2013 (9) TMI 503 - HC - Companies Law

Arbitration Appeal Upheld: Damages Awarded for Breach of Contract

The Division Bench upheld the Arbitrator's decision, finding AMCI/VALE in breach of contract for failing to supply the agreed quantity of coal to SAIL. ... Maintainability of Award - The delivery period had to commence on July 2007 - But before that, on May 18, 2007 AMCI Pty Ltd. informed SAIL by e-mail its inability to supply any coal in the months of July, October and November - SAIL issued a legal notice through their solicitors to VALE and AMCI informing breach of the contract and calling upon VALE and AMCI to discharge their obligations. It was followed by a subsequent notice dated February 2, 2009 informing that SAIL has a claim for damages against VALE and AMCI – Held that:- As regards appeal there was no merit for the reason the learned Single Judge had correctly held that save and except the amounts awarded as per the award dated March 10, 2011, all other claims were rejected, and this obviously included the claim towards post-award interest. The reasoning by the learned Arbitrator in the order dated May 16, 2011 that he consciously omitted to grant post-award interest in view of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 which envisages interest at the rate of 18% per annum unless otherwise directed, runs in the teeth of the fact that being an international contract where payments had to be made in US$, pre-award interest has been awarded taking into account Libor rate of interest. We find that the learned Arbitrator has awarded interest at the rate of 2.335364% per annum and surely the learned Arbitrator would be contradicting himself if pre-award interest is restricted keeping in view rate of interest as per Libor and post-award interest to be 18% per annum. It was settled law that adequacy or inadequacy of evidence or on which side does the weight of the evidence lead to would not be an exercise permissible to be undertaken by a Court considering objections to an Award under Section 34 of the Arbitration and Conciliation Act 1996 - As long as there was some evidence to sustain a finding of fact recorded by Arbitrator the hands of approach must be adopted by a Court seized of objections to an Award. From the very nature of the objections it was apparent that the objector wanted this Court to re-appreciate the evidence and re-weigh the probabilities to infer facts - an exercise which we refuse to perform because our doing so would be in breach of the mandate of the law - the five limbs had been discussed with reference to the evidence led and law applicable by the learned Arbitrator and suffice would it be to state that each and every aspect of the evidence referred to by AMCI/VALE had not only been noted but had been dealt with by the learned Arbitrator and being a matter pertaining to re-appreciation of evidence court repealed each and every submission made under the five sub-heads. The Arbitrator had noted various decisions in India pertaining to the general principle with regard to waiver of contractual obligations as found in Section 63 of the Indian Contract Act, 1872 - with reference to the letter in question, the Arbitrator had found a waiver by AMCI/VALE to the requirement of a risk purchase notice, and suffice would it be to note that as regards the enunciation of law pertaining to waiver of contractual obligations as per Section 63 of the Indian Contract Act, 1872 –there was no scope to interfere with the Award and similarly as regards interpreting the letter dated December 18, 2007 as constituting waiver – there was also no scope to interfere with the finding or even venture to discuss whether any interference was warranted, for the reason a finding of fact if applied correctly to the law by an Arbitrator on a view possible. The finding of waiver was contrary to the record i.e. there was no evidence to show waiver. Secondly, the finding of waiver was contrary to the terms of the contract i.e. Clause 17 of the General Conditions of the Agreement as per which no change in respect to the terms of this agreement shall be valid unless the same was agreed to in writing by the parties specifically stating the same as an amendment to the agreement - Lastly, that the finding of waiver was inherently contradictory, in that, the learned Arbitrator construed para 9 of the General Conditions of the Agreement as mandating a risk purchase notice followed by a finding that the letter of December 18, 2007 amounted to a waiver notwithstanding the same not expressly authorizing SAIL to buy from other sources - Letter dated December 18, 2007 was a matter of record - Its interpretation was within the domain of the Arbitrator and that it had