Thus, after the
application of proviso (6) to section 92 of the Evidence Act, the
adjudicating authority must be very careful when it applies
provisions dealing with patent ambiguity, as it must first ascertain
whether the plain language of a particular document applies
accurately to existing facts. If, however, it is ambiguous or
unmeaning in reference to existing facts, evidence may then be
given to show that the words used in a particular document were
used in a sense that would make the aforesaid words meaningful
in the context of the entirety of the correspondence between the
parties. [Para 34][57-D-G]
4. It is clear that the three critical emails have to be read in
the surrounding circumstances of the entirety of the LTA and the
correspondence which ensued between the parties. Once that
exercise is undertaken, as was undertaken by the Majority Award,
it is
impossible to hold that the Majority Award is not a possible
view on the facts of this case. Respondent’s argument in support
of the impugned judgment that there is no evidence to
demonstrate proof of damage suffered as on the date of breach,
is also factually incorrect. It is well established that the arbitral
tribunal is the final judge of the quality, as well as the quantity of
evidence before it. The Majority Award took into account Mr.
Wilcox’s Affidavit dated 10.07.2013 and Additional Affidavit dated
03.09.2013 detailing the prices at which sales of coal were made
to Chinese purchasers during the Fifth Delivery Period, which
ended on 30.09.2009, being the date of breach as found by the
Majority Award. In addition, contemporaneous correspondence,
including letters dated 27.11.2009 and 03.12.2009 were also relied
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upon to show that the Respondent was itself seeking coal at
roughly the price of $128 per metric tonne, at around the same
time. Hence, the difference between the contractual price and
market price was arrived at as $173.383 per metric tonne, in
accordance with the law. It is not possible to accept respondent’s
argument that the letters dated 27.11.2009 or 03.12.2009 do not
reflect the market price of coal as on the date of breach or that
the market price of coal cannot be established from the special
long-term contracts operating at around the same time as the
date of breach. This argument is therefore rejected. [Paras 37,
38, 40][558-F-H; 559-A-D; 560-H; 561-A]
Smt. Kamala Devi v. Seth Takhatmal & Anr. [1964] 2
SCR 152; Sudarsan Trading Co. v. Govt. of Kerala
(1989) 2 SCC 38:[1989] 1 SCR  665; Murlidhar
Chiranjilal v. Harishchandra Dwarkadas and Anr.
[1962] 1 SCR 653 – relied on
5. The present case is that of an international commercial
arbitration, the Majority Award being delivered in New Delhi on
12.05.2014. Resultantly, this case has been argued on the basis
of the law as it stood before the Arbitration and Conciliation
(Amendment) Act, 2015 added two explanations to section 34(1)
and subsection (2A) to section 34 of the Arbitration Act, in which
it was made clear that the ground of “patent illegality appearing
on the face of the award” is not a ground which could be taken to
challenge an international
commercial award made in India after
23.10.2015, when the Amendment was brought into force. Given
the parameters of judicial review laid down in Associate Builders,
it is obvious that neither the ground of fundamental policy of
Indian law, nor the ground of patent illegality, have been made
out in the facts of this case, given the fact that the Majority Award
is certainly a possible view based on the oral and documentary
evidence led in the case, which cannot be characterized as being
either perverse or being based on no evidence. [Paras 41, 44]
[561-B-C; 565-B-D]
Associate Builders v. DDA (2015) 3 SCC 49: [2014] 13
SCR 895 – relied on
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MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163:[2019] 3
SCR 1023; Dyna Technologies Pvt. Ltd. v. Cromptom
Greaves Ltd. 2019 SCC Online SC 1656; Parsa Kente
Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam
Ltd. (2019) 7 SCC 236 : [2019] 8 SCR 728; South East
Asia Marine Engg. & Constructions Ltd. (SEAMEC
LTD.) v. Oil India Ltd. (2020) 5 SCC 1649; Patel Engg.
Ltd. v. North Eastern Electric Power Corpn. Ltd. (2020)
7 SCC 167 : [2019] 7 SCR 522; Sangyong Engg. &
Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 :
[2019] 7 SCR 522 – held inapplicable
Raghunandan v. Kirtyanand AIR 1932 PC 131; Zurich
Insurance (Singapore) Pte Ltd v. B-Gold Interior Design
& Construction Pte Ltd. [2008] SGCA 27; Transmission
Corpn. of Andhra Pradesh Ltd. v. GMR Vemagiri Power
Generation Ltd. (2018) 3 SCC 716; Renusagar Power
Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC
644: [1993] 3 Suppl. SCR 22; ONGC Ltd. v. Saw Pipes
Ltd. (2003) 5 SCC 705:[2003] 3 SCR 691; National
Highways Authority of India v. ITD Cementation India
Ltd. (2015) 14 SCC 21:[2015] 6 SCR 107; Centrotrade
Minerals &Metal Inc. v. Hindustan Copper Ltd. (2017)
2 SCC 228 : [2016] 9 SCR 83; Venture Global Engg.
LLC v. Tech Mahindra Ltd. (2018) 1 SCC 656: [2017]
12 SCR 259; Sutlej Construction Ltd. v. State (UT of
Chandigarh) (2018) 1 SCC 718 : [2017] 12 SCR 134;
Maharashtra State Electricity Distribution Co. Ltd. v.
Datar Switchgear Ltd. (2018) 3 SCC 133: [2018] 1
SCR 733; HRD Corpn. v. GAIL (India) Ltd. (2018)
12
SCC 471: [2017] 11 SCR 857; M.P. Power Generation
Co. Ltd. v. ANSALDO Energia SpA, (2018) 16 SCC 661;
Shriram EPC Ltd. v. Rioglass Solar Sa (2018) 18 SCC
313; State of Jharkhand v. HSS Integrated Sdn (2019)
9 SCC 798; Ssangyong Engg. & Construction Co. Ltd.
v. NHAI (2019) 15 SCC 131:[2019] 7 SCR 522
– referred to
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Case Law Reference
[1964] 2 SCR 152
referred to
Para 22
AIR 1932 PC 131
referred to
Para 23
(2018) 3 SCC 716
referred to
Para 35
[1989] 1 SCR  665
relied on
Para 38
[1962] 1 SCR 653
relied on
Para 38
[1993] 3 Suppl. SCR 22
referred to
Para 42
[2003] 3 SCR 691 
referred to
Para 42
[2015] 6 SCR 107
referred to
Para 43 (a)
[2016] 9 SCR 83 
referred to
Para 43 (b)
[2017] 12 SCR 259  
referred to
Para 43 (c)
[2017] 12 SCR 134
referred to
Para 43 (d)
[2018] 1 SCR 733
referred to
Para 43 (e)
[2017] 11 SCR 857 
referred to
Para 43 (f)
(2018) 16 SCC 661
referred to
Para 43 (g)
(2018) 18 SCC 313
referred to
Para 43 (h)
(2019) 9 SCC 798
referred to
Para 43 (i)
[2014] 13 SCR 895
relied on
Para 44
[2019] 3 SCR 1023 
held inapplicable
Para 45
[2019] 8 SCR 728 
held inapplicable
Para 47
(2020) 5 SCC 1649
held inapplicable
Para 48
[2019] 7 SCR 522
held inapplicable
Para 49
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4083
of 2020
From the Judgment and Order dated 02.03.2020 of the High Court
of Delhi at New Delhi in FAO (OS) 532/2015.
Kapil Sibal, Neeraj Kishan Kaul, Mukul Rohatgi, Sanjiv Puri, Sr.
Advs., Aman Ahluwalia, Samar Singh Kachwaha, Ms. Ankit Khushu,
Raghavendra Mohan Bajaj, Ms. Garima Bajaj, Agnish Aditya, Aayush
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Marwah, Ms. Chanan Parwani, Ms. Shivangi Nanda, Ms. Anuradha
Dutt, Ms. Suman Yadav, Aditya Sarin, Ms. Divya Krishnan, Akhil Sachar,
Ms. B. Vijayalakshmi Menon, Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. This appeal is at the instance of an Australian company, Anglo
American Metallurgical Coal Pty. Ltd. [“Appellant”], which produces
and exports certain types of coal. By a Long Term Agreement dated
07.03.2007 [“LTA”], between the Appellant and MMTC Ltd.
[“Respondent”], the Appellant, referred to as the “seller” in the LTA,
agreed to supply certain quantities of freshly mined and washed “German
Creek”, “Isaac” (Blend of 65% Moranbah North and 35% German Creek
coking coals) and “Moranbah North” coking coal to the Respondent.
Clause 1 of this LTA is material and states as follows:
“CLAUSE 1: MATERIAL, QUANTITY, QUALITY AND
DELIVERY PERIOD:
The SELLER shall sell and the PURCHASER shall buy,
a) The base quantity during the currency of the contract shall be
466,000 (Four hundred Sixty Six thousand) metric tons (of one
thousand kilograms each) firm.
b) During the First Delivery Period (1st July, 2004 to 30th June,
2005), a quantity of 464,374 (Four Hundred Sixty Four Thousand,
Three Hundred and Seventy Four) metric tons (of one thousand
Kilograms each) firm quantity of freshly mined and washed
“Isaac”, “Moranbah North” and “German Creek” coking coals.
c) During the Second Delivery Period (1st
July, 2005 to 30 June,
2006) a quantity of 382,769 (Three Hundred Eighty Two Thousand,
Seven Hundred and Sixty Nine) metric tons (of one thousand
kilograms each) firm quantity of freshly mined and washed
“Isaac”, “Moranbah North” and “German Creek” cooking coals.
d) During the Third Delivery Period (1st July, 2006 to 30th June,
2007) a quantity of 466,000 (Four Hundred Sixty Six Thousand)
metric tons (of one thousand Kilograms each) firm quantity of
freshly mined and washed “Isaac”, “Moranbah North” and
“German Creek” coking coals.
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e) During the subsequent Delivery Periods, in case of the
PURCHASER exercising the option to extend the duration of the
Agreement by two more years, at its sole discretion, as indicated
at Para 1.3 herein below, a quantity of 466,000 (Four Hundred
Sixty Thousand) metric tons (of one thousand kilograms each) of
freshly mined and washed “Isaac”, “Moranbah North” and
“German Creek” coking coals hereinafter referred to as the
MATERIALS, in conformity with the Technical Specifications
incorporated in Annexure – IIB (applicable for “Moranbah North”
coking coal) and Annexure IIC (applicable for “German Creek”
coking coal) to this Agreement and which shall constitute an
integral part of this Agreement, for use of imported coking coals
in the coke ovens in its integrated iron and steel works for
production of metallurgical coke. The quality of the prime washed
coking coals to be supplied under this Agreement shall under no
circumstances be inferior to the Technical Specifications as
contained in Annexure IIA, Annexure IIB and Annexure IIC to
this Agreement as applicable.
1.1.1 Annual base quantity from 1st July, 2007 to 30 June, 2009,
in case Purchaser exercises its option to extend the Agreement
by 2 years, shall be 466,000 metric tonnes, subject to further
discussions at the time of contract extension and the logical contract
specification modifications to reflect the changing nature of existing
reserves at the Moranbah
North and German Creek mining
operations will be mutually agreed.
1.2 For the purpose of this Agreement, the Delivery Period shall
be reckoned as follows:
First Delivery Period 1st July 2004 to 30th June 2005
Second Delivery Period 1st July 2005 to 30th June 2006
Third Delivery Period 1st July 2006 to 30th June 2007
The shipments will be evenly spread during each Delivery Period.
The PURCHASER reserves the right to prepone shipments against
any Delivery Period based on its requirement and subject to
availability with the SELLER.
The Purchaser reserved the right to postpone the deliveries to be
effected under each Delivery Period by upto 3 months i.e. the
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month of September following each Delivery Period, without any
additional financial liability to the PURCHASER.
1.3 The PURCHASER had the option to extend the duration of
the Agreement by two more years, at its sole discretion and the
Purchaser to exercise its option for extending the Agreement by
two more years or otherwise by 31st January, 2007. In case the
PURCHASER decides to exercise such option, at its sole
discretion, the Agreement shall have two more Delivery Periods
as follows:
Fourth Delivery Period: 1st July 2007 to 30th June 2008
Fifth Delivery Period: 1st July 2008 to 30th June 2009"
3. Under clause 2 of the LTA, which refers to “Price”, for
subsequent Delivery Periods, including the “Fifth Delivery Period”, with
which we are directly concerned, it is undisputed that when read with
Annexure I of the LTA and a letter dated 14.08.2008, setting out the
terms of the Fifth Delivery Period, the price was fixed at $300 per metric
tonne. Clause 2.2 is important and states as follows:
“CLAUSE 2: PRICE
xxx xxx xxx
2.2 The Price for the Delivery of AGREEMENT quantity for
subsequent Delivery Periods shall be fixed in accordance with
Para I of Annexure-1 and shall be firm and shall not be subject to
any escalation for any reason, whatsoever, until the completion of
delivery of the AGREEMENT quantity due for delivery in the
relevant Delivery Period with such extensions as might be mutually
agreed upon between the PURCHASER and the SELLER.”
