TMI Blog2004 (9) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (for short BSCL ) was interested in the second stage of platform construction of ONGC, i.e., structural and progress fabrication and material procurement. Four contracts were thereafter awarded in favour of BSCL for fabrication, transportation and installation of six platforms bearing No. ED, EE, WI-8, WI-9, WI-10 and N3 and associated pipelines. They were to be installed in ONGC's Bombay High Sea. CONTRACT The said contracts covered: (i) Material procurement and fabrication of the ED and EE jackets, piles and decks. (ii) Transportation and installation of the ED and EE jackets, piles and decks. (iii) Material Procurement and fabrication of the WI-8, WI-9, WI-10 and N-3 Jackets, piles, temporary decks and decks (the Four Platform Fabrication Main Contract ) and (iv) Transportation and installation of the WI-8, WI-9, WI-10 and N-3 jackets, piles, temporary decks and decks, and installation of four pipelines and eight risers (the Four Platform Installation Main Contract ). The said contracts contained arbitration agreements. BSCL and Mcdermott International Inc. (for short MII ) entered into Technical Collaboration Agreement on 25th September, 1984 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract Agreement and to the extent that the provisions of the respective Main Contract between Buyer and BSCL apply to the relevant Sub-Contract work of MII as defined in this Sub- contract Agreement, MII shall assume towards BSCL all the obligations and responsibilities which BSCL, by such Main Contract, assumes to Buyer and shall have the benefit of all rights, remedies and redresses against BSCL which BSCL, by such Main Contract, has against Buyer, insofar as applicable to this sub-contract Agreement, provided that when any provision of the respective Main Contract between Buyer and BSCL is inconsistent with this Sub-contract Agreement, this Sub-contract Agreement shall govern and prevail over the Main Contract. 3.2 BSCL shall be bound to MII by the terms of this Sub-Contract Agreement and to the extent that the provisions of the respective Main Contracts between Buyer and BSCL apply to the relevant Sub-contract work of MII as defined in this Sub- contract Agreement, BSCL shall assume towards MII all the obligations and responsibilities that Buyer, by such Main Contracts, assumes towards BSCL, and shall have the benefit of all rights, remedies and redress against MII which Buyer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any. However, expenses incurred by BSCL in deputing their officials to attend such arbitration/ proceeding/ litigation would be to BSCL/s accounts. 6.3 All disputes and differences in respect of any matter relating to or arising out of or in connection with the execution or construction of this subcontract document, if the same cannot be and/ or is not the subject matter of dispute between BSCL and the Buyer under the Main Contracts and is not settled mutually by negotiation, shall be referred to arbitration under the Indian Arbitration Act, 1940, as amended from time to time, by appointing some agency acceptable to both the parties as Arbitrators and if no agency is found acceptable to both the parties, then by constituting a Board of Arbitration consisting of three Arbitrators, one to be nominated/ appointed by each party and the third to be appointed by the two Arbitrators as Umpire. The arbitration proceeding shall be held at New Delhi and the decision of the Arbitrators or the Umpire as the case may be shall be final and binding on both parties hereto. The arbitrators or the umpire, as the case may be, shall record their reasons for passing awards, copies of which shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oral evidence by way of affidavits. The learned arbitrator would be at liberty to adopt summary proceedings for concluding arbitration proceedings. 7) That the learned Arbitrator shall publish his Award, as far as possible, within a period of one year from the date of entering upon the reference; 8) That the fees of the Arbitrator (which may be fixed by him) and all expenses of arbitration proceedings shall be shared equally by the parties; 9) The learned Arbitrator shall file the Award in this Court. 10) Any application which may become necessary to be filed during or after the conclusion of arbitration proceedings, shall be filed only in this Court. CLAIM OF MII Before the learned Arbitrator, MII raised the following claims: 1. For Fabrication of jackets, Temporary Decks and Main Decks US$ 1,182,817.94 2. For Transportation and Installation of jackets and Decks US$ 4,351,062.68 3. For Installation of Pipelines and Risers US$ 840,064.23 4. For Structural Material Procurement US$ 5,301,534.13 For Bulk Material Procurement US$ 84,919.14 UKL 262,296.43 S$ 680,764.29 5. For Transportation of Pipe US$ 1,231,415.00 6. For Reimbursables US$ 377,309.30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 US$ US$ 3,133,612.40 28,400.00 On Point No. 3 US$ US$ 665,039.41 54,000.00 On Point No. 