TMI Blog2006 (5) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... ad a direct nexus with the claim of MII. It was, therefore, not a case where ONGC was not involved in the 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. 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 unpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curement 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 terms whereof the latter agreed to transfer technology to the former with regard to design, construction and operation of a fabrication yard. The said agreement contains a separate arbitration clause between the parties. However, with regard to the fabrication and installation of off-shore platforms, BSCL decided to give a sub-contract of the work to MII on a project by project basis. BSCL while retained the job of fabrication of the ED and EE decks, six helidecks and procurement of materials for the overall project other than pipeline materials and some process equipment which was issued by ONGC sub-contracted the remaining work. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, 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, by such Main Contracts, has against BSCL insofar as applicable to this sub-contract Agreement provided that when any provisions of the Main Contract between Buyer and BSCL is inconsistent with any provisions of this Sub-contract Agreement, this Sub-contract Agreement shall govern and prevail over the Main Contract. Article 5 5.1 Except as otherwise provided herein, all claims made by Buyer against BSCL shall be the responsibility of MII when such claims arise or are derived from MII's Sub-contract Scope of Work; similarly, all claims made by Buyer that arise or derive from BSCL's Scope of Work shall be the responsibility of BS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 be sent to the parties. Article -10 10.1 Any amendment and/ or modification of this Sub-contract shall be valid only if it is in writing and signed by both the parties. All other terms and conditions not specified in this sub-contract shall be as stipulated in the Main Contracts. 10.2 This Sub-Contract Agreement shall be governed by the Laws of the Republic of India." DISPUTES Disputes and differences having arisen between the parties, MII invoked the arbitration clause by a legal notice dated 10th April, 1989. Several proceedings as regards invocation of arbitration clause were initiated by the parties before the Calcutta High Court. The said proceedings ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 7. For Change Orders and Extra Work US$ 7,423,741.95 8. For Delays Disruptions US$ 13,233,343.00 8A. For exchange Entitlements US$ 2,881,195.03 9. For Interest upto 21 August, 1989 US$ 10,909,772.19 UKL 148,254.14 S$ 521,102.56 Total US$47,817,174.59 UKL 410,550.57 S$ 1,201,866.85" Before the Arbitrator, apart from the aforementioned amount, interest on the outstanding amount was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52,422.51 1,573,466.00 512,187.16 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$ 128,000.00 as contended in paragraph 4.29 of the Statement of Claim has not been dealt with and has been omitted from the Award. (ii) While deciding Point No. 7 regarding Corporate Income Tax, MII's claim that BSCL should be liable to the tax authorities for all further liabilities for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 interest in participating in the decision making process at the inter-party level and, thus, arrived at an inference that the machinery set up under the sub-contract has broken down and it would be for him to determine the same. The final award was thereupon passed. On point No. 6 which related to transportation of pipes, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract, 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 law of India and were otherwise opposed to public policy. (viii) As the contract did not contain any agreed schedule or any stipulation as to whether the work was required to be finished within a stipulated period, in view of the fact that the contention of the MII was that the time was of the essence of contract, the only remedy available to it in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration that in terms of the contract, foreign exchange rate was frozen at the rate of Rs. 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 to transport the ED Temporary Deck had been raised, the learned Arbitrator had no jurisdiction to decide the same. (xix) The award under the said head for a sum of US$ 54,000 on account of additional survey of WIS and WI9 pipeline was not an arbitrable dispute being clearly outside the purview of the arbitration proceedings. (xx) Relying on or on the basis of American Institute of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 regards the jurisdiction of the Arbitrator. Reliance on the Emden Formula cannot be said to be against the law prevailing in India as Sections 55 and 73 of the Indian Contract Act provided only for entitlement to compensation and not the mode and manner in which such compensation is to be quantified. Clause 37 of the Main Contract between ONGC and BSCL has no application as MII's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-contract provides total estimated tonnage of 18, 178 ST with following break-up: ED/EE Platforms 6078 ST (page 166 I.A. no.2 Vol.2) WI8, WI9, WI10 and N3 platforms 12,100 ST/ 18, 178 ST (page 371 I.A. no.2 vol.2)" Re: Buoyancy Tanks for ED and EE Jackets MII's claim is for labour cost at the rate of US$ 1067 per ST involved for fabrication work in the refurbishment of the Buoyancy Tanks. The finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Sec 35; (c) That an award has been improperly procured or is otherwise invalid." The Section did not contain expression "error of law.". The same was added by judicial interpretation. While interpreting Section 30 of the 1940 Act, a question has been raised before the courts as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 change which has been made by reason of the provisions of the 1996 Act is that unlike the 1940 Act, the Arbitrator is required to assign reasons in support of the award. A question may invariably arise as to what would be meant by a reasoned award. In Bachawat's Law of Arbitration and Conciliation, Fourth Edition, pages 855-856, it is stated: "Reason' is a ground or motive for a belief or a course of action, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the Arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merit of the matter. What would constitute public policy is a matter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness 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 Indian Contract Act; (iv) whether the reasons are vitiated by perversity in evidence in contract ; (v) whether adjudication of a claim has been made in respect whereof there was no dispute or difference; or (vi) whether the award is vitiated by internal contradictions. For the aforementioned purpose, it would be necessary to see as to what law the arbitrator was required to apply. We may, therefore, consider the legal submissions before adverti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 between the parties to the reference; 2. A party to the reference, with notice to the other party to the reference ,requests the arbitral tribunal to make the additional award; 3. Such request is made within thirty days from the receipt of the arbitral award; 4. The arbitral tribunal considers the request so made justified; and 5. Additional arbitral award is made within sixty days from the receipt of such request by the arbitral tribunal The additional a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor 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 the 1986 monsoon." The parties, furthermore, agreed for payment of liquidated damages, as would appear from clause 28(v)(a) which reads as under: "a) recovery is its sole and only remedy for delayed completion of work by Contractor, as ascertained and agreed liquidated damages, and not by way of penalty, as sue equivalent to 2.5% of the Contract Price for the item which is delayed, for each month of delay (or prorate thereof for part of a mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired 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 Barge 26 to complete BSCL work in the 1986/1987 construction season. The Subcontract price was based on mobilization and demobilization of a single barge in the 1984/1985 and 1985/1986 construction seasons only and performance of the offshore scope of work in a continuous sequence. Due to BSCL delays, the WI-8, WI-9, WI-10 and N3 decks and helidecks were not completed for installation during the 1985/1986 work season. