Holding patent illegality ground inapplicable to international commercial arbitration, the Delhi High Court ruled that force majeure requires ‘prevention’ and not mere ‘hardship’, and that an invalid Notice of Readiness (NOR) cannot be cured by subsequent events. The Court said that where a Contract of Affreightment requires the charterer to be ‘prevented’ from discharging obligations for force majeure to apply, and the Government has declared port and cargo handling services as essential during the COVID-19 pandemic, the charterer cannot invoke force majeure merely because discharge operations were rendered more difficult.
An NOR validly tendered under the contract is not invalidated by a subsequent equipment breakdown, and the tribunal’s factual findings on the validity of the NOR and the non-application of force majeure cannot be reappreciated by the court under Section 34 in an international commercial arbitration.
A Single Judge Bench of Justice Avneesh Jhingan observed that this was an international commercial arbitration because Norvic was incorporated in Canada, and that under Section 2(2) read with the proviso, Part I applied since the seat was Delhi. On the scope of interference, the Court noted that after the 2015 amendment, the ground of ‘patent illegality’ under Section 34(2A) is not available in international commercial arbitrations.
For MV Pegasus vessels, the Court found that the NOR issued on 10 May 2019 was valid; the subsequent generator breakdown on 17 May 2019 did not invalidate an already valid NOR, and Clause 41 only excludes the period of inefficiency from laytime without requiring a fresh NOR. For MV Esperia, the Court accepted the tribunal’s factual finding that no misunderstanding existed on 10 July 2019 when the NOR was issued. The misunderstanding arose only on 27 July 2019 and was resolved the same day.
On the COVID-19 vessels, the Court observed that the Office Order dated 23 March 2020 declared port services including loading, unloading, movement, and storage of goods as essential services, and the Ministry circulars dated 31 March 2020, and 21 April 2020, reiterated that ports must remain operational. The Court held that the Haldia circular dated 5 April 2020 dealt with port charges and not contractual demurrage between private parties, and Section 53 of the Major Port Trust Act was an enabling provision inapplicable to inter-party contractual relations.
The Court further observed that SAIL being a ‘State’ under Article 12 of the Constitution did not entitle it to any special status in a commercial contract. The Court held that the award was not non-speaking; the tribunal had considered the evidence, applied the relevant clauses, and recorded intelligible and adequate reasons.
Briefly, Steel Authority of India Limited (SAIL) entered into a Contract of Affreightment (CoA) on 5 April 2019 with Norvic Shipping North America Inc., a Canadian company, for shipping 16,00,000 metric tons of limestone from the UAE to India over multiple voyages. Disputes arose during execution relating to laytime calculation and demurrage at different discharge ports, prompting Norvic to invoke arbitration on 11 June 2020 under Section 21 of the Arbitration and Conciliation Act, 1996.
The dispute before the three-member tribunal covered eight motor vessels; the claim for MV River Globe was rejected, leaving seven vessels in issue, Pegasus, Esperia, Cas Avanca, Vishva Ekta, Jay, Blue Ripple, and Sparrow. The tribunal awarded freight, demurrage, and interest at LIBOR + 3 percentage points or 12% per annum, whichever is less, along with costs of ₹10 lakhs. SAIL challenged the award under Section 34 of the Act, contending that the Notice of Readiness (NOR) for Pegasus and Esperia was invalid, that COVID-19 triggered force majeure for the remaining vessels, and that the award was non-speaking and violative of public policy.
