Bombay High Court
Oil And Natural Gas Corporation vs Dolphin Drilling Ltd on 26 March, 2014
Author: S.C.Gupte
Bench: S.C. Gupte
arbp952-13.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION No.952 OF 2013
Oil And Natural Gas Corporation ...Petitioner
V/s.
Dolphin Drilling Ltd. ...Respondent
.....
Mr. Pradeep Sancheti, Senior Advocate along with Mr. Omprakash Jha and
Mr. D. Jain and Ms. Shambhavi Bhansali i/by The Law Point for Petitioner.
Mr. Rahul Narichania, Senior Advocate along with Mr. Vishal Muglikar, Mr.
Shardul Thacker, Ms. Pratiksha Avhad and Mr. Sunit Kumar V.N. i/by M/s.
Mulla and Mulla & C.B,. & C. for Respondent.
.....
CORAM : S.C. GUPTE, J.
MARCH 26, 2014 (JUDGEMENT):
. The Petition challenges an order passed by an Arbitral Tribunal on 23 April 2013, under Section 34 of the Arbitration and Conciliation Act 1996. The Petitioner and the Respondent entered into an agreement dated 17 October 2003 for charter hire of the Deep Water Drilling Rig "Belford Dolphin" along with services on an integrated basis. Under the agreement the Respondent agreed to perform drilling operations in the offshores in India as may be designated by the Petitioner. The Petitioner was referred to as an Operator, whilst the Respondent was referred to as a Contractor under the agreement. The disputes between the parties arose in respect of the various invoices raised by the Respondent towards the drilling operations and integrated services performed by the Respondent under the agreement sg Pg 1 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc for the Petitioner. The invoices raised by the Respondent, in respect of which the dispute arose, were either not paid or not paid in full by the Petitioner. These disputes were referred to an Arbitral Tribunal of three Arbitrators.
2. The claims made by the Respondent before the Arbitral Tribunal broadly fall within 5 categories. Each of these categories and the award in respect thereof is briefly discussed below :-
(A) Extension of Contract and Quantum Meruit :
3. It was the case of the Respondent, under this category of claims, that the Respondent continued drilling operations as instructed by the Petitioner after the expiry of the contract period, for which the Respondent should be paid on the basis of quantum meruit. The Petitioner had paid for the services rendered by the Respondent during this extended period at the contractual rates. It was, however, the case of the Respondent that the services should be paid on the basis of market rates prevailing at the time when these operations were carried out. The Arbitral Tribunal found that the Respondent had raised invoices in respect of this work as per the rates specified in the contract; that these invoices had been duly paid by the Petitioner; and that the claim of the Respondent for additional payment on the basis of quantum meruit was not in order. Accordingly, this claim was rejected by the Arbitral Tribunal. There is no challenge by the Respondent to this part of the award. This claim accounted for a sum of US$ 15.53 million.
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(B) Payment of invoices for equipment lost in hole :
4. This claim related to invoices raised by the Respondent on the Petitioner for payment of the value of the equipment lost in the hole under Clause 16.3 of the contract between the parties. The Clause required the Petitioner to reimburse the Respondent for any loss of or damage to the Respondent's down hole equipment, provided such loss or damage was not occasioned by normal wear and tear or negligence on the part of the Respondent. It was the case of the Respondent that the amounts claimed under these invoices were in respect of equipments lost in hole, which loss was not on account of either wear and tear or negligence on the part of the Respondent. This was disputed by the Petitioner.
5. A total number of 14 invoices were raised by the Respondent in respect of equipment lost in hole. The Arbitral Tribunal allowed the claim in respect of 13 invoices, whilst rejecting the claim in respect of one invoice.
The rejection of this invoice is not a subject matter of challenge in the present Arbitration Petition. The challenge pertains to the 13 invoices which have been allowed by the Arbitral Tribunal. Again, it must be noted at the very outset that out of these invoices, there are 5 invoices which are not expressly made subject matter of challenge in the Petition. It is, however, submitted by the learned Counsel for the Petitioner that two of these 5 invoices have been generally challenged by the Petitioner, whilst it is admitted by the Petitioner that three invoices are not challenged at all in the present Arbitration Petition. These three invoices respectively bear Invoice Nos. 510-273 dated 23/03/2006, 510-274 dated 21/3/2006 and 510-382 dated 30/03/2007 accounting for sums of USD 713, 517.17, INR 219,800.00 and USD 652, 028.46.
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6. The Arbitral Tribunal considered this claim in two parts: Part - A consisting of invoices where no ground for withholding payment was given by the Petitioner and Part - B consisting of 5 invoices where the Petitioner had furnished grounds for withholding the payment.
7. This part of the claim, as noted above, arises out of two contractual provisions contained in Articles 16.1 and 16.3 of the contract, which deal with the subject of loss of Contractor's drilling unit, including loss or damage to the down hole equipment. For ready reference the two clauses are quoted below :-
"16.1 Loss of Contractor's Drilling Unit.
Except as otherwise specifically provided in this Agreement, any damage to or loss, of the Drilling Unit (which, for the purpose of this Article 16.1 shall be deemed to include all Contractor's and its sub-contractors' equipment) and regardless of the cause or reason for said loss, shall be the loss of the Contractor, its underwriters or insurers and Contractor indemnifies Operator, its co-licensees and its and their affiliate companies, agents, employees, invitees, servants, their underwriters or insurers (other than Contractor's) and their employees against any claim whatsoever or responsibility for any damage to or loss of the Drilling Unit or any other equipment or property of Contractor or Contractor's sub- contractors furnished or intended for use in the operations hereunder undertaken."
16.2 ........
"16.3 Loss or Damage To Contractor's Down Hole Equipment Operator shall reimburse Contractor for loss of or damage to Contractor's down hole equipment, as under, provided that such loss or damage is not occasioned by normal wear and tear or negligence on the part of the Contractor.
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(a) In the case of Contractor's down hole equipment being damaged, Operator shall reimburse Contractor such repair cost, provided however, that Operator shall not be required to reimburse Contractor any amount greater than that which would have been due had such equipment been lost and, therefore, calculated under sub-section (b) herein below :-
(b) In the case of Contractor's down hole equipment being lost, Operator will reimburse Contractor an amount limited to the original cost (FOB nearest port) reduced by depreciation at the rate of 10% per year being proportioned for each completed month from the date of purchase of the lost equipment/tool subject to maximum depreciation of 50%. The Contractor should declare the cost along with the date of purchase of each equipment unit with documentary evidence prior to mobilization of the drilling unit. The above declared cost and date of purchase shall be taken for working out their claim for lost in hole of their equipment."
8. As may be noted from the Articles quoted above, whereas Article 16.1 deals with any damage to or loss of the Drilling Unit and regardless of the cause or reason for the loss shall be the loss of the Contractor (the Respondent) except as otherwise specifically provided in the agreement, Article 16.3, on the other hand, specifically provides for loss or damage to the Contractor's down hole equipment. The Article provides that the Operator (the Petitioner) shall reimburse the Contractor for loss of or damage to the Contractor's down hole equipment as provided in the Article, provided that such loss or damage is not occasioned by normal wear and tear or negligence on the part of the Contractor. According to the Respondent, the down hole equipment, for which the claim was made, was lost and the loss was not occasioned by normal wear and tear or negligence on the part of the Respondent. Whereas, it is the case of the Petitioner that the equipment was lost due to normal wear and tear or negligence on the part of the Respondent. There is, thus, no dispute on the loss of equipment sg Pg 5 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc per se but the cause which has occasioned such loss. Both the parties have led oral evidence and sought to explain the concept of "normal wear and tear" as well as "negligence" in the context of the operations covered under the contract. The Arbitrators have basically found that there is no material available on record which supports the case of negligence or normal wear and tear of the equipment causing the loss. The Arbitrators have analyzed the evidence led by both the parties and come to the conclusion that all 14 invoices, barring one invoice, where the claim was rejected, as noted above, involve claims for loss of equipment which was not caused either by normal wear and tear or by negligence on the part of the Respondent. The Arbitrators, accordingly, allowed the claims. The individual invoices and the contentions of the parties discussed by the Arbitrators and the findings arrived at by the Arbitrators in respect of each of the individual invoices, may be briefly noted below :-
Invoice No. 510-058
9. The claim of the Respondent in respect of this invoice was not allowed by the Arbitrators. As noted above, this invoice is not a subject matter of challenge.