4 US$ US$ 2,809,100.54 2,300,200.00 On Point No. 5 US$ UK Pound Singapore$ 65,207.39 232,604.40 548,271.81 On Point No. 7 US$ 322,351.87 US$ 52,422.51 US$ 1,573,466.00 US$ 512,187.16 On Point No. 9A US$ 3,330,790.94 PROCEEDINGS RE: ADDITIONAL AWARD On point No. 10, MII was held to be entitled to interest on the amount awarded at the rate of 10% per annum from the date on which the amount fell due for payment till the date of the partial award and the awarded amount together with interest was directed to bear interest at the same rate from the date of the award to the date of payment. The parties thereafter filed applications under Section 33 of the Arbitration and Conciliation Act, 1996 alleging that certain claims made by them had not been dealt with and/ or were omitted from consideration by the learned arbitrator in his partial award. MII in its application contended: (i) While deciding Point No. 4 regarding Structural Material and Rolling, MII's claim for US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. MII is entitled to interest at 10% per annum for the period from 1 March 1992 to the date of payment in respect of the principal amount of US$ 1,573,466.00 on account of Corporate Income-tax and the interest amount of US$ 512,187.16 calculated up to 29 February, 1992. 4. MII is entitled to interest at 10% per annum for the period of delay in BSCL making payment of MII's invoices, that if, for the period from due date of payment to the date of actual payment. Such amount will carry interest at 10% per annum from the date of the Partial Award to the date of its payment. The learned Arbitrator rejected the BSCL's objection in regard to the maintainability of the said proceeding stating that the same can be a subject matter for determination of jurisdictional question in a proceeding under Section 33 of the 1996 Act. BSCL filed an application under Section 34 of the Act questioning the said partial award dated 9th June, 2003 as also the additional award dated 29th September, 2003. FINAL AWARD The learned Arbitrator thereafter took up the left over matters for his consideration, viz., points Nos. 6, 8 and 9 observing that ONGC in the meantime had expressed no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtial award, the learned Arbitrator opined that involvement of ONGC was imperative for determination of point Nos. 6,8 and 9, i.e., claims relating to transportation of pipes, Change Orders and Extra Work and delays and disruptions and, thus, the final award must be held to be bad in law. (iii) As the subcontract provided for a back to back contract, determination of various claims depended upon determination of interpretative application of the main contract by ONGC wherefor directions of ONGC were binding on the parties. (iv) Although US $ 8.8 million has been awarded as regard alleged delay and disruption of work, no reason, far less any cogent or sufficient reason, as was mandatorily required in terms of Section 31 of the Act having been assigned, the impugned award is vitiated in law. (v) In its award, the learned Arbitrator was bound to determine the actual loss suffered by the parties and as the same was not determined, the award cannot be enforced. (vi) The award as regards loss of profit under various heads is based on no evidence and, thus, wholly unreasonable. (vii) The claims made by MII were not only contrary to the terms of contract but also substantive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any amendment to the statement of claim. Claim of MII was wrongly allowed by the learned Arbitrator for entire value of the invoices without any deduction as delay in making payment by BSCL to MII on account of delay in receiving payment from ONGC has no relevance and in any event was contrary to the terms of the contract. The learned Arbitrator had also not taken into consideration that in terms of the contract, foreign exchange rate was frozen at the rate of ₹ 100 X 8.575 Dollars as was applicable on 9th August, 1984. (xv) The claim for US$ 2.3 million was outside the scope of reference to arbitration as no demand therefor was made. Such a claim was made for the first time only in the statement of claim. (xvi) In terms of Clause 37 of the contract entered into by and between ONGC and BSCL, no award by way of damage was payable. Similar provision was also contained in the subcontract entered into by and between the parties. (xvii) As MII was to compensate for the supply of materials by BSCL subsequently, no award for a sum of US$ 2.3 million could be made. (xviii) As no invoice in respect of the claim of US$ 28,400 on account of an additional barge trip t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms were to be commissioned in February, 1986. It is not the case of MII that the time was of the essence of contract and, thus, in terms of Section 55 of the Indian Contract Act, damages were payable. Even in terms of the main contract between BSCL and ONGC, time was not of the essence of the contract. The contract contained clauses for extension of time and