Two mistakes that add up and give a lost award. Even Courts u/s 34 wont rescue you! Delhi H.C on acquiescence and improper cross-examination

Two mistakes that add up and give a lost award. Even Courts u/s 34 wont rescue you! Delhi H.C on acquiescence and improper cross-examination

Introduction

Arbitration is not only becoming expensive but time consuming as well. Right from the notice of invocation to that last hearing, a lot of time, effort, manpower, paper rims, spiral binding, costs for the arbitration venue, cost of the sandwich ordered by opposite-side counsel not included in the Neeti Bagh package, etc. is involved. All of this condenses into an arbitral award which goes for a toss in the Court of law u/s 34 Petition by just paying a court fee of Rs. 100 /-. Though 2015 amendments seek to restrict this practice but thanks to Delhi High Court, the same is not applicable to arbitration proceedings invoked prior to 23 October 2015.

It will not be incorrect to say that courts today adjudicating ancillary litigation out of arbitration disputes are often more responsive and swift in deciding the matters. A Petition filed in Delhi High Court before noon and without defects, gets listed the very next day and chances are that your fate will be decided on the day of listing itself. Just to add, some lawyers have the distinction of getting the matter listed on the same day as well. Since the scope of challenging an award is on limited grounds, courts often do not interfere with the findings of the arbitrator unless it is absolutely perverse and flawed. If the court is certain that award does not require its interference then it does not even waste much time to dismiss the same with relevant observations. Similar situation occurred in the case of KSS Petron Pvt Ltd. & Anr. v. HPCL-Mittal Energy Ltd. & Anr[1] wherein the Delhi High Court dismissed the petition u/s 34 on the same day of hearing. The Court made brief observations on certain defaults on part of the Petitioner which proved to be fatal. This article is on such aspects of law. 

Very Brief factual background.

The facts and the complexity of the dispute here is of not much relevance but here is a snapshot. Subject matter of the Section 34 proceedings arose out of arbitral proceedings which were the resultant of the settlement agreement of the previous construction arbitration. A settlement was proposed for an agreed amount in the said construction arbitration dispute. KSS invoked arbitration stating that there was a shortfall in the payment made and thus HMEL breached the settlement agreement. KSS sought for the revival of the main construction contract arbitration proceedings. The majority award of the Tribunal held that there was no breach made by the HMEL and dismissed the claims of KSS.

The two facts which are of the importance here and not mentioned above is that KSS didn’t object to the shortfall in the amount. Further, even during the course of the arbitration proceedings, it failed to cross-examine the witness on such facts and circumstances which lead to shortfall in the payments. As per HMEL shortfall was due to the deductions which were agreed by the parties. Such facts and circumstances fall within two established principles of law i.e. doctrine of affirmation or acquiescence and effect of not cross-examining a witness on a aspect. They are addressed as under:

Mistake-1: Not raising issues at as when they arise.

Weak can never forgive. Forgiveness is the attribute of the strong. -Mahatma Gandhi. This above statement does not really fit in the field of commercial jurisprudence. In contractual relationship, every action must be duly acknowledged and recorded. Hence the act of forgiveness must be recorded as “Without prejudice to my rights under the agreement and under the law, I hereby forgive you!” Most cases often enter into the legal deadlock because one party alleges default and other party replies that the same was cured though agreement or by conduct since it was never pointed out earlier. In several service or construction contracts where time is an essence, contractor often delays the project. After prolonged extension, the owner sends a termination notice and a reply comes that its unlawful termination and party which was initially delaying the project comes back with a counter-claim.

Contract Act provisions do caution the party of the consequences of not taking the action on time. Section 39 and 55 of the Indian Contract Act, 1872 squarely falls in such circumstances. Section 39 makes a presumption that If a party fails to object or raise a dispute when it occurs and continues to act in accordance with the contract then it is presumed that it has “acquiescence in the continuation of the contract”. Further Section 55 gives the party a choice to either accept the performance in default or take appropriate action. Most parties tend to remain silent on the initial tension and thus pay the price later. 

