Disputed Contract, Can't Be Challenged U/s 34 Of Arbitration Act Unless finding are Unreasonable: Delhi High Court

The Delhi High Court division bench of Justice Vibhu Bakhru and Justice Tara Vitasta Ganju held that the interpretation of a disputed contract falls within the arbitral tribunal's domain and is not subject to challenge under Section 34 of the Arbitration and Conciliation Act, 1996 unless the interpretation is unreasonable. Brief Facts: Noble Chartering Inc. (“Noble”), a Hong Kong-based company engaged in owning, chartering, and operating vessels, had its principal place of business at Mass Mutual Tower, Hong Kong. On August 20, 2008, Noble and SAIL entered into a Contract of Affreightment (“COA”). Under this agreement, SAIL was to load 1,800,000 MT of coking coal, with a ±5% tolerance, over three years from September 2008 to August 2011. Shipments were to be made in parcels of 70,000 MT, with an option for Noble to vary this amount by 5%, on a 'Fairly Evenly Spread' (“FES”) basis. SAIL had the option to extend the shipment period by three months, provided it declared this extension five months before the COA's end. Initially, SAIL declared shipments for September and November 2008 but did not make further declarations until May 2009. Due to the sub-prime crisis affecting steel manufacturing, SAIL cited economic difficulties as a reason for the delays. Noble urged SAIL to declare shipments and warned of potential legal action if it failed to do so. On September 29, 2009, the parties entered an Addendum to the COA allowing loading from Australian ports and extending the COA until February 2012. The Addendum included provisions for declaring shipments on an FES basis between May 2009 and March 2010, with deferred shipments to be performed after March 31, 2010. During the extended period, SAIL provided eight shipments but cited force majeure due to heavy rains and flooding in Australia for delays. Despite this, SAIL managed two shipments in April and May 2011. Noble contended that SAIL failed to meet its shipment obligations under the extended COA. SAIL agreed to extend the COA until September 30, 2013, but sought to reduce the shipment quantity by 5%. Noble's solicitors confirmed this extension but insisted on FES-based performance. When SAIL terminated the COA on January 2, 2013, Noble contested the termination as wrongful and sought arbitration under the Maritime Arbitration Rules. SAIL challenged the arbitration reference and sought a declaration that the arbitration clause did not cover the dispute. A suit was filed to restrain the arbitration proceedings, and Noble initiated a damages suit before the Delhi High Court (“High Court”). Subsequently, the parties agreed to refer the disputes to a sole arbitrator. Retired Justice S.S. Nijjar was appointed as the sole arbitrator, and both SAIL and Noble withdrew their court litigation. The Impugned Arbitral Award: The arbitration continued with Noble claiming damages for breaches, including the non-declaration of stems on an FES basis. Noble sought compensation for losses and incidental expenses. The sole arbitrator examined the evidence and determined that SAIL's termination of the COA was unjustified under Clause 62 and that the COA's terms required adherence to an FES basis for shipments. The arbitrator also found that SAIL was not entitled to terminate the COA without cause and that Noble was entitled to claim losses incurred due to the breaches. The sole arbitrator awarded a sum of USD 8,564,908.60 along with 3% interest in favor of Noble, to be paid by SAIL. The Impugned Judgment: Aggrieved by the decision of the sole arbitrator, SAIL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) before the High Court. The single judge partially granted SAIL's challenge to the arbitral tribunal's award. The judge identified a typographical error in the awarded sum and accepted SAIL's argument that the sole arbitrator had misinterpreted Clause 62 of the COA and erroneously assumed that the power to unilaterally terminate would render the clause void. The sole arbitrator's interpretation that Clause 62 needed to be read ejusdem generis (of the same kind) with other provisions was rejected. It was held that the clause was to be read literally. The single judge found the sole arbitrator's interpretation of termination grounds flawed and set aside the damages awarded for post-termination failures. Only the pre-termination stem damages were upheld. The method for calculating damages was deemed reasonable, but the interest rate awarded was adjusted to LIBOR plus 3% per annum. Noble's Submissions: Noble argued that the single judge improperly re-adjudicated the dispute and exceeded the scope of Section 34 of the Arbitration Act by substituting his judgment for that of the sole arbitrator. Noble claimed that challenges to the award should only be based on conflicts with public policy as defined in prior Supreme Court...

Disputed Contract, Can't Be Challenged U/s 34 Of Arbitration Act Unless finding are Unreasonable: Delhi High Court

Rajesh Kumar

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