TMI Blog2008 (2) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... in the space which would be vacated, other buildings were to be constructed. The contractor was on notice that he would have to co ordinate the work in such a manner as would avoid any hindrance in progress of the work for which he would not be paid any additional sum . The contention of the Petitioner is that offers were invited on a lump sum basis for the entire work without adjustments. 2. The offer submitted by the Respondent was the lowest responsive offer and a letter of acceptance was issued on 3rd November 2003. During the course of the work, the Respondent raised claims inter alia towards loss of overheads, increases in costs, under utilization of machinery, refund of excise duties, increase in steel and cement prices and compound interest. The Engineer appointed under the contract refused to certify the claims of the Respondent by a letter dated 13th July 2004. Clause 24 of the agreement stipulated that in the event that a decision taken by the Engineer was outside the authority conferred by the contract or was wrong, the decision was to be referred to an adjudicator. In the meantime, the Respondent continued to raise bills including claims for the aforesaid amount, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of Engineers appointed an Arbitrator under Clause 25.3 of the contract and the Arbitral Tribunal was constituted. The Petitioner raised an objection under Section 16 of the Arbitration and Conciliation Act, 1996, to challenge the jurisdiction of the Arbitral Tribunal. The application was rejected by an order dated 22nd October 2005. Eventually, by its award dated 17th April 2007, the arbitral Tribunal awarded an aggregate sum of ₹ 1,65,03,119/ together with interest at the rate of 10% per annum from 3rd May 2005 till the date of the publication of the award and future interest at the rate of 12% per annum from the date of the award till payment. The award has been questioned in these proceedings. 4. The principal foundation of the challenge to the arbitral award is contained in three submissions that were urged before the Court by Counsel appearing on behalf of the Petitioner. These submissions were (i) There is an absolute prohibition in the contract on the entertainment and award of extra claims; the only entitlement of the Contractor being an extension of time required for completion of work. Despite the contract being a lump sum contract, the arbitral Tribunal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator cannot ignore the conditions of contract or award a head of claim which is prohibited by the contract. An Arbitrator derives his authority under the contract pursuant to which his jurisdiction is created. An award which is passed in manifest disregard of the contract is liable to be set aside. These principles emerge from the decisions of the Supreme Court in: a) Associated Engineering Co. v. Government of Andhra Pradesh reported in [1991]2SCR924 ; b) Ramchandra Reddy Co. v. State of Andhra Pradesh [2001]2SCR186 ; c) New India Civil Erectors Pvt. Ltd. v. ONGC reported in: [1997]2SCR86 ; and d) ONGC v. Saw Pipes reported in [2003]3SCR691 . These principles form the foundation of substantive arbitral law in India. The nature of the challenge in the present case is that the contract was a lump sum contract and as a consequence, the bid price quoted by the Contractor was unalterable and incapable of adjustment. Clause 13.4 of the Conditions of Contract was to the following effect: 13.4 The lump sum bid price quoted by the bidder shall be fixed for the duration of the contract and shall not be subject to adjustment on any account. Now a reading of Clause 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs per meter of increased depth. Each bidder was under the contract permitted by Clause 10 of the Special Conditions to adopt an alternative design only for the foundation of the buildings so as to provide inter alia an open foundation instead of a pile foundation. 9. Clause 32.1 of the Contract provides an early warning stipulation to the following effect: 32. Early Warning: 32.1 The contractor is to warn the Engineer at the earliest opportunity of specific likely future events or circumstances that may adversely affect the quality of the work, increase the Contract Price or delay the execution of work. The Engineer may require the Contractor to provide an estimate of the expected effect of the future event or circumstances on the Contract Price and Completion Date. The estimate is to be provided by the Contractor as soon as reasonably possible. 32.2 The Contractor shall cooperate with the Engineer in making and considering proposals for how the effect of such an event or circumstances can be avoided or reduced by anyone involved in the work and in carrying out any resulting instruction of the Engineer. Under Clause 37, the contractor was to provide an activity sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, it is to be assessed by the Engineer and the Contract Price shall be adjusted accordingly. If the Contractor's forecast is deemed unreasonable, the Engineer shall adjust the Contract Price based on Engineer's own forecast. The Engineer will assume that the Contractor will react completely and promptly to the event. 