When sections 92, 94 and 95 of the Evidence Act are applied to a string of correspondence between parties, each document must be taken to be part of a coherent whole: SC

Anglo American Metallurgical Coal Pty Ltd. v. MMTC Ltd.

Civil Appeal N0. 4083 of 2020.

Decided on 17.12.2020

Bench: Rohinton Fali Nariman, K.M. Joseph, JJ

Facts:

A Long Term Agreement(“LTA”) was entered into between American Metallurgical Coal Pty. Ltd. (Seller) (Appellant) and MMTC Ltd. (Respondent) wherein it was agreed to supply certain quantities of freshly mined and washed coking coal to the respondent. The matters which are in dispute arise with respect to the shipments that were to be covered by fifth delivery period ranging from 01.07.2008 to 30.06.2009, the parties mutually extending this period to 30.09.2009. The price was fixed at 300 dollars per metric tonne and the same is clear when read with Annexure I of the LTA and a letter dates 14.08.2008 which sets out the terms of the Fifth Delivery Period.

The respondent lifted only two shipments at the agreed price during the Fifth Delivery Period. Even after these two deliveries there was a considerable shortfall in deliveries against the contracted quantity for the fifth delivery period. The appellant sued for damages arising out of the alleged breach of contract by respondent in not lifting the contracted quantity. The loss claimed by the appellant is the difference between what is said to have been the market price and the contract price. The respondent denies any breach and claims that the appellant did not have the goods available for delivery to the respondent.

The dispute was referred to arbitration and an international arbitral award was delivered at New Delhi on 12.05.2014. The majority award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996 before a Single Judge of the High Court of Delhi, who upheld the majority award by a judgement dated 10.07.2015.

However, the Division Bench of the High Court of Delhi set aside the judgement of the Single Judge and allowed the appeal setting aside the majority award. The division bench had set aside the award on the ground of appreciation of three emails between the parties dated 02.07.2009, 22.07.2009 and 07.09.2009 which were picked out of the entire correspondence. The bench stated that the factual inference in the case decided by arbitral tribunal is based on imaginary evidence because it is not stated in a document, this is same as an inference based on ‘no evidence’. As per the division bench there is no evidence to support the conclusion that the appellant had coal available to supply to the respondent and also no basis to calculation of damages. The Division Bench also relied upon Section 94 of the Indian Evidence Act, 1872 and concluded that it found no reason to look for undisclosed intention of the parties, since the clear and express words contained in “three emails” were perfectly in accord with and applied to the existing facts. Therefore, the ordinary meaning of what was stated in those emails must be accepted, which led to the conclusion that the Appellant did not have any coal available to supply to the respondent.

Hence, the present appeal was filed in the Supreme Court.

Issue: Whether there was a breach of contract by the respondent by not lifting the contracted amount of coal?

Held: The court held that there is a finding of fact by the majority award that the appellant was able to supply the contracted price of coal for the fifth delivery period, at the contractual price and that it was the respondent who was unwilling to lift the coal, owing to slump in the market, the respondent being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract.

The court noted that the majority award has come to view both on the respondent being in breach and on the quantum of damages after reading the entire correspondence between the parties and examining the oral evidence.

Court held the approach of the division bench as flawed because it just cherry picked three emails out of the entire correspondence and rest judgement on three emails alone without having regard to the context of the LTA and the correspondence before and after those three emails.

Issue: Whether Section 94 of the Evidence Act has been correctly applied by the Division Bench to non-suit the appellant?

Held: The principle contained in Section 94 of the Evidence Act, as to extrinsic evidence being inadmissible in cases of “patent ambiguity” is fundamental to Indian Jurisprudence.

The court held that a “patent ambiguity” provision as contained in Section 94 of the Evidence Act, is only applicable when a document applies accurately to existing facts, which includes how a particular word is used in a particular sense. In the present case there was no mention of the price at which coal was to be supplied in the three “crucial emails”, these emails must be read as part of the entirety of the correspondence between the parties, which would then make the so-called “admissions” in the aforementioned emails apply to existing facts. Once this is done, it is clear that there is no scope for the further application of the “patent ambiguity” principle contained in section 94 of the Evidence Act, to the facts of the present case.

The court held that, When proviso (6) and illustration (f) of section 92, section 94 and section 95 of the Evidence Act are read together, the picture that emerges is that when there are a number of documents exchanged between the parties in the performance of a contract, all of them must be read as a connected whole, relating each particular document to “existing facts”, which include how particular words are used in a particular sense, given the entirety of correspondence between the parties. This, after the application of proviso (6) to section 92 of the Evidence Act, the adjudicating authority must be very careful when it applies provisions dealing with patent ambiguity, as it must first ascertain whether the plain language of a particular document applies accurately to existing facts

The three critical emails have to be read in the surrounding circumstances of the entirety of the LTA and the correspondence which ensued between the parties. And that exercise was undertaken by the Majority Award, it is impossible to hold that the Majority Award is not a possible view on the facts of this case. The Court allowed the appeal and held that the majority award is certainly a possible view bases on the oral and documentary evidence led in the case.