Invoice No.510-208
10. This invoice related to an incident of loss of drill string on 29 March 2004. The drill string which got stuck during the operation of drilling, and which could not be released, was sheared at free point resulting in loss of equipment below the free point in the Well. The Petitioner attributed this loss to the Respondent's negligence in proper planning and designing of the sg Pg 6 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Well due to which, according to the Petitioner, the string got stuck and could not be released. On appreciation of the evidence led by the Petitioner in this behalf, the Arbitrators came to a conclusion that there was no material on record which supported the contention of the Petitioner that there was any negligence in proper planning or designing of the Well on the part of the Respondent. The Arbitrators noted that there were no particulars of negligence disclosed by the Petitioner in evidence and that the correspondence between the parties relating to the particular invoice did not contain any allegation on the part of the Petitioner that there was any negligence in proper planning or designing of the Well. This essentially is a matter of appreciation of evidence and the conclusion drawn by the Arbitrators on the basis of reasons indicated, does not appear to be suffering from any infirmity.
Invoice Nos.510-214 and 510-215
11. This invoice was in respect of an incident of 11 May 2004. While the rig was engaged in drilling at a depth of 4647 meters, the drill string torqued up on the bottom, the pump pressure increased and the hole backed off. The rig resorted to jarring operation to free the string. It was discovered when the string was pulled out that a part of the string was left in the hole and the equipment was lost. It was the case of the Petitioner that setting the string in the slips in a floating vessel during stuck condition was an operational lapse which resulted in pipe twisting and loss of equipment as a result. Both the parties led evidence in this behalf. The Respondent sought to explain in its evidence the reason for torquing up of the well string and the rig resorting to the operation of jarring which was an aggressive action necessarily putting the string at risk. The Respondent sg Pg 7 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc explained in the evidence that this operation was the only possible response to the situation at hand and a standard action to perform in the circumstances, and that the parting of the string, in the premises, was not occasioned by any negligence on the part of the Respondent. On the other hand, the Petitioner's witness gave his own reasons for parting of the string and explained the alternative ways in which the operation could have been carried out. The learned Arbitrators considered the rival testimonies and held that having regard to the contradictory answers given by the Petitioner's witness, his testimony was not worthy of acceptance; that no such case was put by the Petitioner to the Respondent's witnesses; that the explanation given by the Respondent's witness was not challenged in cross- examination; and that the case of the Petitioner that the loss was occasioned by reason of the Respondent's negligence, did not deserve to be accepted. The Arbitrators, accordingly, allowed the amounts claimed in these two invoices. As is clear from the narration above, the award of this claim was based purely on appreciation of evidence and no fault could be found with the same.
Invoice Nos. 510-217 and 510-222
12. These invoices related to an incident of 17 July 2004, where during the drilling operations, the string encountered and "stood up" and the well, therefore, needed to be drilled out again or "reamed". The Respondent's witness has explained the entire operation and deposed to the reasons why the sub-pin broke. The Respondent's witness deposed to the reasons why and under what circumstances the pin failed and the loss was occasioned. The Respondent also relied on test certificates and reports to establish that the equipments were in good condition. The Petitioner's witness, on the sg Pg 8 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc other hand, suggested that the failure was due to wear and tear of the equipment and therefore, the loss of equipment was not reimbursable. The learned Arbitrators noted that there was no material in support of the case that any parts of the sub-pin were suffering from wear and tear; that such a case was contrary to the test certificates and reports which were on record;
that the Respondent's witness was not cross-examined on the test certificates and reports; and that there was no material to show how long the equipment had been used after it was manufactured in order to establish wear and tear. The Arbitrators, on such appreciation of evidence, allowed the claim. The appreciation of evidence and the allowing of the claim on the basis thereof, appear to be perfectly in order.
Invoice Nos. 510-220 and 510-221
13. These invoices pertain to loss of a section of the 5" drill pipe parted at 3448 meters on 9 February 2005. The string failure was at the weld between 5" pipe body and the box connection. The learned Arbitrators noted that the documentation showed that this was a very clean break along the line of the weld. The Arbitrators further noted the Respondent's witness's deposition that this loss was probably caused by a latent defect in the pipe and that this manufacturing fault was not visible on inspection to those on the rig. The learned Arbitrators noted that the Respondent's witness was not questioned on this evidence. The Petitioner's witness, on the other hand, contended that the failure of the drill pipe joint at the weld occurred on account of the joint becoming weaker due to wear and tear. The Arbitrators, however, noted that in his cross-examination, on being confronted with the testimony of the Respondent's witness to the contrary, the Petitioner's witness could not comment on the statements of the sg Pg 9 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Respondent's witness that the weld did not part on account of wear and tear and was entirely indicative of manufacturing fault, obviously not visible on inspection to those on the rig. The learned Arbitrators also noted that there was no material to show how long the instrument was in service, indicative of wear and tear. The learned Arbitrators, thus, on appreciation of evidence, came to a conclusion that the claim of loss of equipment covered in the invoice was not on account of wear and tear. The conclusion drawn by the learned Arbitrators, as is apparent, is based on a pure question of fact and duly arrived at after appreciation of evidence. No fault can be found with either the reasons or the conclusion arrived at.
14. The learned Counsel for the Petitioner submitted that an inherent defect in the equipment is very much part of the wear and tear of the equipment. The learned Counsel submitted that the loss is in any event occasioned by wear and tear - only that due to a manufacturing defect the wear and tear occurred earlier in the case of this particular equipment. It is difficult to accept this submission. The wear and tear contemplated by Article 16.3 is "normal wear and tear". A wear and tear which is hastened on account of a manufacturing defect in the equipment can never be termed as normal wear and tear. In any event, it is strictly a matter of appreciation of evidence, as also interpretation of a contractual term, namely, Article 16.3. It is trite law that the Arbitrator is a Sole Judge of both the quality and quantity of evidence. So also, if there are two possible views on interpretation of contract and the Arbitrator takes a possible view, his award cannot be interfered with by this Court in its jurisdiction under Section 34 of the Act.
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Invoice No. 510-364
15. This invoice related to two incidents, one which occurred on 28 September 2004 and the other on 13 October 2006. In the incident of 28 September 2004, one motor from the drilling assembly was lost in the hole, whereas, in the incident of 13 October 2006, a motor was twisted off due to high torque in the well and was lost in the hole. Both parties led evidence on the two incidents. The Arbitrators noted that the Respondent's witness had deposed to the fact that the loss was not occasioned by any wear and tear or negligence but had not been cross-examined in this regard. As for the second incident, the Respondent's witness deposed that the high torque was due to formation condition down the well and that there was no negligence on the part of the Respondent. The Respondent's witness also deposed that there was no negligence and it was not a case of wear and tear either. On the other hand, there was no evidence at all from the side of the Petitioner to establish either a case of wear and tear or a case of negligence.
The period of service of the piece of equipment, which was lost, was not known. The only other dispute raised by the Petitioner concerning the preparation and delivery of the invoice was satisfactorily addressed on behalf of the Respondent by their witness. The Respondent's witness was not cross-examined on the point. In these premises, the learned Arbitrators came to the conclusion that the invoice was payable by the Petitioner. The award of the learned Arbitrators in this behalf is based purely on appreciation of evidence and cannot be faulted interalia for the reasons noted above concerning the jurisdiction of this Court under Section 34.
