September 15 2009
In S Bedi Construction Co v Delhi Development Authority the Delhi High Court reiterated the established principle that an arbitrator is bound by the contract between the parties and cannot act in a whimsical manner when deciding claims.(1) The court held that an award based on the arbitrator's experience cannot be upheld.
S Bedi Construction Co, which filed the petition, had raised 21 claims before the arbitrator, some of which related to escalation in the cost of materials. Clause 10C of the contract provided that if during the works there was an increase of more than 10% in the cost of, among other things, materials or wages, the amount of the contract would be varied provided that the increase could not, in the opinion of the supervising engineer (whose decision would be final and binding), be attributed to a delay in the execution of the contract that was within the control of the contractor.
In deciding these claims, the arbitrator awarded a percentage of the amount claimed with little or no regard to Clause 10C and other terms of the contract. The petitioner argued that the arbitrator was an expert in the field (a retired Central Public Works Department engineer), and had given the award considering the evidence. Thus, it could not be set aside.
The issue for the court was whether the arbitrator had applied the terms of the contract to determine damages.
The court held that the arbitrator, as an expert in the field, had allowed S Bedi's claims in a mechanical manner - that is, by allowing a certain percentage of the amount claimed without regard to the terms of the contract. It was held that the claims should have been awarded within the terms of the contract and the benefit, if any, of price escalation should have been as provided under the contract, and not according to the arbitrator's experience. The court relied on the Supreme Court's decision in Union of India v Banwari Lal & Sons (P) Ltd, where the court observed that "an arbitrator cannot clothe himself with such jurisdiction so as to act arbitrarily, irrationally, capriciously or independent of the contract".(2)
The decision shows that the appointment of experts from different fields to sit as arbitrators is designed to ensure better appreciation of technical details and nuances. The arbitrator's experience does not enhance his or her jurisdiction, as the arbitrator is a creature of the contract and must act within its limits.
For further information on this topic please contact Nisha Harichandran or Jai Mohan at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500), fax (+ 91 11 2692 4900) or email (firstname.lastname@example.org or email@example.com).
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