Contractor's right to suspend work and terminate Contract under FIDIC

·         By Azeez Nazar Sabri

In the construction Contracts, Contractor has lots of obligations and in case of default in fulfillment of his contractual obligations Employer has many rights including but not limited to de-scope his works, allot the offloaded works to other agency at the risk and cost of the Contractor, Impositions of Liquidated Damages and Termination of Contract etc. However, under the scheme of FIDIC based contract, Contractor also has certain rights in case of default of the Employer in fulfillment of his reciprocal contractual obligations.
Sub-Clause 60.10 of the FIDIC, 1987 ( Conditions of contract for works of Civil Engineering Construction), the amount due to Contractor under any Interim Payment Certificate issued by the Engineer shall be paid by the Employer to the Contractor within 28 days after such Interim Payment Certificate has been delivered to the Employer.  
Sub-Clause 69.1 of the FIDIC defines the defaults of the Employer as under:
a) If he fails to pay to the Contractor the amount due under any certificate of the Engineer within 28 days after the expiry of the time stated in Sub-clause 60.10 (normally time to make payment is 28 days).
b) Interfering with or obstructing or refusing any required approval to the issue of any such certificate.
c) Becoming bankrupt or, being a company, going into liquidation, other than for the purpose of a scheme of reconstruction or amalgamation.
d) Giving notice to the Contractor that for unforeseen economic reasons it is impossible for him to continue to meet his contractual obligations.
Upon occurrence of above stated events, the Contractor shall be entitled to terminate his employment after giving a prior written notice of 14 days.
Under Sub-clause 69.4 without prejudice to his right to terminate his employment, the Contractor also have one more remedy. If the Employer fails to pay the Contractor the amount under any certificate of the Engineer within 28 days after the expiry of the time stated under 60.10 (which is 28 days unless changed in the COPA) after giving 28 days prior notice to the Employer, with a copy to the Engineer, suspend or reduced the rate of the work.
Thus in case of the non-payment of the contractors due payments within stipulated period the Contractor has normally three remedies, a)  to terminate the Contract b) to suspend the work c) to reduce the rate of work.
Further if the Contractor opts to suspend the works or reduce the rate of work in accordance with the provision of Sub-Clause 69.4 and he thereby suffers delay or incur additional cost, he shall also be entitled for suitable extension of time and additional cost.
Under clause 69.4 , it is duty of the Engineer to determine the suitable extension of Time and additional cost payable to the Contractor. However, the Engineer shall consult with the Employer and the Contractor before determination of such additional cost and extension of time.     

However, Sub-clause 69.5 gives one more opportunity to the Employer to make the payment to the Contractor. If after receiving the notice from the Contractor for suspension or reduced rate of work, the Employer makes payment of due amounts to the Contractor including interest, if applicable, and if notice of termination has not been given by the Contractor under Sub-Clause 69.1, the Contractor shall resume the work as soon as possible after receipt of the payments.   

(Author can be contact at azeez_nazar@rediffmail.com)

Exclusive Jurisdiction of Court under Arbitration Law - A new trend

  •  By Azeez Nazar Sabri 

Apex Court of India in a recent judgment in the matter of Indus Mobile Distribution Private Limited Vs. Datawind Innovations Private Ltd & Ors.( Civil Appeal Nos. 5370-5371 of 2017) has observed that Jurisdiction of the Courts shall be decided considering the juridical seat of arbitration.  

The substantial question of law before Apex Court was whether, when the seat of Arbitration is Mumbai, an exclusive jurisdiction in respect of disputes arising under the agreement would oust all other courts including the High Court of Delhi, whose Judgment is appealed against. Answering this question in affirmative Apex Court held that the Mumbai Courts alone shall have jurisdiction to the exclusion of all other courts in the Country, as the juridical seat of arbitration is At Mumbai.
Respondent Datawind Innovations Pvt. Ltd. has its registered office at Amritsar, Punjab and supplying good to appellant Indus Mobile Distribution Pvt. Ltd. at Chennai from New Delhi.

The disputes between the parties arose out of a contract agreement which contained an Arbitration clause. It was stipulated in Arbitration clause “all the disputes & differences of any kind whatever arising out of or in connection with this agreement shall be subject to the exclusive jurisdiction of courts of Mumbai Only.”

