MIS RICKMERS VERWALTUNG GMB H

THE INDIAN OIL CORPORATION LTD.

NOVEMBER 19, 1998

[DR. A.S. ANAND, CJ. AND K. VENKATASWAMI, J.)

Arbitration Act, 1940 : Section 33

Arbitration-Charter party agreement for shipping of pipes between C appellant ad respondent-Agreement not signed by parties-Conditions for agreement-Execution of letter of credit and performance guarantee- Contents of these two documents to be mutually agreed between the parties- No agreement between parties as to contents of documents-Consequently cargo arrangements not made by appellant-Alternative arrangements by D respondent-Invocation of arbitration clause contained in the agreement by

ap;, ellant-Claim that though no formal agreement was signed by parties yet a binding agreement had come into existence through correspondence- Held entire correspondence indicated no enforceable contract came into existence-Consequently clause relating to arbitration had no existence.

E Contract-Though not signed by parties-Can be spelled out from correspondence exchanged between the parties-But it must clearly emerge from correspondence that parties were ad idem to the terms.

The respondent-Corporation entered into an agreement with a Mexico Company for purchase of pipes which were to be delivered at Tempico port p in Mexico .. For the purpose of shipping of pipes negotiations were conducted with the appellant-vessel owners for entering into an agreement. Before execution of agreement the respondent-Corporation was to establish a stand-by letter of credit while the appellant was to furnish a performance bond. The format and contents of these two documents were to be mutually agreed upon by both the parties. A charter party agreement was drawn up G on November 11,1993 but it was not signed by the parties. However, no agreement was reached between the parties with regard to th~ contents of the s"tand-by letter of credit and performance guarantee. Therefore, the appellant did not make any shipping arrangements and the respondentcorporation had to make alternative arrangements. Thereafter, appellant H tiled an ap(•lication before Indian Council of Arbitration invoking clause 53 42

RICKMERS VER WAL TUNG GMB H v. 1.0.C. LTD. 43

• of the Agreement of Affreightment relating to arbitration. This clause A provided that all disputes under the charter party were to be settled in India in accordance with the provisions of the Indian Arbitration Act, 1940 read with Maritimes Arbitration Rules of Indian Council of Arbitration. The respondent-Corporation contested the application on the ground that the agreement between the parties had not been signed since no agreement could B be reached at with regard to the contents of standby letter of credit and performance guarantee. Consequently reference of the dispute in question to Arbitration was unwarranted. However, the Indian Council of Arbitration appointed arbitrators and directed the respondent-Corporation to deposit expenses of arbitration.

The respondent-Corporation filled a petition under Section 33 of the c

Arbitration Act, 1940 seeking a declaration to the effect that reference of dispute to the Arbitrator was not maintainable as there existed no concluded agreement between the parties. A single Judge of the Delhi High Court held that no concluded, enforceable and binding contract came into existence between the parties and as such clause 53 of the charter party agreement D relating to arbitration had no existence in the eye of law. Accordingly the Single Judge restrained the appellant from proceeding with the arbitration.

In appeal to this Court it was contended on behalf of the appellant that

(1) a binding agreement had come into existence through correspondence and therefore non-signing of the charter party agreement was of no E consequence; and (2) even in the absence of an agreement about the format of letter of credit and of the performance guarantee, clause 48 of the agreement was attracted and recourse to arbitration was justified.

Dismissing the appeal, the Court

HELD : I. The Single Judge of the High Court was perfectly justified in holding that clause 53 of the Charter party relating to arbitration had no existence in the eye of law, because no concluded and binding contract ever came into existence between the parties. The finding recorded by him is based on a proper appreciation of evidence on the record and a correct

application of the legal principles. [ 48-C) G

2. Clause 48 of the Charter Party by itself does not show whether the condition of establishing a standby irrevocable letter of credit or the furnishing of performance guarantee were conditions precedent to the conclusion of contract but there is enough material on the record to show that they were meant to be condition precedent. The correspondence between the parties H

A unmistakably shows that at no point of time, till the Charter Party agreement was drafted did the parties agree to proceed further without agreeing upon the format of the letter of credit and performance guarantee. From the record it is evident that the stand of the appellant was categorical that without any agreement on the terms of the letter of credit, it was not ready to nominate the vessel to carry the cargo. The appellant was, thus, for all B intent and purposes treating the furnishing of the letter of credit as a condition precedent for carrying the cargo. At no point of time did the appellant accept the terms of the letter of credit furnished by the respondent.

