Supreme Court Upholds Arbitration Award in Coal Supply Dispute: Anglo American Metallurgical Coal vs. MMTC Ltd. (2020)

Introduction

Date of the Judgment: 17 December 2020

Citation: (2020) INSC 957

Judges: Justice Rohinton Fali Nariman and Justice K.M. Joseph

Can a court overturn an arbitrator’s decision simply because it sees the facts differently? The Supreme Court of India recently addressed this crucial question in a dispute between an Australian coal company and an Indian trading corporation. The core issue revolved around whether an arbitral award, based on a possible interpretation of the facts, could be set aside for being “perverse”. The judgment was delivered by a two-judge bench comprising Justice Rohinton Fali Nariman and Justice K.M. Joseph, with Justice Nariman authoring the opinion.

Case Background

Anglo American Metallurgical Coal Pty Ltd. (the Appellant), an Australian company, had a long-term agreement (LTA) with MMTC Ltd. (the Respondent), an Indian company, to supply coking coal. The LTA, dated 07 March 2007, specified the quantity and quality of coal to be supplied over several delivery periods. The dispute arose during the fifth delivery period (1 July 2008 to 30 September 2009, extended by mutual agreement), when the Respondent failed to lift the contracted quantity of coal. The Appellant claimed damages for breach of contract, while the Respondent argued that the Appellant was unable to supply the coal.

The core of the dispute was whether the Appellant was ready to supply the coal at the agreed price of $300 per metric tonne during the Fifth Delivery Period, and whether the Respondent was in breach of contract by not lifting the contracted quantity of 466,000 metric tonnes. The Respondent only lifted 11,966 metric tonnes, leaving a shortfall of 454,034 metric tonnes.

Timeline

Course of Proceedings

The dispute was initially referred to an Arbitral Tribunal consisting of Mr. Peter Leaver, Justice V.K. Gupta (Retd.), and Mr. Anthony Houghton. The Tribunal delivered a majority award in favor of the Appellant, with Justice Gupta dissenting. The majority found that the Respondent had breached the contract by not lifting the contracted quantity of coal and awarded damages to the Appellant. The Single Judge of the High Court of Delhi upheld the majority award. However, the Division Bench of the High Court set aside the Single Judge’s decision and the majority award, stating that the majority award was based on no evidence and was perverse.

Legal Framework

The case primarily involves the interpretation and application of the Arbitration and Conciliation Act, 1996, specifically Section 34, which deals with setting aside arbitral awards. The court also considered the principles of contract law and the rules of evidence, particularly Sections 92, 94 and 95 of the Indian Evidence Act, 1872, which govern the admissibility of evidence to interpret contracts.

Section 34 of the Arbitration and Conciliation Act, 1996 allows a court to set aside an arbitral award if it is in conflict with the public policy of India, which includes cases where the award is perverse or based on no evidence. The Indian Evidence Act, 1872, particularly Section 94, states that when the language of a document is plain and applies accurately to existing facts, no evidence can be given to show that it was not meant to apply to those facts. However, proviso (6) to Section 92 of the Evidence Act states that any fact can be proven to show how the language of a document is related to existing facts. Section 95 of the Evidence Act states that when the language used in a document is plain in itself, but is unmeaning in reference to existing facts, evidence may be given to show that it was used in a peculiar sense.

Arguments

Appellant’s Arguments:

• The Appellant argued that the Majority Award was based on a detailed examination of the facts and that the Division Bench erred in cherry-picking three emails while ignoring the overall context of the correspondence.
• The Appellant contended that it was ready and willing to supply the coal at the agreed price, but the Respondent was unwilling to lift the coal due to a slump in the market.
• The Appellant emphasized that the Arbitral Tribunal had correctly interpreted the evidence, including the testimony of Mr. Wilcox, and that the Division Bench’s finding of “no evidence” was incorrect.
• The Appellant relied on its letter dated 11.03.2009 requesting a Delivery Schedule, and the Respondent’s letter dated 25.09.2009 admitting its obligation to lift the coal at the contractual price.