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Invoice Nos. 510-273, 510-274 and 510-382
16. The Respondent's claims in respect of these invoices, as noted above, are not challenged in the present Petition.
Invoice Nos. 510-375 and 570-376
17. These invoices related to an incident which occurred on 8 February 2007 when a section of the heavy weight drill pipe ((HWDP) sheared off in the middle of the tube, 1.5 meters above the pin end. The loss in the hole report stated that HWDP breakdown was caused due to twist off while attempting to free the drill's string during the pack-off situation. This report was supported by the Respondent's witness, who stated in an affidavit that this was due to an unusual occurrence, indicating that there was a latent defect in the pipe section, because nothing in his experience could cause the pipe section to shear. The learned Arbitrators noted that this evidence was not challenged in cross-examination. The Arbitrators further noted that on the other hand the Petitioner's witness suggested that the breakdown was due to normal wear and tear and in cross-examination suggested reasons why a drill string may be stuck up or lost. The learned Arbitrators noted that the Petitioner's witness had no personal knowledge of the incident and there were no records in support of his suggestion of normal wear and tear.
The learned Arbitrators further observed that there was no history of the drill pipe which would indicate wear and tear. In these premises, the claim was allowed. As is clear from the narration above, this is also a matter of appreciation of evidence and cannot be faulted.
18. Whilst these invoices in respect of equipments lost in hole were sg Pg 12 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc generally disputed by the Petitioner, the learned Counsel for the Petitioner merely elaborated on Invoice Nos.510-220 and 510-221 in particular. In general, it was submitted by the learned Counsel for the Petitioner that the onus to show that the case did not fall within the two exceptions, namely, the normal wear and tear, and negligence of the Contractor, was on the Respondent, who was the claimant before the Arbitral Tribunal. In the first place, such a submission calls for interpretation of a contractual provision, namely, Articles 16.1 and 16.3. Secondly, onus to establish a negative fact can never be thrown on a party. It is for that party, who alleges a certain state of affairs to exist and opposes a claim on that basis, to establish such facts. Besides, the plea of negligence had to be based on particulars, which are not found in the pleadings of the Petitioner. As noted by the Arbitral Tribunal, the Petitioner's evidence also does not show any case of wear and tear or negligence, whilst, on the other hand, the Respondent's evidence shows to the contrary. Irrespective of the question of onus, since the entire evidence was before the Arbitrators and the conclusion was based on such evidence, no fault can be found with this part of the award. For these reasons, as far as this category of claims is concerned, there is no reason to interfere with the award in the jurisdiction of this Court under Section 34 of the Act.
(C) Payment of Day Rate Invoices :
19. The next category of claims consists of "Day Rate Invoices". These claims are in respect of invoices for payment of an applicable day rate under particular Articles of the Contract. These claims are in respect of amounts which were either withheld or deducted by the Petitioner from the invoices raised for work done. These claims basically involve interpretation of sg Pg 13 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc particular Articles of the Contract, namely, Articles 3.4 and its sub-articles, namely, Articles 3.4.1, 3.4.2 and 3.4.6 of the Contract. These Articles dealt with various day rates which are payable to the Respondent under the Contract. The normal or default day rate was called the Rig Operating Day Rate (RODR). The other rates included Rig Non-Operating Day Rate (NODR) and Rig and Equipment Break Down Rate (EBDR). These rates operated in respect of drilling operations whereas all services covered under the integrated services were payable on an Integrated Service Day Rate (SDR). The dispute between the parties basically concerns a particular day rate at which the Contractor was to be paid. Whereas, the Contractor (the Respondent) claims that it was to be paid at the NODR for the particular invoices, the Petitioner claims that the payable rate was the EBDR. EBDR envisaged that if the operations were suspended due to break down of or need for repairs to the Contractor's equipment of drilling unit or due to destabilization of the drilling unit, the Contractor was to be paid at EBDR for up to a maximum of 32 hours as compensation per calendar month and that beyond 32 hours no compensation at all was payable to the Contractor until the operations recommenced. It is the case of the Respondent that the drilling unit was not operating during this period and that the NODR was payable except when it was otherwise provided under the contract and that the provision of Article 3.4.6 which dealt with EBDR was such an exception and that the conditions for applicability of EBDR, as provided in the relevant Article, had not in fact obtained. On the other hand, it is the case of the Petitioner that the EBDR was the default rate in the case of suspension of operations and that all suspensions of operations due to whatever reasons were covered under Article 3.4.6 and that in such cases it is only the EBDR which was payable and not the NODR. The Petitioner also claims that during the relevant period the operations were suspended due to sg Pg 14 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc breakdown of or need for repairs to the Contractor's equipment. As is clear from this discussion, this contest was clearly on the interpretation of a contractual provision, namely, Article 3.4 which dealt with various operating and non-operating rates payable by the Operator to the Contractor.
20. Before these claims and the award of the Arbitral Tribunal on these claims are discussed, it is necessary to set out the particular Articles which are relevant for such discussion. The relevant Articles are set out below :-
"3.4.1Rig Operating Day Rate (RODR) Contractor shall be paid a Rig Operating Day Rate (RODR) of USD 191,700 (U.S. Dollar One Ninetyone Thousand Seven Hundred Only) from the Commencement Date and at all times during the term of the Agreement except when specifically otherwise provided in this Agreement.
3.4.2 Rig Non-Operating Day Rate (NODR) Contractor shall be paid a Rig Non-Operating Day Rate (NODR) of U.S. Dollar 182,115 (U.S. Dollar One Eightytwo Thousand One Hundred Fifteen Only) when the drilling unit is not operating either due to waiting for materials to be provided by Operator/Orders/instructions/ programme/waiting for the integrated services/waiting on weather/waiting on cement to set or carrying out fishing operations (not due to Contractor's equipment and tools) except where otherwise provided for in this Agreement.
3.4.4 Individual Service Day Rate (SDR) Contractor shall be paid Individual Service Day Rate (SDR) for all services covered under Integrated Services from the Commencement Date and at all times during the term of the Agreement, except when specifically otherwise provided for in this Agreement as per the rates given at Exhibit D. sg Pg 15 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc 3.4.6 Rig And Integrated Service Breakdown 3.4.6.1 During the term of the Agreement, if the operations hereunder are suspended due to breakdown of or need for repairs to Contractor's equipment of Drilling Unit or due to destabilization of the drilling unit due to whatever reasons and if such failure results in the operations being materially affected, the Contractor shall be paid at the Rig Equipment Breakdown Rate of USD.182,115 (US Dollars One Eighty Two Thousand One Hundred Fifteen Only) upto a maximum of 32 hours as compensation per calendar month. Beyond the said 32 hours daily compensation shall not be payable to the Contractor until operations are recommended at which time the applicable rate shall again come into force.
In addition, the Contractor shall be allowed a period of 48 hours per year which shall be paid at Non Operating Day Rate and can be utilized by the Contractor at any time during the agreement period at its discretion. The said period of 48 hours will be allowed to be pro-rated during automatic extension (spilling beyond the primary term) or during any Agreement extension (as per Article 1.3(a) of the Agreement). Beyond the above mentioned permissible period, zero rate will be applicable for drilling unit.
3.4.6.2 Integrated Service Break Down If any of the services covered in the Integrated Services is/are not operating as per its intended operations due to which the drilling unit cannot perform its intended operations, then the Service Day Rate (SDR) quoted for that service shall not be paid for such period."
21. As may be seen from Article 3.4.6.1 quoted above, the EBDR is applicable when the operations are suspended due to breakdown of or need for repairs to the Contractor's equipment of the drilling unit or due to destabilization of the drilling unit. As indicated above, the contest between the parties was as to whether the operations were suspended during the relevant period due to breakdown of or need for repairs to the drilling unit. The other contingency in which EBDR is payable, namely, when the operations are suspended due to destabilization of the drilling unit, is not sg Pg 16 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc relevant since the Petitioner has not attempted to make out any case before the Arbitral Tribunal that there was any destabilization of the drilling unit and the operations were suspended as a result of such destabilization. The following discussion is accordingly in the context of the rival cases of the parties and particularly deals with the case of whether or not there was breakdown of or need for repairs to the equipment.