[50-B; 52-A; D-EJ

3. An agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the parties. However, in this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to D create :a contract for the parties by going outside the clear language used in the correspondence, except insofar as their are some appropriate implications of law to be drawn. Unless from the correspondence it can unequivocally and clearly emerge that the parties were ad idem to the terms, it ca!lnot be said that an agreement had come into existence between them E through correspondence. The Court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties had F they had actually reached an agreement, upon all material terms then alone can it be said that a binding contract was capable of being spelt out from the correspondence. [52-F; G-H; 53-A-BI

4. From a careful perusal of the entire correspondence on the record G it is evident that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence. The correspondence exchanged between the parties shows that there is nothing H expressly agreed between them and no concluded enforceable and binding

RICKMERSVERWALTUNGGMBH v.1.0.C. LTD. [DR.A.S. ANAND, CJ.] 45

• agreement came into existence between them. Apart form the correspondence, A the fax messages exchanged between the parties go to show that the parties were only 11egotiating and had not arrived at any agreement. There is a vast difference between negotiating a bargain and entering into a binding contract.

After negotiation of bargain in the present case, th~ stage never reached when the negotiations were completed giving rise to a binding contract.

(53-C-E)

CIVIL APPELLA rE JURISDICTION : Civil Appeal No. 5810 of 1998.

From the Judgment and Order dated 17.10.96 of the Delhi High Court in O.M.P. No. 18 of 1995.

R.F. Nariman, Mahesh Agrawal, Ms. Rina Barua, Dr. Jose Verghese and E.C. Agrawala for the Appellant.

V.N. Koura and Manoj Wad for the Respondent.

The Judgment of the Court was delivered by

DR. A.S. ANAND, C.J. Leave granted.

This appeal by special leave calls in question the judgment and order of the Delhi High Court dated Oct. 17, 1996 and arises in the following circumstances.

The respondent, Indian Oil Corporation Ltd., entered into an agreement with Mis Tubacero of Mexico for purchase of pipes for its Kandla-Bhatinda Pipeline project on September 16, 1993. According to the terms of the agreement, Mis Tubacero were to deliver the pipes to the respondent at Tampico Port in Mexico. In order to bring the pipes to India, the respondent,

F a Government Corporation, was required to go through Mis Transchart, a department of the Ministry of Surface Transport, which brokers charter party arrangements with various vessel owners, for the purposes of shipping of pipes from Tampico Port. Mis. Transchart invited offers from various ship owners and the appellant was one of the ship owners who made an offer. In G order to execute a contract between the parties, respondent No. 1 was to establish a standby letter of credit as per the format to be mutually agreed upon by the parties while the appellant was to furnish a performance bond also in a format to be mutually agreed upon by both the parties. Respondent No. I conveyed to the appellant on Nov. 17, 1993 that loading of pipes at Tampico port should commence on December 14, 1993 and be completed by H

A December 21, 1993. The appellant, however, did not proceed in the matter because the format and the language of the standby letter of credit in the form issued by its ban'k.ers was not approved by the first respondent. The draft letter of credit proposed by the first respondent was also not approved by the appellant and fresh proposals were exchanged between the parties. As a consequence, the appellant did not carry the pipes, as according to it, the B formats of standby letter of credit and performance guarantee were not settled

betwef:n the parties. The first respondent was, therefore, compelled to arrange for the carriage of first consignment of pipes received from Mis Tubacero at Mexico. Transchart by it telex dated December 24, 1993 apprised the appellant about the failure to carry out its obligation, despit.e repeated requests which C had resulted in the Charterers to finalise alternative shipping arrangements.

While the matter stood thus, the appellant filed a request for arbitration with the Indian Council of Arbitration on 11.6.1994. On June 28, 1994 the first respondent received a notice from the Indian Council of Arbitration intimating it that the appellant had filed an application dated June 16, 1994 invoking Clause .53 of the Agreement of Affreightment (AOA) relating to arbitration D and that it had laid a claim of 1,031 ;668.77 US dollars. The first respondent was dirf:cted to deposit a sum of Rs. 83,200 towards costs of the arbitration on or before Iuly 28, 1994. On receipt of the communication from the Indian Council of Arbitration, the first respondent informed the Indian Council of Arbitration (second respondent) that there did not exist any binding contract E between the first respondent and the appellant, much less any binding agreement of refer any dispute between the parties to arbitration according to the Rules of the Arbitration of the Indian Council of Arbitration. It was asserted that the agreement dated Nov. 11, 1993 relied upon by the appellant in its statement of claim, as constituting the contract between the parties had not been signed by the first respondent and the document was nothing more F than a mi::re proposal made by the appellant, which was subject to the parties agreeing on the format and language of the standby letter of credit to be provided by the first respondent for the benefit of the appellant and was subject to the parties also agreeing to the format and language of performance guarantee to be established by the appellant in favour of the first respondent.

