Arbitrator Cannot Apply 'Trade Usages' Against The Express Understanding Of The Parties: Calcutta High Court

The Calcutta High Court has held that the arbitrator cannot, while adjudicating the dispute between the parties, apply trade usages against the express intention of the terms of the agreement between the parties. It held that by virtue of Section 28(3) of the A&C Act, an arbitrator can apply trade usages to determine the dispute between the parties, however, the same cannot be applied to the contravention of the contract but only when the latter is silent or ambiguous on some aspect. It held that the jurisprudence on arbitration bows down to party autonomy. The bench of Justice Shekhar B. Saraf held that an arbitral award that is passed after ignoring the terms of the agreement falls within the rubric of 'patent illegality'. It held that an arbitral award can also be set aside for being against the most basic notions of justice when the arbitrator foists upon an unwilling party a bargain which it did not enter into and creates a new contract for the parties. The Court also held that an arbitrator cannot invoke Article 14 while deciding a contractual dispute between the parties for he is the creature of the contract, derives his jurisdiction from it, and must be confined by the four-walls of the contract. It held that arbitrator cannot also invoke principles of 'public law' while deciding dispute between private parties. Facts Pursuant to a tender by the petitioner, the parties entered into a contract in the year 2013, whereby the respondent was to primarily handle dry bulk cargo at Berth No 4B, Haldia Dock Complex ('HDC') at Kolkata Port Trust (KoPT). While floating the tender, the petitioner had fixed the ceiling price at Rs. 52/- per ton and the respondent was awarded the tender at Rs. 51.91/- per ton. Clause 8.2.1 was general escalation clause and provided and Clause 8.2.2 provided for price adjustment. Clause 8.1 provided for determination of the rate for handling of break bulk cargo, which though not the predominant subject of the Agreement or Tender, may have arisen in certain circumstances. It is here that the Tender incorporated usage of Schedule of Rates ('SoR') issued by Tariff Authority of Major Ports ('TAMP') in order to determine the amount payable to the respondent by the petitioner, for the services availed with respect to providing Mobile Harbour Cranes ('MHC') for handling of break bulk cargo. In the year 2014, TAMP revised the SoR and increased the rate. However, the respondent was still being paid the amount as provided under the agreement. Thereafter, in the year 2016, the petitioner issued another tender at the rate of 62.4/- per ton, however, it could not find any bidders, therefore, it increased the price to Rs. 73.70/- per ton. Thereafter, the respondent made a representation to TAMP to further increase the rate to Rs. 89.71/- per ton for its tenders, however, the respondent was still being paid the amount at the rate of Rs. 51.91/- pet ton. On September 15, 2018, the respondent made a representation to the petitioner with respect to the revision of the contractual rate of service owing to a significant revision in the then notified SoR by TAMP. However, the petitioner declined the request, aggrieved thereby, the respondent invoked the arbitration clause and the dispute was referred to a sole arbitrator. The Award The arbitrator partly allowed the claims of the respondent on the ground that TAMP had, from time to time, increased/revised the per ton rates. It concluded that if the respondent demands the revision of their rate in terms of the revision made in case of third parties from time to time following the trade usages, it cannot be said that their demand is beyond the terms of the contract in terms of sub-section 3 of Section 28 of the Act. It further held that the interpretation of the clauses of agreement cannot be confined to the terms of the agreement itself but can also include 'trade usages' in certain circumstances. The arbitrator held the revision in the rates to be admitted ground realities which formed the trade usage and held that the tribunal must be conscious to take those into account as well while interpreting the contract between the parties. It further held that the petitioner being a state functionary should not discriminate and treat equally in terms of Article 14 of the Constitution of India. It held that "since the guarantee of equal protection embraces the entire realm of "State action", it would extend not only when an individual is discriminated against in the matter of exercise of his rights or in the matter of imposing liabilities upon him, but also in the matter of granting privileges e.g. granting licences for entering into any business, inviting tender for entering into a contract relating to government business, etc." Thus, the arbitrator concluded the respondent could demand revision of their rates in view of higher rate for similar work ...

Arbitrator Cannot Apply 'Trade Usages' Against The Express Understanding Of The Parties: Calcutta High Court

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