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CS Professional · Arbitration, Mediation and Conciliation · Commercial Transactions

Malabar Tea Exporters claims from Deccan Packaging Ltd a penalty for late delivery. The contract fixes a 2% per week deduction, and the tea trade in Kochi customarily allows a three-day grace period for such deliveries. The arbitration is seated in Kochi and is domestic. What must the tribunal do while making its award?

The tribunal must take into account both the terms of the contract and the trade usages applicable to the transaction. The Act imposes this duty in all cases, so the penalty clause and the Kochi grace-period custom must both be considered, neither ignored.

  1. AIgnore the contract and apply only the trade custom
  2. BTake into account the contract terms and the trade usages applicable to the transactionCorrect
  3. CTake into account only trade usages, as they override written terms
  4. DTake into account the contract terms only; trade usages are irrelevant

Explanation

The Act requires the tribunal, in all cases, to take into account the terms of the contract and trade usages applicable to the transaction. Both must be considered, so ignoring either one is wrong. The obligation applies to domestic arbitrations too.

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