G It was maintained that since no agreement could be reached with regard to the contents of the aforesaid two documents, which were fundamental to arrive at a working relationship between the parties, the claim of the appellant regarding !he conclusion of the contract between them was not maintainable.

The first respondent also questioned the jurisdiction of the Indian Council of Arbitration to decide whether or not an arbitration agreement exists between H the parties and asserted that in case the appellant considered that they had

RICKMERS VERWALTUNGGMBH v.1.0.C.LTD. [DR.A.S.ANAND, C.J.] 47

entered into a binding agreement between the parties, they could take steps A to obtain a reference through a competent court. Notwithstanding the stand of the first respondent, the Indian Council of Arbitration on January 3, 1995, intimated to the parties that it had appointed Mr. M.K. Chawla a retired Judge of the Delhi High Court as an Arbitrator. It was also stated in the communication that appellant had nominated Rear Admiral (Dr.) O.P.Sharma as their nominee B as arbitrator. The first respondent was requested to file its statement of defence by January 15, 1995, which date was subsequently extended. The direction to deposit a sum of Rs. 83,000 towards cost of expenses of the arbitration was reiterated. The first respondent, aggrieved by the communication from the Indian Council of Arbitration dated January 3, 1995, filed a petition under Section 33 of the Indian Arbitration Act, 1940, seeking a declaration C from the court that there did not exist any concluded arbitration agreement between the parties and the reference of the dispute in question to the Arbitration by the appellant was unwarranted and not maintainable. The application was resisted by the appellant, who maintained that a valid and subsisting agreement between the parties had come into existence and that the claim of the appellant was required to be adjudicated by the arbitrators D in terms of Clause 53 of the "agreement". On the pleadings of the parties, a learned single Judge of the Delhi High Court framed the following issues :

"I.Whether there is a valid and subsisting agreement between the parties ?

2. Relief."

During the pendency of the application the learned single Judge stayed further proceedings before the Arbitrator appointed by the Indian Council of Arbitration. Parties were directed to file evidence by way of affidavits in the court. Documentary evidence and affidavit were consequently filed in the F court.

The case put up before the learned single Judge on behalf of tJ:ie appellant was that though no agreement (as drawn up on 11.11.1993) was formally signed between the parties, yet the contemporaneous correspondence G exchanged between them went to show that a binding contract did come into existence between the parties and since Clause 53 of the "agreement" dated 11.11.1993 provided that all disputes under the Charter Party were to be settled in India in accordance with the provisions of the Indian Arbitration Act, 1940 read with the Maritime Arbitration Rules of the Indian Council of Arbitratio_n, their plea to get the dispute settled by arbitration was well H

A found1d. According to respondent No. I, Indian Oil corporation Ltd., on the other hand, no arbitration agreement had been executed between the parties and that the contemporaneous correspondence exchanged between the parties had also not brought about any enforceable contract between them because the fundamental conditions of the terms of the bargain were neither agreed B upon nor fulfilled by the parties.

After referring to various documents and correspondence exchanged between the parties, the learned single Judge on October 17,1996, vide the order impugned herein, held that no concluded, enforceable and binding contra1; t came into existence between the parties and as such Clause 53 of C the Charter Party "agreement" relating to arbitration had no existence in the eye oflaw. Issue No. I was, accordingly, decided in favour of respondent No.

I and the petition filed under Section 33 of the Arbitration Act by respondent No.I was allowed on October 17,1996. The learned single Judge restrained the appelfa1nt from proceeding with the arbitration. Hence this appeal.

D We have heard learned counsel for the parties and perused the record.

It is an admitted case of the parties that a Charter Party Agreement was drawn up on November 11, 1993. It is, however, not disputed that the said agreement was not signed by the parties. Mr. R.F. Nariman, learned senior E advocate appearing for the appellant submitted that even though the agreement dated November 11, 1993 had not been signed by the parties but the parties had acted upon it treating it to be a binding contract. Argued Mr. Nariman that the agreement was operative and binding even without the parties having agreed to the format and terms of the standby letter of credit and the perfom1ance guarantee, because the appellant had after receipt of the letter F of credit 'rrom respondent No. I sent to him a communication dated December 6, 1993 intimating that the draft of letter of credit was basically acceptable except :for some minor details. Similarly, it had been conveyed that the draft perfonnance bank guarantee received by it from respondent No. I had beea forwarded to the bankers for their acceptance. Learned counsel pointed out G that on December 16,1993, Transchart had fixed a fresh draft of standby letter of credit to the appellant and in the communication attached thereto, it was indicated that the draft letter of credit would be acted upon by respondent No. I. On this basis, Mr. Nariman submitted that a binding agreement had come into existence, through correspondence, and the non-signing of the charter party agreement dated November 11, 1993 by respondent No. I was of H no consequence. Mr. Nariman asserted that Clause 48 of the agreement did

