Offshore oil contract dispute over tax provisions goes to arbitration, leading to conflicting interpretations.

The dispute arose from offshore oil exploration contracts with clauses on change of law and tax implications. The introduction of a tax provision led to disagreements. Arbitration resulted in conflicting interpretations of contractual clauses. The umpire's decision was set aside due to addressing an unassigned issue. The matter was remitted to a new umpire for reconsideration. The parties agreed to expedite the process, bypassing appeals, with the new umpire's decision to be reviewed by the Supreme Court. Ultimately, the High Court's judgment was set aside for further assessment.

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Issues:
Interpretation of contractual clauses regarding change of law and tax liability in offshore oil exploration contracts.

Analysis:
The judgment involves a dispute arising from a tender floated by the respondent for offshore oil exploration platforms in 1982, with the appellant submitting tenders in 1983. The contracts contained clauses relevant to change of law and tax implications. The introduction of Section 44BB in the Income Tax Act in 1987 led to tax liabilities for the subcontractor, triggering disagreements between the parties. Arbitration ensued to determine if the respondent was liable to reimburse tax amounts paid by the appellant's subcontractor due to the change in law.

The two arbitrators differed on the interpretation of contractual clauses. One arbitrator held that Clause 13.2.8 prevented payment for the subcontractor's tax liability, while the other found that this clause did not affect the application of Clause 17.3 regarding increased costs due to a change in law. The umpire, in his award, focused on the tax payment under Section 44BB and concluded that Clause 17.3 was not applicable since the tax was paid based on a government circular, not due to a change in law.

However, the umpire's decision was based on an issue not referred to him, leading to the judgment being set aside. The matter was remitted to a new umpire to decide if Clause 13.2.8 would interdict the application of Clause 17.3. The parties agreed to skip appeals and have the new umpire deliver a decision within three months directly to the Supreme Court for further adjudication. Ultimately, the appeal was allowed, and the High Court's judgment was set aside for further review.

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