4. Disputes
arose between the Appellant and the Respondent as
to shipments or “stems” that were to be covered by the Fifth Delivery
Period, which ranged from 01.07.2008 to 30.06.2009, the parties mutually
extending this period to 30.09.2009. A number of emails and letters were
exchanged between the parties from August 2008 to December 2009,
which were examined in detail by a panel of arbitrators consisting of Mr.
Peter Leaver (Queen’s Counsel), Justice V.K. Gupta (Retd.) and Mr.
Anthony Houghton (Senior Counsel) [“Arbitral Tribunal”] who sat at
New Delhi and delivered their international arbitral award in New Delhi
on 12.05.2014. It may be stated at the outset that the award is a majority
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award of Mr. Peter Leaver and Mr. Anthony Houghton [“Majority
Award”], in favour of the Claimant, being the Appellant before us, a
dissenting award being delivered by Justice V.K. Gupta [“Dissenting
Award”], in which the claim of the Appellant was dismissed in its entirety.
5. The Majority Award was challenged under section 34 of the
Arbitration and Conciliation Act, 1996 [“Arbitration Act”] before a
learned Single Judge of the High Court of Delhi [“Single Judge”], who
upheld the Majority Award by a judgment dated 10.07.2015. However,
by the impugned judgment dated 02.03.2020, a Division Bench of the
High Court of Delhi [“Division Bench”] set aside the judgment of the
Single Judge and allowed an appeal filed under section 37 of the
Arbitration Act by the Respondent, setting aside the Majority Award.
6. The Majority Award contains detailed reasons, and since it is
the subject matter of intense debate between the parties, it is important
to set out the facts found by the Majority Award, together with the material
findings and ultimate award.
5a. Under the heading, “I. Common Grounds and Issues in
Dispute”, the Majority Award set out what it describes as the undisputed
facts, as follows:
“I.  Common Ground and Issues in Dispute
34. Before setting out the List of Issues to be decided by the
Tribunal, some of the undisputed facts are summarised by way of
background. These matters, of what the Tribunal understands to
be
common ground, are summarised also in the Claimant’s
Opening Submission dated 16th September 2013.
35. By a Long Term Agreement dated 7th March 2007 under
which the Respondent contracted to purchase freshly mined and
washed coking coal from the Claimant on FOB (trimmed) basis
from DBCT Gladstone in Australia. The Long Term Agreement
they signed was extended by agreement and is to be read along
with Addendum No.2 dated 20th November 2008. As referred to
at paragraph 5 above, the Long Term Agreement as extended by
Addendum No. 2 is referred to herein as “the Agreement”.
36. Prior to Addendum No.2, the Agreement encompassed three
Delivery Periods of one year each commencing on 1st July 2004
and concluding on 30th June 2007. The Long Term Agreement
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included a provision (at Clause 1.3) that gave the Respondent an
option to extend the Long Term Agreement for two more Delivery
Periods, and this option was exercised such that purchases and
deliveries were also to be made in a Fourth Delivery Period
(between 1st July 2007 and 30th June 2008); and a Fifth Delivery
Period (1st July 2008 to 30th June 2009).
38. In regard to these two additional Delivery Periods it was
provided that the Respondent would purchase 466,000 MT of
coking coal during each Delivery Period (Clause 1.1.1).
39. The matters which are in dispute arise out of the Fifth Delivery
Period. This was to have run to 30th June 2009, but was extended
by agreement between the parties so as to expire on 30th
September 2009 as confirmed in the Claimant’s letter to the
Respondent dated 14th August 2008. The coking coal to be supplied
was of two types (Isaac Coking Coal blend and Dawson Valley
blend) and the agreed price for each for the Fifth Delivery Period
was US$300 per MT. That price was agreed by the parties in
accordance with the Agreement, and was confirmed by letter
from the Respondent to the claimant dated the 20th November
2008.
40. It is not in dispute that the Respondent lifted only two shipments
at the agreed price of US$300 per MT during the Fifth Delivery
Period. The first was on 30th October 2008, and was a quantity
of 2,366 MT, and the second on 5th August 2009, when the
Respondent lifted another 9,600 MT.
41. The first of these
shipments was via the ‘Furness Hartlepool’
and was part of a larger shipment under which 48,655 MT was
lifted in respect of balance quantities under the Fourth Delivery
Period (at the agreed rate for that period of US$96.40 per MT).
The Fifth Delivery Period component of this delivery was 2,366
MT and this was transacted at the agreed price of US$300 per
MT.
42. The second of these shipments was an ad hoc agreement
made in a meeting on 15th July 2009 and confirmed in writing by
the Respondent on 22nd July 2009. That ad-hoc agreement (“the
Sea Venus agreement”) was for 50,000 MT of coal under which
9,600 MT was to be purchased at the contractual price of US$300
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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per MT, but the balance 40,400 MT was to be sold at an ad hoc
price of US$128.25 per MT.
43. Even after these two deliveries were made there was a
considerable shortfall in deliveries against the contracted quantity
for the Fifth Delivery Period. The total quantity actually lifted in
respect of the Fifth Delivery Period was 11,966 MT (2,366 +
9,600MT) as compared to the contracted quantity of 466,000MT.
Accordingly, the quantity not lifted by MMTC amounts to 454,034
MT.
44. This quantity not lifted underpins the Claimant’s claim, which
is for damages arising out of an alleged breach on the part of the
Respondent in not lifting the contracted quantity. The loss claimed
by the Claimant is the difference between what is said to have
been the market price, and the contract price.
45. For its part the Respondent denies any breach on its part in
not having lifted the contracted quantity. This is because, according
to the Respondent, the Claimant did not in fact have the goods
available for delivery to the Respondent. The Respondent’s
contention is that the Claimant’s marketing manager expressed
an inability to supply cargo under the Fifth Delivery Period, and
the Respondent says that this was a simple refusal to perform the
obligation to supply coal under the Agreement. Correspondingly,
the Respondent contends that it was the Claimant which was in
breach of the Agreement.
46. The detailed issues which arise, as defined in
the Terms of
Reference and, as these were supplemented, are as follows:
A. Whether the Respondent committed breach of contract in
not lifting 454,034 MT of coking coal in terms of Agreement
and if so, the consequences thereof? If yes, what is the date of
such breach?
B. Whether the Claimant was in breach of contract in failing
to supply goods to the Respondent during the Fifth Delivery
Period? If yes, what is the date of such breach?
In considering this issue, and so far as relevant, was the
Claimant in a position to perform its obligations by making
available the requisite quantities in a timely manner as per the
stipulations under the Contract?
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C. Whether the Claimant’s claims are barred by limitation?
Whether there was a failure on the part of any party to perform
the obligations cast upon it under the Contract, in a timely manner,
or at all and if so, the effect thereof.
D. Whether the Claimant is entitled to any damages and if so
to what amount?
E. Whether the Claimant is entitled to interest on any damages
to be awarded and if so, at what rate and for what period?
F. Whether the Claimant is entitled to interest pendente lite
and post pendente lite, and if so at what rate.
G. Costs of the arbitration, and interest, if any, on the costs
awarded.”
5b. Under the heading, “M. The Correspondence Regarding
Deliveries”, the Majority Award referred to the various emails and letters
exchanged between the parties, as follows:
“M. The Correspondence Regarding Deliveries
56. The correspondence directly concerning deliveries in mid 2009
comprises only a few documents. Firstly, on 11th March 2009 the
Claimant wrote to the Respondent:
“We refer to discussions in New Delhi on 24th February
2009 between Mr Suresh Babu and our Mr John Wilcox at
your office. Anglo remains very concerned that deliveries
for the Fifth Delivery Period of the Agreement remain
unperformed by MMTC, and that to date MMTC has not
intimated arrangements for performance of obligations
arising under the Agreement.
Accordingly, kindly send MMTC’s proposed Delivery
Schedule for the Fifth Delivery Period, as referred to in
Clause 4 of
Annexure IV of the Agreement, for our
consideration. Under the circumstances, we seek your
response by close of business Brisbane time on Friday 20th
March 2009.”
57. On 2nd July 2009 the Respondent wrote to the Claimant,
requesting, the Respondent submits, the Claimant to indicate stem
availability for two deliveries, one each in August and September
2009. The Respondent said:
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“Transchart has already entered the market on behalf of
MMTC for the vessel against July 09 stem.
Keeping the huge backlogs in mind we would like to avail
two stems in August 09 and one in September 09. Please
confirm availability and convey the laycans.”
58. On 3rd July 2009 the Claimant wrote to Mr. Babu of the
Respondent seeking time to respond to the request. However there
was no follow up from the Claimant. On 21st July 2009 the
Respondent again requested confirmation of stem availability:
“We are awaiting stem confirmation from Anglo for August
2009. Please note we have given our Indent well in
advance. The flexibility of laycan vested with you
completely. We look forward to hear from you...”
59. On 22nd July 2009 the Claimant responded, stating:
“Unfortunately, at this stage we are unable to confirm a
stem in Aug/Sep for MMTC due to cargo availability.
We are continuing to review our position and will advise
our preferred schedule for Oct-Dec 2009 as soon as
possible”
60. The Respondent submits that this means what it literally says;
the Claimant refused to confirm stem availability for August and
September 2009 due to a lack of availability. Correspondingly, the
Claimant failed to supply the contracted material within the Fifth
Delivery Period.
61. On 4th September 2009, the Respondent wrote to the Claimant
stating that:
“Our cokery has increased the pushing’s with the result,
requirements of coking coal has
gone upto 90,000t/month.
After Anglo has not given any stem to MMTC. Seavenus
[sic] Please give US’ one stem of 50,000MT each in
October and November 09.”
62. Once again the Claimant (through Mr Wilcox) expressed itself
to be unable to supply the coal under the Fifth Delivery Period
because of non availability for the remainder of the year 2009 (e-
mail of 7th September, 2009). Mr. Wilcox stated:
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“Dear Suresh,
....Unfortunately at this stage we do not have any coal
availability for the remainder of the year.
We will continue to monitor the situation and let you know
if the position changes. “
63. On 21st September 2009 the Claimant wrote as follows:
“We refer to our letter of 11 March 2009 to which we have
not yet received a response.
The Fifth Delivery Period of the Agreement has now
finished bringing the terms of the Agreement to an end.
However, to date, MMTC has only taken delivery of 11,966
tonnes of coal out of a total contracted tonnage of 466,000
tonnes for the Fifth Delivery Period.
Despite our repeated requests MMTC has not provided
Anglo with a schedule for taking delivery of the remaining
454,034 tonnes of coal from the Fifth Delivery Period
(‘Carryover’), other than to say that it will agree to the
same arrangements made between Anglo and SAIL and
RINL with regards delivery of 2008 carryover tonnes.”
64. The author of the letter (Mr. Elliott, the General Manager,
Marketing and Transportation of the Claimant) then set out the
terms which had been agreed with SAIL/RINL and set out a
proposal for delivery of the “carryover” quantity and for renewal
of the agreement with the Respondent.
65. On 25th September 2009 the Respondent (Mr. Babu) responded
to that letter. The response stated that the proposal was “near to
impossible” in that it envisaged the Respondent lifting a very
substantial quantity of the carryover quantity by end March
2010.
The letter then stated:
“In this connection, It may please be appreciated that RINL
is basically a producer of LAM coke and pig Iron where
the value addition is negligible or negative sometimes. The
industry is yet to come out of the shock of recession. Lifting
even 18.7% carry over tonnage implies a loss of USD 25/
1 coke produced. Keeping these Issues in mind, we had
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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approached Anglo Coal for a reduction in price via our
letter dated 20.11.2008. Lifting another 38% implies a
further increase in loss by another USD 80/1. For the sake
of negotiation, we hope you will not ignore the economic
realities completely, Steel Melting Shop of NNL is under
implementation and the commissioning is expected sometime
in end 2010. Economy will also come out of recession
gradually.
In short we are not denying our obligation. The request is
only for staggering the time frame for lifting as explained
in para. 1 & 2 above. Please review and reconsider our
request for allotting at least one shipment of 50,000MT
each from October 09 onwards instead of zero stem till
end of 2009.” “
5c. After setting out summaries of the Claimant’s case and the
Respondent’s case, under the sub-heading, “Availability of Coal”, the
Majority Award accepted the evidence of Mr. John B. Wilcox, Marketing
Manager, on behalf of the Appellant, reading the same with the
Respondent’s letter dated 20.11.2008, as follows:
“Availability of Coal
118. The first element to be considered is the assertion advanced
on behalf of the Respondent that the Claimant did not have the
contracted goods to deliver. This depends entirely upon two e-
mails, one dated 22nd July 2009 and the other dated 7th September,
2009. The first of these stated that the Claimant was unable to
confirm the stem in August/September “due to cargo
availability” and was
reviewing the position in regard to October
December2009. In the 2nd the Claimant stated that “unfortunately
at this stage we do not have any coal availability for the
remainder of the year”.