22. As in the case of invoices relating to loss in hole claims, in this case the learned Arbitrators dealt with the claims in two parts: Part A consisting of Invoices which were unpaid/partly paid but no reasons were given for such non-payment or part-payment by the Petitioner and Part B consisting of Invoices where reasons were furnished by the Petitioner for non-payment. As noted by the Arbitral Tribunal, thirteen of the fourteen Invoices for which claim was made formed part of Part A, whilst a single invoice formed part of Part B where reasons were furnished. The only invoice where reasons were furnished was Invoice No.510-314, as noted below. The learned Arbitrators dealt with each of these invoices in details in the award. The brief discussion in the award and its merits may be noted as below.
Invoice No.510-204
23. This invoice related to the work done by the Respondent in the month of July 2005. During this period, a particular equipment, namely, the auxiliary derrick, was undergoing maintenance. A particular Article of the contract, namely, Article 3.10.2 provided for payment of bonus or penalty in the event of work time being more or less than a specified percentage in the contract. The Article provided that if Non-Productive Time (NPT) in a sg Pg 17 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc period of one calendar month was less than 2%, the Contractor was entitled to receive bonus payment as set out in the Article. On the other hand, if the NPT was more than 2%, the Contractor was liable to pay penalty. In the particular invoice the Respondent had claimed NPT bonus on the ground of NPT being less than 2%. The Petitioner, however, treated a certain period in this month as NPT on account of rig breakdown, thereby increasing the NPT to 2.89% resulting in denial of NPT bonus to the Respondent. This period was purportedly deducted by the Petitioner on account of the fact that the auxiliary derrick was undergoing maintenance. On the other hand, it was claimed by the Respondent that the services of an auxiliary derrick were not part of the contract and that any maintenance of the auxiliary derrick was not to be treated as rig breakdown. The learned Arbitrators accepted the Respondent's case that the auxiliary derrick, initially offered by the Respondent as part of the contract equipment, was not included in the technical specifications, since the Petitioner did not want to pay for this facility. The Arbitrators noted that the contract document did not include the auxiliary derrick in the specifications; that in his cross-examination the Respondent's witness agreed to an absence of reference to the auxiliary derrick in the rig specifications; and that there was no cross-examination of the Respondent's witness in this behalf. The learned Arbitrators, in the premises, accepted the Respondent's contention that there was no question of any hours being deducted on account of maintenance operations of this auxiliary derrick. The learned Arbitrators further noted the evidence of the Petitioner's witness to the effect that the rig had a double derrick capacity and the main well centre was used for operations on the critical path, whereas the auxiliary well centre was used for off-line operations. The learned Arbitrators further noted the testimony of the Respondent's witness that the critical path activities were not suspended during the period of 14.5 sg Pg 18 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc hours in question. The Arbitrators observed that there was no data available which would indicate that rig's normal critical path activities were affected in any way during the period when maintenance operations of auxiliary derrick were going on. In this view of the matter, the Arbitrators observed that the time taken on maintenance of the auxiliary derrick could not have any impact on the payments to be made to the Respondents, and accepted the Respondent's claim for payment of NPT bonus. The critical question involved in this part of the award was whether the auxiliary derrick was part of the rig equipment specifications (which was a question of interpretation of contract) and whether there was any equipment breakdown of the rig, i.e. the main drilling unit, (which was a question of appreciation of evidence). The Arbitrators held that the auxiliary derrick was not part of the equipment under the contract and that the activities of the equipment were not suspended during the alleged period of 14.5 hours.
The matters being essentially of interpretation of contract and appreciation of evidence and the Arbitrators taking an eminently possible view, no fault can be found with the award of this claim.
24. The learned Counsel for the Petitioner contended that during this period, the Operator, namely, the Petitioner, had extended the contract period on the express footing of breakdown of equipment and that this aspect, which was germane to the issue, was not considered at all by the learned Arbitrators and that this amounted to a serious error. The learned Counsel relied on the judgments of K.P. Poulose Versus State of Kerala And Another1, MD, Army Welfare Housing Organisation Versus Sumangal Services (P) Ltd.2, Bharat Coking Coal Ltd. Versus Annapurna 1 (1975) 2 Supreme Court Cases 236 2 (2004) 9 Supreme Court Cases 619 sg Pg 19 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Construction3, Hindustan Petroleum Corporation Limited Versus Batlibol Environmental Engineers Ltd.4 and Jagmohan Singh Gujral of Indian Versus Satish Ashok Sabnis & another 5. The learned Counsel submitted that an award is liable to be set aside, if the award arrives at inconsistent conclusions. The learned Counsel also contended that if any material document is not considered by the Arbitrator, the award can be set aside on that ground.
25. The cases of K.P. Poulose, Sumangal Services (P) Ltd. and Bharat Coking Coal Ltd. dealt with awards under the Arbitration Act, 1940. In K.P. Poulose (supra) it was held that under Section 30(a) of the Arbitration Act 1940, an award can be set aside when an Arbitrator has misconducted himself or the proceedings. The Court held that the legal misconduct is complete if the Arbitrator, on the face of the award, arrives at inconsistent conclusions or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. The learned Counsel relied upon a document generated by the Petitioner, which claims that there was an extension of period of 14.5 hours on account of breakdown and contended that the Respondent having accepted this extension cannot found a claim on a different basis. Whatever be the merits of this contention, one thing is clear that the Arbitrators cannot be said to have come to any finding of breakdown during the period of 14.5 hours or extension of the contract period on account of breakdown. On the basis of such finding it cannot be suggested that the award suffers from any incongruity or internal contradictions. As for the Respondent's acceptance of extension of contract period, the fact that the Respondent has 3 (2003) 8 Supreme Court Cases 154 4 2008(1) Bom.C.R.89 5 2004(1) Bom.C.R. 307 sg Pg 20 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc accepted an extension does not in any way make the reason of such extension binding on the Respondent. It is possible that in the course of execution of the contract, the Contractor may have accepted a particular extension. It is also possible that such extension may have been granted by the Employer on a particular footing. That, however, does not mean that by reason of having accepted the extension, the reason for such extension is also accepted by the Contractor and that Contractor is estopped from contending otherwise. Be that as it may, this aspect clearly reflects on appreciation of evidence and if the Arbitrators have arrived at a finding based on such appreciation, which is a possible finding, the fact that the document, which dealt with extension of contract period, was not expressly referred to by the Arbitrators in their award cannot undermine the correctness of the finding. The document is merely a pointer towards a contrary case and may have some probative value but it certainly cannot be said that the document was of such vital importance that the want of its express mention would vitiate the award.
26. The cases of Sumangal Services and Bharat Coking Coal Ltd.
(supra), which also arose under the 1940 Act, do not take the Petitioner's case any further. They merely reiterate the proposition of law laid down in K.P. Poulose (supra) that the conduct of the Arbitrator in refusing to take into consideration relevant material for the purpose of arriving at a correct finding of fact, may amount to misdirection in law and in an appropriate case, may vitiate the award. For the reasons discussed above, the award cannot be said to be vitiated by any misdirection in law in the present case on account of non-mention of the document in the award.
27. The case of Hindustan Petroleum Corporation Limited and sg Pg 21 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Jagmohan Singh Gujral are cases decided respectively by a Division Bench and a learned Single Judge of our Court under the 1996 Act. In the case of Hindustan Petroleum Corporation Limited (supra), the Arbitrator had failed to note the correspondence that clearly established that the Contractor was responsible for the delay. The Court noted that taking into consideration this correspondence it was difficult to hold that the delay was caused by the Petitioner Employer. The Court noted that since the Contractor himself had sought extension of time without any compensation, the Contractor could not claim on account of loss of profits or loss of over heads due to delay. The case of Jagmohan Singh Gujral (supra) concerns a finding of fact arrived at on the basis of the only evidence which was nothing but hearsay evidence and in that context this Court held that the Arbitrator could not have ignored the material documentary evidence on record and recorded a finding based on mere hearsay evidence. These judgments are clearly distinguishable on facts and do not support the Petitioner's contention for the reasons already indicated by me above.