RlCKMERSVERWALTUNGGMBHv.1.0.C.LTD.[DR.A.S.ANAND, C.J.] 49

not speak of any agreement regarding the terms of letter of credit to be A forwarded by State Bank of India or regarding the format and language of the performance guarantee to be established by the appellant in favour of the fi:st respondent, and therefore, even in the absence of an agreement about the format of the letter of credit and of the performance guarantee, Clause 48 of the agreement was attracted and recourse to arbitration was justified.

Learned counsel for the respondent in reply submitted that perusal of the correspondence exchanged between the parties established that there was no meeting of mind between the parties and no agreement could also be spelt out from the correspondence exchanged between the parties. Learned counsel submitted, by reference to the documents on the record, that the C correspondence exchanged between the parties, including various fax messages, exposed that the appellant was not ready to nominate the vessel to carry the cargo, without agreeing on the terms of the letter of credit and the performance guarantee and that there was no letter or fax exchanged between the parties which could in any manner indicate that any agreement had been arrived at between the parties with regard to the terms of the D standby letter of credit and the performance guarantee. Since, the appellant itself attached primary importance to the furnishing of letter of credit by the first respondent before it could carry the cargo, submitted the learned counsel, the "draft" Charter Party agreement dated November 11,1993 even if it had in fact been executed between the parties, could not become enforceable because E the terms of letter of credit and performance guarantee had not been agreed to between the parties.

It would at this tage be relevant to extract sub-clause (a) of Clause 48 to the Charter Party. It reads thus:-

"48(a) Freight is payable :-

IOC will open a standby irrevocable Letter of Credit for freight amount of each shipment for the cargo in transit. Standby Letter of Credit will

be issued by SBI India on SBI Germany. Freight payment will be made through Bank Transfer at Hamburg Germany under which 50 percent G less 3.75 percent commission is payable within 7 working days against presentation of copy Bill of Lading and owners invoice in triplicate. 40 percent within 7 working days of saft arrival of vessel at disport and on presentation of owners invoice in triplicate and I 0 percent within 30 days of completion of discharge and on presentation of owners invoice in triplicate".

A bare reading of Clause 48 (supra) shows that respondent No. I was to open a standby irrevocable letter of credit for freight amount of each shipment of the cargo in transit. The standby letter of credit was required to be is!:ued by the State Bank of India on the State Bank of Gennany. Indeed this clause by itself does not show '.vhether the condition of establishing a B standby irrevocable letter of credit or the furnishing of perfonnance guarantee were conditions precedent to the conclusion of contract but there is enough material on the record to show that they were meant to be condition precedent,.

In this connection a reference may be made to the fax communication dated 4.11.1993 from the appellant (much before the alleged agreement of November 11, 1993) which reads thus :- c

"frt-payment : I 00 pct secured by bank gtee in favour of Lina account at hamburg under which 50 pct less 3.75 pct commission is payable within seven working days against presentation of original bladings and Linas invoice in triplicate. 40 pct within 35 days of date of bill of lading I 0 pct within 60 days of date of bill of lading.

(in order to avoid any dispute and documents to be furnished we have to relate to one finn document which is bill of lading and one finn date which is date of bill of lading).

Lina to provide charters with perfonnance gtee equivalent to 5 pct of E freight based on appr. I 0,000 mt per shipment equivalent to usd 50,000 finn valid till 40 pct payment is released.

Format of bank gtee and performance bond gtee to mutually agreed.

Specification of cargo noted however quantity now abt. 50,000 mt only. In case of 7 shipments quantity per shipment 7,000 mt only. p Kdly. advise as cargo quantity major factor for freight calculation. Pis Advise urgently till office opening tom. Morning here. Will reply on c/p-terms tom. Afternoon."

and the fax message sent by respondent No.I. on I0.11.1993:

"tradex new delhi I 0.11.1993 attn: mr wersich line pipes-tampico/kandla received following from chrts:

l. period - to be changed to dee 1993 to july 1994 (however everything else reg qtty I lots remains same)

2. in place of bank gtee -"ioc will open a standby irrevocable lie for H freight amount of one shipment for the cargo in transit. Standby l/c

RICKMERSVERWALTUNGGMBH v.1.0.C.LTD. [DR.A.S.ANAND, C.J.] 51

will be issued by sbi India on sbi germany. Freight payment will be A made through bank transfer at hamburg germany under which 50% less 3.75 pct commission is payable within 7 working days against presentation of b/l and owners invoice in triplicate. 40 pct within 7 working days of safe arrival of vsl at disport and I 0 pct within 30 days of completion of discharge.