119. The Claimant’s case, which we accept, is that there was no
shortage of supply at the relevant time. The e-mails have to be
read in context, and as we explain below, the context is that the
Respondent was seeking further deliveries of coal at below the
contract price.
120. Mr. Wilcox in his Additional Affidavit informed the Tribunal
that the Claimant was not a trader in coal but owned coal mines in
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Australia and had a railway system in place to ensure smooth
shipments. He stated that at the relevant time the market was
affected by the global financial crisis which brought about a crash
in the demand for steel and, consequently, for the relevant type of
coking coal. He said that, at the relevant time, the Claimant had a
large quantity of surplus production, some of which was sold off
by way of “distress sales” during the Fifth Delivery Period.
121. Mr. Wilcox was challenged in cross examination (Q40) as
to the availability of cargo to supply to the Respondent between
July 2009 and 21st September 2009. He disagreed that the Claimant
had no supply, stating that the Claimant was producing around
1,000,000 tonnes per month during this period. He said that it would
have been very easy for the Claimant to produce coal for the
Respondent had they been willing to pay the contract price.
Subsequently (Q43-Q45) he was challenged about the alleged
distress sales. He confirmed that such distress sales were made.
His affidavit indicated such sales amounted to approximately
712,000 MT, and that these sales were made at between US$83
and US$113 per MT, far below the price agreed with the
Respondent.
122. The Tribunal accepts Mr. Wilcox’s evidence. It is entirely
consistent with the Respondent’s own letter dated 20th November
2008 which reads:
“As you are aware, due to worldwide crisis in financial
markets, there has been unprecedented fall in prices of
major
commodities including steel...
The prices of iron and steel products in the international
market has nosedived in the month of September and
October 2008 and pig iron, ... is not getting customer on
date even at US$300 FOB. Same is the situation in the
domestic market and we are not able to sell our product.
Under the circumstances, you will appreciate it has become
absolutely unreliable to produce and sell pig iron based
on the imported coking coal having prices US$300 per
tonne FOB for hard coking coal... The substantial
depreciation of Indian rupees to the US dollars is further
added to our woes .... In view of unprecedented
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recessionary trends in the economy and consequent
abnormal low realisation on pig iron, we request price
reduction of coal for quantities finalised for delivery
during 1 July, 2008 to 30 of June 2009 period to a level
that was settled for delivery period 1 July, 2007 to 30 of
June 2008.”
123. It appears to us that the evidence is all one way, to the
effect that demand for coking coal was substantially reduced during
the last few months of 2008 and in, at least, the first half of 2009,
and it follows, it seems to us, that this strongly corroborates Mr.
Wilcox’s evidence as to the availability of coking coal for supply
to the Respondent.
124. Accordingly we reject the Respondent’s assertion that the
Claimant did not have the contract goods to deliver. The Tribunal
makes one further observation: the Fifth Delivery Period price
was agreed just over two months after the global financial crisis
which started at about the time of the collapse of Lehman Brothers
on the 15th September 2008. The price agreed by the parties for
that period was significantly higher than the price for any of the
preceding periods. That is in itself extraordinary, but what is even
more extraordinary is that the Respondent’s request for a price
reduction was made on the very same day on which the Fifth
Delivery Period price was agreed.”
5d. Under the sub-heading, “Failure to Offer Stem?”, the finding
of the Majority Award was as follows:
“Failure
to Offer Stem?
xxx xxx xxx
133. Accordingly we do not accept that the Agreement required
the Claimant to take the initiative and offer stem wholly without
reference to any obligation on the part of the Respondent. Viewed
overall, it is clear to us that the Agreement envisaged and required
the parties to coordinate supply and delivery. The primary document
for this was intended to be the Delivery Schedule. Indications of
stem availability and nomination of vessels were steps to be taken
in the implementation of the Delivery Schedule, not preparatory
to it. It follows from this, it appears to us, that there is no contractual
basis on which the Respondent can contend that the Claimant
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was in breach in failing to offer stem to the Respondent. Absent
an agreed Delivery Schedule there was no obligation to do so.”
5e. Under the sub-heading, “Offer of Supply”, the Appellant’s
letter dated 11.03.2009 was set out in which the Appellant demanded
that the Respondent propose a Delivery Schedule for the coal in question.
The Respondent denied the receipt of this letter. However, the Majority
Award found as follows:
“Offer of Supply
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139. Mr. Babu does not rebut the existence of the meeting in
April. Nor does he deny having received the 2nd e-mail
transmission on 12th March. He merely said in his evidence that
there was no need for him to be concerned with the attachments
to that e-mail. That does not amount to evidence that the letter
was not received.
140. Moreover, the Claimant referred to its letter of 11th March
in a letter sent on 21st September 2009 (Vol.2, page 21) which
opened with the sentence “We refer to our letter of 11th March
2009 to which we have not yet received a response.”. The
Claimant did receive a response to the letter of 21st September
(Vol.2, page 23) sent on behalf of Mr. Babu, but that response
expressed no surprise regarding the reference to a letter of 11th
March 2009, nor did it state that no such letter had been received.
141. In summary therefore there is much in the contemporaneous
correspondence to support the Claimant’s assertion that this letter
was sent, and nothing to rebut that assertion. So far as
the witness
evidence is concerned, not least because it is corroborated by the
documents, the Tribunal prefers and accepts the evidence of Mr.
Wilcox that supply of coal was offered by the Claimant to the
Respondent, including by the letter of 11th March 2009.”
5f. Under the further sub-heading, “What Was the Respondent
Seeking in its emails in June/July 2009?”, the Majority Award found
as follows:
“What Was the Respondent Seeking in its emails in June/ July
2009?
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142. It appears to the Tribunal that the stage was set for the
dealings between the two parties in regard to the Fifth Delivery
Period at the time that they agreed the rates for that delivery
period. As referred to above, there does not seem to be any dispute
that contemporaneously with the agreement of the rates for the
Fifth Delivery Period the market price of coal fell markedly, and
the Respondent immediately came back to the Claimant to ask
for some reconsideration of the agreed rate for deliveries.
143. As the Tribunal has found to be the case above, when the
Claimant wrote to the Respondent on 11th March 2009 seeking a
delivery schedule for the then outstanding quantities under the
Fifth Delivery Period, it met with no response. It is common ground
that only a very small quantity of the total due under the Fifth
Delivery Period was in fact uplifted by the Respondent; one
delivery of 2,366 MT on 30th October 2008 via the ‘Furness
Hartlepool’ was added to balance quantities under the Fourth
Delivery Period, and one delivery on 5th August 2009, when the
Respondent lifted another 9,600 MT. The second of these
shipments was the ad hoc Sea Venus agreement for delivery
between 10th and 20th July 2009 (Vol. 2, pages 9-12).
144. The ad-hoc Sea Venus agreement was for 50,000 MT of
coal under which 9,600 MT, or thereabouts was transacted at the
price of US$300 per MT, with the balance 40,400 metric tonnes
sold at an ad
hoc price of US$128.25 per MT. This was said to
have been a “goodwill gesture” (Vol.2, page 9).
145. The market price remained low throughout the Fifth Delivery
Period (see for example the agreement made by the Claimant
with SAIL/RINL on 15th July 2009 (Vol.2, pages 13-20) agreeing
rates at below US$129.00 per MT) and, viewed commercially
there was little incentive for the Respondent to continue to purchase
from the Claimant at the agreed rates.
146. The Tribunal’s view of the correspondence is that the
Respondent saw matters similarly, and was seeking to purchase
further quantities of coal at the lower rate obtained in the Sea
Venus agreement. In the e-mail of 2nd July 2009 Mr. Babu referred
to the Respondent having progressed the chartering of a vessel
for the Sea Venus agreement, and asked, without apparent
distinction about the availability of 2 further stems for August and
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September. Receiving no substantive response to the enquiry
regarding such further stems Mr. Babu followed up by e-mail on
21st July 2009. He did not, as might have been expected if this
was part of the usual contractual arrangements point out that the
Claimant was obliged to fulfil this order, nor did he make any
complaint that the Claimant had failed to comply with the
“prerequisite” of indicating stem availability before the Respondent
was required to act.
147. It was in this context that Claimant wrote on 22nd July 2009
referring to an inability to confirm stem in August/September due
to cargo availability. Seen in the context of the exchanges between
the parties, and seen against the background of the evidence given
by Mr. Wilcox to the effect that prices had slumped and the
Claimant was “dumping” coal in China, the only possible
understanding of this e-mail is that the Claimant was declining to
supply further coal at below the contract rate as had been done in
the ad hoc Sea Venus agreement.
148. On 4th September 2009 the Respondent wrote again seeking
stem (for delivery beyond the contract period), noting that there
had been no delivery since the Sea Venus agreement. Once again
the response received by the Respondent was that there was a
lack of availability.
149. None of these exchanges refer specifically to the price at
which the coal was being sought, or at which it might be available.
Mr. Wilcox’s evidence was however clear that the
contemporaneous discussions between the parties were on the
basis that the Respondent was seeking further discounted supplies,
and indeed his understanding was that the Respondent was
purchasing from other suppliers at rates lower than those to which
it was bound under the Fifth Delivery Period.
150. The Respondent’s letter of 25th September 2009 is consistent
only with the Respondent having sought discounted price supply
in the July/August period. The letter described the difficulty the
Respondent would face in incurring losses by purchasing
proportions of the “carry over quantity”, that is the unfulfilled
part of the quantities under the Fifth Delivery Period. The
Respondent had proposed, in line with an agreement made by the
Claimant with SAIL/RlNL, to purchase only 18.7% of the carry
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over quantity, and was, in the correspondence, balking at the
suggestion made on behalf of the Claimant that 56.7% of that
quantity be lifted by 31st March 2010. This was described by the
Respondent as “near to impossible’’, and the Respondent asked
the Claimant not to ignore the economic realities completely.
151. Thus, the first relevant letter written by the Respondent during
the Fifth Delivery Period [C-5] on 20th November 2008 sought a
reduction in the price of coal to be delivered under the Fifth
Delivery Period as did the last such letter, that of 25th September
2009. Following the conclusion of the Fifth Delivery Period the
Claimant made a further offer of supply (on 25th November 2009)
which the Respondent was prepared to accept only at a price
reduced from the contractual rate (Respondent’s letter of 27th
November 200[9]). The Respondent’s arguments now are
predicated on there having been a temporary change of stance
during the course of the year such that, in June and July 2009 it
was seeking no more than to avail itself of supplies of coal at the
contract rate. Seen in context, the correspondence relied on does
not begin to support that contention, and the Tribunal rejects it.
The Respondent was seeking coal at below the contract rate and
the Claimant was refusing to supply on those terms. The
Respondent failed to fulfil its contractual obligation to lift the
contracted quantities of coal at the contract
rate.”
5g. Under the sub-heading, “Limitation”, the Majority Award held:
“155. It follows that the Claimant’s notice of arbitration, which
was issued on 24th September 2012 and received by the Secretariat
on the same day was issued and the arbitration commenced within
the three-year limitation period.”
5h. Under the sub-heading, “Proof of Damage?”, the Majority
Award found:
“Proof of Damage?
156. It appears to the Tribunal, with respect to the Respondent,
that this is a hopeless line of argument. There is ample evidence
of the market price for coal in 2009 both in the Affidavit and
Additional Affidavit of Mr. Wilcox (which details the prices at
which the Claimant was selling coal to Chinese parties during the
Fifth Delivery Period), but also in the contemporaneous
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correspondence, including the Respondent’s letter of 3rd
December 2009 and the agreement reached between the Claimant
and SAIL/ RlNL. The Respondent was itself purchasing coal from
BHP Mitsui at about US$128 per MT at about this time.
157. There is no dispute as to the relevant quantity of coking coal
which was not lifted, and the Tribunal accepts (this not being a
matter of dispute) that the difference between the market rate
and the contracted rate represents the correct measure of
damages. That is the basis upon which the Claimant’s claim has
been evaluated in its claim documents. Accordingly the Tribunal
accepts the Claimant’s evidence as to the quantum of its loss.”
5i. Finally, therefore, in a useful summary, the Majority Award
held:
“Summary
180. Having read heard and considered the evidence and
submissions of the parties and for the reasons given above the
Tribunal finds, and holds, unanimously save where indicated, as
follows:
(a) The Respondent committed a breach of contract by not
lifting 454,034 MT of coking coal within the Fifth Delivery
Period, which expired on 30th September 2009.
(b) The Claimant was not in breach of contract in failing to
supply goods to the Respondent during the Fifth Delivery
Period.
(c) The Claimant was, at all material times in a position to
perform its obligations under the Agreement by supplying the
requisite quantities in a timely manner in accordance with the
Agreement.
