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The Bombay High Court has allowed Jawaharlal Nehru Port Trust (JNPT) to restart arbitration proceedings against PSA International Pte Ltd, seeking ₹450 crore in damages from the Singapore government-owned firm.
The damages claim — first brought before an arbitral tribunal by JNPT in 2015 — relates to a tender that collapsed in 2012 after PSA failed to sign an agreement within the stipulated time on winning the deal to build a new container terminal at the port.
PSA had contended that the concession agreement containing the arbitration clause was never signed by the parties and hence there was no valid and enforcible agreement between the parties for JNPT to invoke the arbitration clause to press its claim for damages.
On April 18. 2016, the sole arbitrator passed an order holding that there was no arbitration agreement between the parties and thus there was no question of referring any dispute to the arbitral tribunal. It also held that the arbitral tribunal had no jurisdiction to entertain the said dispute.
Concluded contract
JNPT submitted before the court that the issuance of letter of award (LoA) to PSA on emerging the successful bidder formed a concluded contract between the parties.
“The LoA dated 26 September, 2011 issued by the petitioner (JNPT) to the respondents (a consortium of PSA and ABG Ports Ltd) in response to the highest financial offer made by the respondents and return of the said LoA duly counter signed by the respondent No:1 (PSA) formed a concluded contract between the parties,” Justice RD Dhanuka wrote in his March 1 order.
“In my view, signing of a concession agreement after issuance of LoA was one of the requirement to be complied with by the respondents and was not a condition precedent for formation of the contract as sought to be canvassed by the respondent No:1 (PSA). The contract was already concluded between the parties prior to the date of signing the concession agreement,” Justice Dhanuka wrote in the order that set aside the order passed by the sole arbitrator in April 2016.
By holding that “the arbitration agreement recorded in clause 19.3 of the concession agreement exist between the parties”, the court restored arbitration proceedings and directed the sole arbitrator to “proceed with the arbitration proceedings expeditiously”.
‘Landmark judgment’
The Shipping Ministry has hailed the order passed by the high court as a “landmark judgment”.
“The judgment strengthens the hands of ports in case successful bidders refuse to sign concession agreements upon completion of tendering process by holding that the issue of LoA and its acceptance by the successful bidder will be treated as execution of a valid contract.
“Once it’s a valid contract, all legal remedies will be available to the ports,” said a ministry official.
The judgment helps JNPT on two counts.
First, the encashment of bid security of ₹67 crore as liquidated damages in line with tender conditions becomes final. PSA had claimed refund of this amount citing absence of a valid contract.
Secondly, JNPT’s claim for ₹450 crore as loss of business opportunity becomes enforceable. The arbitrator has to quantify the damages.
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