3. the ship name/details should be intimated immediately. End plse confirm your acceptance to above per return."

The return fax message from the appellant dated 10.11.1993 reads:

"ref yr msg of just now:

I. accepted

2. ioc will open a standby irrevocable 1/c in regard to the freight amount for the shipments. Funds under lie for each lot to be available

by latest 15th of each month before nomination of the vessel by Jina. D Standby lie will be issued by sbi India on sbi germany, sbi Germany to be authorised to reimburse themselves. In case any freight amount is not being received by Jina as per c/p and mentioned below, the amount shall be released on first written demand under standby lie freight payment will be made through bank transfer at hamburg germany:

a. 50% less 3.75% commission is payable within 7 days on prersaa, 29,90: 2 nos. copy bill of lading Lina's invoice in triplicate

b. 40% is payable within 7 days on presentation of: arrival notice

from master (telegram/telex/telefex) p

c. 10% is payable within 30 days on presentation of : discharge notice from master (telegram/telex/telefex)

3. require urgently all detls of Ist lot (see Y' days telex) before, we cannot nominate the vessel. Entd comments:

in case point 2 not clear, kdly call in order to discuss the possibilities over phone. Tks.

Lifting extended to 12.30 hrs german time tomorrow.

Looking forward to hearing from you."

A This 'orrespondence unmistakably shows that at no point of time, till the

chartf:r party agreement was drafted on I Ith Nov. 1993 did the parties agree

o proceed further without agreeing upon the format of the letter of credit and performance guarantee.

Reference here may also be made to the fax message dated December B 16, 1993, by which a fresh draft of standby letter of credit was sent by Transchart to the appellant. In that fax message it was indicated that the draft letter of credit would be acted upon by the appellant. The response of the appellant's agent, Lina International of the same date, however, shows that it was categorically asserted by it that the draft letter of credit was not C workable and therefore, was not acceptable,. Lina International had faxed draft of a fresh standby letter of credit. Subsequently, another draft of standby letter of credit was also faxed by Lina International but since there was no agreement regarding the acceptance of the draft, the appellant did not nominate any vessel for carrying the cargo which was required to be loaded from December 14, 1993 to December 21, 1993. Lina International had consistently D maintained in their various fax messages, that the offer made by the appellant was subject, inter alia, to the acceptance of the draft letter of credit. The stand of the appellant was thus categorical that without any agreement on the terms of the letter of credit, it was not ready to nominate the vessel to carry the cargo. The appellant was, thus, for all intent and purposes treating the E furnishing of the letter of credit as a condition precedent for carrying .the cargo. At no point of time did the appellant accept the terms of the letter of credit furnished by respondent No. I.

The submission of Mr. Nariman that an agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the F parties admits of no doubt. In fact, various judgments cited by him at the bar unmistakably support this assertion. The question, however, is can any agreement be spelt out from the correspondence between the parties in the instant case ?

G In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a -4. conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications H of law to be drawn. Unless from the correspondence it can unequivocally and

RICKMERS VERWALTUNGGMB H v. I.O.C. LTD. [DR. A.S.ANAND, C.J.] 53

clearly emerge that the parties were ad idem to the terms, it cannot be said A that an agreement had come into existence between them through correspondence. The Court is required what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in B the corresponde11ce and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement, upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.

From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of

the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence. The D correspondence exchanged between the parties shows that there is nothing expressly agreed between the parties shows that there is nothing expressly agreed between them and no concluded enforceable and binding agreement come into existence between them. Apart from the correspondence relied upon by the learned single Judge of the High Court, the tax messages E exchanged between the parties, referred to above, go to show that the parties were only negotiating and had not arrived at any agreement. There is a vast difference between negotiating a bargain and entering into a binding contract.

After negotition of bargain in the present case, the stage never reached when the negotiations were completed giving rise to a binding contract. The learned single Judge of the High Court was, therefore, perfectly justified in F holding that Clause 53 of the Charter Party relating to Arbitration had no existence in the eye of law, because no concluded and binding contract ever came into existence between the parties. The finding recrded by the learned single Judge is based on a proper appreciation of evidence on the record and a correct application of the legal principles. We find no merit in this appeal. G It fails and is dismissed with costs.

T.N.A.

Appeal dismissed.