(d) The Claimant’s claims are not barred by
limitation.”
5j. The award, therefore, in favour of the Appellant, was then
stated as follows:
“Dispositive Section
181. For the above reasons the Tribunal Orders and Directs that:
(1) By a majority, the Claimant is entitled to damages from the
Respondent in the sum of US$78,720,414.92.
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(2) By a majority the Tribunal concludes that the Claimant is
entitled to simple interest on such damages in the sum of
US$27,239,420.29 in respect of interest up to the date of this
Award, and at a rate of 15% p.a. on the principal sum from the
date of this Award until payment.
(3) The Claimant is entitled to its costs of the arbitration which,
by a majority we assess in the amount of US$977,395.00.
(4) The sums set out above as being due to the Claimant are
due as at the date of this Award and are to be paid by the
Respondent.
(5) This Award is final as to the matters in dispute between the
parties and referred to arbitration before us. All other requests
and claims by the parties are dismissed.”
7. Justice V.K. Gupta (Retd.), in his Dissenting Award found as
follows:
“4. Analysis
xxx xxx xxx
(k) In the totality of circumstances and after appreciating the
contractual provisions and the conduct and evidence led by the
Claimant I find apart from one request for the delivery schedule
from the Respondent vide letter dated 11th March 2009 there is
no evidence on record to show that the claimant had the contracted
material ready to supply. Even the chart showing supplies to the
third parties filed by the Claimant along with the additional evidence
of Mr. John Wilcox indicates that the supplies of the entire quantity
of the material available with the Claimant had already been made
to all the other Buyers and it appears
that the Claimant did not
have the material to supply under the Contract at least for the
period between July to September 2009 which was the contracted
period.
(l) It is incomprehensible that a party which was ready with such
huge quantity of coal would not send follow up communications
to the Respondent urging them to lift the contracted goods if such
goods were ready at the load port. Not a single document has
been produced in terms of which the Claimant could show that it
had written to the Respondent that so much quantity of material
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was sitting at the load port and that MMTC has failed to nominate
the vessel. After the 11th March 2009 letter there is no other
communication addressed by the Claimant to the Respondent
requesting the Respondent to provide the delivery schedule. On
the contrary in their emails they expressed their inability to supply
any cargo within the delivery period. It appears that there were
several Buyers between July and September 2009 on account of
shortage of coking coal and that there was sudden increase in
demand of coal and during the month of July and September 2009
and that the Claimant had over committed the supply and had
supplied the contracted quantity to the third parties.
(m) In my view the claimant did not have the contracted material
or it diverted the contracted material to a third party and therefore
was unable to make the contracted material available under the
Contract. The Claimant was therefore unable to supply the
contracted material and was in breach itself.
(n) The Claimant being itself in breach is not entitled to claim any
damages.”
The Dissenting Award also found that the Appellant had failed in
discharging its burden of proving the quantum of damages as on the date
of breach of the LTA.
8. The learned Single Judge, by a judgment dated 10.07.2015,
after setting out the relevant facts, dismissed the Respondent’s plea of
limitation and then found:
“45. The majority Award concluded that there was in fact no
repudiation of the contract by
Anglo and that in any event no
acceptance of such repudiation by MMTC. The Court is required
to examine whether such conclusion is perverse or patently illegal
as contended by MMTC. In the first place it appears that it was
not the case of MMTC earlier that the letter dated 21st September,
2009 constituted repudiation by Anglo of the contract. In its reply
dated 25th September, 2009, MMTC did not suggest that Anglo
had repudiated the contract. It viewed the said letter dated 21st
September, 2009 as a request from Anglo to start lifting the
contractual quantities. This explains why MMTC in the said reply
expressed inability to lift 2,25,174 MT by 31st March, 2010 since
it seemed “near to impossible as it worked out to 56.7% of the
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
MMTC LTD. [R.F. NARIMAN, J.]
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carryover tonnage.” It sought a reduction in prices hoping that
Anglo would “not ignore the economic realities completely”.
MMTC stated that “In short, we are not denying our obligation.
The request is only for staggering the time frame for lifting...” In
its letter dated 3rd December, 2009 MMTC sought Anglo’s help
in the matter “so that somehow we are able to run the plant by
having a mixture of costly coal which we are committed to lift
vis-a-vis the coal at new contract prices.” The letter dated 21st
September, 2009 when read as a whole and in the context of the
above correspondence reflects what the majority Award has rightly
understood, viz., that Anglo, far from repudiating the contract or
bringing it to an end, was offering MMTC a way to spread out its
obligation to lift the carry over quantity over the subsequent period.”
A plea of bias levelled against one of the arbitrators, namely, Mr.
Peter Leaver, was also rejected. It was found, after copious references
to both oral and documentary evidence, that the view of the Majority
Award, being a possible view on the Respondent being in breach and the
Appellant having proven quantum of damages, that no ground under
section 34 of the Arbitration Act for interfering with the Majority Award
was made out.
9. The impugned judgment of the Division Bench dated 02.03.2020,
after setting out the facts, the Majority Award and the Single Judge’s
conclusions, based its
decision on an appreciation of three emails between
the parties, which were picked out of the entire correspondence, namely,
emails dated 02.07.2009, 22.07.2009 and 07.09.2009. The Division Bench
referred to these as “critical emails”, finding:
“25. It is extremely important to note that in these three critical e-
mails, upon which the decision of the Arbitral Tribunal as well as
single Judge hinges, there is no reference whatsoever to the price
of coal to be supplied. Furthermore, nowhere does the respondent
say that it does not have coal available at any specified price. In
the e-mails, the respondent simply says that it does not have any
coal available for the remaining part of the year 2009 period.
However, what has not been said or even reflected in the aforesaid
e-mails, is read into the said e-mails by the majority of the Arbitral
Tribunal; and accepted by the single Judge. The aforesaid e-mail
communication is taken to mean that the respondent had coal
available at USD-300 per metric tonne ; and that the respondent
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meant that it did not have coal available at USD 128 per metric
tonne. The majority of the Arbitral Tribunal as well as the single
Judge therefore read the aforesaid emails to mean that the appellant
was requesting supply of coal only at USD 128 per metric tonne,
which is something that has nowhere been said in any of these e-
mails.”
As a result, the Division Bench concluded:
“29. We are aware that a court seized of proceedings under
section 37 of the A&C Act is not to re-appreciate evidence,
muchless in a case where the Arbitral Tribunal as well as the
single Judge under Section 34 have agreed with a certain view on
the facts of the case. However, it is also the law that where a
factual inference is based on no evidence, the court may interfere
with such inference even under section 37. In our reading of the
legal position, a factual inference that is based on what is not
stated in a document or what may be called ‘imaginary evidence’,
is the same as an inference based on ‘no evidence’ ; or an
inference derived ignoring vital evidence. A decision based on
such inference would necessarily be perverse. If the majority of
the Arbitral Tribunal ignores what is plainly stated in commercial
correspondence and reads into e-mails words that do not exist, or
ignores words that are contained in e-mails, this can only pave the
way for complete injustice. It is not the purport of any of the
precedents that inferences drawn from thin air would become
sustainable,
hiding behind the shield of an arbitral award. As we
see it, this is exactly the position in the present case. There is no
evidence to support the conclusion that the appellant was
demanding consignment of coal at any reduced rate vis-à-vis the
contractually agreed price. There is also no evidence to support
the conclusion that the respondent had coal available to supply to
the appellant, when the appellant demanded it. If anything, there
is a straight forward acknowledgement by the respondent that it
had no coal available till the end of the year 2009, without any
qualification or reservation that coal was available at the contracted
rate but not at a discounted rate.
30. What is more is that there is also no basis to the calculation of
damages. The Tribunal has calculated damages by taking the
difference in the agreed price of coal and the assumed ‘market
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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price’ at the relevant time. However there is no evidence to prove
the market price of coal at that time. The question of mitigation of
damages by the respondent has not even been alluded to.”
After setting out in some detail, the judgment in Associate
Builders v. DDA, (2015) 3 SCC 49 [“Associate Builders”], the
Division Bench held as follows:
33. … In the present case however, we find that the view taken
by the majority of arbitrators is not a possible view since it is not
a question of the ‘quantity’ or ‘quality’ of evidence or of ‘little
evidence’ or of ‘evidence which does not measure-up in quality
to a trained legal mind’ but this is a case where the inferences
drawn are a non-sequitur to the plain and simple words of the e-
mails/communications read in evidence, which were before the
Tribunal and which do not support the inferences drawn. In this
view of the matter, clearly the approach of the majority of
arbitrators is arbitrary and capricious; and therefore cannot pass
judicial muster.
34. In the passing, we may also refer to the observations of a
three-Judge Bench of the Supreme Court in Smt. Kamala Devi
vs. Seth Takhatmal & Anr.: (1964) 2 SCR 152, in which the
court observed as follows:-
“8. … Sections 94 to 98 of the Indian Evidence. Act afford
guidance in the construction of documents; they also
indicate when and under what circumstances extrinsic
evidence could be relied upon in construing the terms of a
document. Section 94 of the Evidence Act lays down a rule
of interpretation of the language of a document when it is
plain and applies accurately to existing facts. It says that
evidence may be given to show that it was not meant to
apply to such facts. When a Court is asked to interpret a
document, it looks at its language. If the language is clear
and unambiguous and applies accurately to existing facts,
it shall accept the ordinary meaning, for the duty of the
Court is not to delve deep into the intricacies of the human
mind to a certain one’s undisclosed intention, but only to
take the meaning of the words used by him, that is to say
his expressed intentions. Sometimes when it is said that a
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Court should look into all the circumstances to find an
author’s intention, it is only for the purpose of finding out
whether the words apply, accurately to existing facts. But
if the words are clear in the context of the surrounding
circumstances, the Court cannot rely on them to attribute
to the author an intention contrary to the plain meaning
of the words used in the document. The other sections in the
said group of sections deal with ambiguities, peculiarities in
expression and the inconsistencies between the written words
and the existing facts. In the instant case, no such ambiguity or
inconsistency exists as we shall demonstrate presently. The
Privy Council’s case was one of ambiguity and the surrounding
circumstances gave the clue to find out the real intention of
the parties expressed by them.”
In the present case, we find no reason to look for the ‘undisclosed
intention’ of the respondent since the clear and express words of
the respondent, as contained in the afore-cited e-mails/
communications, are perfectly in accord with and apply squarely
to existing facts. We must therefore accept the ordinary meaning
of what is stated in those emails/communications, namely that the
respondent did not have any coal available till the end of the year
2009 for supplying to the appellant.
35. Proceeding on this basis, by a majority, the Tribunal has
awarded USD 78,720,414.92 as damages along with interest of
USD 27,239,420.29 calculated upto the date of the
award, along
with 15% p.a. future interest on the principal sum, in addition to
USD 977,395.00 as costs. This amount, calculated at the ballpark
prevailing exchange rate of approximately USD 1 = INR 70
translates to INR 7,48,56,06,115 that is to approximately INR 748
crores. In our view, such an award must rest on surer factual and
legal footing than only to say that it has been rendered by an
arbitral tribunal; and is therefore sacrosanct. In the above view of
the matter, the award of damages, interest and costs is a travesty
of justice and the award suffers from perversity.
36. In our consideration, the single Judge has also not appreciated
the aforesaid basic aspects, upon which the decision of the majority
of the Tribunal turns. While doing so the single Judge has therefore
committed error in the proceedings under section 34, which are
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
MMTC LTD. [R.F. NARIMAN, J.]
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amenable to be corrected in the present proceedings under section
37.
37. In view of the above discussion, we set-aside the majority
award dated 12.05.2014 as also order dated 10.07.2015 of the
single Judge made under section 34 of the A&C Act”
10. Shri Kapil Sibal, learned Senior Advocate appearing on behalf
of the Appellant, painstakingly took us through the LTA and the entire
correspondence that ensued between the parties. He argued that all the
findings given by the Majority Award were findings of fact, there having
been little dispute on the construction of any term of the LTA; no dispute
as to the contracted quantity of coal that was to be supplied in the Fifth
Delivery Period, i.e., 466,000 metric tonnes; no dispute as to the price at
which such coal was to be supplied, i.e., at the rate of $300 per metric
tonne; and no dispute as to the quantity of coal that remained unlifted,
i.e., 454,034 metric tonnes. The only issue before the Arbitral Tribunal
was whether the Appellant was unable to supply the contracted quantity
of coal at the contractual price, or whether the Respondent was unwilling
to lift the quantity of coal at the contractual price, both being purely
questions of fact as to the performance of contractual obligations
stemming from the LTA.
