Contract interpretation and severability of arbitral awards: escalation beyond the agreed wage revision base was not admissible, but the final bill claim survived.

Clause 2.03 was construed to permit escalation in the extended contractual period only by reference to statutory wage revisions already in force when that period commenced; later revisions granted retrospectively were outside the contractual allowance. On that interpretation, the escalation component was inadmissible and could not be awarded in direct contradiction of the contract. The award was nevertheless severable because the invalid escalation claim was independent of the balance due under the final bill, and the limitation defence to that balance was not pressed. The valid part of the award was therefore sustained, while only the escalation component was set aside, with interest maintained on the admissible claim.

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Issues: (i) Whether Clause 2.03 of the contract permitted escalation in the extended contractual period only with reference to statutory wage revisions in force up to the commencement of the extended period, and excluded later revisions granted retrospectively. (ii) Whether the arbitral award could be severed so as to sustain the claim for the final bill amount while setting aside the inadmissible escalation component.

Issue (i): Whether Clause 2.03 of the contract permitted escalation in the extended contractual period only with reference to statutory wage revisions in force up to the commencement of the extended period, and excluded later revisions granted retrospectively.

Analysis: The contract made the first-year rate firm and also required the second-year rate to be fixed by taking into account only the statutory increase in dock labour wages existing when the extended period commenced. The note to Clause 2.03 further stated that the extended-period rate, once fixed, would remain firm and would not be affected by any subsequent increase, even if granted retrospectively. On that reading, only revisions effective by the commencement of the extended period could be considered, and later retrospective increases were outside the contractual allowance.

Conclusion: The interpretation adopted by the arbitral majority and the Division Bench was incorrect. The escalation claim based on wage revisions made after the commencement of the extended period was not admissible.

Issue (ii): Whether the arbitral award could be severed so as to sustain the claim for the final bill amount while setting aside the inadmissible escalation component.

Analysis: The inadmissible part of the award related only to escalation claims founded on an interpretation of Clause 2.03. The remaining claim concerned the balance due on the final bill, against which the only defence of limitation was not pressed. The counterclaim had also not survived challenge. In these circumstances, the valid and invalid parts of the award were capable of separation.

Conclusion: The award was liable to be set aside only in part, while the balance amount due under the final bill was sustained.

Final Conclusion: The appeal succeeded only to a limited extent: the escalation component of the award was set aside, but the respondent's entitlement to the final bill amount was upheld with interest.

Ratio Decidendi: An arbitrator cannot award a claim in direct contravention of the clear terms of the contract, and an award that is severable may be sustained to the extent it relates to an admissible and independent claim.

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