In this video, members of our International Dispute Resolution and Investigations team discuss the Delhi High Court judgment of Cobra Instalaciones Y Servicios, S.A. & Shyam Indus Power Solution Pvt. Ltd. (J.V.) v Haryana Vidyut Prasaran Nigam Ltd., where the power of the arbitrator to employ “guesswork” and “rough and ready” methods to assess damages when precise quantification of losses is difficult, was upheld.
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00:00Hi everyone, today we will be looking at the Delhi High Court decision of COGRA
00:27v. HVPNL. Now in this decision, the court said that a tribunal has the discretion to
00:34use guesswork and rough and ready methods to estimate damages when losses are otherwise
00:39difficult to quantify. Anshu, would you like to give us the background of the judge?
00:43Absolutely, Rithi. So back in 2011, HVPNL, the project employer in question, had invited
00:50BITS for a work to be started on the Haryana Power Improvement Project, which was a project
00:56aimed at improving the state's power and infrastructure systems. COGRA, the relevant
01:04contractor, won the BIT for 5 different projects involved in the entire overarching project.
01:10Certain delays took place in the work to be undertaken by COGRA, some of which were solely
01:16attributable to COGRA, but the others were also attributable to other contractors involved
01:21in the project. I understand that even though there were other delays, eventually HVPNL
01:26ended up imposing the liquidated damages solely on COGRA.
01:29Correct. Because of this, COGRA initiated arbitration proceedings in 2016. The arbitrator
01:36ordered a refund of 50% of the liquidated damages which HVPNL had imposed on COGRA,
01:43holding that since it was very difficult to determine the apportionment of damages since
01:48other contractors were also liable for certain losses, it could employ the rough and ready
01:55method which was previously employed by the Supreme Court in the judgment of Paxstruction
02:00Design Services v. Delhi Development Authority, and therefore impose a refund of 50% of the
02:06total liquidated damages which HVPNL had originally imposed on COGRA.
02:10But I understand in CDS v. DDA case, they said that you can use these methods because
02:16there was insufficient evidence, fortification was difficult, and there was a public interest
02:20involved. Was it a similar situation in this case?
02:23Correct. So, this was also a very similar situation. There was lack of evidentiary material
02:28which could help the arbitrator in determining the exact apportionment of damages which each
02:33contractor could be liable for. This was also a project which implicated public interest
02:38since this was aimed at improving Haryana's power and infrastructure systems. Because
02:44of these reasons, the division bench of the Delhi High Court stated that the arbitrator
02:49also has a power equal to the Supreme Court when trying to determine damages, when there
02:57is insufficient evidence on record to determine which contractor is liable for what damage.
03:03And therefore, the arbitrator could also undertake guesswork and undertake a rough and ready
03:08method to calculate damages. Okay. And what did the single judge bench decide?
03:13They said this is wrong. Correct. So, when the arbitrator had originally
03:17ordered the refund of 50% of the liquidated damages, the matter then went to appeal and
03:24the single judge bench had reversed this fighting of the arbitrator and asked the parties to
03:29seek a fresh reference to arbitration. Following which, COBRA had then appealed to the division
03:34bench of the Delhi High Court which concerns the relevant judgment which is the topic of
03:40discussion now. The division bench then reversed the judgment of the single judge holding that
03:45the arbitrator was rightfully entitled to order a refund of 50% of liquidated damages
03:52in this case. So, the division bench said that CDS case is something the arbitrator
03:56could have invaded. Correct. The division bench stated that arbitral tribunals are also
04:02equally empowered to undertake guesswork and employ the rough and ready method which the
04:09CDS case had also employed when determining damages.
04:13This was very helpful. Now, we actually have a good understanding of what the background
04:16of the case is. Thank you so much. And now, I think we will call upon VD to tell us what
04:21are the implications of this case and how this is likely to pan out in the future.
04:27Thank you VD for being here. As we just heard from Ayesh, what was the background of this
04:31COBRA v. HGPNIC case? Now, what we want to hear from you is what are the implications
04:35of this case? Sure. So, I think some of these cases and the
04:40jurisprudence that we are seeing, particularly in the infrastructure and construction disputes,
04:48brings us to a very important stage in dispute resolution, particularly for this sector.
04:54I think in the past, we have always looked at construction infrastructure disputes as
05:02more like commercial disputes. And therefore, there is always an overhang or an overlap
05:09on how we adjudicate commercial disputes versus how we adjudicate construction disputes.
05:16I think the most important learning from this judgment is there is now a need where we look
05:24at the construction and infrastructure industry as an independent industry, even from a dispute
05:33resolution perspective. And why I say this is that it is not almost the same, while it
05:42looks similar, but these kinds of disputes are not the same as the commercial disputes.
05:48I think we need to change our practices at both the levels. First, this judgment makes
05:55it very clear that even at the time when the projects are running, what kind of documentation
06:02you need to give. You cannot be informal about the extensions that you are seeking.
06:09You need to document if there are multiple contractors as to what kind of processes that
06:17you will follow in terms of concurrent delays, not only between employers and the contractors,
06:24but also inter-city contractors and how it affects the overall project. And on the other
06:30hand, when a dispute arises, or let me put it this way, a claim arises, because not every
06:35claim in a construction project is a dispute. I think what requires is a proper documentation
06:41behind it. And therefore, when a claim arises for the cost associated to the delays or the
06:48extensions short, what methods that you would implement to run the concurrent delays, to
06:58look at the cost associated to those delays, who was responsible to it, whether we need
07:03experts to do the window analysis on the delays and the associated costs, or we would continue
07:12to run our disputes on guesstimates as this judgment does. Yes, one can always find solutions
07:22in guesstimates, and that may not be entirely bad in certain situations. As we always see
07:31in generally, that not everything which is uncertain is impossible. And therefore, even
07:39if it is uncertain to look at the cost, it is not impossible to compute what the loss
07:47is. But there are enough methods, there are enough guidance available worldwide, in many
07:54different for us, and many different institutions have come up with those guidelines. Now it's
08:01time for India to adopt some of those measures to avoid ultimate challenges, to avoid ultimate
08:12setting aside of the awards and bring finality to some of these claims, rather than a debate
08:20between actual loss versus guesstimate. So that's what I feel this judgment provides us
08:30as a tool to start thinking on those lines, where we need possibly a different set of rules
08:39and a different set of jurisprudence when it comes to construction and infrastructuralism.
08:45Thank you, Miri, that was very insightful. And as you very rightly said, now that
08:50arbitrators have the power to guesstimate damages in that sense, now we have to
08:54see how they actually use this flexibility. Thank you so much, and we'll see you again.