liquidated damages which is also indicative of the fact that time was not of the essence of the contract and, thus, damages for delay is permissible in law in view of the decision of this Court in Hind Construction v. State of Maharashtra [(1979) 2 SCC 70] Change Order Nos. 2, 3 and 7 covered compensation under various heads as specified therein. The award of the learned Arbitrator clearly shows that additional costs had been incurred by MII and, thus, the award cannot be faulted. The partial award did not deal with the said claims. The dispute was specifically referred to arbitration in terms of notice dated 10th April, 1998. The quantification of damages being a matter of evidence and proof, no case has been made out for interference with the award particularly in view of the fact that BSCL had never raised any objection as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount from BSCL, procurement job was undertaken. The finding arrived at by the learned Arbitrator in this behalf is entirely a finding of fact. Reference to Clause 5 of the Contract was wholly irrelevant. This clause provides that BSCL shall procure suitable steel for jackets' on replacement basis for MII purchased steel. BSCL did not procure the required amount of steel to replace the structural materials that MII provided from its inventory as an accommodation to BSCL. MII did so on the understanding that the structural material removed from MII's inventory would be promptly replaced by BSCL. BSCL did not replace the material. Re: Method of Measurement Clause 23.1.1 (a) (c) of the Main Contract between BSCL and ONGC has no application as the same covers payment for 'structural material' which is an altogether different claim being Claim No. 4. The claim was towards labour charges for fabrication of structures, labour charges and not claim for cost of material. AISC Code applied in relation to the fabrication job is as under: The scheme of the Contract provides in relation to Fabrication and the application of AISC Code is explained below: (i) the sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on behalf of BSCL on 21st September, 2004 beyond a period of three months as specified in Section 34 of the Act. The Arbitrator has awarded the principal amount and interest thereon upto the date of award and future interest thereupon which do not amount to award on interest on interest as interest awarded on the principal amount upto the date of award became the principal amount which is permissible in law. CHALLENGE TO AWARD: LEGAL SCOPE OF Section 2(1)(b) of the 1996 Act reads as under: 2(1)(b) arbitration agreement means an agreement referred to in section 7 In terms of the 1996 Act, a departure was made so far as the jurisdiction of the court to set aside an arbitral award is concerned vis-`-vis the earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the court was wide, Section 34 of the 1996 Act brings about certain changes envisaged thereunder. Section 30 of the 1940 Act reads, thus: Grounds for setting aside award An award shall not be set aside except on one or more of the following grounds, namely: (a) That an arbitrator or umpire has misconducted himself or the proceedings; (b) That an award has been made after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. However, this Court, as would be noticed hereinafter, has the occasion to consider the matter in great detail in some of its decisions. In Primetrade AG v. Ythan Ltd. [(2006) 1 All ER 367], jurisdictional issue based on interpretation of documents executed by the parties fell for consideration having regard to the provisions of the Carriage of Goods by Sea Act, 1992. It was held that as the appellant therein did not become holder of the bills of lading and alternatively as the conditions laid down in Section 2(2) were not fulfilled, the arbitrator had no jurisdiction to arbitrate in the disputes and differences between the parties. Vis-`-vis the duty to assign reasons Another important cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, be noticed from the decision of this Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (for short 'ONGC')[(2003) 5 SCC 705]. This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156] wherein the applicability of the expression 'public policy' on the touchstone of Section 23 of the Indian Contract Act and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/ or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Indian Contract Act. In ONGC (supra), this Court, apart from the three grounds stated in Renusagar (supra), added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary. Such patent illegality, however, must go to the root of the matter. The public policy violation, ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) had invited considerable adverse comments but the correctness or otherwise of the said decision is not in question before us. It is only for a larger Bench to consider the correctness or otherwise of the said decision. The said decision is binding on us. The said decision has been