Invoice Nos.510-205 and 510-212
28. These two invoices are for the months of July and August 2005. The Respondent claims that there was a short payment by the Petitioner in respect of these invoices. The Petitioner has not indicated any reasons in the pre-arbitration correspondence between the parties for the short payment. It is, however, claimed by the Petitioner in the arbitral reference that certain back-up tools were not available on the rig during certain periods in the months of July and August 2005 and as a result these deductions have been made. The learned Arbitrators considered the contractual provisions as well as the oral testimony of Gupta, the Petitioner's witness, and held that there was nothing in the contract which sg Pg 22 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc entitled the Petitioner to deny payment to the Respondent on the basis of non-availability of back-up tools when there was no failure of main tools and as a result the services of back-up tools were not necessary. The learned Arbitrators also took into account the alternative case, namely, the deduction was on account of damages for breach of contract. The learned Arbitrators observed that if no damage was actually caused to the Petitioner as a result of the alleged non-availability of back-up tools, there was no amount payable by the Respondent. The learned Arbitrators, accordingly, concluded that there was no basis for denying the full day rate payable to the Respondent during the relevant period. The reasoning of the learned Arbitrators as well as the interpretation of the contract to arrive at the finding does not suffer from any manifest error and is clearly a possible view.
Invoice Nos.510-332, 510-333 and 510-405
29. These invoices have not been particularly challenged by the Petitioner either at the pre-arbitration stage or in the present Petition or even at the hearing. The only defence in respect of these bills that the invoices were paid in full, was not accepted by the learned Arbitrators on the ground that the invoices, which were said to be paid in full and on which the Petitioner's witness relied in his affidavit-in-chief, were different from these invoices.
The award in this behalf seems to be perfectly in order.
Invoice No.510-350
30. The invoice was for the month of October 2006. It is related to an incident where on 13/14 October 2006 drilling was unable to proceed sg Pg 23 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc beyond the depth of 4172 meters because of high torque. The Bottom Hole Assembly (BHA) was racked back and it was found that the Mud Motor and some other equipment had been lost in hole. On 14/15 October 2006 fishing operations were carried out to retrieve the lost material but these operations did not succeed and were abandoned. It was thereupon decided to cement up the hole and drill a side-track. Cementing operations were carried out during the period 15 October to 21 October 2006. Side track drilling was thereafter commenced and the depth of 4172 meters was achieved on 29 October 2006. Whereas, the Respondent in its invoice claimed only 78 hours for rig breakdown in excess of 32 hours during the month of October 2006, the Petitioner claimed 382 hours for rig breakdown over 32 hours. The dispute between the parties relates to adding of these 304 hours as the period lost from the time the first hole was stopped up to the time the side track hole reached a depth of 4172 meters, as equipment breakdown time. The learned Arbitrators considered the evidence led by the parties and particularly the testimony of the Petitioner's witness. The learned Arbitrators also noted that the DDRs did not indicate that there was any suspension of the operation of the drilling unit. On the basis of this evidence, the learned Arbitrators came to the conclusion that Article 3.4.6.1 was not applicable in the situation and that the applicable Article would be 3.4.2. The Mud Motor was not part of the equipment of the drilling unit and it was lost in the hole. The learned Arbitrators, accordingly, held that the time spent in fishing operations, namely, a period of 169 hours, was required to be paid under Article 3.4.2 at NODR. As for the balance period of 213 hours spent in cementing and side tracking operations, the Arbitrators held that since there was no negligence on the part of the Respondent, the Respondent would be entitled to be paid at NODR under Article 3.4.2. The learned Arbitrators noted that there was sg Pg 24 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc no evidence of negligence before the Arbitrators and that Article 16.5 was not attracted in the premises. This part of the award which is expressly on the basis of interpretation of contract and appreciation of evidence is not amenable to interference under the jurisdiction of this Court under Section 34 of the Act on the ground there is another possible view. No infirmity can be found with this part of the award.
Invoice No.510-351
31. This invoice was a connected invoice in respect of the same incident of October 2006 discussed above. The invoice related to payment of hire charges for integrated services. It was accepted between the parties that the fate of this invoice would depend upon the payability of the preceding invoice. The merits of the invoice were, however, independently examined by the learned Arbitrators. The Arbitrators considered the evidence of Robert Doughty (CW-2) together with the documentary evidence referred to in this behalf. The only other plea apart from the similar fate as the preceding invoice urged in defence as far as the invoice was concerned, namely, that the invoice ought to fail since it referred to services outsourced to "Schlumbergers" and that there was no pleading or document to show that the Respondent had incurred any liability towards Schlumbergers, and, if so, to what extent, was considered by the Arbitrators. The learned Arbitrators accepted the contention of the Respondent that the matter of settlement of dispute between the Respondent and Schlumberger in terms of the outsourcing agreement between the two, was not the concern of the Petitioner and that the claim reflected in the invoice, which was based on the agreement between the Petitioner and the Respondent, was payable on its own merits. No fault can be found with this reasoning.
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32. The learned Counsel for the Petitioner in the course of his
submissions tried to contend that the incident to which the invoice relates falls within the exception of Clause 3.4.6.2 and therefore ought not to have been allowed. There is nothing to show that this ground was raised before the Arbitrators in relation to this claim. The only two pleas which were urged before the Arbitrators and were recorded as such by the Arbitrators have been properly dealt with by the learned Arbitrators, as discussed above. The learned Counsel cannot be permitted under the circumstances to canvass this ground for the first time.
Invoice No.510-357
33. The invoice related to an incident which occurred in the month of November 2006. During this incident, the drilling unit was engaged in casing and cementing operations. During these operations, a part of the mandrel (which is a piece of equipment used in cementation), was discovered to have been left in the hole when the drilling assembly had been pulled out of the hole. The drilling accordingly had to be done through both the mandrel and the junk within the hole. The Respondent's invoice was on the footing that there was no rig breakdown exceeding 32 hours in the month of November 2006. The Petitioner, however, deducted 204.5 hours for rig breakdown exceeding 32 hours. It was claimed by the Petitioner that this period was lost due to operational lapses, which required milling of the mandrel. The learned Arbitrators noted that in the evidence of Gupta (2nd affidavit) it was claimed that the Petitioner was entitled to deduct a total of 236 hours as breakdown time. The learned Arbitrators held that there was no provision under the contract permitting the sg Pg 26 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Petitioner to deduct any time on the ground of operational lapse. On the other hand, the learned Arbitrators considered that if this alleged lapse was meant to refer to negligence of the Respondent, there was no evidence, much less any adequate evidence, before the Tribunal of such negligence in the incident due to which a part of the mandrel remained in the hole and required milling through it. The learned Arbitrators noted that there was no breakdown of the equipment of the drilling unit and that this was also not a case where operations were suspended because there was a need for repair of the mandrel. In fact the mandrel had done its work for cementation and was not required for any further use. A portion of the mandrel was lost in the hole and had to be, in the opinion of the Arbitral Tribunal, dealt with as such. The learned Arbitrators noted that there was no evidence of either negligence or wear and tear for this loss in the hole and hence the Petitioner was not entitled to deduct any time on that account.
34. The learned Counsel for the Petitioner submitted that if drilling operations could not be carried out under Article 3.4.2, the operations must be treated as having been suspended under Article 3.4.6.1 and that in such a case, the EBDR becomes applicable. The learned Counsel for the Respondent, on the other hand, submitted that mandrel was not a part of the drilling unit but part of integrated services, hire charges for which are separately provided for in the contract. He also referred to the evidence of the Respondent's witness Fenton (Questions 7 and 87) to show that the operations of milling were nothing but fishing operations. The learned Counsel also referred to various provisions of the contract dealing with fishing tools and submitted that these operations had to be likened to fishing operations and for which correct contractual provision is applied by the learned Arbitrators. In response, it was submitted by the learned sg Pg 27 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Counsel for the Petitioner that this was not the finding of the learned Arbitrators and infact this was not even the argument of the Respondent before the learned Arbitrators.
