Brief facts

Pec Limitée (appellant) launched a call for tenders on July 18, 2008 for the importation of 100,000 metric tons (MT) of Canadian yellow peas. Adm Asia Pacific Trading Pte. Ltd (Defendant) submitted an offer to supply 40,000 MT (+/- 10%). After negotiations, the Appellant awarded two Contracts dated 30.07.2008 to the Respondent for the supply of 20,000 MT (+/- 10%) each, totaling 40,000 MT (+/- 10%) on an Insurance Cost and Freight (C&F) Free Off-base.

The appellant, as the buyer/importer, was responsible for discharging the cargo at Indian ports, while the respondent, as the seller/supplier, was responsible for shipping the cargo to India .

Subsequently, a dispute arose and the respondent subsequently sent legal notices dated 08.06.2011 stating that since the appellant had not discharged the cargo within the stipulated time, he was liable to pay liquidated damages at the agreed rate of USD 25,000/- per day for 16 days, 16 hours and 09 minutes amounting to USD 4,16,822.92. This request was revised on 20.10.2011 to 420,312.50 USD under the two Contracts. The notices also specified that failure to make such payment would result in recourse to arbitration by the defendant.

The arbitral tribunal passed a unanimous award on 28.05.2014, holding that the respondent was entitled to demurrage for 15 days, 16 hours and 9 minutes. The Tribunal awarded the respondent USD 391,823 in demurrage, together with 5% interest from 15.11.2011 until the date of final payment. The arbitral tribunal held that in relation to the appellant’s counterclaim, pursuant to the reworked respite time calculations, it was the respondent who was entitled to a claim for demurrage. Thus, the appellant’s counterclaim was dismissed.

The challenge under Section 34 of the Arbitration Act was also dismissed by a learned Single Judge who observed that the contract was correctly interpreted and the view taken by the arbitral tribunal is plausible and that it is settled law that the Court will not intervene under Section 34 of the Arbitration Act. 34 of the Arbitration Act and substitute its reasoning with that of an arbitral tribunal.

The learned Single Judge thus dismissed the objections filed under Section 34 of the Arbitration Act by the appellant. This led to the filing of the present appeal under Section 37 of the Arbitration Act.

Litigation

The caller argued that the charterparty is an integral part of the demurrage clause and therefore any decision on demurrage would be incomplete without reference to the terms of the charterparty.

It was further submitted that the shipowner has exempted the respondent from payment of any demurrage charges and as such this benefit should accrue to the appellant otherwise it would amount to unjust enrichment for the respondent.

On the other hand, the respondents contended that the arbitral tribunal adequately addressed all the appellant’s arguments, including the argument on demurrage and that courts must exercise caution when exercising jurisdiction to set aside or modify the arbitral award.

It was further submitted that clause 19 of the charterparty agreement provided for the charterparty demurrage rate at USD 55,000 whereas the defendant had obtained the contract rate which is lower. This is therefore beneficial to the appellant since the demurrage has been calculated on the basis of a lower value.

Finally, it was submitted that the appellant’s attempt to react to the interpretation of the terms of the contract, both before the learned Single Judge and now before this Court, goes beyond the scope of an appeal under Section 37 of the Arbitration Act.

Court Analysis

The court referred to the judgment of the Delhi High Court in the case MMTC Ltd. c. International Commodities Export Corporation of New York (2013) wherein it was held that where a pre-estimate of damages is specified in a contract between the parties and the parties have agreed that demurrage would be calculated at that rate, the same rate would be the agreed rate. It was held that if the compensation provided for in the Contract constitutes a true prior estimate of the damage of which the parties were aware at the time of execution of the Contract, there is no question of proving the actual damage and the party is not not required to provide proof.

The court further noted that if the Charter Party clause were taken into consideration, the respondent’s entitlement would be more than double that granted to him. Thus, the argument put forward by the appellant does not meet any objective.

The court further considered the appellant’s contention that since the arbitral tribunal limited its judgment to the terms of the contract and did not examine the charterparty agreement, the award is therefore no is and judged it without any basis. .

The court referred to the judgment of the Supreme Court in the case Himalaya House Co. Ltd., Bombay v. The Chief Controlling Revenue Authority (1972) Or it was held that before the terms of an agreement can be said to have been incorporated into another document, the intention of the parties regarding the incorporation must be clearly reflected.

The court further noted that no clause reflecting such intention of the parties is available in the contract/Annexure II thereto. The Appellant was not able to show us any such clause or document. There is also no reference to the contract/Schedule II of the contract anywhere in the charterparty agreement.

The reference further refers to the judgment of the Supreme Court in the case Hindustan Construction Co. Ltd. c. NHAI (2024) Or it has been held that courts generally should not interfere with arbitral awards that are well reasoned and contain a plausible point of view.

In view of the above, the court concluded that no document was placed on file by the appellant to demonstrate that the terms of the charter party agreement are part of the contract entered into between the appellant and the ‘respondent.

In view of the aforesaid discussions, this Court does not see any infirmity in the findings of the arbitral tribunal which were upheld by the learned Single Judge, which merit interference by this Court. The appeal was therefore dismissed.

Case Title: PEC LIMITED v. ADM ASIA PACIFIC TRADING PTE. LTD.

Case reference: FAO(OS) (COMM) 38/2020

Court: Delhi High Court

Judgment date: 10/23/2024