followed in a large number of cases. [See The Law and Practice of Arbitration and Conciliation by O.P. Malhotra, Second edition, page 1174.] Before us, the correctness or otherwise of the aforesaid decision of this Court is not in question. The learned counsel for both the parties referred to the said decision in ex tenso. We, therefore, would proceed on the basis that ONGC (supra) lays down the correct principles of law. SUPERVISORY JURISDICTION We may consider the submissions of the learned counsel for the parties on the basis of the broad principles which may be attracted in the instant case, i.e., (i) whether the award is contrary to the terms of contract and, therefore, no arbitrable dispute arose between the parties; (ii) whether the award is in any way violative of the public policy; (iii) whether the award is contrary to the substantive law in India, viz., Sections 55 and 73 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of such award. We may add that some arbitrators in stead and in place of using the expression interim award use the expression partial award . By reason thereof the nature and character of an award is not changed. As, for example, we may notice that in arbitral proceedings conducted under the Rules of Arbitration of the International Chamber of Commerce, the expression partial award is generally used by the arbitrators in place of interim award. In any view of the matter, BSCL is not in any way prejudiced. We may state that both the partial award and the final award are subject matter of challenge under Section 34 of the Act. Section 33 of the Act empowers the arbitral tribunal to make correction of errors in arbitral award, to give interpretation of a specific point or a part of the arbitral award, and to make an additional award as to claims, though presented in the arbitral proceedings, but omitted from the arbitral award. Subsection (4) empowers the arbitral tribunal to make additional arbitral award in respect of claims already presented to the tribunal in the arbitral proceedings but omitted by the arbitral tribunal provided 1. There is no contrary agreement b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant portions of clause 28 which read as under: 27 (ii) Should be amount of extra work, if any, which Contractor is required to perform under clause 24 to 26 ants, fairly entitled Contractor to extension of time beyond the scheduled date for completion of either the whole or part of the works or for such extra work as the case may be, Company and Contractor shall mutually discuss and decide extensions of time, to be granted to Contractor and the revised schedule for completion of the Works. 28 (i) Subject any requirements in the Contract Specifications as to the completion of any portion of the work before completion of the whole and subject to the other provisions contained in the Contract, the Works shall be completed in accordance with the agreed schedule as indicated in Appendix-II. Company may, if the exigencies of the works or other projects so required amend the completion schedule and/or phase out completion. 28(iii)No extension in completion shall be permitted unless authorized in writing by Company as a Variation in completion schedule or as otherwise specified in the Contract. In any case, no portion of the works shall extend beyond the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived no payment It was further recorded in paragraph 68.4 of the Final Award: Even after the work was completed, there was a meeting on 16-17 June, 1987 at which ONGC informed that the Change Order was agreed to in principle So far as the claim of compensation in addition to the said Change Order Nos. 2,3 and 7 is concerned, the statement of claim of MII is as under: 4.65: The BSCL delays and disruptions required McDermott to alter the fabrication and installation sequence to match deliveries of equipment. This precluded McDermott performing certain activities as planned in the Subcontract. Change order No.2 relates to additional cost incurred by McDermott due to delay in receipt of equipment and material supplied by BSCL. BSCL's delivery of the equipment was upto seventeen months late. During this period, McDermott continued to fabricate the decks installing material as it became available. The delay resulted in additional costs to McDermott due to change order with cost effect of US$574,000.00. BSCL has failed and neglected to make payment of the invoice for this change order. 