35. Be that as it may, the nature of operations involved in an incident and their characterisation under the agreement between the parties are matters for the Arbitrators to decide. If on analysis of the provisions of the contract and appreciation of evidence led by the rival parties, the Arbitrators arrive at a finding, which is a possible finding, no case for interference can be said to be made out under Section 34 of the Act. The Arbitrators have analysed the provisions of the contract between the parties concerning the various day rates payable to the Respondent and assessed the evidence of the parties and have held that the portion of the mandrel having been lost in the hole, the situation had to be treated as the case of loss of equipment in the hole. The Arbitrators have thereafter assessed the evidence and held that there was no case of negligence on the part of the Respondent in the incident of such loss. The Arbitrators have thereupon arrived at the conclusion that the rate claimed in the invoice was indeed payable to the Respondent. No fault can be found with either the approach of the learned Arbitrators or the finding arrived at by them after such analysis.
Invoice No.510-373
36. This claim was a small claim not pressed by the Respondent and hence not considered by the learned Arbitrators.
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Invoice Nos.510-377 and 510-378
37. The invoices related to an incident in January 2007. These two
invoices, namely, Invoice Nos. 510-377 and 510-378, respectively account for claims of US$ 1,447,934.00 and US$809627.24. The learned Counsel for the Petitioner made submissions only in respect of Invoice No.510-377.
38. The incident relates to pulling of the string out of the hole at the depth of 6495 meters on 11 January 2007. When the string was pulled out, it was found that the density window plug was missing. To clean the hole, mill and junk basket were lowered but the string got stuck and the string severed leaving 74 meters of string inside the hole. It was then decided to side track the well after placing a cement plug in the dug out hole. After running the cement stringer in the hole, when it was pulled out, 20 joints were left in the hole. Fishing operations followed but were unsuccessful. Whereas the Respondent's invoice claims hire charges for 535.5 hours at NODR and 10.5 hours of rig breakdown in excess of 32 hours, the Petitioner claims that the applicable pay rate was the half rate under Article 16.5 for a total of 425 hours. Both the parties led evidence in respect of the incident. Whereas, the Petitioner's witness claimed that the stringer was lost due to negligence of the driller and that this was a case of equipment breakdown, in his cross-examination, however, the witness accepted that the decision to side track the hole was taken even before the cement stringer was run in the hole. The Respondent's witness, on the other hand, in his evidence claimed that there was no negligence on the part of the Respondent. The witness explained that when a small pipe goes inside the well of a larger diameter, it could be obstructed from going further and that there was a possibility that the pipe might break. The witness claimed that it was hard sg Pg 29 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc to differentiate where the small pipe had become obstructed. The witness accordingly explained that the loss of stringer could not be considered as occasioned by the Respondent's negligence. The witness also explained that the decision to side track the well was based on loss of 74 meters of string being lost in the hole and that this was therefore not a case of side tracking becoming necessary on account of the Contractor's negligence. The learned Arbitrators accepted the Respondent's evidence and held that the Petitioner's action in calculating 425 hours at half rate under Article 16.5 was not justified. This was not a case where the originally drilled well had been lost on account of negligence in losing the string on the part of the Respondent as claimed by the Petitioner. The reasons of the Arbitral Tribunal are purely based on appreciation of evidence and applicability or otherwise of the relevant provisions invoked by either parties and cannot be faulted in the jurisdiction of this Court under Section 34 of the Act.
Invoice No.510-398
39. This invoice was for the period of April 2007. The invoice was initially paid by the Petitioner but the Petitioner subsequently claimed that having regard to the contractual provisions, the payment was in excess and hence recovered from the payment of April 2007. This claim pertains to the cost of well-heads which had to be reimbursed to the Respondent by the Petitioner on actual basis. It was the case of the Petitioner that considering the actual consumption of well-head in the hole an amount of USD.226,410 was paid in excess and therefore was correctly recovered from the invoice of April 2007. The learned Arbitrators referred to the contractual provisions and held that there was no evidence of such excess payment and on that basis considered the invoice to be payable.
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40. The learned Counsel for the Petitioner referred to the evidence of payment of well-heads as well as use of well-heads on record before the learned Arbitrators. The learned Counsel also referred to the Clauses of the contract, namely, Article 4.5 which dealt with reimbursement on account of well-heads and Article 4.6 which dealt with reimbursement on account of well material. Learned Counsel submitted that having regard to these Clauses read with the documentary evidence of a letter issued by the Petitioner to the Respondent on 16 July 2007 together with the particulars of payment and use of materials annexed thereto, the original payment was in excess. The learned Counsel submitted that all this evidence was completely disregarded by the Arbitral Tribunal. The learned Counsel also submitted that the Petitioner's witness was not cross-examined in this behalf nor was any contrary evidence submitted by the Respondent and in the premises, there was no way the Arbitral Tribunal could have come to the conclusion that there was no evidence of excess payment. The learned Counsel submitted that the observation of the Arbitral Tribunal being contrary to the record and there being a clear evidence of excess payment, the conclusion of the Arbitral Tribunal is clearly perverse and that this part of the award needs to be set aside.
41. On the other hand, the learned Counsel for the Respondent submitted that the so called documentary evidence referred to by the learned Counsel for the Petitioner deals with payment towards well material covered by Article 4.6 of the contract, whereas the subject of well head was covered by Article 4.5.
42. Obviously, the excess recovery was claimed by the Petitioner towards sg Pg 31 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc the cost of well heads, which is a subject covered by Article 4.5. That article requires the cost of the well heads (to be provided by the Respondent) to be reimbursed by the Petitioner. As far as well heads are concerned, there is no evidence of any excess payment having been made by the Petitioner. The documentary evidence referred to by the Petitioner, on the other hand, pertains to well material which is covered by a separate Article, namely, Article 4.6. In the light of these pleadings and evidence, the conclusion of the learned Arbitrators that there was no evidence of excess payment in respect of well-head was clearly in order and no interference is called for. Article 7.4 of the contract clearly requires the Respondent as a Contractor to maintain two well-heads though only one well-head was used in the entire operations. The payment towards the well heads was thus clearly justified and could not be termed as excess payment. This part of the award, therefore, calls for no interference.
Invoice No.510-344
43. This invoice pertained to the month of August 2006 and concerned the problem of the well-head connector. The well-head connector (designated as H4 Connector) which connects the Blow Out Preventer (BOP) to the well-head is engaged with and disengaged from the well-head in the course of drilling operations. The connector gets locked on to the well-head by matching the male/female grooves of the dogs on the connector with the male/female grooves of the well-head. Reverse operations are carried out to release the grooves of the dogs from the grooves of the well-head. In the incident covered in the invoice, the connector was jammed and despite the latching and unlatching equipment functioning properly, the dogs could not be released. The DDR of 1 August sg Pg 32 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc 2006 noted that though latching and unlatching operations were repeated several times, the connector held fast and all efforts to disconnect H4 Connector failed. The Respondent had finally resorted to cutting the casing, freeing the BOP and its connector to bring it to the surface. The connector unlatched without any difficulty after it was brought to the surface. Both the parties led evidence in respect of this incident. The Petitioner's witness claimed that the failure to disconnect the H4 Connector was due to malfunctioning of the H4 Connector and therefore the breakdown rate was applicable. On the other hand, the Respondent's witness claimed that this kind of problem could occur even when the equipment was in full working order and there was no mishandling of the disconnection operation by the rig crew. Some possible causes such as silting of the Connector, freezing of condensers at great depth, change in the angle of the well-head during the drilling period on account of settlement, etc. were suggested by the witness.
