Patent and latent ambiguities, as explained by Supreme Court

Supreme Court: While settling the dispute between Anglo American Metallurgical Coal (AAMC) and MMTC Ltd, the bench of RF Nariman* and KM Joseph, JJ had the occasion to explain the concept of “patent” and “latent” ambiguity and held,

“… a “patent ambiguity” provision, as contained in section 94 of the Evidence Act, is only applicable when a document applies accurately to existing facts, which includes how a particular word is used in a particular sense.”

In the said case, the bench 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.

The Court had called the entire approach of the Division Bench was flawed and had said,

“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 explained that Section 92 of the Evidence Act, 1872 refers to the terms of a “contract, grant or other disposition of property or any matter required by law to be reduced to the form of a document”. Under proviso (6) read with illustration (f), any fact may be proven which shows in what manner the language of a document is related to existing facts. Illustration (f) of section 92 of the Evidence Act indicates that facts, which may on the face of it, be ambiguous and vague, can be made certain in the contextual setting of the contract, grant or other disposition of property.

Section 94 of the Evidence Act, then speaks of language being used in a document being “plain in itself”. It is only when such document “applies accurately to existing facts”, that evidence may not be given to show that it was not meant to apply to such facts.

As per section 95 of the Evidence Act, when the language used in a document is plain in itself, but is “unmeaning in reference to existing facts”, only then may evidence be given to show that it was used in a peculiar sense.

“When sections 92, 94 and 95 of the Evidence Act are applied to a string of correspondence between parties, it is important to remember that each document must be taken to be part of a coherent whole, which happens only when the “plain” language of the document is first applied accurately to existing facts.”

When proviso (6) and illustration (f) to section 92, section 94 and section 95 of the Evidence Act are read together, the picture that emerges is 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.

“Thus, after the application of proviso (6) to section 92 of the Evidence Act, the adjudicating authority must be very careful when it applies provisions dealing with patent ambiguity, as it must first ascertain whether the plain language of a particular document applies accurately to existing facts. If, however, it is ambiguous or unmeaning in reference to existing facts, evidence may then be given to show that the words used in a particular document were used in a sense that would make the aforesaid words meaningful in the context of the entirety of the correspondence between the parties.”

In the 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.

Anglo American Metallurgical Coal versus MMTC| Supreme Court finds Delhi HC’s division bench verdict “flawed”; Restores Arbitral Tribunal’s majority award

[Anglo American Metallurgical Coal Pty Ltd v. MMTC Ltd, CIVIL APPEAL NO.__4083__ OF 2020, 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. 

Know Thy Judge| Justice Rohinton F. Nariman

 

 

 

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