Nordic Intertrade As (Norway) v. Steel Authority of India Limited1 , entailed a judicial challenge to a domestic arbitral award involving liability for payment of export duty in an FOB Contract. A Division Bench of the Delhi High Court in the course of annulment proceedings had to interpret and apply the ICC INCOTERMS 2000 to an FOB sale contract.
The Court whilst dismissing the challenge to the award, narrowly construed the 'patent error of law' exception, by ruling that this ground could only be availed of in limited circumstances, where the findings by the tribunal were "manifestly contrary to law". The Court explained that a plausible or even erroneous legal finding made by the tribunal would not warrant judicial review as judicial philosophy favoured a 'hands off' approach to annulment proceedings.
Nordic Intertrade AS ("Nordic"), a Norwegian company, entered into a contract to purchase steel from Steel Authority of India Limited ("SAIL"). The sale contract incorporated the ICC INCOTERMS 2000.
The crux of the arbitral dispute was whether Nordic was liable to pay export duty on the steel purchased from SAIL. Export duty was levied by the Indian government after title to the goods passed to Nordic but before it physically crossed the ship's rails.
Nordic claimed it was not liable to pay any export duties as per the terms of the sales contract. SAIL disagreed by pointing to its invocation of clause 9 ("Red Clause") of the sales contract. Under the Red Clause, risk and title to the goods passed from SAIL to Nordic, which according to SAIL required Nordic to pay the export duty.
The definition of FOB as provided under the ICC INCOTERMS 2000 indicated that the risk of loss or damages to the goods passed to the buyer after the goods crossed the ship's rails. However, under the sales contract, risk and title in the goods passed to Nordic upon invocation of the Red Clause and upon receipt of the sale price by SAIL, regardless of the goods crossing the ship's rails. The question that arose was whether the sale contract would prevail over the INCOTERMS.
The tribunal held that the INCOTERMS did not and were not meant to exhaustively regulate the contractual relationship between the parties and that they were subordinate to the sales contract. As the export duty came to be levied after the passing of property to Nordic pursuant to invocation of the Red Clause, the arbitral tribunal found that it had to be borne by Nordic and not SAIL.
Delhi High Court
Nordic impugned the award before a single judge bench of the
Delhi High Court.
The judge upholding the tribunal's decision found that its view was not contrary to the plain language of the Agreement and was not 'perverse or patently illegal'.
Nordic appealed this judgement before a Division Bench of High Court. The appeal was dismissed by holding that the sales contract prevailed over the ICC INCOTERMS 2000. But equally significantly ruled that the court would adopt a non-interventionist approach to challenges to an award.
The court emphasised that a challenge to an award on the basis of the "patent errors of law" exception will only be satisfied if the tribunal made an egregious error and arrived at a conclusion wholly contrary to law.
The judgement marks a welcome break from the past Indian legal tradition of generously entertaining challenges to domestic awards. The ruling is comforting as it clearly indicates a positive change in judicial philosophy and approach to annulment proceedings to domestic awards.
1 FAO(OS)(COMM) 205/2017
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