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les 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, or certain things at or before specified time, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. If it was not the intention of the parties that time should be of the essence of the contract, the contract does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the instant case the second part of Section 55 of the Indian Contract Act would be attracted and not the first part. Whether time was the essence of contract The question which, further, arises for consideration is as to whether the Respondents having proceeded on the basis that time was of the essence of the contract, it was bound to issue a notice of repudiating the contract subject to reservation as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arbitration was made." It was further noticed: "Reference has been made to the claim in respect of the standby of the MII transportation spread, additional compensation on account of the construction of temporary emergency helidecks, the extended stay of MII personnel and a claim in respect of Lay Barge 26. All these claims will be considered after it has been satisfactorily proved that invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration 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 raised and consequently no difference or dispute had arisen by and between the parties at the time when the reference to arbitration was made. Mr. Mitra contended that applying the same line of reasoning, the learned arbitrator should have rejected the aforementioned claims. However, we may notice that the said claim as regard procurement of structural material related to damages. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacement 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 BSCL promptly. It was not so replaced. To effect the replacement MII would be compelled to pass through the entire burdensome process of procuring the structural material directly from outside sources. MII suffered loss and damage which it has quantified at US$ 2.3 million in the light of the considerations mentioned by it earlier." The arbitrator has noticed that the claim of MII arose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F 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 Emden Formula is a widely accepted one. It is not in dispute that MII had examined one Mr. D.J. Parson to prove the said claim. The said witness calculated the increased overhead and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled 'Change Orders, Overtime, Productivity' commonly known as the Emden Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible 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 of America as the exclusive means for compensating a contractor for overhead expenses. Before us several American decisions have been referred to by Mr. Dipankar Gupta in aid of his submission that the Emden formula has since been widely accepted by the American courts being Nicon Inc.v. United States, decided on 10 June, 2003 (USCA Fed. Cir.), Gladwynne Construction Company v. Balmimore, de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally pervers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case." There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, 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 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 provisions of the respective Main Contract between Buyer and BSCL is inconsiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Contractor to Company at the rate of Rs. 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-commissioning and testing work at the yard by MII the tonnage of equipment and items for top side facilities shall not be included and fabrication tonnage shall be solely on the basis of as built tonnage as approval by buyer." Submission of Mr. Mitra is that a combined reading of the aforementioned provisions would go to show that the method of measurement wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 mean Industry Standard Codes (ISC). In the absence of a contractually specified method of calculation, the MII applied the AISC Manual of Steel Construction for calculating the as fabricated tonnage. AISC is an industry standard. It has been applied by ONGC in other contracts. Even the Arbitrator has noted that the BSCL has also accepted the validity of the AISC Code. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and EE Jackets. In fact, the learned arbitrator in arriving at the said conclusion had taken into consideration the admission of Shri S.K. Mukherjee who was examined on behalf of BSCL itself that attachment of Buoyancy Tanks involved substantial fabrication activity. The dispute raised is a matter of appreciation of evidence. The findings arrived at b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dently 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 ONGC to BSCL in Indian Rupees. It has been agreed that Rupee- U.S. Dollar Exchange rate shall remain fixed at Rs. 100.00=U.S$8.575 and loss or gain due to any variation in the Rupee-U.S. Dollar exchange rate at the time of actual remittance of bills would be to MII's account. The aforesaid rate was the prevailing rate as on 9 August 1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 delay and disruption (claim 9). BSCL although has acted in breach of the contract in which variation provision as regard the claims of the sub-contract, viz., scope of fabrication work (Claim 1), transportation and installation of platforms (Claim 2) and transportation and installation of pipelines and risers (Claim 3) while making payments. It is, however, one thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decks will be removed prior to installation of this deck and handed back to ONGC. 3.0 Transportation, installation, hook-up commissioning of Submarine Pipeines Risers. 4.0 PRICES The lump sum price is as follows:- 4.1 For 1.1, 1.2 1.3 of above US$ 19,400,000 4.2 For 2.0 of above US$ 23,025,000 TOTAL US$ 42,425,000 4.3 PIPELINES For 3.0 above p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the AFC drawings." The claim of MII is based on the failure on the part of the BSCL to fulfil its part of the obligation in procurement of the required material. It is true that BSCL agreed to reimburse MII for the same. MII's claim is partially based on the facts that EIL had recommended payments therefor as stated in a letter to ONGC dated 10 February 1987 and 6 April 1987. However, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution 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 or part of the amount or whether it should be awarded in the pre- award period would depend upon the facts and circumstances of each case. The arbitral tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest should be awarded on whole or part of the award money; and (iii) whether interest should be awarded for whole or any p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