4.66: Change order no.3 relates to mobilization and demobilization of Derrick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject management costs? MII states that construction law recognizes that construction contractor incurs two general jobs of costs in the course of its operation; the operating costs that are attributable to a particular project, and costs such as overhead that are expended for the performance of the business as a whole, including t`he particular project. Consequently, construction law recognizes that owner caused delay entitles the contractor to recover from the owner the increased overhead and loss of profit as part of damages. Reference has been made to Hudson's building and Engineering Contracts. Article 8.176-91 pp. 1074-81 (11th edn.), Molly J.B., A formula for Success . Three formulae have been evolved for computation of a claim for increased overhead and loss of profit due to prolongation of the works : the Hudson Formula; The Emden Formula and Eicheay Formula. Of these three, the Emden Formula is the one widely applied and which has received judicial support in a number of cases. Section 55 of the Indian Contract Act Section 55 of the Indian Contract Act reads as under: 55. When a party to a contract promises to do a certain thing at or before a specified time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy is also provided therein It was further observed: 19. Turning now on to the issue of duty to speak, can it be said that silence on the part of the buyer in not replying to the letters dated 15-11-1989, 20- 11-1989, 24-11-1989, 4-12-1989 and 20-12-1989 only shows that the buyer was not willing to extend the delivery period after 15-11-1989 the answer cannot but be in the negative, more so by reason of the fact that fixation of a second delivery date by the Appellate Bench of the High Court as noticed above, cannot be termed to be in accordance with the law. There was, in fact, a duty to speak and failure to speak would forfeit all the rights of the buyer in terms of the agreement. Failure to speak would not, as a matter of fact, jeopardise the seller's interest neither would the same authorise the buyer to cancel the contract when there have been repeated requests for acting in terms of the agreement between the parties by the seller to that effect more so by reason of a definite anxiety expressed by the buyer as evidenced in the intimation dated 8-11-1989 and as found by the arbitrator as also by the learned Single Judge. We, therefore, are of the opinion that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental. [See Lamprell v. Billericay Union (19849) 3 Exch 283, 308; Webbv. Hughes (1870) LR 10 Eq 281; Charles Rickards Ltd. v. Oppenheim (1950) 1 KB 616]. UNINVOICED CLAIMS: The principal question which arises for consideration is whether uninvoiced claims could be a subject matter of dispute. While dealing with the claims falling within the purview of the partial award, the arbitrator noticed: 23. Interruption of WI-9 to WI-S Pipeline laying (US$ 115,087.50) The Statement of claim by MII mentions that an amount of US $ 10,671,340.00 on account of delay and disruption expenses and costs are claimed. Admittedly, they had not yet been invoiced when the reference to arbitration was made. It is not clear what are the specific claims included within that sum. If they had not been invoiced, it cannot be said that they remained unpaid, and that therefore, a difference or dispute had arisen between the parties when the reference to arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y charges in respect of Derrick Barge 26 relates to a standby for 24 days of that vessel. The MII Statement of Claim mentions that MII has not sent any invoice to BSCL. Therefore it cannot be said that any claim has been made by MII yet in the matter. Consequently, the position is that no difference or dispute concerning this had arisen between the parties when the reference to arbitration was made. Therefore, so far as this arbitration is concerned, the claim cannot be entertained. It falls outside this arbitration and cannot be considered. 23. Interruption of WI-9 to WI-S Pipeline Laying (US$115,087.50) The Statement of Claim by MII mentions that an amount of US$10,671,340.00 on account of delay and disruption expenses and costs are claimed. Admittedly, they had not yet been invoiced when the reference to arbitration was made. It is not clear what are the Specific claims included within that sum. If they had not been invoiced, it cannot be said that they remained unpaid, and that therefore a difference or dispute had arisen between the parties when the reference to arbitration was made. The said claims were, thus, rejected only on the ground that no invoice had been rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replacement basis for MII purchased steel. BSCL shall purchase steel as plate suitable for rolling 24 in O.D. and above tubulars. Replacement material shall be delivered by BSCL to MII's yard at Dubai Emirate, United Arab Emirates or to Singapore Port Authority for transshipment by MII (at BSCL's cost) to Batam Island, Indonesia. MII shall indicate the destination when furnishing the replacement steel request. In terms of the aforementioned provision of the contract, BSCL was required to procure suitable steel for jackets on replacement basis in regard to quantum of steel purchased by MII. If BSCL had failed to procure the said required amount of steel to replace the structural materials which MII had provided from its inventory as an accommodation to BSCL, indisputably the understanding between the parties was that either