11. Shri Sibal then argued that a crucial letter dated 11.03.2009,
by which the Appellant requested the Respondent to propose a Delivery
Schedule under the LTA,
remained unanswered, the Majority Award
having found as a matter of fact that the said letter was received by the
Respondent. In any event, he argued that the Appellant’s letter dated
21.09.2009, which referred to the letter dated 11.03.2009, would clinch
the case in the Appellant’s favour, as this letter clearly referred to the
delivery of the balance quantity of coal, giving a without prejudice offer,
open and capable of acceptance until 30.09.2009. The Respondent’s
only response to this was by a letter dated 25.09.2009, in which the
obligation to lift coal at the contractual price was admitted, the Respondent
asking for a reduction in price, without ever stating that it had not received
the letter dated 11.03.2009. This, he argued, showed the Appellant’s
willingness to perform the deliveries as per the LTA, by demanding a
Delivery Schedule from the Respondent. His argument, therefore, was
that the Majority Award and the learned Single Judge, after referring to
the entirety of the correspondence, arrived at the conclusion that the
Respondent was in breach of the LTA, whereas the Division Bench
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arbitrarily picked out three emails out of the welter of correspondence
between the parties, ignoring what was communicated before and after
those three emails, thereby arriving at a faulty conclusion on facts, as if
it were a court of appeal.
12. Shri Sibal also argued that to get over the parameters of judicial
review of arbitral awards laid down in Associate Builders (supra), the
Division Bench wrongly stated that there is “no evidence” to support the
conclusion that the Respondent was seeking stems of coal at a reduced
rate, below the contractual price, and pointed out several letters and
emails showing this to be entirely incorrect. It was also entirely incorrect
for the Division Bench to have concluded that there was “no evidence”
to support the conclusion that the Appellant had coal available to supply
to the Respondent, which would amount to ignoring the evidence of Mr.
Wilcox, as well as the documentary evidence of the correspondence
between the parties. Equally, he argued that the market price of coal at
the relevant period was clearly proven by the figures supplied by Mr.
Wilcox and therefore, for the Division Bench to state that there is “no
evidence” to prove the market price of coal at the time of breach, was
also completely incorrect.
13. Shri Neeraj Kishan Kaul, learned Senior Advocate,
supplemented the submissions of Shri Sibal and stated that the overall
context of the correspondence showed that the Respondent repeatedly
asked for
supplies to be made at a price lower than the contractual price
throughout the Fifth Delivery Period, since it was clearly unable to lift
coal at the price of $300 per metric tonne. Even when only two months
in the Fifth Delivery Period were left, a maximum of 50,000 metric tonnes
of “mixed” supply was asked for, at a “mixed” rate of $300 per metric
tonne and at a rate much lower than that. He also referred to Mr. Wilcox’s
testimony to argue that the Appellant was a major producer of coal and
huge quantities of coal were produced at the time of the Fifth Delivery
Period, in July 2009, which could have easily been supplied, had the
Respondent demanded the balance unlifted quantity of 454,034 metric
tonnes at the price of $300 per metric tonne.
14. Shri Mukul Rohatgi, learned Senior Advocate appearing on
behalf of the Respondent, supported the impugned judgment of the
Division Bench and took us through the correspondence between the
parties, the Majority Award, the Dissenting Award, and the judgments of
the learned Single Judge and the Division Bench. According to him, this
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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Court ought not to interfere under Article 136 of the Constitution of
India, given the fact that the Division Bench had not acted as a court of
appeal, but had specifically followed the judgment in Associate Builders
(supra), in that, it found the present case to be a case in which “no
evidence” was led on the crucial issues of breach, as well as quantum of
damages. According to him, the three crucial emails that were relied
upon by the Division Bench were correctly relied upon, as these emails
would unequivocally show that the Appellant was not in a position to
supply coal, and that the Respondent was in a position to take supplies,
and did in fact demand that supplies of coal be made in accordance with
the LTA.
15. Shri Rohatgi then referred to clause 7.2 and annexure IV of
the LTA, dealing with the intimation of a Delivery Schedule, and stated
that under the LTA, it was first incumbent upon the Appellant, as the
seller, to ensure that sufficient quantities of coal were available,
subsequent to which, the nomination of a vessel was to take place before
a Delivery Schedule would be agreed upon between the parties. He
argued, based on the emails and letters exchanged between the parties,
that in point of fact, only one ad hoc shipment took place at a “mixed”
rate, partially at the contractual price of $300 per metric tonne and partially
at the rate of $128.25 per metric tonne, under which an ad hoc quantity
of 50,000
metric tonnes was supplied in August 2008. It was thus clear
that when the Appellant stated that it was “unable to confirm a stem in
Aug/Sep” and that it did not have “any coal availability for the remainder
of the year”, the Appellant breached and repudiated the LTA. According
to Shri Rohatgi, the three critical emails referred to by the Division Bench
were crystal clear and unequivocal, and could not be contradicted by
oral evidence, the Majority Award, therefore, being wholly incorrect in
arbitrarily and capriciously relying upon statements by Mr. Wilcox, to
attempt to explain what was unequivocally stated in these emails. He
also added that the Division Bench’s conclusion of there being no evidence
as to the market price of coal as on the date of breach was correct, and
cited a number of judgments to buttress his submissions.
16. Having heard the learned counsel appearing for the parties,
there can be no doubt whatsoever that the Majority Award is a detailed
award, which goes into the facts in great detail, outlines the issues to be
answered, and then answers all the issues, with due regard to the oral
and documentary evidence given in the case.
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17. The first and most important point, therefore, to be noted is
that this is a case in which there is a finding of fact by the Majority
Award that the Appellant was able to supply the contracted quantity of
coal for the Fifth Delivery Period, at the contractual price, and that it
was the Respondent who was unwilling to lift the coal, owing to a slump
in the market, the Respondent being conscious of the fact that mere
commercial difficulty in performing a contract would not amount to
frustration of the contract. It was for this reason that the Respondent
decided, as an afterthought, in reply to the Appellant’s legal notice dated
04.03.2010, to attack the Appellant on the ground that it was the Appellant
that was unable to supply the contracted quantity in the Fifth Delivery
Period. Once this becomes clear, it is obvious that the Majority Award,
after reading the entire correspondence between the parties and
examining the oral evidence, has come to a possible view, both on the
Respondent being in breach, and on the quantum of damages.
18. We may hasten to add that the entire approach of the Division
Bench is flawed. First and foremost, to cherry-pick three emails out of
the entire correspondence and to rest a judgment on those three emails
alone, without having regard to the context of the LTA and the
correspondence, both before and after those three emails, would render
the judgment of the Division Bench fundamentally flawed. Further, the
finding that
there was “no evidence” that the Respondent demanded
stems of coal at a reduced rate vis-à-vis the contractual rate, flies in the
face of at least three different exchanges between the parties, being the
Respondent’s letters dated 20.11.2008, 27.11.2009 and 03.12.2009.
19. Equally, the finding of the Division Bench that no evidence
had been led to show that the Appellant had availability of the balance
quantity of 454,034 metric tonnes of coal to supply to the Respondent
during the Fifth Delivery Period, again completely fails to appreciate
Mr. Wilcox’s evidence given by way of an Additional Affidavit dated
03.09.2013 and in response to questions in cross-examination before the
Arbitral Tribunal on 23.09.2013, together with two letters exchanged
between the parties on 21.09.2009 and 25.09.2009. All of these aspects
were considered in the Majority Award of the Arbitral Tribunal.
20. The finding that there is “no evidence” to prove market price
of coal at the time of breach, and that therefore, quantum of damages
could not be fixed, again completely ignores Mr. Wilcox’s evidence in
chief and cross examination; the Respondent’s letters dated 25.09.2009,
27.11.2009 and 03.12.2009; as also the Appellant’s re-negotiated contracts
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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with SAIL/RINL. All these aspects have been considered by the Majority
Award in great detail.
21. However, Shri Rohatgi invited us to look at the unequivocal
language contained in the three emails relied upon by the Division Bench,
namely the emails dated 02.07.2007, 22.07.2009 and 07.09.2009, which
stated that not only were no stems available for August/September 2009,
but that also there was no coal left for the remainder of the year, making
it clear that this was an admission on the part of the Appellant that it was
unable to supply the contracted quantity of coal during the remainder of
the Fifth Delivery Period. However, what is missed by Shri Rohatgi is
the crucial fact that no price for the coal to be lifted was stated in any of
the emails or letters exchanged during this period. This is in fact what
the Majority Award adverts to and fills up by having recourse to the
evidence given by Mr. Wilcox, stating that the ambiguity qua price was
resolved by the fact that no coal was available for lifting at a price lower
than the contractual price. The Majority Award found, relying upon Mr.
Wilcox’s evidence, that the supplies that were sought to be made in
August and September, 2009 were therefore, also in the nature of “mixed”
supplies, i.e., coal at the contractual price, as well as coal at a much
lower price. This is a finding of fact that cannot be characterised as
perverse, as it is clear from the evidence led,
the factual matrix of the
setting of there being a slump in the market, in which the performance
of the contract took place, as well as the ambiguity as to whether the
correspondence referred to contractual price or “mixed” price, and thus,
is a possible view to take.
22. The Division Bench also relied upon Smt. Kamala Devi v.
Takhatmal and Anr., (1964) 2 SCR 152, [“Smt. Kamala Devi”]
which in turn, relied upon section 94 of the Indian Evidence Act, 1872
[“Evidence Act”], by which the Division Bench concluded that it found
no reason to look for the undisclosed intention of the parties, since the
clear and express words contained in the three “crucial” emails were
perfectly in accord with and applied squarely to the existing facts.
Therefore, the ordinary meaning of what was stated in those emails
must be accepted, without more, which led to the conclusion that the
Appellant did not have any coal available till the end of the year (i.e.,
2009) to supply to the Respondent.
23. The judgment in Smt. Kamala Devi (supra) dealt with the
interpretation of a surety bond which was executed by the appellant in
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favour of the Court. A judgment of the Privy Council reported as
Raghunandan v. Kirtyanand, AIR 1932 PC 131 was referred to, in
which Lord Tomlin referred to an ambiguous surety bond which was to
be considered in the surrounding circumstances of the facts in that case,
i.e., in light of the order directing the security to be given. After setting
out the judgment of the Privy Council, this Court then held:
“These observations only apply the well settled rule of construction
of documents to a surety bond. Sections 94 to 98 of the Indian
Evidence. Act afford guidance in the construction of documents;
they also indicate when and under what circumstances extrinsic-
evidence could be relied upon in construing the terms of a
document. Section 94 of the Evidence Act lays down a rule of
interpretation of the language of a document when it is plain and
applies accurately to existing facts. It says that evidence may be
given to show that it was not meant to apply to such facts. When
a court is asked to interpret a document, it looks at its language. If
the language is clear and unambiguous and applies accurately to
existing facts, it shall accept the ordinary meaning, for the duty of
the Court is not to delve deep into the intricacies of the human
mind to a certain one’s undisclosed intention, but only to take the
meaning of the words used by him, that is to say his expressed
intentions. Sometimes when it is said that a Court should look into
all the circumstances
to find an author’s intention, it is only for the
purpose of finding out whether the words apply accurately to
existing facts. But if the words are clear in the context of the
surrounding circumstances, the Court cannot rely on them to
attribute to the author an intention contrary to the plain meaning
of the words used in the document. The other sections in the said
group of sections deal with ambiguities, peculiarities in expression
and the inconsistencies between the written words and the existing
facts. In the instant case, no such ambiguity or inconsistency exists
as we shall demonstrate presently. The Privy Council’s case was
one of ambiguity and the surrounding circumstances gave the clue
to find out the real intention of the parties as expressed by them.”
(page 162)
Having so held, the Court then found that the surety bond did not
need to be qualified by adding words to it when the words used in the
bond were otherwise clear. Importantly, the words “in default of his
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doing so” were held by the Court to make it absolutely clear that the
surety comes into effect only if the judgment debtor makes a default
when required to produce the document. Adding that the surety bond
has to be strictly construed, the Court held that a demand of the Court
on the judgment debtor, and default made by him in so doing, were
necessary pre-conditions for the enforcement of the bond against the
appellant.
24. Section 1 of the Evidence Act states as follows:
“1. Short title. –– This Act may be called the Indian Evidence
Act, 1872.
Extent. –– It extends to the whole of India except the State of
Jammu and Kashmir and applies to all judicial proceedings in or
before any Court, including Courts-martial, other than Courts-
martial convened under the Army Act, the Naval Discipline Act
or the Indian Navy (Discipline) Act, 1934, or the Air Force Act
but not to affidavits presented to any Court or officer, nor to
proceedings before an arbitrator;”
25. This would be sufficient to keep the application of section 94
of the Evidence Act out of harm’s way. However, on the footing that the
principle contained in section 94 of the Evidence Act, as to extrinsic
evidence being inadmissible in cases of “patent ambiguity”, is fundamental
to Indian jurisprudence, we proceed to examine whether section 94 of
the Evidence Act has been correctly applied by the Division Bench to
non-suit the Appellant.
