CSC settles dispute between crane operator at Chennai port

A bitter trade dispute between the state-owned Chennai Port Authority (CPA) and Global Port Solutions Pvt Ltd (GPSPL), a mobile harbor crane (MHC) operator, has been settled by the Conciliation and Settlement Committee (CSC) in a case likely to serve as a precedent to Finding solutions outside of a contractual framework, which is not advocated even by courts and arbitral tribunals.

Gopal Krishna, chairman of the Conciliation and Settlement Committee (CSC), says it has been the “most difficult” case to resolve since the Ministry of Ports, Shipping and Waterways set up the Alternative Dispute Resolution Mechanism to advise on contractual disputes between the concessionaires and settle , contractors, consultants, service providers and the major ports for an amicable resolution of problems.

“The CSC mechanism can step out of a contract and create a solution, which the arbitral tribunals and even the courts cannot do.” That is the key takeaway from this case,” said Gopal Krishna, a former secretary at the Ministry of Ports, Shipping and waterways.

In November 2014, the Port of Chennai Authority and the GSPL signed an agreement for the supply, operation and maintenance of Mobile Harbor Cranes (MHC) for cargo handling at some designated berths of the Port of Chennai for ten years until June 2025 as part of a recruitment strategy Larger Port Capacity Ships calling at the port on the east coast.

The agreement included a clause that users of the ten designated berths would give “first priority” to GSPL operated MHCs in order to make the crane operation profitable.

GPSPL procured two new MHCs, each with a capacity of 100 tons, and started operations in June 2015.

The Chennai Port Authority and GPSPL signed a concession agreement in August 2015, replacing the previous agreement between the two sides.

However, since the start of operations, GPSPL has claimed that it had not been assigned vessels to handle cargo in accordance with its contractually mandated “first preference” and that it had incurred costs of up to 2.3 lbs from the inability to use the cranes Millions of rupees a month were incurred and opted for arbitration in October 2015.

In 2019, the arbitral tribunal issued the final award, finding that the Chennai Port Authority was “obligated” to grant “first preference” to the crane operator in the designated docks.

While the losses suffered by GPSPL were estimated at Rs. 140 crores, the arbitration panel concluded that GPSPL was entitled to Rs. 13.53 crores from the Chennai Port Authority in compensation.

The award was challenged by the Chennai Port Authority in the Chennai High Court.

Dockers working at the Port of Chennai also faced “resistance” to the mandatory “first preference” clause in the GPSPL contract, as they were forced to use GPSPL’s cranes.

Furthermore, the MHC contract with GPSPL created an additional cost factor as port users, including even geared vessels calling at Chennai Port, were required to use GPSPL’s cranes.

While the first preference clause was included in the contract to make the operation of the MHC viable for handling large ships, the provision was not beneficial to either port users or the private operator, according to port industry sources who believe the project suffered from “faults” in structuring”.

“The first preference was impractical,” said a port industry source.

The dispute was further aggravated after the Chennai Port Stevedores Association filed a petition in the Chennai High Court for a written complaint seeking to overturn the trade notice issued by the Chennai Port Authority informing port users of the first preference, granted to the MHCs.

The Chennai Port Stevedores Association also sought the Court’s assistance to terminate the Concession Agreement signed between the Port Authority and GPSPL and submit new bids for the award of the contract without the mandatory use/priority of MHCs.

At the request of GPSPL, the Department of Ports, Shipping and Waterways requested the Joint Secretary to examine the dispute and provide his report.

The report recommended terminating the agreement in mutual consultation between Chennai Port Authority and GPSPL and paying the cost of MHCs to GPSPL.

However, the Chennai Port Authority rejected the recommendations.

When GPSPL defaulted on the contractual royalty payments, the Chennai Port Authority took action to redeem the crane operator’s bank guarantee to repay the unpaid royalty.

In November 2020, following a positive ruling by the Chennai High Court against the crane operator’s request to stop the Port Authority from cashing the bank guarantee, the Chennai Port Authority cashed the bank guarantee of Rs. 6.26 crores and did not adjust the amount to the paid share of sales to .

The port authority also took steps to reclaim the revenue share directly from port users on a per-vessel basis, although such action was not required by the agreement.

GPSPL then agreed to transfer the revenue share from ship to ship starting August 2020.

Chennai Port Authority also issued a notice of termination of GPSPL in August 2020 on the grounds that revenue share and other charges had not been paid, and a second notice of termination in January 2022 for breach of bank guarantee and non-performance of various contractual obligations.

A day later, GPSPL requested that the dispute be referred to the Mediation and Settlement Committee.

A proposed settlement, authored by CSC, said the concession agreement was “inherently flawed in that it mandated the use of MHCs even for geared vessels.”

The CSC therefore concluded that it was best to terminate the agreement and replace it with a license under the Chennai Port Trust (Licensing of Stevedoring and Shore Handling) Regulations, 2021.

In addition, special conditions were included in the license that protected the financial and commercial interests of both parties.

Together with both parties, CSC also assessed the commercial losses for GPSPL since the start of operations, considering the applicability of the preferential principle and the actual ships that could not be handled by GPSPL. The general principles were accepted by both parties and a settlement agreement was signed.

The license granted to GSPSL is now running smoothly and voluntary deals are imminent, Chennai port sources said.

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