Supreme Court: In the dispute between Anglo American Metallurgical Coal (AAMC) and MMTC Ltd, the bench of RF Nariman* and KM Joseph, JJ has set aside the decision of the division bench of Delhi High Court and has restored the Majority Award dated 12.05.2014 and the Single Judge’s judgment dated 10.07.2015 dismissing the application made under section 34 of the Arbitration Act by MMTC.
Background of the case
- AAMC, an Australian company and MMTC entered into a Long-Term Agreement (LTA) dated 03.2007 for supply of certain quantities of freshly mined and washed “German Creek”, “Isaac” (Blend of 65% Moranbah North and 35% German Creek coking coals) and “Moranbah North” coking coal to MMTC.
- Disputes arose between the parties as to shipments or “stems” that were to be covered by the Fifth Delivery Period, which ranged from 01.07.2008 to 30.06.2009, the parties mutually extending this period to 30.09.2009.
- A number of emails and letters were exchanged between the parties from August 2008 to December 2009, which were examined in detail by a panel of 4 arbitrators who sat at New Delhi and delivered their international arbitral award in New Delhi on 12.05.2014. The award was a majority award in favour of AAMC. The majority award held that AAMC was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was MMTC who was unwilling to lift the coal, owing to a slump in the market, MMTC being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract.
- The Majority Award was challenged under section 34 of the Arbitration and Conciliation Act, 1996 before a learned Single Judge of the High Court of Delhi, who upheld the Majority Award by a judgment dated 10.07.2015.
- By the impugned judgment dated 02.03.2020, a Division Bench of the High Court of Delhi set aside the judgment of the Single Judge and allowed an appeal filed under section 37 of the Arbitration Act by MMTC, setting aside the Majority Award.
The Court noticed that its was a finding of fact by the majority which held that AAMC was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was MMTC who was unwilling to lift the coal, owing to a slump in the market, MMTC being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract. It was for this reason that MMTC decided, as an afterthought, in reply to AAMC’s legal notice dated 04.03.2010, to attack AAMC on the ground that it was AAMC that was unable to supply the contracted quantity in the Fifth Delivery Period.
“Once this becomes clear, it is obvious that the Majority Award, after reading the entire correspondence between the parties and examining the oral evidence, has come to a possible view, both on the Respondent being in breach, and on the quantum of damages.”
The Court further stated that the entire approach of the Division Bench was flawed.
“To cherry-pick three emails out of the entire correspondence and to rest a judgment on those three emails alone, without having regard to the context of the LTA and the correspondence, both before and after those three emails, would render the judgment of the Division Bench fundamentally flawed.”
The Court also found the following findings by the division bench to be flawed:
- the finding that there was “no evidence” that the Respondent demanded stems of coal at a reduced rate vis-à-vis the contractual rate, ignored at least three different exchanges between the parties, being MMTC’s letters dated 20.11.2008, 27.11.2009 and 03.12.2009.
- the finding that no evidence had been led to show that the Appellant had availability of the balance quantity of 454,034 metric tonnes of coal to supply to the Respondent during the Fifth Delivery Period, completely failed to appreciate AAMC’s Marketing Manager’s evidence given by way of an Additional Affidavit dated 03.09.2013 and in response to questions in cross-examination before the Arbitral Tribunal on 23.09.2013, together with two letters exchanged between the parties on 21.09.2009 and 25.09.2009.
- the finding that there is “no evidence” to prove market price of coal at the time of breach, and that therefore, quantum of damages could not be fixed, again completely ignored AAMC’s Marketing Manager’s evidence in chief and cross examination; MMTC’s letters dated 25.09.2009, 27.11.2009 and 03.12.2009; as also AAMC’s re-negotiated contracts with SAIL/RINL.
The Court noticed that all of these aspects were considered in the Majority Award of the Arbitral Tribunal in great detail.
Further, the Court explained the concept of “patent ambiguity” and concluded that ibthe case at hand, there was no mention of the price at which coal was to be supplied in the three “crucial” emails, these emails must be read as part of the entirety of the correspondence between the parties, which would then make the so-called “admissions” in the aforementioned emails apply to existing facts. Hence, there was no scope for application of the “patent ambiguity” principle contained in section 94 of the Evidence Act, to the facts of the present case.
However, it was stated that section 95 of the Evidence Act, dealing with latent ambiguity, when read with proviso (6) and illustration (f) to section 92 of the Evidence Act, could applied to the facts of the case, as when the plain language of a document is otherwise unmeaning in reference to how particular words are used in a particular sense, given the entirety of the correspondence, evidence may be led to show the peculiar sense of such language. Thus, if this provision is applied, the Majority Award cannot be faulted for accepting the evidence AAMC’s Marketing Manager’s wherein he had explained that the three emails would only be meaningful if they were taken to refer to “mixed” supplies of coal, and not supplies of coal at the contractual price.
The Court, hence, remined the Courts that
“… when there are a number of documents exchanged between the parties in the performance of a contract, all of them must be read as a connected whole, relating each particular document to “existing facts”, which include how particular words are used in a particular sense, given the entirety of correspondence between the parties.”
[Anglo American Metallurgical Coal Pty Ltd v. MMTC Ltd, 2020 SCC OnLine SC 1030, decided on 17.12.2020]
Advocates who appeared in the matter
For Appellant: Senior Advocates Kapil Sibal and Neeraj Kishan Kaul
For Respondent: Senior Advocate Mukul Rohatgi
*Justice RF Nariman has penned this judgment.