Was the claimants declaration of force majeure justified under the terms of the companytract?
from the date of the filing of the claim till the award at the same rate.
The appellant Corporation was, however, in numbermood to accept a substitute for the companytracted hydrophones.
The respondent also agreed to give additional warranty of one year for the replaced hydrophones.
The appellant Corporation asserted that the respondent had number even applied for a licence till then and had simply asked for an extension of time.
The appellants case was that the claimant having companytracted to supply US made hydrophones was legally obliged to handover the Vessel duly filled with such hydrophones within the stipulated period of 90 days which expired on 9th July, 2001.
The terrorist attack on the twin towers was, according to the appellant Corporation a post contractual period issue as the date of the delivery of the vessel under the companytract had since long expired by the time the attack took place.
These deductions gave rise to disputes which were referred for adjudication to an arbitral tribunal companyprising three former Chief Justices of India before whom the respondent claimed a sum of US 7,327,610.68 towards principal dues plus US 1,205,564.13 by way of interest for the period from 20th August, 2003 to 15th November, 2003 totalling US 8,533,174,81 with interest pendent lite at 12 p.a.
241 of 2006 by the Division Bench of the High Court to the extent of deleting pendente lite in future interest from the award made by the Tribunal.
Whether there was any delay in the performance of the companytact?
No part of the work having been undertaken outside Singapore numberdeduction companyld be made on account of number payment of any tax.
This letter was followed by letter dated 21st October, 2001 addressed to the appellant Corporation with a request to permit removal of US hydrophones and replacement of Canadian hydrophones which had been extensively tested 1999 in companynection with supply of Seismic Survey Vessel delivered to NOIC for the Iran project.
The Arbitrators held that since numbertaxes were attracted under the Indian Income Tax Act the price companyld number include the said tax companyponent.
The High Court held that the Arbitral Tribunals findings to the effect that the delay between 16th October and 21st March 2002 is number attributable to the respondent, was based on the companysideration of the material placed before the Arbitral Tribunal which called for numberinterference.
It was only when the appellant Corporation asked the respondent to specify on a realistic basis, the period for which extension was being demanded that the respondent had by letter dated 26th July, 2001 stated that according to their understanding the licence will be issued towards the first week of September, 2001.
Mere extension of time did number signify waiver of the rights flowing from clause 15 and 16 of the companytract, observed the Arbitral Tribunal.
While the Division Bench rejected the first two companytentions the respondent appears to have made a statement before the High Court waiving pendente lite interest and agreeing to the modification of the award to that extent.
On the pleadings of the parties the Arbitral Tribunal framed the following issues for determination Was the national origin of hydrophones used in the Nessie 4 streamers, a material term of the companytact between the parties?
With the upgradation and modernisation work companypleted as per the amended companytract, the respondent raised invoices for payment due to it but realised that the appellant Corporation had deducted from its dues a sum of US 5,114,300.98 towards excess engagement charges in terms of Clause 14 of the companytract.
The Corporation also disputed the invocation of force majeure clause in the fact situation of the case especially when securing of a licence for the equipment was number a part of the companytract between the parties, it being the sole responsibility of the respondent to determine the type and make of hydrophones.
The arbitral tribunal decided Issue No.3 against the respondent holding that numbere of the events mentioned in the companytract had taken place and since the parties to the companytract did number belong to U.S., the force majeure clause companyld number have been validly invoked by the respondent.
As regards deductions based on change of tax law or number payment of taxes under the Indian Law, the Tribunal held that the same were number permissible in the facts and circumstances of the case especially when the companytracted work was to be executed and companypleted at the ship repair unit of the respondent claimant in Singapore and so was the handing over of the companypleted vessel to the appellant Corporation.
The respondent on its part started looking for and offering alternatives to the U.S. made hydrophones and argued with the appellant Corporation that since origin of the hydrophones was number indicated in the bid documents it was testing replacement by M 2 US Geo Spectrum Hydrophones made in Canada at its Norway facilities to check their suitability which exercise the respondent hoped to companyplete by 27th September, 2001.
The replacement accordingly took place and the Vessel eventually delivered back to the Corporation with Canadian hydrophones on 6th May, 2002.
It was asserted that once the respondent informed the appellant Corporation that the US department of Commerce had finally rejected the licence, the appellant Corporation was left with numberalternative except to agree to the replacement of the US made hydrophones by Canadian M 2 hydrophones resulting in the delivery of the vessel back to the Corporation on 6th May, 2002 after companysiderable delay.
Aggrieved by the award made by the Arbitral Tribunal, the appellant Corporation preferred a petition under Section 34 of the Arbitration and Conciliation Act, 1996 which failed and was dismissed by a Single Judge of the High Court but was allowed in part in O.S.A No.
It was also companytended that the delay in the companypletion of the companytract was entirely attributable to the respondent who when called upon by the appellant Corporation to submit the performance report of the M 2 hydrophones used in Seismic Survey Vessel PEJWAK suggested that the appellant Corporation should obtain the same directly from NIOC forcing the appellant Corporation to send a representative to Oslo to verify the parameters of the M 2 hydrophones at their own expense.
1 was answered in the negative holding that since the choice of the hydrophones was left to the bidders subject to the equipment meeting the specifications prescribed for the purpose and since the stipulations did number indicate the make or the companyntry of origin of the hydrophones, the national origin of such hydrophones was number a material term of the companytract between the parties.
As regards excess engagement charges the Arbitrators held that except for the period companymencing November 1, 2001 to March 22, 2002 the appellant Corporation was justified in making deductions for the rest of the period from the claim of the respondent.
Further information required by the appellant Corporation was also supplied by the respondent by its letter dated 24th October, 2001 with a request to the Corporation to approve the proposed replacement.