been treated by the learned Arbitrator as a writing evidencing a consent by AMCI/VALE. While dealing the action taken by SAIL to effect risk purchase – the view taken by the learned Arbitrator that keeping in view the usage of the trade the technical concept of a risk purchase by going to the open market was not applicable and the risk purchase had to be by requiring the short supplied coal to be supplied along with future supplies for the ensuing year when negotiations concluded with long term suppliers - Action of SAIL to call upon VALE/AMCI to participate at the Empowered Joint Committee meetings, which Committee concludes the bargains was nothing but compliance by SAIL with the requirement of law to permit VALE/AMCI to supply the coal which was short supplied as a part of the risk purchase exercise. Being a finding pertaining to a matter of fact and interpretation of the letters exchanged, it would be impermissible for a Court to even relook into the matter while considering objections to the Award - The arguments were nothing but another facet of the submissions advanced pertaining to risk purchase and for our reasons above, simply highlighting that risk purchase in the instant case has not to be treated as conventionally understood, court rejected the submissions - The argument was repelled for the reason it fell within the domain of the Arbitrator to decide which party would bear the cost and it was settled law that with respect to discretions exercised by Arbitrators, a Court would not substitute its view. Issues Involved:1. Breach of Contract2. Risk Purchase Damages3. Liquidated Damages4. Extra Expenditure5. Demurrage6. Award of Interest and CostsDetailed Analysis:1. Breach of Contract:The contract between AMCI Australia Pty Ltd. (later renamed VALE Australia Pty Ltd.) and Steel Authority of India Ltd. (SAIL) required the supply of One Million Metric Ton of Hard Coking Coal from July 2007 to June 2008. AMCI/VALE failed to supply the agreed quantity, citing delays in port expansion and other operational issues. By December 2007, only 256,469 MT of coal was supplied, and AMCI/VALE informed SAIL of their inability to fulfill the contract, advising SAIL to consider other sourcing options. The Arbitrator found AMCI/VALE in breach of contract for failing to supply the contracted quantity of coal.2. Risk Purchase Damages:SAIL claimed damages for non-supply of 753,461 MT coal, asserting that they had to procure the shortfall from other suppliers at higher prices. The Arbitrator awarded damages to SAIL, holding that AMCI/VALE had waived the requirement for a risk purchase notice by advising SAIL to consider other sourcing options. The Arbitrator's decision was based on the established international practice of long-term supply contracts and the evidence that SAIL had indeed procured additional coal from other suppliers to cover the shortfall.3. Liquidated Damages:SAIL initially claimed liquidated damages as per clause 8.1 of the contract, which allowed for damages equivalent to 1% of the price of the coal, subject to a maximum of 10%. However, SAIL later gave up this claim during arbitration proceedings. The Arbitrator did not award any liquidated damages, focusing instead on the actual damages incurred by SAIL due to the breach of contract.4. Extra Expenditure:SAIL claimed extra expenditure incurred to procure the deficit coal from alternate sources. The Arbitrator awarded damages based on the increased cost of coal procured from other suppliers, considering the evidence provided by SAIL regarding the additional quantities purchased and the higher prices paid.5. Demurrage:SAIL claimed unpaid demurrage charges related to the delayed shipment of coal. The Arbitrator awarded SAIL the claimed demurrage charges, finding that the delays were attributable to AMCI/VALE's failure to supply the coal as per the contract.6. Award of Interest and Costs:The Arbitrator awarded pre-award interest at the rate of 2.335364% per annum, based on the Libor rate, and legal costs incurred by SAIL. The Arbitrator consciously omitted post-award interest, which was later upheld by the Single Judge. The Division Bench found no merit in SAIL's appeal for post-award interest, agreeing with the Single Judge's interpretation that the Arbitrator had rejected the claim for post-award interest.Conclusion:The Division Bench dismissed the appeals filed by VALE and AMCI, upholding the Arbitrator's award of damages to SAIL. The Bench also dismissed SAIL's appeal for post-award interest, finding that the Arbitrator had correctly omitted it. The bank guarantees furnished by VALE/AMCI were ordered to be encashed after six weeks, allowing them time to seek further remedies before the Supreme Court.