Saturday 11 September 2021

Whether a party can refuse to pay damages for delay caused in the performance of the contract due to its conduct taking the defence of contractual term?

 Clause 59 prima facie prohibits the claim for compensation by the Contractor on account of the delays and defaults or whatever reasons and that only reasonable extension of time is permissible. The learned Arbitrator considering this issue interpreted the same to mean the escalation of prices is not covered by Clause 59 and what is contemplated under Section 59 is only compensation for the delays committed and it never prohibited the Contractor from claiming the escalation charges. When once the term of the contract has been interpreted, which is always permissible for the Arbitrator under Clause 73, which is widely worded, the interpretation placed by the Arbitrator has to be accepted. Therefore, when once the Arbitrator is clothed with the jurisdiction by virtue of Clause 73, temporary injunction is always open for him to interpret and construe the terms of the contract. The Department having failed to handover the site properly in accordance with the terms and conditions of the contract and having disabled the Contractor from executing the work as per the schedule on account of the various obstacles created including the non-initiation of the Land Acquisition proceedings, can it be said that still Clause 59 can be successfully invoked by the Department. It is well settled law that a person, who breaches the contract or who violates the contract is liable for damages or consequences and this clause cannot be interpreted to mean that whatever the defaults or breaches committed by the Department, the Department becomes immune from consequences. Such stipulation in the contract is highly arbitrary and unreasonable and the Division Bench of this Court has already held such a stipulation, even though it was agreed by the parties, but at the same time, when it is patently one sided and suppressed the Contractor, it cannot be said to be valid contract. Such a contract can be said to be opposed to the public policy. Obviously, it goes to establish that the Department cannot interfere with the integrity of the contract. While at the same time the Contractor cannot be allowed to interfere with the integrity of the contract, the primary intendment of the Clause 59 is not to allow the Contractor to go for compensation. On the other hand, the Department is entitled to grant reasonable extension which implies that reasonable extension of time without disturbing the work schedule is permissible, but when unreasonable extension is granted, it cannot be said that the Clause 59 also covers the situation. In case of a contract, which is liable to be executed within 12 months, a reasonable extension of one or two months can be granted by the authorities in which event, the Contractor will not be liable to claim compensation. But, if the extension is granted for a wholly unreasonable period and left asking the Contractor not to claim compensation is not contemplated under Section 59. The reasonable extension of time is sine qua non for invoking Clause 59, if the extension is unreasonable, Clause 59 will come into play. Admittedly, in the instant case, it was completed in 1985 and the work which was scheduled to be completed within 15 months has taken 5 years and which was accepted and the learned Arbitrator found that the delays were completely attributable to the Department. Therefore, even though extension was granted, since the extension is not a reasonable extension and in the guise of extending the time, the Contractor cannot be allowed to suffer the loss of escalation of the prices and connected liabilities. {Para 93}

Andhra High Court
T.A. Choudhary vs State Of A.P. And Ors. on 1 May, 2003
Equivalent citations: 2004 (3) ALD 357
Author: G Bikshapathy

Bench: G Bikshapathy, R S Reddy
Read full Judgment here:Click here
Print Page

No comments:

Post a Comment