Arbitration clause was invoked by the Datawind Innovations Pvt. Ltd. and petitions under section 9 of Arbitration and Conciliation Act, 1996 for interim relief were filed in Delhi High Court. While granting injunction, Delhi High Court held that as no part of the cause of action arose in Mumbai, only court of three territories could have jurisdiction in the matter namely, Delhi and Chennai  ( from and to where goods were supplied), and Amritsar ( which is the registered office of the appellant Company).  The High Court of Delhi, therefore, held that the exclusive jurisdiction clause would not apply on facts, as the courts in Mumbai would have no jurisdiction at all. High Court of Delhi, therefore, determined that Delhi being the first Court that was approached would have jurisdiction in the matter and proceeded to confirm interim order and also proceeded to dispose Section 11 ( Arbitration Act) petition.

The said Judgment of the Delhi High Court was challenged before the Apex Court.  
Apex Court observed that under Section 20 of the Arbitration and Conciliation Act, 1996, parties are free to choose the seat of Arbitration. Once the seat of Arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the Arbitration.
Apex Court relied on the following previous Judgments :
Reliance Industries Ltd. Vs. Union of India ( 2014) 7 SCC,603, wherein it was held that “juridical seat” is nothing but the “legal Place” of arbitration.
Harmony Innovation Shipping Limited Vs. Gupta Coal India Limited and Another, (2015) 9 SCC 172,
Union of India Vs. Reliance Industries Ltd and Others, ( 2015) 10 SCC 213, wherein Apex Court held that cases where the seat of arbitration is London, by necessary implication Part I of the Arbitration and Conciliation Act, 1996 is excluded as supervisor jurisdiction of courts over the arbitration goes along with “ seat”.
Apex Court Further relied on Eitzen Bulk A/S Vs. Ashapura Minechem Limited and Another, ( 2016) 11 SCC 508, wherein Apex Court observed that as a matter of fact the mere choosing of the juridical seat of arbitration attracts the law applicable to such location.
In concluding paras Apex Court observed that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. Under the law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in Courts, a reference to “Seat” is a concept by which a neutral venue can be chosen by the Parties to an arbitration clause. The neural venue may not in classical sense have jurisdiction- that is, no part of the cause of action may have arisen at the neutral venue and neither would any provision of Section 16 to 21 of CPC be attracted. In arbitration law, however, the “seat” is determined, the fact that the seat is at Mumbai would vest Mumbai Courts with exclusive jurisdiction for purpose of regulating arbitral proceedings arising out of the agreement between the parties.             


(Author can be contact at azeez_nazar@rediffmail.com)    

Letter of Intent (LOI) can be a legally binding Contract

In the commercial transaction “ Letter of Intent (LOI) ” and “Letter of Acceptance” are interchangeably used. In common practice both are treated equally, but legally there is notable difference between the two terms. Letter of Intention is a merely an intention of party to place an order, and normally not a binding contract, unless the parties acted under the same for a long time. On the other hand “Letter of Acceptance” connotes the acceptance of an offer and the same is normally binding.
Now the pertinent question arises whether an LOI is a binding contract or not. Answer to this question is not as simple. Whether the LOI would be construed as a valid contract or not depends upon the terms of the LOI and conducts of the parties.
If it is made clear in the LOI that the letter of intent is only a prelude to the purchase order/ work order and not itself the purchase order/work order. This would mean that the person issuing the Letters of Intent wanted concurrence of certain things to the terms contained in the Letter of Intent so that it can place an order in terms of the conditions mentioned in the Letters of Intent.
It is now well-settled that a Letter of Intent merely indicates a party's intention to enter into a contract with the other party in future. A Letter of Intent is not intended to bind either party ultimately to enter into any contract. This Apex Court while considering the nature of a Letter of Intent, observed as under in Rajasthan Co-operative Dairy Federation Ltd. V. Maha Laxmi Mingrate Marketing Service Pvt. Ltd. [1996 (10) SCC 405]
"The letter of intent merely expressed an intention to enter into a contract. ... There was no binding legal relationship between the appellant and Respondent at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent or not."
Chitty on Contracts (Para 2.115 in Volume 1- 28th Edition) observes that where parties to a transaction exchanged letters of intent, the terms of such letters may, of course, negative contractual intention; but, on the other hand, where the language does not negative contractual intention, it is open to the courts to hold the parties are bound by the document; and the courts will, in particular, be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it. 
In Great Offshore Ltd. vs. Iranian Offshore Engineering and Construction Co.( 2008) 14 SCC 240), Apex court observed as under:
“In construing whether or not a particular agreement does or does not amount to a contract, the court would look for the intention of the parties, the nature of the transaction, the language employed in the informal agreement and other relevant circumstances. None of these is conclusive in itself. ... The fact that the parties contemplate that the letters or an informal agreement would be superseded by a more formal one, does not prevent it from taking effect as a contract. If the letter of intent is acted upon, especially for a length of time, the court is likely to hold the parties bound by the contract [See Mulla, Indian Contract and Specific Relief Acts, 13th Edition at pages 317-318]”
In Dresser Rand S.A. v. M/s. Bindal Agro Chemical Ltd. & Another, (AIR 2006 SC 871 ) a two-Judge Bench of Apex Court emphasized that whether letters of intent rise to the level of being a contract hinges on the terms of the letter itself. It is no double true that a Letter of Intent may be construed as a letter of acceptance if such intention is evident from its terms. It is not uncommon in contracts involving detailed procedure, in order to save time, to issue a letter of intent communicating the acceptance of the offer and asking the contractor to start the work with a stipulation that the detailed contract would be drawn up later. If such a letter is issued to the contractor, though it may be termed as a Letter of Intent, it may amount to acceptance of the offer resulting in a concluded contract ... . But the question whether the letter of intent is merely an expression of intention to place an order in future or whether is a final acceptance of the offer thereby leading to a contract, is a matter that has to be decided by reference to the terms of the letter.
In McDermott International Inc vs Burn Standard Co. Ltd ( 2006) 11 SCC 181,  it was observed by the Apex Court as “ It is trite that the terms of the contract can be express or implied. The Conduct of the parties would also be a relevant factor in the matter of construction of a Contract.

