2020 (12) TMI 1372 - SC - Indian Laws

Supreme Court Upholds Damages Claim in Coal Contract Breach, Awards Over $78 Million Plus Interest and Costs.

The SC restored the Majority Award, overturning the Division Bench's decision, and upheld the Appellant's claim for damages due to the Respondent's breach ... Perversity principle - agreement 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 - dispute regarding 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 - Section 34 of the Arbitration and Conciliation Act, 1996 - Word 'Patent ambiguity' - HELD THAT:- 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 [2014 (11) TMI 1114 - SUPREME COURT]. The judgment in Associate Builders examined each of the heads set out in Renusagar Power Co. Ltd. v. General Electric Co., [1993 (10) TMI 232 - SUPREME COURT], together with the addition of the fourth head of 'patent illegality' laid down in ONGC Ltd. v. Saw Pipes Ltd., [2003 (4) TMI 438 - SUPREME COURT] - it was held in the case that 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. Given the parameters of judicial review laid down in Associate Builders [2014 (11) TMI 1114 - SUPREME COURT], 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. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., [2019 (6) TMI 2 - SUPREME COURT], after referring to the parameters of review in Associate Builders [2014 (11) TMI 1114 - SUPREME COURT] 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. In South East Asia Marine Engg. & Constructions Ltd. (SEAMEC LTD.) v. Oil India Ltd., [2020 (5) TMI 242 - SUPREME COURT], a three Judge Bench of this Court referred to the judgment of this Court in Dyna Technologies [2019 (12) TMI 842 - SUPREME COURT] and found that the interpretation of the 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. 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 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. Appeal allowed. Issues Involved:1. Breach of contract by not lifting the contracted quantity of coal.2. Appellant's ability to supply coal during the Fifth Delivery Period.3. Limitation period for the claim.4. Proof and calculation of damages.Detailed Analysis:1. Breach of Contract by Not Lifting the Contracted Quantity of Coal:The Majority Award found that the Respondent failed to lift 454,034 metric tonnes of coal during the Fifth Delivery Period, constituting a breach of contract. The Respondent's contention that the Appellant did not have the goods available for delivery was rejected. The Tribunal noted that the Respondent sought further deliveries of coal at a price lower than the contract price, which the Appellant refused. The Majority Award concluded that the Respondent's failure to lift the contracted quantities was due to its unwillingness to pay the contractual price, not the Appellant's inability to supply.2. Appellant's Ability to Supply Coal During the Fifth Delivery Period:The Majority Award accepted the evidence of Mr. John B. Wilcox, the Appellant's Marketing Manager, who testified that the Appellant had sufficient coal to meet the contract requirements. The Tribunal found that the Appellant was producing around 1,000,000 tonnes per month during the relevant period and had made distress sales at prices far below the contract price due to a slump in the market. The Majority Award rejected the Respondent's claim that the Appellant was unable to supply coal, noting that the Respondent's own letters indicated a request for price reduction due to market conditions.3. Limitation Period for the Claim:The Tribunal held that the claim was not barred by limitation. The notice of arbitration was issued on 24th September 2012, within the three-year limitation period from the date of the breach, which was determined to be 30th September 2009.4. Proof and Calculation of Damages:The Majority Award found that the Appellant had proven the market price of coal at the time of breach through Mr. Wilcox's affidavits and contemporaneous correspondence. The difference between the contract price ($300 per metric tonne) and the market price ($128 per metric tonne) was used to calculate damages. The Tribunal awarded the Appellant $78,720,414.92 in damages, with interest and costs.Separate Judgments:The Dissenting Award by Justice V.K. Gupta found that the Appellant did not have the contracted material ready to supply and had diverted the material to third parties. It concluded that the Appellant was in breach and not entitled to damages. However, this view was not upheld by the Majority Award or the subsequent judicial reviews.Judicial Review:The Single Judge upheld the Majority Award, rejecting the Respondent's plea of limitation and finding no grounds for interference under Section 34 of the Arbitration and Conciliation Act, 1996. The Division Bench, however, set aside the Majority Award, finding that the inferences drawn by the Tribunal were based on 'imaginary evidence' and not supported by the correspondence between the parties. The Supreme Court, however, restored the Majority Award, finding that the Division Bench's approach was flawed and that the Majority Award was a possible view based on the evidence presented.