Respondent’s Arguments:

• The Respondent argued that the Appellant was unable to supply the coal, as evidenced by the emails dated 02.07.2009, 22.07.2009 and 07.09.2009, where the Appellant stated that it had no coal available.
• The Respondent contended that the Majority Award was perverse as it ignored these clear statements and relied on oral evidence to contradict the plain meaning of the emails.
• The Respondent argued that there was no evidence to prove the market price of coal at the time of breach, and that the damages were incorrectly calculated.
• The Respondent relied on clause 7.2 and Annexure IV of the LTA, stating that it was incumbent upon the Appellant to ensure that sufficient quantities of coal were available.

Sub-Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the Division Bench of the High Court was correct in setting aside the majority award of the Arbitral Tribunal.
2. Whether the Majority Award was perverse and based on no evidence.
3. Whether the Division Bench correctly applied the principles of Sections 92, 94 and 95 of the Indian Evidence Act, 1872.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓The Supreme Court relied on Associate Builders v. DDA, (2015) 3 SCC 49* to define the scope of judicial review of arbitral awards. The court held that the Division Bench had exceeded its jurisdiction by re-evaluating the evidence.

✓The Court used Smt. Kamala Devi v. Takhatmal and Anr., (1964) 2 SCR 152* to explain the application of Section 94 of the Evidence Act. The Court held that the Division Bench had misapplied the principle by not considering the surrounding circumstances.

✓The Court followed Murlidhar Chiranjilal v. Harishchandra Dwarkadas and Anr., (1962) 1 SCR 653* to determine the measure of damages for breach of contract.

✓The Court referred to Transmission Corpn. of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd., (2018) 3 SCC 716* to emphasize that the terms of a contract should be interpreted by considering all surrounding facts and circumstances.

✓The Court considered Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd, [2008] SGCA 27* to understand the modern contextual approach to the interpretation of contracts.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle that an arbitral award should not be lightly interfered with, especially when it is based on a possible interpretation of the facts. The Court emphasized that it is not a court of appeal and cannot re-evaluate evidence. The Court also highlighted that the Division Bench had erred by cherry-picking three emails and ignoring the overall context of the correspondence and the oral evidence of Mr. Wilcox. The Supreme Court also found that the Division Bench had misapplied the principles of Sections 92, 94 and 95 of the Indian Evidence Act, 1872.

Sentiment Analysis of Reasons given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

Key Takeaways

• Courts should not interfere with arbitral awards merely because they disagree with the arbitrator’s interpretation of facts.
• The principle of non-interference in arbitral awards must be upheld unless there is a clear case of perversity or illegality.
• When interpreting contracts, courts must consider the entire context of the correspondence and not just isolated documents.
• The application of Section 94 of the Indian Evidence Act, 1872, must be done carefully, considering the surrounding circumstances and the peculiar sense in which words are used.
• Arbitral tribunals are the final judges of the quality and quantity of evidence.

Directions

The Supreme Court set aside the judgment of the Division Bench and restored the majority award of the Arbitral Tribunal and the Single Judge’s judgment.

Development of Law

The ratio decidendi of this case is that a court cannot set aside an arbitral award merely because it disagrees with the arbitrator’s interpretation of facts, especially when the arbitrator’s view is a possible one. This judgment reinforces the principle of minimal judicial interference in arbitral awards and emphasizes that courts must respect the finality of the arbitral process. The Court also clarified the correct application of Sections 92, 94 and 95 of the Indian Evidence Act, 1872, in the context of interpreting contractual documents. There was no change in previous positions of law.

Conclusion

The Supreme Court allowed the appeal, setting aside the Division Bench’s judgment and restoring the majority award of the Arbitral Tribunal. The Court emphasized that the Arbitral Tribunal’s decision was a possible view based on the evidence and that the Division Bench had exceeded its jurisdiction by re-evaluating the evidence and misapplying the law. This judgment reinforces the principle of minimal judicial interference in arbitral awards and the importance of considering the entire context when interpreting contracts.