such materials should be replaced or the cost therefor had to be paid. It has not been disputed before the arbitrator that BSCL promptly replaced the material. It is in that view of the matter, the learned arbitrator in his partial award held: 15.19 The procurement was effected by MII from its inventory on the basis that it would be replaced by B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Waverly Jute Mills Co. Ltd. v. Raymon Co. [(1963) 3 SCR 209; Dharma Prathishthanam v. Madhok Construction (2005) 9 SCC 686] clearly held that it is open to the parties to enlarge the scope of reference by inclusion of fresh dispute and they must be held to have done so when they filed their statements putting forward claims not covered by the original reference. METHOD FOR COMPUTATION OF DAMAGES What should, however, be the method of computation of damages is a question which now arises for consideration. Before we advert to the rival contentions of the parties in this behalf, we may notice that in M.N. Gangappa v. Atmakur Nagabhushanam Setty Co. and Another [(1973) 3 SCC 406], this Court held: In the assessment of damages, the court must consider only strict legal obligations, and not 'the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. [See also Lavarack v. Woods of Colchester Ltd (1967) 1 QB 278] The arbitrator quantified the claim by taking recourse to the Emden formula. The learned arbitrator also referred to other formulae, but, as noticed hereinbefore, opined that the Em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chleay Corp. It is applied in the following manner: Step 1 Contract Billings Total overhead for Overhead allocable Total Billings for contract x contract period = to the contract period Step 2 Allocable overhead Total days of contract = Daily Overhead rate Step 3 Daily Contract Overhead Number of Days Amount of Unabsorbed Rate x of delay = overhead This formula is used where it is not possible to prove loss of opportunity and the claim is based on actual cost. It can be seen from the formula that the total head office overheads during the contract period is first determined by comparing the value of work carried out in the contract period for the project with the value of work carried out by the contractor as a whole for the contract period. A share of head office overheads for the contractor is allocated in the same ratio and expressed as a lump sum to the particular contract. The amount of head office overhead allocated to the particular contract is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly amount to give the total sum claimed. The Eichleay formula is regarded by the Federal Circuit Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian law. In State of U.P. v. Allied Constructions [(2003) 7 SCC 396], this Court held: 4. Any award made by an arbitrator can be set aside only if one or the other term specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is not a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret clause 47 of the agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for the arbitrator to determine (see Sudarsan Trading Co. v. Govt. of Kerala). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other. In a given case, the court of law or an arbitrator may even prefer one formula as against another. But, only because the learned arbitrator in the facts and circumstances of the case has allowed MII to prove its claim relying on or on the basis of Emden Formula, the same by itself, in our opinion, would not lead to the conclusion that it was in breach of Sections 55 or Section 73 of the Indian Contract Act. CLAUSE 37 EFFECT OF We may now look at clause 37 of the main contract entered into by and between ONGC and BSCL which reads as under: 37. INDIRECT AND CONSEQUENTIAL DAMAGES: Neither company nor contractor shall be liable to the other for any consequential damages, which shall include but not be limited to loss of revenue/ profits, loss or escape of product, etc. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority [(1988) 2 SCC 338], whereupon Mr. Mitra placed strong reliance, an award made under the old Act was in issue. A dispute had arisen whether there was a claim and denial or repudiation thereof. In that context, it was held: There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to direct losses purported to have been occasioned by the failure to perform the contractual duty on the part of the BSCL and to honour the time bound commitments. Such a loss, according to MII, occurred on account of increased overhead cost and decreased profit and additional management costs by reason of BSCL's delays and disruptions. It is only in that view of the matter, the Emden formula was taken recourse to. Furthermore, clause 37 of the main contract was a matter of an agreement by and between ONGC and BSCL. In law, it could not have been extended to the obligations assumed by BSCL towards MII in terms of the contract entered into by and between the said parties. So far as ONGC is concerned, it cannot be said to have any role to play