Arbitrator Can Award Compensation On 'Guesswork' When Loss Is Difficult To Prove Subject To Maximum Amount Payable Under LD Clause: Delhi High Court

The bench of Justices Rajiv Shakdher and Amit Bansal held that as long as there is material available with the arbitrator that damages have been suffered, but it does not give him an insight into the granular details, he is permitted the leeway to employ honest guesswork and/or a rough and ready method for quantifying damages.

Facts

The parties entered into an agreement dated 08.04.2012, where the appellant Company agreed to complete project work within 450 days. The project was part of the Haryana Power System Improvement Project funded by the International Bank for Reconstruction and Development.

The appellant commenced work on 08.04.2012, with a deadline of 27.06.2013. However, delays occurred, and the actual completion was delayed. Correspondence between the parties regarding delays and liquidated damages (L.D.) deferral took place, with the appellant seeking deferment of L.D. and requested extensions due to reasons beyond their control.

Initially the respondent deferred the imposition of LD, however, it ultimately decided to impose maximum LD. Aggrieved thereby, the appellant invoked arbitration.

The arbitrator considered the delays and L.D. issues. The J.V. Company contended that the delays were due to reasons beyond their control, including issues with transmission line contractors.

The arbitrator found that while delays occurred, some were attributable to the appellant's actions, such as failing to address certain issues promptly. It held that as a result of appellant's and other entity's fault, the respondent has suffered damages, however, such loss is difficult to prove. Regarding L.D., the arbitrator found that respondent was entitled to impose L.D. as per the contract terms. However, the arbitrator considered the amount of L.D. imposed and awarded a refund of 50% of the L.D., along with interest.

Dissatisfied with the award, both parties filed Section 34 petitions. The single judge set aside the award and relegated the parties to the tribunal for afresh adjudication. Aggrieved thereby, the appellant filed an appeal under Section 37 of the Act.

Submissions by the Parties

The petitioner made the following submissions:

• Respondent had not suffered any legal injury or loss and, therefore, was not entitled to impose L.D.
• L.D. should be proved if calculable; they are no different from damages under Section 73 of the Indian Contract Act, 1872.
• The respondent failed to quantify the losses, thus, it was not entitled to any compensation despite any finding by the tribunal on losses it suffered.
• The finding of the tribunal regarding refund of 50% LD amount was based on appreciation of evidence and following a Supreme Court decision, therefore, it should not have been interfered with.

The respondent made the following counter-submissions:

• The Court's power under Section 37 does not extend to re-appreciating evidence.
• The appellant was in breach of the contract and the respondent was entitled to recover maximum LD which was a genuine pre-estimate of the losses.
• The decision of the single bench setting aside the award and relegating parties before the arbitrator is supported by Section 34(4) of the A&C Act.

Analysis by the Court

The Court observed that the arbitrator has held that the respondent has suffered losses due to the breaches committed by the appellant as well other contractors responsible for the execution of the work, however, such losses were difficult to prove, thus, the compensation was to be paid by all the contractors on pro-rata basis.

The Court held that an arbitrator is empowered to award compensation to an aggrieved party that has suffered losses on the basis of 'rough and ready method' or 'guesswork' when the loss is difficult to prove.

The Court held that as long as there is material available with the arbitrator that damages have been suffered, but it does not give him an insight into the granular details, he is permitted the leeway to employ honest guesswork and/or a rough and ready method for quantifying damages.

The Court also held that the burden of proof is on the party committing breach to prove that no loss was caused to the aggrieved party as a consequence of its breach.

The Court held that there was no perversity in the finding of the arbitral tribunal to award 50% damages and directing refund of the remaining 50% on the basis of the guess work. It held that since bench erred in concluding that guess work can only be applied by the Supreme Court in its power under Article 142 of the Constitution.

Accordingly, the Court set aside the order of the single bench and upheld the arbitral award.

Case Title: Cobra Instalaciones Y Servicios v. Haryana Vidyut Prasaran Nigal Ltd

Citation: 2024 LiveLaw (Del) 453

Date: 10.04.2024

Counsel for the Petitioner: Mr Pankaj Kumar Singh and Ms Bimla Sharma, Advocates.

Counsel for the Respondent: Ms Geeta Luthra, Senior Advocate, with Mr Akhil Ranganathan, Ms Pragati Srivastava, Mr Rishabh Dahiya and Ms Shivani Luthra Lohiya, Advocates

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