The issue does not end here. Parties often later initiate litigation and seek for larger reliefs. For instance in KSS v. HMEL case, KSS after nine months from accepting the payment sought for the relief to revive the old arbitration proceedings. This is common in commercial disputes that parties come back with full force. To counter it, courts have developed the principle that parties cannot be permitted to “approbate and reprobate”, “blow hot and cold”, “fast and lose”, etc. The principle was derived from Scottish law and has been affirmed on several occasions. Para 34 and 35 of the Supreme Court judgment in Cauvery Coffee Traders v. Hornor[2] Resources is a relevant read on it.

To terminate or not terminate!

Parties often get confused with possible options before them. The Court of Appeal Civil Division, U.K in Tele2 International Card Company and Anr. v. Post office Limited,[3] presents an ideal flowchart of consequences for reference. The Contract law in this regard is same in India and U.K. Just that we call we call it the principle of acquiescence and Englishmen call it doctrine of affirmation. The relevant extracts from the aforesaid judgement are reproduced hereunder:

“53 Lord Goff's analysis of the doctrine of affirmation of a contract by election can be summarised, for the purposes of the present case, as follows:

(1) if a contract gives a party a right to terminate upon the occurrence of defined actions or inactions of the other party and those actions or inactions occur, the innocent party is entitled to exercise that right. The innocent party has to decide whether or not to do so. Its decision is, in law, an election.

(2) It is a prerequisite to the exercise of the election that the party concerned is aware of the facts giving rise to its right and the right itself.

(3) The innocent party has to make a decision, because if it does not do so then “the time may come when the law takes the decision out if [its] hands, either by holding [it] to have elected not to exercise the right which has become available to [it], or sometimes by holding [it] to have elected to exercise it ”.

(4) Where, with knowledge of the relevant facts, the party that has the right to terminate the contract acts in a manner which is consistent only with it having chosen one or other of two alternative and inconsistent courses of action open to it (ie. To terminate or affirm the contract), then it will be held to have made its election accordingly.

(5 An election can be communicated to the other party by words or conduct...”.

Mistake-2: Not cross-examining the witness properly

Irrespective of the fact that cross-examination is a gruesome exercise and involves confusing questions with double negatives, suggestion and a lot of usage of Do you know? But it is very important to ask the right questions else the evidence tendered by the opposite party shall be deemed to be true. In KSS v. HMEL, it was the submission of HMEL that short-payment if any was made due to deductions and parties had agreed upon the same. HMEL’s witness also tendered a detailed affidavit explaining that parties had agreed for the deduction due to change in the mode of payment, therefore a deviation in the amount occurred. Court reproduced the affidavit contents and observed that KSS did not cross-examine the witness on this aspect and refused to interfere and affirmed the findings of the tribunal.

Section 138 of the Indian Evidence Act, 1872 confers a valuable right to cross-examine a witness tendered in evidence by opposite party. The scope of that provision is enlarged by Section 146 of the Act by permitting a witness to be questioned, inter alia, to test his veracity. If the same is not done properly then evidence tendered is to be accepted as true. The principle has been explained in the famous case of Browne v Dunn[4] and often quoted in several cases. Lord Hersehll observed that

"I cannot help saying, that it seems to me to be absolutely essential to the proper conduct of a cause, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross-examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which, it is suggested, indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit. My Lord, I have always understood that if you intend to impeach a witness, you are bound, whilst he is in the box, to give an opportunity of making any explanation which is open to him; arid, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but it is essential to fair play arid fair dealing with witnesses."

The above observations are efficiently summarized in Phipson on Evidence, (16th edn, 2005), p. 322 which states:

“In general a party is required to challenge in cross-examination the evidence of any witness of the opposing party if he wishes to submit to the court that the evidence should not be accepted on that point… This rule serves the important function of giving the witness the opportunity of explaining any contradiction or alleged problem with his evidence. If a party has decided not to cross-examine on a particular point, he will be in difficulty in submitting that the evidence should be rejected.”

Conclusion

As stated earlier, if parties fail to take the right path then eventually law takes over and decide the fate. Then there is hardly any scope for improving upon the case. Therefore, parties must be clear with their strategy and intention. Courts are the last resort but if the first step is itself wrong then even Courts would not rescue.

[1] Available at https://lobis.nic.in/ddir/dhc/VIB/judgement/15-04-2017/VIB10042017OMPCOMM1722017.pdf

[2] (2011) 10 SCC 420

[3] (2009) EWCA civ 9

[4] (1893) 6 R. 67, H.L

The author was involved in the legal research for the arbitration proceedings.