in the event of breach of obligation on the part of the BSCL towards its sub- contractor. Article 3.1 of the sub-contract reads as under: MII shall be bound to BSCL by the terms of this Sub- contract Agreement and to the extent that the provisions of the respective Main Contract between Buyer and BSCL apply to the relevant sub-contract work of MII as defined in this sub-contract agreement, MII shall assume towards BSCL all the oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 = per cent of the landed cost referred to above to cover the cost of procurement. (c ) In computing the quantity of steel materials used on each platform for the purpose of sub-clause (a) above, an allowance of 4% shall be made for wastage. The payment to Contractor shall be for weights including the wastage element credit for steel scrap shall be given by Contractor to Company at the rate of ₹ 500.00 per short ton for the said wastage of 4%. Clause 11 and Clause 5 read as under: 11. Fabricated Tonnages: The quantities of materials used in the Works shall be jointly ( i.e. by ONGC/Engineer, BSCL and MII ) determined on the basis of as-fabricated tonnage as per the Main Contract between Buyer and BSCL and shall be used for adjusting the Subcontract Price. 5. The preceding fabrication rates are worked out taking into consideration installation of all equipment, fabrication and installation of process piping, electricals and instrumentation work including pre-commissioning and all yard test in addition to structural fabrication work in accordance with the specifications. For computing the tonnage for reimbursement of fabrication, installation, pre-commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being Claim No. 1. The said claim was for labour charges which was not a claim for cost of material and, thus, nothing to do therewith. The scheme of the contract provides that total estimated tonnage of 18,178 ST will have the following break ups: ED/EE Platforms 6078 ST WI-8, WI-9, WI-10 and N3 platforms 12100 ST 18178 ST Since the total tonnage of 18,178 ST was only an estimated tonnage, the sub-contract made provision for variation of the contract price on the basis of 'as fabricated' tonnage. Further the quantities of the materials used were to be jointly determined by ONGC /EIL, BSCL and MII on the basis of fabricated tonnage which was to be used for adjusting the sub-contract price. If the as fabricated tonnage was found to be less than the estimated tonnage, the excess payment received by MII through monthly bills was to be refunded. If the as fabricated tonnage was found to be more than the estimated tonnage, MII was to be paid for the additional tonnage by applying the rate of US $ 1067 per ST. The contract was silent with respect to the method or code to be applied for determining the as fabricated tonnage . Clause 1.1.13 defined specifications to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval of the Buoyancy Tanks from N3 and WI-8 Jackets. The learned arbitrator, however, in his partial award found as of fact that substantial fabrication work had been done by MII in the refurbishment of the said Buoyancy Tanks in the following terms: 12.22 Accepting those instructions, MII made substantial fabrication in refurbishing, handling, rigging and welding the buoyancy tanks on the ED and EE jackets. The oral evidences of RW S.K. Mukherjee shows that the attachment of buoyancy tanks involves substantial fabrication activity. There can be no doubt that fabrication work had to be done and that involved a measure of labour activity. MII has demonstrated that there was difference in weight between the original buoyancy tanks used on the N-3 and W-8 jackets and the weight of those tanks when used on the ED and EE jackets. It says that this clearly points to substantial fabrication activity for refurbishment of those two tanks. It has further been held by the learned Arbitrator that MII had also been able to establish that there had been a difference in weight between the original Buoyancy Tanks used on N-3 and WI-8 Jackets and the weight of those tanks when used in ED an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion contract also contains a similar clause in Clause 2.1. The learned arbitrator in para 12.24 of his award noticed that BSCL itself has acknowledged to ONGC that the tie-down materials had been fabricated as part of the fabrication scope and the weight could not be disallowed in calculating the 'as fabricated tonnage'. It, therefore, evidently cannot take a stand which is contrary thereto and inconsistent therewith. Thus, by reason of the award, the learned arbitrator was of the opinion that the sea-fastening and tie-down were part of the transportation and installation scope and BSCL did not succeed in proving that the said item should be included in the scope of transportation and is not a separate item under the head of fabrication. Again, the findings of the learned arbitrator were within his domain, being findings of fact. FOREIGN EXCHANGE Dispute in relation to the said claim would