26. Section 94 appears in
Chapter VI of the Evidence Act titled,
“OF THE EXCLUSION OF ORAL BY DOCUMENTARY
EVIDENCE”. In this regard, proviso (6) to section 92 of the Evidence
Act is important and states as follows:
“92. Exclusion of evidence of oral agreement. –– When the
terms of any such contract, grant or other disposition of property,
or any matter required by law to be reduced to the form of a
document, have been proved according to the last section, no
evidence of any oral agreement or statement shall be admitted, as
between the parties to any such instrument or their representatives
in interest, for the purpose of contradicting, varying, adding to, or
subtracting from, its terms:
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xxx xxx xxx
Proviso (6). –– Any fact may be proved which shows in what
manner the language of a document is related to existing facts.”
Illustration (f), then states:
“Illustrations
xxx xxx xxx
(f) A orders goods of B by a letter in which nothing is said as to
the time of payment, and accepts the goods on delivery. B sues A
for the price. A may show that the goods were supplied on credit
for a term still unexpired.”
Followed by this, are sections 94 and 95 of the Evidence Act,
which state:
“94. Exclusion of evidence against application of document
to existing facts. –– When language used in a document is plain
in itself, and when it applies accurately to existing facts, evidence
may not be given to show that it was not meant to apply to such
facts.”
95. Evidence as to document unmeaning in reference to
existing facts. –– When language used in a document is plain in
itself, but is unmeaning in reference to existing facts, evidence
may be given to show that it was used in a peculiar sense.”
27. Importantly, section 92 of the Evidence Act refers to the terms
of a “contract, grant or other disposition of property or any matter required
by law to be reduced to the form of a document”. In all these cases,
under proviso (6) read with illustration (f), any fact may be proven
which shows in what manner the language of a document is related to
existing facts. Illustration (f) of section 92 of the Evidence Act indicates
that facts, which may on the face of it, be
ambiguous and vague, can be
made certain in the contextual setting of the contract, grant or other
disposition of property. Section 94 of the Evidence Act, then speaks of
language being used in a document being “plain in itself”. It is only when
such document “applies accurately to existing facts”, that evidence may
not be given to show that it was not meant to apply to such facts. Likewise,
the obverse situation is contained in section 95 of the Evidence Act,
which then states that when the language used in a document is plain in
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itself, but is “unmeaning in reference to existing facts”, only then may
evidence be given to show that it was used in a peculiar sense.
28. When sections 92, 94 and 95 of the Evidence Act are applied
to a string of correspondence between parties, it is important to remember
that each document must be taken to be part of a coherent whole, which
happens only when the “plain” language of the document is first applied
accurately to existing facts.
29. In Woodroffe and Ali’s Law of Evidence,1 the learned authors
opine that whereas sections 93 and 94 of the Evidence Act deal with
cases of patent ambiguity, sections 95 to 97 of the Evidence Act deal
with cases of latent ambiguity (see pages 3119-3120). A “patent
ambiguity” is explained in the following terms in Starkie on Evidence2:
“By patent ambiguity must be understood an ambiguity inherent
in the words, and incapable of being dispelled, either by any legal
rules of construction applied to the instrument itself, or by evidence
showing that terms in themselves unmeaning or unintelligible are
capable of receiving a known conventional meaning, the great
principle on which the rule is founded is that the intention of parties,
should be construed, not by vague evidence of their intentions
independently of the expressions which they have thought fit to
use, but by the expression themselves. Now, those expressions
which are incapable of any legal construction and
interpretation
by the rules of art are either so because they are in themselves
unintelligible, or because, being intelligible, they exhibit a plain and
obvious uncertainty. In the first instance, the case admits of two
varieties; the terms though at first sight unintelligible, may yet be
capable of having a meaning annexed to them by extrinsic
evidence, just as if they were written in a foreign language, as
when mercantile terms are used which amongst mercantile men
bear a distinct and definite meaning, although others do not
comprehend them; the terms used may, on the other hand, be
capable of no distinct and definite interpretation. Now, it is evident
that to give effect to an instrument, the terms of which, though
apparently ambiguous are capable of having a distinct and definite
1  Woodroffe, J. and Ali, A., Law of Evidence, 19th  Edition (Volume 3), 2013, Butterworths
Wadhwa, Nagpur.
2  Starkie, T., A Treatise on the Law of Evidence, 7th Edition, 1829, William Benning,
London.
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meaning annexed to them is no violation of the general principle,
for, in such a case, effect is given, not to any loose conjecture as
to the intent and meaning of the party, but to the expressed meaning
and that, on the other hand, where either the terms used are
incapable of any certain and definite meaning, or, being in
themselves intelligible, exhibit plain and obvious uncertainty, and
are equally capable of different applications, to give an effect to
them by extrinsic evidence as to the intention of the party would
be to make the supposed intention operate independently of any
definite expression of such intention. By patent ambiguity, therefore,
must be understood an inherent ambiguity, which cannot be
removed, either by the ordinary rules of legal construction or by
the application of extrinsic and explanatory evidence, showing
that expressions, prima facie, unintelligible, are yet capable of
conveying a certain and definite meaning.”
(page 653)
On the other hand, a “latent ambiguity” is described in Woodroffe
and Ali’s Law of Evidence, as follows:
“Latent ambiguity, in the more ordinary application, arises from
the existence of facts external to the instrument, and the creation
by these facts of a question not solved by the document itself. A
latent ambiguity arises when the words of the instrument are clear,
but their application to the circumstances is doubtful; here the
ambiguity, being raised solely by extrinsic evidence, is allowed to
be
removed by the same means. In strictness of definition, such
cases, as those in which peculiar usage may afford a construction
to a term different from its natural one as can be seen in s 98,
would be instances of latent ambiguity, since the double use of the
term would leave it open to the doubt in which of its two senses it
was to be taken. It is not, however, to this class of cases that
reference is now made, but to those in which the ambiguity is
rather that of description, either equivocal itself from the existence
of two subject matter, or two persons, both falling within its terms
as can be seen in s 96, or imperfect when brought to bear on any
given person or thing as per ss 95 and 97.”
(pages 3132-3133)
30. At this stage, it is also important to advert to the definition of
“fact” in section 3 of the Evidence Act, which is set out hereinbelow:
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“3. Interpretation-clause.––In this Act the following words and
expressions are used in the following senses, unless a contrary
intention appears from the context: ––
xxx xxx xxx
“Fact”.–– “Fact” means and includes –– (1) anything, state of
things, or relation of things, capable of being perceived by the
senses;
(2) any mental condition of which any person is conscious.
Illustrations
(a) That there are certain objects arranged in a certain order in a
certain place, is a fact.
(b) That a man heard or saw something, is a fact.
(c) That a man said certain words, is a fact.
(d) That a man holds a certain opinion, has a certain intention,
acts in good faith or fraudulently, or uses a particular word in a
particular sense, or is or was at a specified time conscious of a
particular sensation, is a fact.
(e) That a man has a certain reputation, is a fact.”
31. The picture that emerges, therefore, is that a “patent ambiguity”
provision, as contained in section 94 of the Evidence Act, is only applicable
when a document applies accurately to existing facts, which includes
how a particular word is used in a particular sense. Given that, in the
facts of the present case, there was no mention of the price at which
coal was to be supplied in the three “crucial” emails, these emails must
be read as part of the entirety of the correspondence between the parties,
which would then make the so-called “admissions” in the aforementioned
emails apply to existing facts. Once this is done, it is clear that there is
no scope for the further application of the “patent ambiguity” principle
contained in section 94 of the Evidence Act, to the facts of the present
case.
32. However, section 95 of the Evidence Act, dealing with latent
ambiguity, when read with proviso (6) and illustration (f) to section 92
of the Evidence Act, could apply to the facts of the present case, as
when the plain language of a document is otherwise unmeaning in
reference to how particular words are used in a particular sense, given
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the entirety of the correspondence, evidence may be led to show the
peculiar sense of such language. Thus, if this provision is applied, the
Majority Award cannot be faulted as it has accepted the evidence given
by Mr. Wilcox, wherein he explained that the three emails would only be
meaningful if they were taken to refer to “mixed” supplies of coal, and
not supplies of coal at the contractual price.
33. A judgment of the Court of Appeal in Singapore, in Zurich
Insurance (Singapore) Pte Ltd v B-Gold Interior Design &
Construction Pte Ltd, [2008] SGCA 27, discussed section 96 of the
Evidence Act of Singapore, which is the equivalent of section 94 of the
Indian Evidence Act. The Singapore Court of Appeal, after setting out
the section, held:
“77 … The somewhat narrow wording of s 96, which refers to
the specific situation where the language in a document “applies
accurately to existing facts”, is probably attributable to its
provenance as a rule of interpretation pertaining to wills. This
section should therefore not be read too restrictively. Like s 95 of
the Evidence Act, s 96 should be viewed as prescribing a common-
sense limit on the use of extrinsic evidence which has been admitted
under proviso (f) to s 94. In Butterworths’ Annotated Statutes, it
is stated (at p 275) that:
The earlier section [ie, s. 95] and the present section [ie, s 96]
lay down the outer limits of interpretation in the sense that
they mark the place where the language used by the
writer
must prevail over any extrinsic evidence and the place where
extrinsic evidence may prevail over the language. So just as
where the language is patently ambiguous it cannot be cured
by extrinsic evidence, so where the language used is plain on
its face, it must be given effect to, although it can be shown
that the writer has made a mistake.
Similarly, in Woodroffe at p 3510, the explanation of s 94 of the
Indian Act (which is in pari materia with s 96 of the Evidence
Act) makes clear that:
When a court is asked to interpret a document, it looks at its
language. If the language is clear and unambiguous and applies
accurately to existing facts, the court accepts the plain and
ordinary meaning ... When it is said that a court should look
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into all the circumstances to find an author’s intention, it is only
for the purpose of finding out whether the words apply
accurately to existing facts. If, however, the words are clear
in the context of the surrounding circumstances, the court
cannot rely on them to attribute to the author an intention
contrary to the plain meanings of the words used in the
document.””
(emphasis supplied)
“108 It is evident from the Court of Appeal’s reasoning in Sandar
Aung [2007] 2 SLR 89 that in Singapore, the parol evidence rule
(as statutorily embedded in s 94 of the Evidence Act) still operates
as a restriction on the use of extrinsic material to affect a contract.
However, extrinsic material is admissible for the purpose of
interpreting the language of the contract. In this respect, Sandar
Aung acknowledges that extrinsic material is admissible even if
no ambiguity is present in the plain language of the contract.
However, ambiguity still plays an important role, in that the court
can only place on the relevant contractual word, phrase or term
an interpretation which is different from that to be ascribed by its
plain language if a consideration of the context of the contract
leads to the conclusion that the word, phrase or term in question
may take on two or more possible meanings, ie, if there is latent
ambiguity. In Sandar Aung, after the Estimate was taken into
account, the phrase “all charges, expenses and liabilities
incurred
by and on behalf of the Patient” could plausibly be taken to mean
all charges, expenses and liabilities incurred by and on behalf of
the Patient in respect of the envisaged angioplasty. Thus, the
court had a legitimate basis to place a narrower interpretation on
the contractual term (or, in more informal parlance, to “read down”
that term) which would not otherwise have been warranted by its
broad and general language. It may be possible to argue that what
the court did in Sandar Aung in fact constituted variation of the
relevant contractual terms in contravention of s 94 of the Evidence
Act. This issue shall be addressed in greater detail at [122]–[123]
below. It remains to be noted that proviso (f) to s 94 was not
discussed in Sandar Aung. Thus, the issue of whether ambiguity
was a prerequisite for the application of this proviso and its
relationship with the common law contextual approach to
contractual interpretation was left open.”
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“(B) THE PAROL EVIDENCE RULE
111 As mentioned earlier, in Singapore, the parol evidence rule
lives on in s 94 of the Evidence Act and has been applied
assiduously by the courts in case law. The Singapore courts have
always been mindful of the need for contractual certainty,
especially in commercial agreements (such as the Policy in the
present case). In Forefront Medical Technology (Pte) Ltd v
Modern-Pak Pte Ltd [2006] 1 SLR 927, the High Court
emphasised that not only is “sanctity of contract … vital to
certainty and predictability in commercial transactions”, but also:
The perception of the importance of commercial certainty and
predictability is deeply entrenched within the commercial legal
landscape in general and in the individual psyches of
commercial parties (and even non-commercial parties, for that
matter) in particular.
112 However, the parol evidence rule only operates where the
contract was intended by the parties to contain all the terms of
their agreement. Where the contractual terms are ambiguous on
their face, it is likely that the contract does not contain all the
terms intended by the parties. Furthermore, in order to ascertain
whether the parties intended to embody their entire agreement in
the contract, the court may take cognisance of extrinsic evidence
or the surrounding circumstances of the contract.