On a concluding note we can say the Letter of Intention can be a contract when the parties have acted on the same for a long period of time or have expended considerable sums of money in reliance on it.

Azeez Nazar Sabri
LLM ( Business Laws)
email: azeez_nazar@rediffmail.com

Public Policy of India includes State Law ( Arbitration Law)

Public Policy of India is one of the ground to challenge the Arbitration Award under section 34 of the Arbitration Act.Award can be challenged in a court of law if it is in conflict with the Public Policy of India.Public Policy in India has not been defined in the Arbitration Act.

In Gherulal Parekh V. Mahadeodas Maiya ( AIR 1959 SC 781), the Apex Court gave a narrow interpretation of Public Policy. It was held that within public policy of India, lay certain determinate specified heads and that it would not be prudent to begin search for new heads. Subsequently in Central Inland Water Transport Corp. Ltd. Vs. Brojo Nath Ganguly, the term public policy was interpreted in wider stance which is on the pillars of public conscience, public good and public interest. From Renusagar Power Co.Ltd. Vs. General Electric Co. to ONGC Vs Saw Pipes and Balco Case Apex court has interpreted Public Policy.     

In a recent Judgment Supreme Court of India upheld that that Public Policy of India also includes the State Law. While hearing the matter of M/s. Lion Engineering Consultants Vs. State of M.P. & Ors. In civil appeal nos. 8984-8985 of 2017 a division bench comprising of HMJ Adarsh Kumar Goel, HMJ Rohington Fali Nariman and HMJ UU Lalit upheld that the public policy of India refers to law in force in India whether State Law or Central Law. Hon’ble Court further observed that the law laid down in MSP Infrastructure Ltd. Vs. Madhya Pradesh Road Development Corporation ( 2015) 13 SC 713 contrary to the same, do not lay down correct law.

Apex court observed that we do not agree with the observation that the Public policy of India does not refer to a State Law and refers only to an All India Law.

Earlier in MSP infrastructure Ltd. Case, it was held that intention of providing that the award should not be in conflict with the public policy in India is referable to the public policy of India as a whole and not merely the public policy of an individual state. Where the question arises out on the context between an action under a State Law and an action under a Central Law, the term public policy of India must necessarily be understood as being referable to the Policy of the Union. This observation is overruled in M/s. Lion Engineering Consultant case.    

It was further upheld that there is no bar to plea of jurisdiction being raised by way of an objection under Section 34 of the Act even if no such objection was raised under section 16 of Arbitration and conciliation Act 1996.  

Azeez Nazar Sabri
LLM(Business Law)
Email: azeez_nazar@rediffmail.com

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