The learned Arbitrators noted that the joint report signed by the representatives of both parties after the BOP had been brought on deck recorded successful unlocking and releasing of the connector. The learned Arbitrators further noted that the Pressure Test Certificate in this behalf stated that no wear and tear or defects were found on the connector. In the light of this documentary evidence, the learned Arbitrators analysed the rival testimonies of the parties. The learned Arbitrators noted that the Respondent's witness had explained the nature of the problem and the possible causes leading to it. The learned Arbitrators also noted that the deposition of the Respondent's witness showed that the connector was not malfunctioning and the gallon count for both the open and close of the function was observed to be correct; and that the operating sequence of the H4 Connector was carried out and seen to be functioning correctly. The learned Arbitrators noted that only one question was put to the sg Pg 33 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Respondent's witness in cross-examination (Q.52). The learned Arbitrators noted that as answered by the witness, no drilling hours were lost as the drilling of the well had been completed. The learned Arbitrators also analysed the testimony of the Petitioner's witness and noted that there was an admission that the connector was not unlocking because the dogs were not retracting but that there was no explanation offered by the witness as to why the dogs did not so retract. The learned Arbitrators on this analysis accepted the Respondent's evidence and proceeded to hold that in the concerned situation Article 3.4.6.1, which dealt with rig breakdown rate, would not apply. The learned Arbitrators held that there was no breakdown, or destabilization of the drilling unit, and no repairs were required to be done to the drilling unit. The learned Arbitrators noted that the dogs failed to retract and the teeth of the dogs and the well-head were for some reason stuck together and could not be released although the release process was working normally. The learned Arbitrators accordingly came to the conclusion that the claim was not covered by the provisions of Article 3.4.6.1.
44. The learned Counsel for the Petitioner in this behalf submitted that there were only two possibilities in the case of suspension of operations namely, the possibility covered by Article 3.4.2 and Article 3.4.6.1 and that if a particular case was not covered by Article 3.4.2, it had to fall under Article 3.4.6.1. The learned Counsel submitted that in this particular case, the drilling unit could not be said to be not operating due to any of the contingencies set out in Article 3.4.2 and thus the case fell within Article 3.4.6.1 and nil rate was payable beyond 32 hours.
45. The learned Arbitrators held that Article 3.4.6.1 did not apply to the sg Pg 34 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc situation covered by this invoice. Whether the interpretation of the Article 3.4.6.1 by the Arbitrators in this behalf is correct or whether the only possibility if an incident is not covered by Article 3.4.2 is the possibility covered by Article 3.4.6.1, as suggested by the learned Counsel for the Petitioner, is a matter reflecting purely on interpretation of contract. As long as the interpretation of the Arbitrators is a possible interpretation, there is no occasion for this Court, whilst examining of an award under Section 34 of the Act, to interfere with that interpretation or the reasons stated in the award for the same.
46. It was submitted by the learned Counsel for the Respondent that it was not even the case of the Petitioner that this was a case of EBDR being made applicable. The learned Counsel referred to the evidence of the Petitioner's witness and pointed out that the witness was unaware of the expression "destabilization" used in Article 3.4.6.1. On the basis of the testimony of the Petitioner's only witness, it was submitted that this was not a case of destabilization of the equipment. The only other case under Article 3.4.6.1 is of suspension of operations due to breakdown of or need for repairs to the Contractor's equipment of drilling unit. It was pointed out by the learned Counsel for the Respondent that in this case the well-head belonged to the Petitioner whereas the well-head connector belonged to the Respondent. The learned Counsel submitted that there is absolutely no evidence on record to suggest whether the incident of non-latching of the well-head connector was due to any fault or need for repair to the well- head or any fault or need to repair the connector.
47. There is substance in the submission of the learned Counsel for the Respondent that there is no case of destabilization of drilling unit in the sg Pg 35 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc incident. No such case was either set up or established before the Arbitral Tribunal. So also, there is no evidence of any breakdown or need for repairs to the Contractor's equipment. The analysis of the learned Arbitrators in this behalf after careful scrutiny of the rival testimonies presented by the parties cannot be faulted within the forecorners of the jurisdiction of this Court under Section 34.
(D) Demobilization payment :
48. That brings us to the last of the substantive claims of the Respondent.
This concerns the demobilization payment. The demobilization issue arises under Article 3.3 of the contract. The Petitioner had deducted a sum of USD.327,902.00 from the demobilization fee amounting to USD.1,800,000 payable under Article 3.3. The deduction was on account of 46 hours of fishing operations due to a part of the drill string having been left in the hole. Whereas the Respondent treated these 46 hours payable at NODR, the Petitioner treated this period as payable at zero rate (beyond 32 hours) under EBDR. The demobilization fee earlier paid in full was sought to be deducted by the Petitioner on this basis.
49. The relevant invoice was Invoice No.510-384. The learned Arbitrators noticed that it was an accepted fact by both sides that 46 hours were spent in fishing. The contest between the parties was on whether the loss was on account of normal wear and tear. The learned Arbitrators noted that there was no evidence that the string was lost as a result of wear and tear. The learned Arbitrators also noted that the deduction from the invoice showed not merely the deduction of the alleged payment at the rate of NODR for 46 hours but also a deduction for penalty. The learned sg Pg 36 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc Arbitrators observed that this aspect was not explained by the Petitioner.
Further, the learned Arbitrators analysed Article 7.4 of the Contract which contained a restriction on the Petitioner's right to claim a set off. The Article provided for the procedure for arriving at any adjustment mutually by the parties. The Arbitrators noted that there was no agreement for adjustment between the parties in the present case.
50. As is obvious from the discussion noted above, this part of the award is based on interpretation of contract, namely, Article 7.4 as well as Article 3.3 and Article 1.2 as also appreciation of evidence insofar as the applicable rate is concerned. The learned Arbitrators on interpretation of the contractual provisions came to a conclusion that the deduction was not valid. The learned Arbitrators also analysed the evidence to hold that the Invoice No.510-384 which was earlier fully paid by the Petitioner, did not cover an incident of loss of equipments due to normal wear and tear. No fault can be found either with the interpretation of contract or appreciation of evidence in this behalf.
(E) Interest :
51. That brings us to the question of interest which was seriously contested on both the sides. The award in so far as it concerns interest has two aspects: (i) payability of interest having regard to a purported restriction contained in the contract and (ii) payability of interest on interest as a matter of principle.
52. As far as interest payable up to the date of the award is concerned, the learned Counsel for the Petitioner submitted that Article 28.6 of the sg Pg 37 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc award completely prohibits the Arbitrator from awarding any interest on the claims. On the other hand, it is contended by the learned Counsel for the Respondent that the Article deals with only post-award interest and does not prohibit the Arbitrators from granting any pre-arbitration or pendente lite interest. The relevant Article is noted below :-
"28.6 It is also a term of the Agreement that neither party to this Agreement shall be entitled to the interest on the amount of award."
53. The Arbitrators have interpreted this Article to mean that no interest was payable on the award and in the premises, held that interest could not be granted on the amount awarded in the award for a reasonable period from the date of the award.
54. The question is essentially of construction of a term of contract namely, Article 28.6. As noted above, the learned Arbitrators have construed the Article in a particular way. The construction appears to be a plausible construction. The learned Counsel for the Petitioner, however, submits that the judgments of the Supreme Court have dealt with the expression "sum directed to be paid by an award" used in Section 31 of the Act. According to the learned Counsel, the sum directed to be paid by an award under Section 31(7) does not include interest. It is submitted by the learned Counsel that the expression "amount of award" used in Article 28.6 conveys the same meaning and ought to be interpreted in the same manner. The learned Counsel relies upon the judgments of the Supreme Court in the cases of Board of Trustees for Port of Calcutta vs. Engineers- De-Space-Age6 and the case of Union of India vs. Krafters Engineering 6 (1996) 1 Supreme Court Cases 516 sg Pg 38 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc And Leasing Private Limited7. The learned Counsel also relies upon the decision of the Supreme Court in the case of State of Haryana And Others vs. S.L. Arora and Company8.