113 Assuming that the contract is one to which the parol evidence
rule applies, no extrinsic evidence is admissible to contradict,
vary,
add to or subtract from its terms (see s 94 of the Evidence Act).”
(emphasis supplied)
Finally, in a synopsis at the end, the Court of Appeal held:
“132 To summarise, the approach adopted in Singapore to
the admissibility of extrinsic evidence to affect written
contracts is a pragmatic and principled one. The main features
of this approach are as follows:
(a) A court should take into account the essence and attributes of
the document being examined. The court’s treatment of extrinsic
evidence at various stages of the analytical process may differ
depending on the nature of the document. In general, the court
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ought to be more reluctant to allow extrinsic evidence to affect
standard form contracts and commercial documents.
(b) If the court is satisfied that the parties intended to embody
their entire agreement in a written contract, no extrinsic evidence
is admissible to contradict, vary, add to, or subtract from its terms
(see ss 93–94 of the Evidence Act). In determining whether the
parties so intended, our courts may look at extrinsic evidence and
apply the normal objective test, subject to a rebuttable presumption
that a contract which is complete on its face was intended to
contain all the terms of the parties’ agreement. In other words,
where a contract is complete on its face, the language of the
contract constitutes prima facie proof of the parties’ intentions.
(c) Extrinsic evidence is admissible under proviso (f) to s 94 to aid
in the interpretation of the written words. Our courts now adopt,
via this proviso, the modern contextual approach to interpretation,
in line with the developments in England in this area of the law to
date. Crucially, ambiguity is not a prerequisite for the admissibility
of extrinsic evidence under proviso (f) to s 94.
(d) The extrinsic evidence in question is admissible so long as it is
relevant, reasonably available to all the contracting parties and
relates to a clear or obvious context. However, the principle of
objectively ascertaining contractual intention(s) remains
paramount.
Thus, the extrinsic evidence must always go towards
proof of what the parties, from an objective viewpoint, ultimately
agreed upon. Further, where extrinsic evidence in the form of
prior negotiations and subsequent conduct is concerned, we find
the views expressed in McMeel’s article and Nicholls’ article
persuasive. For this reason, there should be no absolute or rigid
prohibition against evidence of previous negotiations or subsequent
conduct, although, in the normal case, such evidence is likely to
be inadmissible for non-compliance with the requirements set out
at [125] and [128]–[129] above. (We should add that the relevance
of subsequent conduct remains a controversial and evolving topic
that will require more extensive scrutiny by this court at a more
appropriate juncture.) Declarations of subjective intent remain
inadmissible except for the purpose of giving meaning to terms
which have been determined to be latently ambiguous.
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(e) In some cases, the extrinsic evidence in question leads to
possible alternative interpretations of the written words (ie, the
court determines that latent ambiguity exists). A court may give
effect to these alternative interpretations, always bearing in mind
s 94 of the Evidence Act. In arriving at the ultimate interpretation
of the words to be construed, the court may take into account
subjective declarations of intent. Furthermore, the normal canons
of interpretation apply in conjunction with the relevant provisions
of the Evidence Act, ie, ss 95–100.
(f) A court should always be careful to ensure that extrinsic
evidence is used to explain and illuminate the written words, and
not to contradict or vary them. Where the court concludes that
the parties have used the wrong words, rectification may be a
more appropriate remedy.”
(emphasis supplied)
34. The approach of the Singapore Court of Appeal has our broad
approval, being in line with the modern contextual approach to the
interpretation of contracts. When proviso (6) and illustration (f) to
section 92, section 94 and section 95 of the Evidence Act are read
together, the picture that emerges is that when there are a number of
documents exchanged between the parties in the performance of a
contract, all of them must be read as a connected whole, relating each
particular document to “existing facts”, which include how particular
words are used in a particular sense, given the entirety of
correspondence
between the parties. Thus, after the application of proviso (6) to section
92 of the Evidence Act, the adjudicating authority must be very careful
when it applies provisions dealing with patent ambiguity, as it must first
ascertain whether the plain language of a particular document applies
accurately to existing facts. If, however, it is ambiguous or unmeaning in
reference to existing facts, evidence may then be given to show that the
words used in a particular document were used in a sense that would
make the aforesaid words meaningful in the context of the entirety of
the correspondence between the parties.
35. This approach is also reflected in a recent judgment of this
Court in Transmission Corpn. of Andhra Pradesh Ltd. v. GMR
Vemagiri Power Generation Ltd., (2018) 3 SCC 716, as follows:
“21. In the event of any ambiguity arising, the terms of the contract
will have to be interpreted by taking into consideration all
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surrounding facts and circumstances, including correspondence
exchanged, to arrive at the real intendment of the parties, and not
what one of the parties may contend subsequently to have been
the intendment or to say as included afterwards, as observed in
Bank of India v. K. Mohandas [Bank of India v. K. Mohandas,
(2009) 5 SCC 313] : (SCC p. 328, para 28)
“28. The true construction of a contract must depend upon the
import of the words used and not upon what the parties choose
to say afterwards. Nor does subsequent conduct of the parties
in the performance of the contract affect the true effect of the
clear and unambiguous words used in the contract. The intention
of the parties must be ascertained from the language they have
used, considered in the light of the surrounding circumstances
and the object of the contract. The nature and purpose of the
contract is an important guide in ascertaining the intention of
the parties.””
(page 727)
36. The Division Bench’s reliance upon Smt. Kamala Devi (supra)
to set aside the Majority Award is wholly misplaced. The ratio in Smt.
Kamala Devi (supra) is contained in the words:
“… Sometimes when it is said that a Court should look into all the
circumstances to find an author’s intention, it is only for the purpose
of finding out whether the words apply accurately to existing facts.
But if the words are clear in the context of the surrounding
circumstances, the Court cannot rely
on them to attribute to the
author an intention contrary to the plain meaning of the words
used in the document… “
(page 162)
37. So read, the judgment in Smt. Kamala Devi (supra) accords
with what has been held hereinabove. It is clear that the three critical
emails have to be read in the surrounding circumstances of the entirety
of the LTA and the correspondence which ensued between the parties.
Once that exercise is undertaken, as was undertaken by the Majority
Award, it is impossible to hold that the Majority Award is not a possible
view on the facts of this case. The reliance of the Majority Award upon
the correspondence between the parties pre-July and in September to
December 2009, buttressed by Mr. Wilcox’s evidence, cannot therefore
be said to be flawed.
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38. Shri Rohatgi’s argument in support of the impugned judgment
of the Division Bench that there is no evidence to demonstrate proof of
damage suffered as on the date of breach, is also factually incorrect. It
is well established that the arbitral tribunal is the final judge of the quality,
as well as the quantity of evidence before it (see Sudarsan Trading
Co. v. Govt. of Kerala, (1989) 2 SCC 38 at page 53). As was correctly
pointed out by Shri Sibal, the Majority Award has taken into account Mr.
Wilcox’s Affidavit dated 10.07.2013 and Additional Affidavit dated
03.09.2013 detailing the prices at which sales of coal were made to
Chinese purchasers during the Fifth Delivery Period, which ended on
30.09.2009, being the date of breach as found by the Majority Award. In
addition, contemporaneous correspondence, including letters dated
27.11.2009 and 03.12.2009 were also relied upon to show that the
Respondent was itself seeking coal at roughly the price of $128 per
metric tonne, at around the same time. Hence, the difference between
the contractual price and market price was arrived at as $173.383 per
metric tonne, in accordance with the law laid down by this Court in
Murlidhar Chiranjilal v. Harishchandra Dwarkadas and Anr.,
(1962) 1 SCR 653, as follows:
“We may in this connection refer to the following observations in
Chao v. British Traders and Shippers Ltd. [(1954) 1 All ER
779, 797] which are apposite to the facts of the present case:
“It is true that
the defendants knew that the plaintiffs were
merchants and, therefore, had bought for re-sale, but every
one who sells to a merchant knows that he has bought for re-
sale, and it does not, as I understand it, make any difference to
the ordinary measure of damages where there is a market.
What is contemplated is that the merchant buys for res-ale,
but, if the goods are not delivered to him, he will go out into the
market and buy similar goods and honour his contract in that
way. If the market has fallen he has not suffered any damage,
if the market has risen the measure of damages is the difference
in the market price.”
In these circumstances this is not a case where it can be said that
the parties when they made the contract knew that the likely result
of breach would be that the buyer would not be able to make
profit in Calcutta. This is a simple case of purchase of goods for
re-sale anywhere and therefore the measure of damages has to
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be calculated as they would naturally arise in the usual course of
things from such breach. That means that the respondent had to
prove the market rate at Kanpur on the date of breach for similar
goods and that would fix the amount of damages, in case that rate
had gone above the contract rate on the date of breach. We are
therefore of opinion that this is not a case of the special type to
which the words “which the parties knew, when they made the
contract, to be likely to result from the breach of it” appearing in
s. 73 of the Contract Act apply. This is an ordinary case of contract
between traders which is covered by the words “which naturally
arose in the usual course of things from such breach” appearing
in s. 73. As the respondent had failed to prove the rate for similar
canvas in Kanpur on the date of breach it is not entitled to any
damages in the circumstances.”
(pages 660-661)
39. The Single Judge correctly appreciated this part of the case
when he stated as follows:
“86. MMTC’s submission is belied by what it has itself stated in
the correspondence exchanged with Anglo. In its letter dated 25th
September, 2009, MMTC describes USD 128 as the ‘2009’ rate.
In its letter dated 27th November, 2009 it refers to “the 2009 price
level of US$ 128/125 PMT.” In its letter dated 3rd December,
2009 MMTC referred to “coal being purchased at current price
of US$ 128.25 PMT.” Further the re-negotiated contracts with
SAIL
and RINL acknowledge the slump in coal prices to USD
128 during the period from April, 2009 to March 2010. The date
of 30th September, 2009 fell between the said dates and was the
date to be reckoned for determining the prevalent market price.
87. The majority Award has based its conclusion as regards the
prevalent market price of coal as on 30th September, 2009 on the
basis of the above evidence. It was a view that was possible to be
taken on the evidence made available to the AT. The Court is not
persuaded to hold the said finding to be perverse or patently
illegal.”
40. This being the case, it is not possible to accept Shri Rohatgi’s
argument that the letters dated 27.11.2009 or 03.12.2009 do not reflect
the market price of coal as on the date of breach or that the market
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price of coal cannot be established from the special long-term contracts
operating at around the same time as the date of breach. This argument
must therefore be rejected.
41. The present case is that of an international commercial
arbitration, the Majority Award being delivered in New Delhi on
12.05.2014. Resultantly, this case has been argued on the basis of the
law as it stood before the Arbitration and Conciliation (Amendment)
Act, 2015 [“Amendment”] added two explanations to section 34(1)
and sub-section (2A) to section 34 of the Arbitration Act, in which it was
made clear that the ground of “patent illegality appearing on the face of
the award” is not a ground which could be taken to challenge an
international commercial award made in India after 23.10.2015, when
the Amendment was brought into force. We, therefore, proceed to
consider this case on the pre-existing law, which is contained in the
seminal decision of Associate Builders (supra).
42. The judgment in Associate Builders (supra) examined each
of the heads set out in Renusagar Power Co. Ltd. v. General Electric
Co., 1994 Supp (1) SCC 644, together with the addition of the fourth
head of “patent illegality” laid down in ONGC Ltd. v. Saw Pipes Ltd.,
(2003) 5 SCC 705. Since we are concerned with the “perversity
principle”, the relevant paragraphs of this judgment are set out as follows:
“29. It is clear that the juristic principle of a “judicial approach”
demands that a decision be fair,
reasonable and objective. On the
obverse side, anything arbitrary and whimsical would obviously
not be a determination which would either be fair, reasonable or
objective.”
(page 75)
“31. The third juristic principle is that a decision which is perverse
or so irrational that no reasonable person would have arrived at
the same is important and requires some degree of explanation. It
is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant
to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
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32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was
held: (SCC p. 317, para 7)
“7. … It is, no doubt, true that if a finding of fact is arrived at
by ignoring or excluding relevant material or by taking into
consideration irrelevant material or if the finding so outrageously
defies logic as to suffer from the vice of irrationality incurring
the blame of being perverse, then, the finding is rendered infirm
in law.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10] , it
was held: (SCC p. 14, para 10)
“10. A broad distinction has, therefore, to be maintained
between the decisions which are perverse and those which
are not. If a decision is arrived at on no evidence or evidence
which is thoroughly unreliable and no reasonable person would
act upon it, the order would be perverse. But if there is some
evidence on record which is acceptable and which could be
relied upon, howsoever compendious it may be, the conclusions
would not be treated as perverse and the findings would not be
interfered with.”