10. By these two conditions, on the one hand, parties stipulated in Clause 44.2 that the contract price shall not be increased and it was only the intended date of completion that would be extended if a compensation event were to cause additional cost or to prevent work from being completed before the stipulated date of completion. On the other hand, Clause 44.3 provides that immediately after the effect of a compensation event, on the forecast cost of the contractor, is provided by the Contractor to the Petitioner the Engineer must assess its effect and the contract price shall be adjusted accordingly. In the event that the contractor's estimation was unreasonable, the Engineer was entitled to adjust the contract price in terms of his own assessment. The Engineer, it may be noted, was defined by the Contract to be a person named in the contract data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contract price as a result of events or circumstances that took place after acceptance. In such cases it was the Engineer who was empowered to assess, in the first instance, the legitimacy of the contractors demand. The contract envisages that where an additional cost could have been avoided by furnishing an early warning, the Contractor would not be entitled to additional payment. This again is an other indicator that additional payments were not prohibited so long as they fell within the purview of the terms of the Contract. The valuation of work was to include valuing variations and compensation events. It is in this background that the provisions of the contract will have to be construed. Clause 13.4 of the Instructions to Bidders and Clause 44.2 cannot be read in isolation. In fact, Clause 44.2 is immediately followed by Clause 44.3 which prescribes machinery for the adjustment of the contract price upon the occurrence of a compensation event. Clause 44.3 envisages that once the Contractor has demonstrated the effect of a compensation event on the costs that were forecast, it was for the Engineer to assess the claim and adjust the price accordingly. The totality of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be applied, namely that an agreement ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent. The approach of the Court is based on Justice Cardozo's dictum in Utica City National Bank v. Gunn (1918) 118 N.B. 607: (1918) 118 N.B. 607 where the Court held that it was the genesis and aim of the transaction that must be construed. Lord Diplock has emphasized the business commonsense principle in Antaios Compania Naviera S.A.V. Salen Resderierna A.B. [1985] A.C. 191: If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense. 14. The same question of interpretation can be analysed from the perspective of four principles which can usefully be applied to the construction of the contract in this case. These principles are (i) Giving effect to the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Repugnancy of exclusion clause: 18. There is a succinct statement in Halsbury of the impact of an exclusionary clause. Such clauses clauses are generally of two basic types. One type seeks to exclude or cut down a primary obligation of the contract. The other type, seeks to qualify the rights of the promisee upon breach.... Halsbury's Laws of England, 4th Edition, Pg. 552. 19. It is stated in Halsbury (4th Edition, Pg. 566) that ...the court may refuse to give effect to an exclusion clause which is repugnant to another provision of the contract . Moreover, an exclusion clause may be deprived of effect because of repugnancy to other provisions of the contract. This may arise where the provisions of an exclusion clause are such as to wholly nullify another positive clause of the contract; then, the exclusion clause is to be ignored and unqualified effect given to the other clause. (Gillespie Bros. Co. Ltd. v. Roy Bowles Transport Ltd. [1973] Q.B. 400 20. Clause 44.2 restricts the rights of the contractor (the promisee in the present case). The aforementioned principle can also be applied in the present case. (iii) The Contra Preferentum Rule: 21. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in construing contracts entered into by persons of business to govern business dealings. The Court must ensure that interpretation of law in commercial cases must not be disjointed from the intent and object which those having business dealings seek to subserve. Unless interpretation of contracts effectuates a business meaning for persons of business, the law will not fulfill its purpose and object of being a facilitator for business and providing a structure of ordered certainty to those who carry on business here. The legal system must innovate constantly to keep abreast with rapid changes in technology and business. 26. Counsel appearing on behalf of the Petitioner relied upon the judgment of the Supreme Court in Kaivelikkal Ambunhi v. H. Ganesh Bhandary AIR 1995 SC 2491 , in order to buttress the submission that where there is a conflict between the earlier provisions and the subsequent provisions of a contract, the earlier would prevail. That was a case where the judgment of the Supreme Court construed the provisions of a Will. The Supreme Court noted that while interpreting a will, the principle of interpretation is that the subsequent part, clause or portion would prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator to an Arbitrator within 28 days of the Adjudicator's written decision. If neither party refers the dispute to Arbitration within the above 28 days, the Adjudicator's decision will be final and binding. 25.3 The Arbitration shall be conducted in accordance with the arbitration procedure stated in the Special Conditions of Contract. The submission of the Petitioner is that there was no decision of the Adjudicator prior to the invocation of arbitration and consequently, there was no valid reference. If the Adjudicator did not render his decision within 28 days, the Petitioner contends that the Respondent ought to have sought the replacement of the adjudicator. The period of 28 days was according to the Petitioner not mandatory and even the Respondent had not challenged the decision of the Engineer within 14 days as required. 28. The contract inter alia defined the adjudicator as a person appointed jointly by the employer and the Contractor to resolve disputes in the first instance. The Engineer was defined to be the person named in the contract data. The contract data (page 96) did not name the Engineer. The Engineer was to be nominated by the Managing Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erference. III. Constitution of the Arbitral Tribunal: 29. The challenge to the constitution of the Tribunal is on the basis that (i) The Institution of Engineers erroneously appointed an Arbitrator; (ii) Only the Chief Justice of the High Court or a Judicial authority could decide the dispute relating to the issue of jurisdiction; and (iii) No decision was rendered by the Tribunal though the constitution of the Tribunal was challenged by the Petitioner. The Tribunal dealt with the issue of jurisdiction by a separate order dated 22nd October 2005 and made a reference to the issue of jurisdiction in the arbitral award. 