55. No doubt it is held in the case of S.L. Arora and Company (supra) that " a sum directed to be paid by an arbitral award" refers to the award of sums on the substantive claims and does not refer to interest awarded on the "sum directed to be paid by the award". The expression "sum directed to be paid by the award" may be likened to the expression "amount of award" in Article 28.6 and it is possible to construe the expression "amount of award" as a sum awarded in respect of the substantive claims and not in respect of interest awarded on such sums but by no means it can be said that this is only interpretation that is possible. It is pertinent to note that we are involved here in an exercise of construction of an expression used by the parties in their contract and not a statutory provision. It may be noted that after the decision of S.L. Arora and Company's case, which was delivered on 29 January 2010, contours of the expression "a sum directed to be paid by an arbitral award" have been clearly brought out. But it can by no means be suggested that this meaning of the expression was present to the minds of the parties when they entered into the suit contract. Besides, it may also be noted that the expression "sum directed to be paid by the award"
discussed by the Supreme Court in the case of S.L. Arora and Company was in the context of Clause (b) of sub-section (7) of Section 31. We are concerned here with the amount awarded and interest being a part of such award in terms of Clause (a) of sub-section (7) of Section 31. Be that as it may, the expression "amount of award" is, as discussed by me above, 7 (2011) 7 Supreme Court Cases 279 8 (2010) 3 Supreme Court Cases 690 sg Pg 39 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc capable of being interpreted in the manner as suggested by the learned Arbitrators.
56. It is, however, submitted by the learned Counsel for the Petitioner that the construction suggested by the learned Arbitrators is not a possible construction and the only interpretation that is possible of the expression "amount of award", is the interpretation suggested by the learned Counsel for the Petitioner. The learned Counsel submits that if the expression "amount of award" is interpreted to imply only a post-award interest, it makes the whole provision nugatory since the subject of post-award interest is in any event not a matter of contract between the parties but is a matter of law which is provided by Clause (b) of sub-section (7) of Section 31.
Clause (b) of sub-section (7) provides that the sum directed to be paid by an arbitral award shall carry interest at the rate of 18% per annum from the date of the award to the date of payment unless the award otherwise directs. The submission is that unlike Clause (a) of sub-section (7) where the determination of interest is subject to a contract to the contrary, there is no such provision in Clause (d). Clause (d) contains a statutory mandate subject only to the direction in an arbitral award.
57. A closer scrutiny of the scheme of the two Clauses of Sub-Section (7) of Section 31 indicates that a contract between the parties is very much relevant as far as post-award determination of interest is concerned. The post-award interest provided at the statutory rate is expressly stated to be subject to a direction of the arbitral tribunal to the contrary. The very fact that the post-award interest is to be determined by the Arbitrator implies that the determination of such interest can very well be provided by an agreement between the parties. The Arbitrator is expected to determine sg Pg 40 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc both the factum and quantum of interest in accordance with the agreement between the parties. At any rate, the expression "amount of award" used in the contract between the parties in the present case is capable of being treated as a direction to the Arbitrators insofar as the post-award interest is concerned. This direction is expected to guide or control the exercise of discretion by the Arbitrators under Clause (b) of the sub-section (7) when the Arbitrators direct post-award interest. In that view of the matter, no fault can be found with the interpretation of the Clause by the learned Arbitrators or the directions issued in pursuance thereof.
58. As far as grant of interest on interest is concerned, the point is clearly covered by the judgment of the Supreme Court in S.L. Arora's case. The post- award interest under Clause (b) of Section (7) of Section 31 can never be granted on the component of interest comprised in the amount awarded by the Arbitrator. The expression "sum directed to be paid by an arbitral award" in Clause (b), as explained above, can never include the interest awarded on the substantive claims in the award. As held by the Supreme Court in S.L. Arora's case, the Section contemplates award of simple interest in the absence of any provision for interest upon interest in the contract. In that view of the matter, the award of interest by the Arbitrators on the entire sum awarded including the interest payable under Clause (v) of Para 80, can never be justified. This part of the award is clearly against the law and cannot be sustained.
(F) Costs :
59. That leaves with us the last of the claims contested between the sg Pg 41 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc parties, namely, the costs awarded by the arbitral tribunal to the Respondent.
60. On costs, it is submitted by the learned Counsel for the Petitioner that there is a particular Clause in the contract, namely, Article 28.5, which provides that the cost of arbitration shall be borne by the parties in equal share. It is submitted by the learned Counsel that in the face of a clear prohibition contained in the relevant Article, the Arbitrators could not have awarded any cost to the Respondent. On the other hand, it is submitted by the learned Counsel for the Respondent that this ground was not raised before the Arbitral Tribunal and the parties did not join issue on the applicability of the particular Article whilst adjudicating upon the claims.
The learned Counsel further submits that there is no specific ground in this behalf in the Petition challenging the costs awarded by reference to Article 28.5.
61. The record does reveal that the ground of Article 28.5 and the prohibition contained therein was not urged before the Arbitral Tribunal.
The ground is not even made part of the challenge in the present Petition. The only ground raised in the Petition insofar as the award of cost is concerned is to be found in Clause (z) of para 6 which asserts that the costs awarded by the arbitral tribunal are exorbitant and therefore opposed to public policy. Having regard to these circumstances, it is not permissible for the Petitioner to object to the award of costs on the ground of the prohibition contained in Article 28.5.
62. It is also submitted by the learned Counsel for the Petitioner that a substantial part of the Respondent's claim, namely, for a sum of USD15.53 sg Pg 42 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc million was rejected by the Arbitral Tribunal. Having regard to this rejection, it is claimed by the learned Counsel that the Arbitrators could not have saddled the Petitioner, who had partly succeeded in non-suiting the Respondent, with the entire costs of arbitration.
63. It may be noted that a substantial part of the Respondent's claim has been allowed by the Arbitral Tribunal. That claim consists of numerous invoices which have not been challenged on the basis of disclosure of any particular ground in the pre-arbitration correspondence between the parties. A number of these invoices have not been made a subject matter of challenge even in the present arbitration proceedings. Infact, if one has regard to the loss in hole invoices, the non-contested invoices (which are admittedly not challenged in the present arbitration proceedings even according to the learned Counsel for the Petitioner) account for more than a million USD. There is absolutely no justification for non-payment or withholding of many of the invoices, as is apparent from the record and as is discussed above. Having regard to this fact, the award of costs to the Respondent by the Arbitral Tribunal, cannot be faulted. It would have been another matter if the Petitioner had offered to pay the uncontested invoices and the contest had substantially concerned the quantum meruit claim of the Respondent which was rejected by the Arbitral Tribunal. A rejection of a substantial part of the Respondent's claim in such an event would have justified the submissions now advanced by the learned Counsel for the Petitioner. For the reasons indicated above, there is no merit in the challenge to the award of costs. Section 31(8) of the Act clearly enables the Arbitral Tribunal to fix the costs, as also, the entitlement of the party to claim, and the liability of the opponent to pay, such costs. The decision of the learned Arbitrators, which was within their jurisdiction and which sg Pg 43 of 44 ::: Downloaded on - 15/04/2014 22:27:08 ::: arbp952-13.doc appears to be a reasonable exercise of jurisdiction, cannot be faulted. I am fortified in this view by a judgment of our Court in the case of Board of Trustees for Jawaharlal Nehru Port Versus Gateway Terminals India Pvt. Ltd.9
64. Having regard to the above discussion, there is no merit in the challenge to the arbitral award, except in so far as it relates to Clause (vi) of Para 80 of the award where interest is awarded on amounts specified in Clause (v) of Para 80. Except as regards the award of interest in Clause (vi) on the amounts specified in Clause (v) of Para 80, the rest of the award is clearly required to be sustained and no interference is called for. The Petition is, accordingly, disposed of by rejecting the entire challenge to the award except as indicated above.
( S.C.GUPTE, J. ) 9 Arbp-1157-2012, Coram : R.D. Dhanuka, J. dtd. 19-11-2013.
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