No Damage for Delay Clause in Arbitration Contract

Introduction:

Arbitration is a type of Alternative dispute resolution (ADR) which guides the parties to resolve their conflict without going to the court. The decision of the arbitration tribunal or the arbitrator is acceptable in the court of law also. Whenever two parties enter into a contract it becomes their lawful obligation to fulfil all the terms and conditions of a contract. And likewise, there is a provision of claiming damages under the contract law. The rule behind that claiming of the damage’s clause is that whenever either party to the contract makes a breach of that contract that means that they do not fulfil the terms and conditions of the contract the other party has the right to receive compensation against such breach of contract. But in certain circumstances, there is an exception to this rule when even after either party breaches the contract the other parties right to compensation cannot be claimed. This exemption to claiming of compensation is termed as No damage for delay clause. No damage for delay clause is of inconsistent Nature. This was ruled out by the supreme court of Australia in the concerned case of Lucas earth movers Pvt Ltd v. AngloGold Ashanti Limited that the determination of this clause was time-related costs. Similarly, In Ramnath International construction limited v union of India, it was held by the supreme court of India that no compensation can be claimed in the cases of no damage for delay clause and only relief which can be given to the contractor is in the increasing the time limit.

Related Laws in India

 Legality of No Damage for Delay Clause in India

The laws which govern the delay clause of the contract are dealt under section 55 and section 56 of the Indian contract Act of 1857. This section states that if there is any delay in the completion of a contract a late performance of the contract can be accepted by the contractor but then he would not be able to exercise his right to compensation of the loss that has been occurred for such delay unless he provides a relevant notice to the other party. It has been specified under the Contract law of India that in the cases where the one-party agreed to not exercise his right to compensation if he is unable to complete the Contract in the specified time limit then also he can claim for compensation in certain situations like when the other party to the contract cancelled the contract under section 55 of the Indian contract Act or when the employers extend the specific time limit for the completion of the contract by entering into a substitute contract with the contractor by ensuring the that the escalation price will be borne.

Related Case Law in India

• Likewise, in the case of Northern Railway v. Sarvesh Chopra that one can claim for compensation by giving proof that when the time limit of the contract was increased of completion of the contract, the concerned contractor has issued a relevant notice of his intention of claiming compensation for the delay. However, even after hearing of such a case by the supreme court of India the issues regarding the delay clause cannot be resolved. This uncertain judgements by the supreme court of India made it difficult of the lower courts to determine the scope of the delay clause in Contract agreed by the parties to the contract.

• The high court of Delhi in case of Rawal construction company v Union of India the court ruled out that if there is a delay in the completion of a contract because of the breach of the contract on the part of the employer, the right to extending the time limit is acceptable in such cases too.

Exceptions to Damage for Delay Clause

Although there are some situations in which the contractor can exercise his right to compensation irrespective of inclusion of the no damage for delay clause under the Contract. Those situations are namely

• The delay is caused because of the employer’s malafide intention
• Unnoticed cause of delay
• The cause of delay is owner’s intervention
• Such unreasonable delays that amounts to desertion of the contract
• The delay which is caused by the owner’s infringement to the contract

Perspective of the Supreme Court on Delay Clause

The Conflict on the no damage for delay clause has been rectified by the above mentioned Ramnath International construction case where the party to the contract can not claim any sort of damages which are of arbitration nature to the employer. In a similar case of no damage for delay clause, the Supreme Court of India in the case of Asian Tech Limited v Union of India stated that exemption rule restricts the contractor from claiming the compensation for damages but it does not restrict the arbitrator for entering in the contract.

Internation Perspective on the Delay Clause

Concurrent Delay: In the situation where two or more causes independently results in the delay of completion of the Contract is termed as concurrent Delay, there is a different law for different courts of different countries on how to deal with the concurrent Delay of a contract and the no damage for delay contract also forms the area of the contract. The concerned court of the United Kingdom introduced the concept of Malmaison  Approach in the case of Henry boot construction limited v Malmaison Hotel, where there are two independent causes of the concurrent delay in the completion of a particular contract and one of them could be controlled by the contracting party and other such can not then the contractor can claim for damages for one such cause and not for the other. The court also ruled out that no time cost for such causes if the concurrent delay can be claimed. But the Malmaison approach was rejected by the Scottish courts in the case of The Scottish Courts in city inn v Shepherd Construction ltd and they introduced the new concept of Apportionment Approach. According to the Apportionment Approach if any of the causes if the concurrent Delay is dominated by the other the delay should be borne by both be parties to the contract. The concept of the Apportionment Approach is followed by many other courts of the different countries like the federal court of the United Arab Emirates and the court of Hong Kong. The high court od Hong Kong accepted the rule of the Scottish courts in the case of Hing construction co ltd v boost investment ltd.

Impact on the Award Passed by the Arbitrator

 Mostly the cases involving construction comes up with an arbitration whenever a dispute arises. The main reason for arbitration in the construction case is due a long time taken in the completion of the contract. The main problem when dealing with this type of contracts is to determine that the arbitrator is bound to the compensation clause which is specified in the concerned contract.

In the above mentioned Ramnath case, the arbitrator ruled out that the contractor can claim for the damages irrespective of inclusion of the no damage for delay clause in the contract but the same overruled by the Supreme Court of India that if the contract is inclusive of the No damage for delay clause which both the parties to the contract agreed upon in those cases the contractor can not claim for damages, but in the similar case of Asian techs it was held by the court that arbitrator is not bound due to inclusion of such clause.

In the case of Union of India v. Om Shanti construction co. The high court of the state of Punjab and Haryana the court held that the Arbitral Tribunal does not have the jurisdiction to alter the clause mentioned in the contract and if the contract contains the clause of No damage for delay clause which was included considering free consent of both the parties then it’s outside the jurisdiction of the Arbitral Tribunal to deliver an award to either party.

The high court of Delhi in a similar case upheld the same judgement of the Asian techs and declared that the Arbitral Tribunal cannot deliver the award to the respondent in the contract which includes the No damage for delay clause.

Conclusion

The purpose of the no damage for the delay clause is to provide Protection to the employer from the unnecessary claims for compensation for damages forwarded by the contractor and to provide Protection by such claims to the contractor by the contractor working under him. The contractor is supposed to look thoughtfully before accepting such risks of delay in completion of the contract. This clause to hold back the right to compensation of the contractor is not so common. The courts while dealing with such cases should make sure to examine the intention and consent of both the parties while including the no damage for delay clause in the contract.

References:

• Vartika Singhania, no damage for delay clause in the arbitration Contract, legal services India, http://www.legalserviceindia.com/legal/article-3614-no-damage-for-delay-clause-in-arbitration-contract.html#:~:text=As%20a%20general%20provision%20the,to%20claim%20damages%20is%20restricted.
• Lucas earth movers Pvt ltd v. AngloGold Ashanti Limited(2019) FCA 1049
• Ramnath International construction limited v union of India(2007) SC 453
• Northern Railway v. Sarvesh Chopra(2002) 4 SCC 45
• Asian Tech Limited v Union of India(2009) 10 SCC 354
• Henry boot construction limited v Malmaison Hotel (1999) 70 CON LR 32
• The Scottish courts in city inn v shepherd construction ltd (2010) CSIH 68
• Hing construction co ltd v boost investment ltd.(2009) BLR 339
• Rawal construction company v Union of India 1981 SCC ONLINE DEL 315
• Union of India v. Om Shanti construction co 1966 SCC ONLINE P&H 1042