33. It must clearly be understood that when a court is applying
the “public policy” test to an arbitration award, it does not act as
a court of appeal and consequently errors of fact cannot be
corrected. A possible view by the arbitrator on facts has necessarily
to pass muster as the arbitrator is the
ultimate master of the
quantity and quality of evidence to be relied upon when he delivers
his arbitral award. Thus an award based on little evidence or on
evidence which does not measure up in quality to a trained legal
mind would not be held to be invalid on this score. Once it is found
that the arbitrators approach is not arbitrary or capricious, then he
is the last word on facts. In P.R. Shah, Shares & Stock Brokers
(P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594], this
Court held: (SCC pp. 601-02, para 21)
“21. A court does not sit in appeal over the award of an Arbitral
Tribunal by reassessing or reappreciating the evidence. An
award can be challenged only under the grounds mentioned in
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Section 34(2) of the Act. The Arbitral Tribunal has examined
the facts and held that both the second respondent and the
appellant are liable. The case as put forward by the first
respondent has been accepted. Even the minority view was
that the second respondent was liable as claimed by the first
respondent, but the appellant was not liable only on the ground
that the arbitrators appointed by the Stock Exchange under
Bye-law 248, in a claim against a non-member, had no
jurisdiction to decide a claim against another member. The
finding of the majority is that the appellant did the transaction
in the name of the second respondent and is therefore, liable
along with the second respondent. Therefore, in the absence
of any ground under Section 34(2) of the Act, it is not possible
to re-examine the facts to find out whether a different decision
can be arrived at.”
34. It is with this very important caveat that the two fundamental
principles which form part of the fundamental policy of Indian
law (that the arbitrator must have a judicial approach and that he
must not act perversely) are to be understood.”
(pages 75-77)
“42. In the 1996 Act, this principle is substituted by the “patent
illegality” principle which, in turn, contains three subheads:
42.1. (a) A contravention of the substantive law of India would
result in the death knell of an arbitral award. This must be
understood in the sense that such illegality must go to the root of
the matter and cannot be
of a trivial nature. This again is really a
contravention of Section 28(1)(a) of the Act, which reads as under:
“28. Rules applicable to substance of dispute.—(1) Where
the place of arbitration is situated in India—
(a) in an arbitration other than an international commercial
arbitration, the Arbitral Tribunal shall decide the dispute
submitted to arbitration in accordance with the substantive law
for the time being in force in India;”
42.2. (b) A contravention of the Arbitration Act itself would be
regarded as a patent illegality — for example if an arbitrator gives
no reasons for an award in contravention of Section 31(3) of the
Act, such award will be liable to be set aside.
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42.3. (c) Equally, the third subhead of patent illegality is really a
contravention of Section 28(3) of the Arbitration Act, which reads
as under:
“28. Rules applicable to substance of dispute.—(1)-(2)***
(3) In all cases, the Arbitral Tribunal shall decide in accordance
with the terms of the contract and shall take into account the
usages of the trade applicable to the transaction.”
This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of the
contract, but if an arbitrator construes a term of the contract in a
reasonable manner, it will not mean that the award can be set
aside on this ground. Construction of the terms of a contract is
primarily for an arbitrator to decide unless the arbitrator construes
the contract in such a way that it could be said to be something
that no fair-minded or reasonable person could do.”
(page 81)
43. This judgment has been consistently followed in a plethora of
subsequent judgments, including:
a.
National Highways Authority of India v. ITD
Cementation India Ltd., (2015) 14 SCC 21 at paragraph
24 (page 38);
b.
Centrotrade Minerals & Metal Inc. v. Hindustan
Copper Ltd., (2017) 2 SCC 228 at paragraph 45 (page
252);
c.
Venture Global Engg. LLC v. Tech Mahindra Ltd.,
(2018) 1 SCC 656 at paragraph 85 (page 687);
d.
Sutlej Construction Ltd. v. State (UT of Chandigarh),
(2018) 1 SCC 718 at paragraph 11 (page 722);
e.
Maharashtra State Electricity Distribution Co. Ltd. v.
Datar Switchgear Ltd., (2018) 3 SCC 133 at paragraph
51 (page 169);
f.
HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471
at paragraphs 18-19 (page 493);
g.
M.P. Power Generation Co. Ltd. v. ANSALDO Energia
SpA, (2018) 16 SCC 661 at paragraph 25 (page 679);
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h.
Shriram EPC Ltd. v. Rioglass Solar Sa, (2018) 18 SCC
313 at paragraph 34 (page 328);
i.
State of Jharkhand v. HSS Integrated Sdn, (2019) 9
SCC 798 at paragraph 7 (page 804); and
j.
 Ssangyong Engg. & Construction Co. Ltd. v. NHAI,
(2019) 15 SCC 131 at paragraphs 20, 34-36 (pages 154,
169-170).
44. Given the parameters of judicial review laid down in Associate
Builders (supra), it is obvious that neither the ground of fundamental
policy of Indian law, nor the ground of patent illegality, have been made
out in the facts of this case, given the fact that the Majority Award is
certainly a possible view based on the oral and documentary evidence
led in the case, which cannot be characterized as being either perverse
or being based on no evidence.
45. However, Shri Rohatgi relied upon a number of recent
judgments, which according to him, throw further light upon the elucidation
of law in Associate Builders (supra). Thus, in MMTC Ltd. v. Vedanta
Ltd., (2019) 4 SCC 163, this Court held:
“11. As far as Section 34 is concerned, the position is well-settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided
under Section 34(2)(b)(ii) i.e. if the award is against the public
policy of India. As per the legal position clarified through decisions
of this Court prior to the amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest of
India, conflict with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the concept of the
“fundamental policy of Indian law” would cover compliance with
statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v. Wednesbury Corpn.,
(1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent
illegality” itself has been held to mean contravention of the
substantive law of India, contravention of the 1996 Act, and
contravention of the terms of the contract.
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12. It is only if one of these conditions is met that the Court may
interfere with an arbitral award in terms of Section 34(2)(b)(ii),
but such interference does not entail a review of the merits of the
dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may
not be interfered with if the view taken by the arbitrator is a possible
view based on facts. (See Associate Builders v. DDA, (2015) 3
SCC 49. Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705; Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006)
4 SCC 445; and McDermott International Inc. v. Burn Standard
Co. Ltd., (2006) 11 SCC 181)
13. It is relevant to note that after the 2015 Amendment to Section
34, the above position stands somewhat modified. Pursuant to the
insertion of Explanation 1 to Section 34(2), the scope of
contravention of Indian public policy has been modified to the
extent that it now means fraud or corruption in the making of the
award, violation of Section 75 or Section 81 of the Act,
contravention of the fundamental policy of Indian law, and conflict
with the most basic notions of justice or morality. Additionally,
sub-section (2-A) has been inserted in Section 34, which provides
that in case of domestic arbitrations, violation of
Indian public
policy also includes patent illegality appearing on the face of the
award. The proviso to the same states that an award shall not be
set aside merely on the ground of an erroneous application of the
law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34,
as per Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the restrictions
laid down under Section 34. In other words, the court cannot
undertake an independent assessment of the merits of the award,
and must only ascertain that the exercise of power by the court
under Section 34 has not exceeded the scope of the provision.
Thus, it is evident that in case an arbitral award has been confirmed
by the court under Section 34 and by the court in an appeal under
Section 37, this Court must be extremely cautious and slow to
disturb such concurrent findings.
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15. Having noted the above grounds for interference with an arbitral
award, it must now be noted that the instant question pertains to
determining whether the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the submission
to arbitration, or contains decisions on matters beyond the scope
of the submission to arbitration. However, this question has been
addressed by the courts in terms of the construction of the contract
between the parties, and as such it can be safely said that a review
of such a construction cannot be made in terms of reassessment
of the material on record, but only in terms of the principles
governing interference with an award as discussed above.
16. It is equally important to observe at this juncture that while
interpreting the terms of a contract, the conduct of parties and
correspondences exchanged would also be relevant factors and it
is within the arbitrator’s jurisdiction to consider the same. [See
McDermott International Inc. v. Burn Standard Co. Ltd., (2006)
11 SCC 181; Pure Helium India (P) Ltd. v. ONGC, (2003) 8
SCC 593 and D.D. Sharma v. Union of India, (2004) 5 SCC
325].
17. We have gone through the material on record as well as the
majority award, and the decisions of the learned Single Judge and
the Division Bench. The majority of the Arbitral Tribunal as well
as the courts found upon a consideration of the material on record,
including the agreement dated 14-12-1993, the
correspondence
between the parties and the oral evidence adduced, that the
agreement does not make any distinction within the type of
customers, and furthermore that the supplies to HTPL were not
made in furtherance of any independent understanding between
the appellant and the respondent which was not governed by the
agreement dated 14-12-1993.”
(pages 166-168)
46. Likewise, in Dyna Technologies Pvt. Ltd. v. Cromptom
Greaves Ltd., 2019 SCC Online SC 1656, [“Dyna Technologies”],
this Court held:
“26. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided therein
or as interpreted by various Courts. We need to be cognizant of
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the fact that arbitral awards should not be interfered with in a
casual and cavalier manner, unless the Court comes to a conclusion
that the perversity of the award goes to the root of the matter
without there being a possibility of alternative interpretation which
may sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate
jurisdiction. The mandate under Section 34 is to respect the finality
of the arbitral award and the party autonomy to get their dispute
adjudicated by an alternative forum as provided under the law. If
the Courts were to interfere with the arbitral award in the usual
course on factual aspects, then the commercial wisdom behind
opting for alternate dispute resolution would stand frustrated.
27. Moreover, umpteen number of judgments of this Court have
categorically held that the Courts should not interfere with an
award merely because an alternative view on facts and
interpretation of contract exists. The Courts need to be cautious
and should defer to the view taken by the Arbitral Tribunal even if
the reasoning provided in the award is implied unless such award
portrays perversity unpardonable under Section 34 of the
Arbitration Act.”
47. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut
Utpadan Nigam Ltd., (2019) 7 SCC 236, after referring to the
parameters of review in Associate Builders (supra) and other cases,
this Court found
that with respect to the first claim, relating to price
adjustment/escalation, the arbitrator interpreted the relevant clauses of
the contract and came to a certain finding. The High Court, in interfering
with that finding, was wrong in doing so merely because some other
view could have been taken, as the interpretation made by the arbitrator
was a possible one. The High Court’s judgment was, therefore, set aside
to this extent. However, insofar as the second and third claims were
concerned, on the facts of that case, the finding was said to be so perverse
or irrational that no reasonable person could have arrived at the same,
based on the material/evidence on record, as a result of which, the High
Court’s judgment was upheld.
48. In South East Asia Marine Engg. & Constructions Ltd.
(SEAMEC LTD.) v. Oil India Ltd., (2020) 5 SCC 164, a three
Judge Bench of this Court referred to the judgment of this Court in
Dyna Technologies (supra) and found that the interpretation of the
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arbitral tribunal in expanding the meaning of clause 23 of the contract to
include a change in rate of high-speed diesel, not being even a possible
interpretation of the concerned contract, the High Court in setting aside
the award, could not be said to be incorrect. Also, other contractual
terms when seen together with this interpretation would also render such
finding perverse.
49. In Patel Engg. Ltd. v. North Eastern Electric Power
Corpn. Ltd., (2020) 7 SCC 167, this Court, after setting out the law
stated in Associate Builders (supra) and Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, applied the
test of perversity and then concluded:
“26. Even though the High Court in para 44 of the judgment
referred to various judgments, including Western Geco [ONGC
v. WesternGeco International Ltd., (2014) 9 SCC 263] [which
is now no longer good law], the case has been decided on the
ground that the arbitral award is a perverse award and on a holistic
reading of all the terms and conditions of the contract, the view
taken by the arbitrator is not even a possible view. The High Court
has rightly followed the test set out in para 42.3 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49, paras
40 to 45], which was reiterated in para 40 of Ssangyong Engg.
[Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)
15 SCC 131, para 19] judgment.
27. In our view, while dealing with the appeal under Section 37 of
the Act, the High Court has
considered the matter at length, and
held that while interpreting the terms of the contract, no reasonable
person could have arrived at a different conclusion and that the
awards passed by the arbitrator suffer from the vice of irrationality
and perversity.”
(pages 179-180)
50. All the aforesaid judgments are judgments which, on their
facts, have been decided in a particular way after applying the tests laid
down in Associate Builders (supra) and its progeny. All these judgments
turn on their own facts. None of them can have any application to the
case before us, as it has been found by us that in the fact situation which
arises in the present case, the Majority Award is certainly a possible
view of the case, given the entirety of the correspondence between the
parties and thus, cannot in any manner, be characterised as perverse.
ANGLO AMERICAN METALLURGICAL COAL PTY LTD. v.
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51. Accordingly, the appeal stands allowed. The judgment of the
Division Bench dated 02.03.2020 is set aside, thereby restoring the
Majority Award dated 12.05.2014 and the Single Judge’s judgment dated
10.07.2015 dismissing the application made under section 34 of the
Arbitration Act by the Respondent.
Devika Gujral
Appeal allowed.