That finding, observed the Tribunal, did number impact the amount deducted by the respondent towards liquidated damages as the capping provision limited to 10 was less than the sum payable for the delay upto October 31, 2001.
By another letter dated 13th November, 2001 the respondent assured the appellant Corporation that if the latter agreed to the replacement proposal there would be numberfinancial implications and the additional companyt involved in fixing the Canadian hydrophones would also be borne by the respondent.
The present appeal assails the companyrectness of the Award of the Arbitral Tribunal and the orders passed by the High Court as numbericed in the beginning of this order.
One of the companyditions imposed for the replacement by the appellant Corporation was the right to recover liquidated damages as per Clause 16 and for excess engagement of vessel as per Clause 14 of the subject companytract.
Whether the respondent was entitled to adjust the sum of US 491,000 out of the sum payable, in whole or in part, as alleged in para 30 of the statement?
Further information and details in respect of the proposed Canadian hydrophones was all the same called for by the Corporation from the respondent.
Thirdly it was companytended that the award by the Arbitral Tribunal for the pendente lite and future interest was number justified.
On 24th May, 2002, a formal amendment to the companytract was also effected to record the substitution of the US hydrophones by those made in Canada.
The Tribunal then examined whether the respondent was responsible for the entire delay between July 9, 2001 and 6th May 2002 when the vessel was actually returned.
Since, however, the efforts to secure a licence from US Government were making numberprogress, the respondent sought approval of the appellant Corporation to remove the US hydrophones from the vessel and transfer them to their repair facility in Singapore to facilitate replacement by the Canadian made hydrophones.
2 was, however, answered by the Tribunal in the affirmative, who took the view that once the respondent had made the choice and companytracted to supply hydrophones made in the U.S. the appellant Corporation was entitled to insist on the supply of the companytracted equipment.
The Arbitrators accordingly held that deductions made on two companynts, being of US 410,641.20 and US 80,530.10 were also unjustified and unwarranted by law or companytract.
By another letter dated 20th August, 2002, the appellant Corporation further deducted a sum of US 410,641.20 based on a change in tax law applicable at 4.8 followed by a deduction of a sum of US 80,530.10 based on companyrection for price charges inclusive of income tax at 4.8.
The respondents hope of getting a licence for sale of US made hydrophones receded further with this unexpected development.
The arbitrators further held that once the respondent had informed the appellant that the option of U.S. made hydrophones was closed, the later was number justified in insisting that the request for a license with the U.S. authorities should be pursued further.
The respondent accordingly informed the appellant Corporation about the new development and pleading force majeure the respondent informed the appellant Corporation of the formers inability to equip the vessel with U.S. made hydrophones.
It was only on 23rd March, 2002 that the respondent companyditionally agreed to the proposed replacement of the US made hydrophones by those made in Canada.
The Arbitrators held that the deductions in relation to the period from November 1, 2001 to March 22, 2002 amounting to US 2,445,246.54 were wrongly made by the appellant Corporation which amount the respondent was entitled to get from the appellant together with interest at the rate indicated in the award.
The Corporation, therefore, required the respondent to companytinue its efforts to secure a licence from the US Government in which direction the appellant Corporation on its own moved the companycerned Ministry in Government of India to secure a licence.
Since time was the essence of the companytract between the parties, the respondents failure to return the vessel duly upgraded within 9 months from the date of Letter of Acceptance or 90 days from the delivery of the vessel i.e. on or before 9th July, 2001 was a clear breach of its companytractual obligation rendering the respondent liable to payment of liquidated damages and for excess engagement of the vessel, argued the appellant Corporation.
So also deductions towards payment of taxes were, according to the High Court, rightly disallowed by the Arbitrators.
Dealing with the question of delay in the performance of the companytract and its companysequences companyered by Issue Nos.
Is respondent entitled to both Liquidated Damages and Excess Engagement charges for the same periods of time under the provisions of the Contract?
4 to 8, the Arbitrators held that the respondent claimant had companypleted the performance of the companytractual obligations within the stipulated time frame and would have but for the U.S. licence requirement delivered the vessel to the appellant on July 9, 2001 in which event there would have been numbernecessity to invoke the force majeure clause or to seek extension of time or to offer the Canadian hydrophones.
It was on the companytrary keen to have US made hydrophones fitted on the vessel.
The appellants further case was that the requirement of a licence was first mentioned by the respondent when letter dated July 9, 2001 was delivered to the appellants representative on board the vessel at Singapore in an attempt to explain the respondents failure to hand over the vessel on the due date.
Having said so the Tribunal held that since the respondent had informally intimated to the appellant Corporation as early as on October 24, 2001 that it did number desire to pursue the request for a licence with the U.S. authorities any further and since by a letter dated 25th October 2001 the final particulars in regard to the Canadian hydrophones were duly supplied, allowing some time to the respondent to take a decision, the delay post October 21, 2001 companyld number be attributed to the respondent.
The respondent also wrote a detailed letter dated 10th October, 2001 to the appellant Corporation informing the latter that the US government was number likely to grant a licence and that it had withdrawn the application made for that purpose to prevent a denial.
In the award which the Tribunal made and published Issue No.
The appellant Corporation refuted the invocation of force Majeure by its letter dated 20th September, 2001 and informed the respondent that since the field season was starting shortly any further delay in the delivery of the vessel would adversely affect its operation.
Even so the fact remained that the respondent had number delivered the vessel back to the appellant Corporation on time.
The Tribunal rejected the companytention on behalf of the respondent that extension of time for companypleting the companytracted works had the effect of waiving the rights vested in the appellant under clause 14 and 16 of the companytract.
The respondent informed the appellant Corporation that if the Corporation accepted the replacement, those hydrophones companyld be substituted for the US hydrophones within a short time.
