Case Analysis

On
Kodros Shipping Corpn. v. EmpresaCubana de
Fletes, the Evia (No.2) (1982) 3 All ER 350

Submitted by
Kare Chandana (1226115115)
Payal Jain (1226115131)
Nikhil Mutyala (1226115129)

Case Citation:
State of U.P. v. Allied Constructions [2003 (6) SCALE 265]
CASE NO.: Appeal (civil) 14152 of 1996
PETITIONER: Kodros Shipping Corp.
RESPONDENT: Empresa Cubana de Fletes
BENCH: Lord Roskill
COURT: House of Lords, UK

Introduction:
The case Kodros Shipping Corpn. v. EmpresaCubana de Fletes, the Evia (No.2) (1982) 3 All
ER 350 is about two parties where the petitioner is Kodros Shipping Corp. and the
respondent is Empresa Cubana de Fletes. In brief, both the above mentioned parties entered
into a contract where the respondent undertakes construction of bridge-cum-fall at Munda
Khera Scape at an estimated cost of Rs. 37.2 lakhs. While the work is in progress, the work
area gets flooded in the night of August 25 and 26, 1991. The respondent-contractor herein
files a claim on account of loss sustained by him due to flooding of the work area and thereby
the arbitrator to whom the matter was referred, gives the respondent an award for payment of
a sum of Rs. 12,55,365 together with interest at the rate of 18 per cent from 1.11.1991 till the
date of the award and 6 per cent thereafter.
The constructor makes this as the rule of the court and notifies the same to the State of U.P.
Now, the State of U.P files a petition that the arbitrator has misconducted the proceedings,
talking in terms of Clause 47. As there was no unprecedented rain, there is no further
significance of Clause 47 here, that states "Neither party shall be liable to the other for any
loss or damage occasioned by or arising out of act of God, such as unprecedented flood,
volcanic eruption, earthquake or other convulsion of nature and other acts such as but not
restricted to general strikes, invasion, the act of foreign countries; hostilities or warlike
operations before or after declaration of war; rebellion, military or usurped power which
prevent performance of the contract and which could not have been foreseen or avoided by a
prudent person."
Added to this, the award decided by arbitrator can be set aside only if the terms in Section 30
and 33 of the Arbitration Act, 1940 are attracted. This has come into picture, as the Clause 47
had lost its significance here. This Section 30 and 33 of the Arbitration Act, 1940 were
against the respondent i.e., Allied Constructions.

Thus, the high court has modified the interest chargeable from 18% to 1%, which both the
parties agreed i.e., State of U.P from the financial burden of 18% and for the Allied
Constructions an amount of 1%.

Facts Of The Case:

A contract was entered between the appellant and the respondent, Empresa Cubana de
Fletes approached Kodros Shipping Corp. to carry cement from Cuba to Basrah in

mid-March 1980 considering safe port warranty.

Ship was time chartered for 18 months and was due to be redelivered on May 20,

1981.
There was a long wait for berth in Shatt-al-Arab when the ship arrived in 1 July 1980.
Finally, the ship was allowed to berth on 20 August 1980.
On September 22, 1980 Iran invaded Iraq.
Ship was trapped in Shatt-al-Arab for 6 months because of the war and it couldn't
reach the destination on time because the port is no longer safe.

Principle of Law:

Doctrine of frustration of contract:

If the performance of the contract becomes impossible it will be called as the contract of
frustration. Sometimes at the time of contract, parties agree to perform certain act which
is possible but it becomes impossible to perform subsequently due to causes beyond their
control.
Contract act is defined the doctrine of frustration in the following words, " A contract to
do an act which, after the contract is made, becomes impossible or by a reason of some
event which the promisor could not prevent."

In the following cases impossibility of performance takes place:

1.Death or incapacity of the promisor.
2.Declaration of the war.
3. Act of God.
4.Change of law.
5. Destruction of the subject matter etc.
Section 33 of Arbitration Act, 1940

Arbitration agreement or award to be contested by application. Any party to an arbitration

agreement or any person claiming under him desiring to challenge the existence or validity of
an arbitration agreement or an award or to have the effect of either determined shall apply to
the Court and the Court shall decide the question on affidavits: Provided that where the Court

deems it just and expedient, it may set down the application for hearing on other evidence
also, and it may pass such orders for discovery and particulars as it may do in a suit.

Section 30 of Arbitration Act, 1940

Grounds for setting aside award. An award shall not be set aside except on one or more of the
following grounds, namely:

that an arbitrator or umpire has misconduct himself or the proceedings

that an award has been made after the issue of an order by the Court superseding the

arbitration or after arbitration proceedings have become invalid under section 35;
that an award has been improperly procured or is other- wise invalid.

Judgement as per Court Of Law:

The court was of the view that the appeal has no merit and must fail.
The award and judgment under challenge stand modified to the extent that parties are
agreed that from the date of filing of the claim till the date of award the interest
chargeable would be at the rate of 1 per cent in place of 18 per cent.

Analysis of the Judgement:

The judgement was made on the fact that U.P. state government failed to produce any
evidence of flood was caused by rain and hence cannot claim clause 47. And also, as per the
Sectionns 33 and 30, the court cannot interfere in the decision of arbitrator as no proof was
found which identifies misconduct by the same. However, both the parties agreed to the
modifications made to the chargeable award. The usage of principles i.e., Clause 47 and
Section 30 and 33 of Arbitration Act, 1940 were significant in the case.
Conclusion:
The decision of the court was finally made in favour of the arbitrator which shows the
importance of the decision made by any arbitrator. The case also highlights the importance of
clause 47 and under what conditions it can be claimed.

Related Case References

M/s. Sudarsan Trading Co. v. The Government of Kerala, AIR (1989) SC 890
U.P State Electricity Board v. Searsole Chemicals Ltd., [2001] 3 SCC 397
ISPAT Engineering & Foundry Works, B.S. City, Bokaro v. Steel Authority of India
Ltd., B.S. City, Bokaro, [2001] 6 SCC 347

References

State of U.P v. Allied Constructions

https://indiankanoon.org/doc/1010255/
Section 30 in The Arbitration Act, 1940
https://indiankanoon.org/doc/1503578/
Section 33 in The Arbitration Act, 1940
https://indiankanoon.org/doc/1154891/
http://www.the-laws.com/Encyclopedia/Browse/Case?CaseId=309002822000
Arbitration: Procedure and Practise by Ashwinie K Bansal