Research and Articles

JUDGMENT AND ANALYSIS

The High Court considered the above issues in light of Sections 9(1) and 9(4) of the Act respectively.² On the first issue, after hearing submissions of both parties with respect to amendment to fees, the High Court held that there was no inconsistency in relation to other clauses in the License and Clause 22 covering fees. The other Licence provisions that may result in a variation of the fee contemplate relatively minor annual adjustments to take account of readily foreseeable changes in a long-term agreement. They do not provide a mechanism for altering the fee to take account of a major change in circumstances. Therefore, the High Court concluded that clear words would be needed to construe that a clause involving extensive revisions would exclude the fee component. Any major physical or financial change in circumstances which affects the operation of the parties’ facilities is likely to affect the fees payable as well.

With respect to the second issue on Clause 22 being uncertain, the High Court held that such clauses need to be ascertained on a case to case basis. While analysing the issue of ambiguity on “major physical or financial change in circumstances”, the High Court recognised that the market conditions under which both parties operated are extremely volatile. It may be difficult to ascertain when it is sufficiently serious to constitute a major physical or financial change. Relying on precedents, the High Court held that “there is an important difference between a clause whose content is so uncertain that it is incapable of creating a binding obligation, and a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content” (emphasis added).³ In the present case, the clause could be given practical content. Not only did the clause require a major physical or financial change in circumstances, but also this change should have affected the operation of the Tidal Harbour or of Tata’s nearby steel works. Therefore, the clause was not entirely open-ended and was held to be valid and binding in this regard.

ABP argued on the uncertainty of Clause 22 due to absence of a criteria for the Arbitrator to determine the trigger event and amend the terms of the License. It was submitted that it was not sufficient to state that the revised terms must be ‘reasonable’ because that is not in itself an objective standard and there is no objective method by which the Arbitrator can choose between the competing submissions of the parties as to what changes should be made to the Licence. The High Court agreed with the view that it is essential to establish a ‘yardstick’ or an ‘objective criteria’ for a court or arbitrator to identify the price, rent or other terms and conditions.

However, the High Court highlighted that the Arbitrator will not be acting in vacuum and the existing terms would come to the aid. The arbitrator could find guidance both within the contract, nature of the change and in the parties’ submissions, providing a criteria objective enough for the clause to be ‘certain’.

The High Court placed reliance on the significance of reading the agreement as a whole to understand the intention of the parties and ascertain the implied terms to lend meaning to Clause 22. If the intention of the parties was that the matter should be left to the parties, the court cannot infer an implied term imposing an objective criteria or reasonableness. The implied term cannot be contradictory to the intention of the parties. On the other hand, since the parties provided for arbitration in their agreement, the intention was to appoint an independent third party to settle their differences.

The clause was a binding obligation to refer the dispute to arbitration without any uncertainty. Accordingly, the proceedings were stayed. Relying on series of ruling, the High Court set forth some general principles regarding uncertain contractual clauses-

1. Wherever possible, the courts should strive to give meaning to contractual clauses agreed by the parties.⁴
2. Mere difficulties of interpretation are not the same as ambiguity of meaning. A court should hold a contract or some part of it void only when it is legally or practically impossible to give the agreement any practical content.⁵
3. In cases where the contract has been performed by one or more parties over a period of time, courts should be especially reluctant to find a clause void for uncertainty.⁶
4. A court must always endeavor to give effect to the parties’ intentions.

This judgment clarifies that in case of existence of arbitration clauses, it must be kept in mind that the impugned provision is more than a mere agreement to settle amicably. This ruling re-emphasises the principle that the intention of parties plays the most crucial role in determining and adjudicating a dispute and the implied terms of the contract need to be looked at to adjudicate disputes. It is also noteworthy to mention that the Indian Supreme Court in the past, in several cases have adopted the same approach and held that interpretation should be approached in a commercial manner and not in a legalistic or semantic manner. If the clause reflects a clear intention to arbitrate, it should be respected.