When time doesn’t matter


In a recent judgment that could serve as a guideline for drafting future construction contracts, the Supreme Court said that whether or not time is essential in a contract, to claim damages, depends more on the circumstances of the contract. the matter that of any provision In the contract.

In other words, you can include in your contract with the supplier of a construction service a clause stating that “if you do not complete the supply by this date, you will be liable to pay damages. But that won’t help you. The mere existence of such a provision is not sufficient.

Contra proferentem

The judgment also highlights an important legal doctrine – contra proferentem – which says that if there is an ambiguity in the wording of a contract, it must be interpreted against the entity that created the clause.

The Supreme Court ruling concerns a dispute between ONGC and Welspun Specialty Solutions Ltd and its origins date back to 1995, when ONGC placed an order with Remi Metals (later Welspun) for the supply of 393 km of seamless steel pipe. . The contract specifically mentioned that the time and date of delivery was the essence of the contract.

There were numerous delays in the execution of purchase orders and ONGC continued to grant extensions while deducting damages from payment, which led to litigation.

The dispute reached the Arbitral Tribunal. The court ruled in favor of Welspun. It considered that the mere fact of having a clause in the contract making time the essence of it “would not be decisive”, rather than an overview taking into account all the clauses of the contract should be taken into account. He also said that “usually in construction contracts time is not of the essence”.

In a revealing judgment, the Apex Court presided over by Chief Justice of India NV Ramana observed that “time running out in a contract must be inferred from reading the entire contract as well as the surrounding circumstances. . . Just having an explicit clause may not be enough to make time the essence of the contract ”.

Two provisions of the contract appeared to conflict. First, the mention that time is running out and second, the existence of an extension procedure. The existence of the extension procedure and the imposition of damages (the Arbitral Tribunal ruled and the Supreme Court upheld) were good indicators that time was not of the essence of the contract.

This was the argument of Welspun’s lawyer, Shyam Divan, and the Apex Court found it to be valid. ONGC had wanted to deduct $ 8,07,804 and 1.05 lakh, while the arbitral tribunal would go so far as to award as compensation only the actual loss suffered by ONGC, which amounted to 2.09 crore.

“No precise language”

The annulment of damages in favor of actual loss was also upheld because of “the lack of precise language permitting the reimposition of damages,” the judgment said. It is here that the doctrine of contra proferentem enters the picture.

If there is a lack of clarity in the terms of a contract, the interpretation goes against the entity that introduced it – a penalty for its poor drafting. Usually, it is the party with the greatest negotiating power in a contract that introduces clauses such as damages.

In this case, ONGC had used a template for its contract. The case was also argued by ONGC on the basis of Article 34 of the Arbitration Law, which states that an arbitration award may be set aside “if it is in conflict with the public order of India. “. Chief Justice Ramana didn’t want it. “The expression” public order “does not indicate” a catch-all provision “to challenge the sentences in front of a body of appeal on infinite grounds”, it says in the judgment.

“The purpose of section 34,” Judge Ramana observes, “is to strike a balance between the appellate powers of the Court and the integrity of the arbitral process. “

Write in MondaqObhan & Associates attorneys Ashima Obhan and Seerat Bhutani recommend that “parties should ensure that their conduct is consistent with understanding the contract when time is of the essence.”

Abhishek Subbiah, Managing Partner, Bridge Legal, observes in an article by Apex case law that “the conduct of the parties has begun to become increasingly critical to the judicial process of determining the real contours of what is the inherently complex contractual relationship”.

Noting that the judgment provides insight into “how best to write our contracts,” Subbiah says, “time isn’t of the essence just because you say so. “


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