30. The Petitioner failed to appoint its Arbitrator. In terms of the provision of sub clause (5)(c) of Clause 25(3), if one of the parties failed to appoint an Arbitrator within 30 days after receipt of a notice of the appointment of its Arbitrator by the other party, the Chairman of the Institution of Engineers (India) was empowered to appoint an Arbitrator. Upon the failure of the Petitioner to comply with the requirement of nominating its own Arbitrator upon the Respondent invoking arbitration, the appointment of an Arbitrator by the Institution of Engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 and the Respondent was informed that its request for extension of time could not be considered favourably. 34. On 10th January 2005, the Respondent addressed a letter enumerating various reasons for delay in the completion of work under Milestone I. The Respondent acknowledged that the Petitioner had extended full co operation in making the site available in time but because the site was congested, optimum usage of the mobilization of resources, men, machinery and material was not possible. The letter addressed by the Respondent then refers to the reasons for delay, these being: (i) The Respondent opted for open foundation instead of the departmentally preferred pile foundation; (ii) There was an increase in the actual depth of the open foundation from 2 meters, to between 3.5 and 4 meters; (iii) The requirement of carrying out filling of the plinth in the monsoon; (iv) The requirement of extra excavation; (v) The requirement of carrying out various activities in the monsoon instead of the fair season; (vi) Absence of sufficient work space due to the site being congested; (vii) A transporters strike; and (viii) Abnormally heavy rains in July August 2004. After having recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance of both the Learned Counsel, therefore, the Court has considered the documentary material upon which reliance has been placed by the Petitioner on the one hand and by the Respondent on the other. The facts as they emerge from the documentary material on the record establish that during the course of the work, the Respondent had preferred cumulative bills. Learned Counsel agreed in stating before the Court that the bills bearing an alphabetical suffix (for example, 9A, 9B...9G) were in respect of the extra claims. The Respondent had initially sought an extension of time by 15.30 months for completing the work under Milestone I. On 18th December 2004, the Respondent clarified that it would not raise any extra claim, other than those which were pending. On 27th December 2004, the Engineer imposed liquidated damages with effect from 12th November 2004 on the ground that the period for completion of work under Milestone I was over on 11th November 2004. It was in this background that the Respondent addressed a letter on 10th January 2005, expressly agreeing that it shall not stake any extra claim whatsoever on any of the above account against MMRDA, as MMRDA is not responsible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Respondent as being the claims on any of the above account referred to in the letter dated 10th January 2005. The case of the Respondent was that it had agreed to make this concession under duress and coercion. Now, it is an admitted position that as a matter of fact, no oral evidence was led in the course of the arbitral proceedings. The question as to whether the waiver of its claims by the Respondent took place as a result of coercion and duress practised by the Petitioner was a question of fact which had to be established by the Respondent by leading evidence in support of its claim. As a matter of fact, no oral evidence was adduced at all. The arbitral Tribunal has observed in paragraph 28.7 of the Award that the Tribunal has decided that it would not go into the question whether the allegation of coercion is true or false . Despite this, the Tribunal rejected the contention of the Petitioner that there was an accord and satisfaction with the following observations: The A.T. understands that the promise of not raising any extra claim made by the claimants obviously means that claims which were already pressed/processed would not be affected by this promise. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The claims arising out of R.A. Bills 10 and 11 form the subject matter of the second reference and the award of the Tribunal has been impugned in Arbitration Petition 288 of 2007. The submissions in Arbitration Petitions 287 and 288 of 2007 are common and both the petitions have been heard together. Learned Counsel adopted the submissions urged in the earlier petition. On behalf of the Petitioner, one additional point has been urged. The ground which has been formulated in the Arbitration Petition (Ground xx) is that by the notice dated 30th June 2005 by which arbitration was invoked, disputes in respect of Bill Nos. 10 and 11 were referred to arbitration. The submission is that there was no reference of the disputes in respect of Bills 10A to 10G and 11A to 11G which could not, therefore, have been entertained by the Tribunal. 40. The Engineer's letter dated 6th May 2005 refers to Running Account Bill Nos. 11 and 11A to 11G. Upon the decision of the Engineer to reject Bills 11 and 11A to 11G, a reference was made to the Adjudicator on 17th May 2005. The Adjudicator in his letter dated 6th June 2005 referred to the Petitioner's letter dated 17th May 2005 and the Engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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