Cause Title : Haris Marine Products vs Export Credit Guarantee Corporation Limited (ECGC), Civil Appeal No. 4139/2020, The Supreme Court Of India
Date of Judgment/Order : April 25, 2022
Corum : Uday Umesh Lalit, J., S. Ravindra Bhat, J. & Pamidighantam Sri Narasimha, J.
Background
The appellant had a Policy with ECGC, which covered foreign buyer’s failure to pay for goods exported. The vessel with the goods set sail on 15.12.2012. The Bill of Lading was prepared on 19.12.2012, with a line specifying the date of ‘onboard’ (i.e., date on which vessel commenced loading the goods in question on board) as 13.12.2012. The vessel delivered the goods on 22.01.2013. The overseas buyer defaulted on payment. The appellant then lodged a claim with ECGC on 14.02.2013. Among the grounds raised by ECGC for rejecting the claim was the view that the date of ‘despatch / shipment’ (provided in the Policy) was not clearly defined, and it placed reliance on the definition contained in the DGFT Guidelines. For containerized cargo, the same was to be interpreted as the date of ‘Onboard Bill of Lading’, which in the present case was 13.12.2012. This was just a day prior to the effective date of the Policy, i.e., 14.12.2012.
The Appellant's argument was that as the exact date of initiation of the coverage has been defined by the policy, it entitled to the benefit of the rule of verba chartarum fortius accipiuntur contra proferentem. This view was however rejected by the Independent Review Committee as well as the NCDRC. Hence appeal before Supreme Court.
Judgment
Both parties referring to various judgments strenuously argued that it is settled law that the terms of the contract have to be strictly read and natural meaning be given to it.
Additionally, the Appellants argued that it has been held by the Supreme Court that no outside aid should be sought unless the meaning is ambiguous.
The Respondents attempted to refute the above argument by submitting that DGFT is the statutory body for regulation and promotion of foreign trade and those involved in that type of business are bound to follow its guidelines and as per the definition of date of ‘despatch / shipment’ under the said guidelines, it was clear that the date to be construed was 13.12.2012, which was a day prior to the effective date of the Policy.
The Supreme Court observed that reconciliation of ambiguous terms in commercial contracts has been a contentious issue across jurisdictions and over time some common grounds have been created as a guide to solve this issue.
The following principals have emerged :-
1) Where there is ambiguity in the policy the court will apply the contra proferentem rule.
2) The meaning of a term/conditions of a contract in cases of ambiguities should be considered that which a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.
3) That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.
4) If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.
5) There is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e., good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt
6) The rule of contra proferentem thus protects the insured from the vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree. The rule assumes special significance in standard form insurance policies, called contract d’ adhesion or boilerplate contracts, in which the insured has little to no countervailing bargaining power. Particularly in case of insurance, if there is any ambiguity or a term is capable of two possible interpretations, one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event
A plain reading of the policy in question demonstrates that it was taken to protect against failure of the foreign buyer in paying the Indian exporter for goods exported. It was not a policy taken to cover in-transit insurance, and the cause of action triggering the claim arose much later, i.e., on 14.02.2013, well within the coverage of the policy. While interpreting insurance contracts, the risks sought to be covered must also be kept in mind.
Thus the SC opined that the date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, is not as significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy. Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant.
Even if the DGFT Guidelines were to be applied, it would not favour the ECGC, as a plain reading of provision 9.12 shows that the date on the Bill of Lading has to be considered as the date of despatch / shipment. The date of ‘onboard’ Bill of Lading is not applicable to the present facts as no letter of credit was executed, much less providing for application of such date. Therefore, ECGC could not have denied the appellant’s claim, even on a consideration the DGFT Guidelines.
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