depend upon the interpretation of clause 3 of Section 2 of the Consolidated Sub-Contract Price Schedule which provides: While the sub-contract price for the work described in the letter of intent is payable by BSCL to MII in U.S. Dollars the Main Contract Price is payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the fifty-four month life of the project, the value of the Indian rupee deteriorated drastically against the U.S. dollar. It is not in dispute that in terms of the contract, the payments made by BSCL, which was to be in US dollars, was required to be reconciled at the end of the contract. According to MII, if BSCL expended less than the rupee amount stipulated in the sub-contract in dollar payments, BSCL would convert the unused rupees to dollars to remit the dollars to MII. Whereas if BSCL expended more than the agreed amount of rupees, MII would refund the excess amount to BSCL so as to ensure sharing of exchange loss by both the parties. According to MII, however, BSCL acted contrary to the said provision insofar as instead of paying the full amount of invoice in US dollars it paid at the fixed exchange rate relying on, or on the basis of, the aforementioned provisions, resulting in loss suffered by MII. The learned arbitrator proceeded on the basis that loss of exchange provisions had no application in respect of structural material (claim 4), bulk material (claim 5), transportation of pipe (claim 6), reimbursables (claim 7), change orders and extra work (claim 8) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the exchange rates would be on account of MII. It is in the aforementioned situation that a letter of intent in the following terms was served: M/s. McDermott International Inc., P.O. Box 3098 Dubai United Arab Emerates. Dear Sirs, Sub: ED, EE, WI-8, 9, 10 N3 Platforms Ref: Minutes of Meeting dt. 9.8.84 Your offer P/M 547 dt. 9.8.84 8/3132 dt. 4.9.84 With reference to the above, we are pleased to issue this Letter of Intent conveying acceptance of your offer for the following: 1.0 FABRICATION 1.1 Fabrication, load-out sea-fastening of 6 Jackets with Piles including all appurtenances such as boat landing, conductor, riser clamps etc. 1.2 Fabrication, load-out sea-fastening of 4 main decks, WI- 8, 9, 10 N3 complete with installation of all equipment, process piping, electricals and instrumentation work including all yard test. 1.3 Refurbishing of 4 temporary decks to be supplied by ONGC. 2.0 TRANSPORTATION 2.1 Transportation, installation, hook-up commissioning of all above i.e. 1.1, 1.2 1.3 and ED, EE Decks and 6 helidecks fabricated by BSCL at Jellingham. Temporary deck will be collected from ONGC and taken to MII yard. Additionally the temporary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication only because of the breaches on the part of BSCL, cannot be accepted. We are not in a position to accept that the exchange variation provision does not relate to the payments in respect of Claim Nos. 1, 2 and 3. The objection raised by the claimant to the said extent is accepted. SUBSTITUTION It is not in dispute that MII had substituted heavier material, as material conforming to ONGC specification was not available readily in the market. The matter was referred to EIL. Use of material was found to be technically acceptable to EIL to which ONGC agreed by a letter dated 3rd May, 1985. ONGC, however, made it clear that it would not make payment for the substituted material. BSCL immediately by a telex dated 13th May, 1985 informed the same to MII. ONGC also in its letter dated 6th December, 1984 categorically stated: The subject matter highlighted in your letter mentioned above has been reviewed by us and we have found that payment against increased tonnage on account of material substitutions proposed by M/s. BSCL/MII cannot be agreed to. Based on above we reiterate our view that we will pay the material/ fabrication costs based on the materials shown in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter. The exchange of letters categorically proves that MII had accepted that it would not be entitled to any extra amount in that behalf. MII by necessary implication accepted the said contention. The principle of acceptance sub-silentio shall also be attracted in the instant case. MII was, therefore, not entitled to raise a claim to the extent of fabrication on account of the increased charges for substitution of material used for WI-8, WI-9, WI-10 and N-3 Jackets and piles. To the aforementioned extent, the claim of MII was beyond the terms of the contract. INTEREST The power of the arbitrator to award interest for pre-award period, interest pendent lite and interest post-award period is not in dispute. Section 31(7)(a) provides that the arbitral tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which award is made, i.e., pre-award period. This, however, is subject to the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest would be paid on the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X
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