Plain language of the document should be applied accurately to existing facts: SC

Plain language of the document should be applied accurately to existing facts for it to be taken as part of a coherent whole: SC reiterates

Anglo American Metallurgical Coal Pty Ltd. v. MMTC Ltd.

Civil Appeal No. 4083 of 2020 (@ Special Leave Petition (Civil) No. 11431 of 2020)

Decided on December 17, 2020.

Counsel for Appellant: Shri Kapil Sibal, Shri Neeraj Kishan Kaul

Counsel for Respondent: Shri Mukul Rohatgi

The present appeal was decided by a division bench of the Supreme Court consisting of Justice Rohinton Fali Nariman and Justice K.M. Joseph.

By a Long Term Agreement (LTA) dated 07.03.2007, between the appellant-seller and MMTC Ltd., it was agreed to supply certain quantities of freshly mined and washed variety of coals. Disputes arose between the Appellant and the Respondent 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 arbitrators, who delivered their international arbitral award in New Delhi on 12.05.2014 in favour of the claimant-appellant. The Dissenting Award also found that the Appellant had failed in discharging its burden of proving the quantum of damages as on the date of breach of the LTA.

The Majority Award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before a learned Single Judge of the High Court of Delhi, who upheld the Majority Award by a judgment dated 10.07.2015. However, 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 the Respondent, setting aside the Majority Award.

The learned Senior Advocate appearing on behalf of the Appellant argued that all the findings given by the Majority Award were findings of fact, there having been little dispute on the construction of any term of the LTA. He stated that the only issue before the Arbitral Tribunal was whether the Appellant was unable to supply the contracted quantity of coal at the contractual price, or whether the Respondent was unwilling to lift the quantity of coal at the contractual price, both being purely questions of fact as to the performance of contractual obligations stemming from the LTA. He then argued that a crucial letter dated 11.03.2009, by which the Appellant requested the Respondent to propose a Delivery Schedule under the LTA, remained unanswered. In any event, he argued that the Appellant’s letter dated 21.09.2009, which referred to the letter dated 11.03.2009, supported the Appellant’s case, as this letter clearly referred to the delivery of the balance quantity of coal, which showed the Appellant’s willingness to perform the deliveries as per the LTA. He contended that the Division Bench arbitrarily picked out three emails out of the welter of correspondence between the parties, ignoring what was communicated before and after those three emails, thereby arriving at a faulty conclusion on facts, as if it were a court of appeal. Further, he stated that for the Division Bench to state that there is “no evidence” to prove the market price of coal at the time of breach, was also completely incorrect.

Shri Neeraj Kishan Kaul, learned Senior Advocate, supplemented the submissions of Shri Sibal and stated that the overall context of the correspondence showed that the Respondent repeatedly asked for supplies to be made at a price lower than the contractual price throughout the Fifth Delivery Period, since it was clearly unable to lift coal at the price of $300 per metric tonne.

The learned Senior Advocate appearing for the Respondent supported the impugned judgment of the Division Bench and stated that this Court ought not to interfere under Article 136 of the Constitution of India, given the fact that the Division Bench had not acted as a court of appeal, but had specifically followed the judgment in Associate Builders v. DDA, (2015) 3 SCC 49. According to him, the three crucial emails that were relied upon by the Division Bench were correctly relied upon, as these emails would unequivocally show that the Appellant was not in a position to supply coal, and that the Respondent was in a position to take supplies, and did in fact demand that supplies of coal be made in accordance with the LTA. He contended that it was clear that when the Appellant stated that it was “unable to confirm a stem in Aug/Sep” and that it did not have “any coal availability for the remainder of the year”, the Appellant breached and repudiated the LTA. He also added that the Division Bench’s conclusion of there being no evidence as to the market price of coal as on the date of breach was correct, and cited a number of judgments to buttress his submissions.

The Court heard the learned counsel appearing for the parties.

The Court noted:

The first and most important point, therefore, to be noted is that this is a case in which there is a finding of fact by the Majority Award that the Appellant was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was the Respondent who was unwilling to lift the coal, owing to a slump in the market, the Respondent 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 the Respondent decided, as an afterthought, in reply to the Appellant’s legal notice dated 04.03.2010, to attack the Appellant on the ground that it was the Appellant 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. (Para 17)

The Court observed that the approach of the Division Bench is flawed:

First and foremost, 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. (Para 18)

The Court stated:

However, what is missed by Shri Rohatgi is the crucial fact that no price for the coal to be lifted was stated in any of the emails or letters exchanged during this period. This is in fact what the Majority Award adverts to and fills up by having recourse to the evidence given by Mr. Wilcox, stating that the ambiguity qua price was resolved by the fact that no coal was available for lifting at a price lower than the contractual price. The Majority Award found, relying upon Mr. Wilcox’s evidence that the supplies that were sought to be made in August and September, 2009 were therefore, also in the nature of “mixed” supplies, i.e., coal at the contractual price, as well as coal at a much lower price. This is a finding of fact that cannot be characterised as perverse, as it is clear from the evidence led, the factual matrix of the setting of there being a slump in the market, in which the performance of the contract took place, as well as the ambiguity as to whether the correspondence referred to contractual price or “mixed” price, and thus, is a possible view to take.

With respect to the Division Bench concluding that it found no reason to look for the undisclosed intention of the parties, the Court stated:

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. (Para 28)

In this regard, the Court further stated:

Given that, in the facts of the present case, 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. Once this is done, it is clear that there is no scope for the further application of the “patent ambiguity” principle contained in section 94 of the Evidence Act, to the facts of the present case. (Para 31)

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. (Para 34)

The Court stated that Shri Rohatgi’s argument that there is no evidence to demonstrate proof of damage suffered as on the date of breach is factually incorrect.

This being the case, it is not possible to accept Shri Rohatgi’s argument that the letters dated 27.11.2009 or 03.12.2009 do not reflect the market price of coal as on the date of breach or that the market price of coal cannot be established from the special long-term contracts operating at around the same time as the date of breach. This argument must therefore be rejected. (Para 40)

The Court proceeded to consider this case on the pre-existing law, which is contained in the seminal decision of Associate Builders (supra) and referred to a number of judgments:

All the aforesaid judgments are judgments which, on their facts, have been decided in a particular way after applying the tests laid down in Associate Builders (supra) and its progeny. All these judgments turn on their own facts. None of them can have any application to the case before us, as it has been found by us that in the fact situation which arises in the present case, the Majority Award is certainly a possible view of the case, given the entirety of the correspondence between the parties and thus, cannot in any manner, be characterised as perverse. (Para 50)

The Court allowed the appeal and set aside the judgment of the Division Bench.

View/Download judgment: Anglo American Metallurgical Coal Pty Ltd. v. MMTC Ltd.

Jhanavi M