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Petitioner: PAKISTAN THROUGH SECRETARY, MINISTRY OF INDUSTRIES VS Respondent: MASSRS ASIAN JUDGMENT
Court Name: Sindh High Court Judge(s): Noorul Arfin, Z. A. Channa Title:PAKISTAN THROUGH SECRETARY, MINISTRY OF INDUSTRIES vs MASSRS ASIAN
JUDGMENT
Reported As: PLD 1974 Karachi 155 Result: Award modified Judgment JUDGMENT Z. A. CHANNA, J.----This Letters Patent Appeal by the Government of Pakistan is directed against the judgment of a learned Single Judge of the Karachi Bench of the erstwhile High Court of West Pakistan, dated 6-4-1966, whereby he dismissed the objections preferred by the appellant against an award relating to the supply of pesticides and made the award the rule of the Court. 2. The facts which form the background of this appeal are these: On 13-10-1961, the appellant floated an invitation to tender, bearing No. VA-6/65374/61, for a large quantity of pesticides/insecticides, consisting of B. C. H. 12/ % W. P., Malathion and Dieldrin. The respondent, which is an approved Government contractor and an authorised agent for certain foreign concerns, submitted a tender for the goods. The tender was accepted, and two separate A/Ts were issued by the appellant on 27-12-1961, one relating to the part of goods to be shipped to Karachi and the other to the goods to be shipped to Chittagong. The contract was in the standard form P. S-35; 'Clause 21 whereof provided for reference to arbitration in case of disputes between the parties. The said clause was in the following terms:- "In the event of any question or dispute arising under these conditions or any special condition of contract or in connection with the contract (except as to any matters the decision of which is specifically provided for by these conditions) the same shall be referred to the award of an arbitrator to be nominated by the purchaser and an arbitrator to be nominated by the contractor or in case of the said arbitrators not agreeing then to the award of an Umpire to be appointed by the arbitrators in writing before proceedings on the reference and the decision of tae arbitrators or
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in the event of their not agreeing, of the Umpire appointed by them, shall be final and conclusive and the provisions of the Arbitration Act, 1940 and of the rules thereunder and any statutory modification thereof shall be deemed to apply to and be incorporated in this contract. Upon every and any such reference, the assessment of the costs incidental to the reference and award respectively shall be in the discretion of the arbitrators or in the event of their not agreeing, of the Umpire appointed by them. Work under the contract shall, if reasonably possible, continue during the arbitration proceedings and no payment due to or payable by the purchaser shall be withheld on account of such proceedings unless they are the subject of the dispute. The venue of the arbitration shall be the place from which the Acceptance of Tender is issued or such other place as the purchaser at his discretion may determine." After the goods were shipped disputes arose between the parties with regard to the specification of B. C. H. 12% W. P. There was also a dispute with regard to the packing and the marking of the goods. These disputes were referred to two arbitrators, namely, Mr. Muhammad Zulfiqar, Joint Secretary, Government of Pakistan, and Mr. Muzzaffar Hassan, Advocate. The arbitrators gave their award on 21-12-1964, the operative part whereof is as follows: "(1) The President of Pakistan do pay in full the value of B. H. C. 12 %, W. P. To the Asian Associated Agencies in terms of contract against A/T No. VA-3/65373-4/AA/Chit/61/189 dated 27-12-1961, to wit, Dollars 15,500.00 being the price of 125 tons of B. H. C. 12 Y, W. P. a Dollars 124 per ton, which commodity has been consumed by the President of Pakistan. (2) The goods in A/T No. VA-3/65373-4/AA/Kar/61/188, dated 27-12-1961 namely 275 tons of B. H. C. 12 j W. P. Do not answer the specifications and the President of Pakistan do return the goods to Asian Associated Agencies at Rotterdam, being the port from which it was shipped by the Agents of the Government of Pakistan at the cost of Government of Pakistan within four months from the date of Award, failing compliance, the President of Pakistan shall pay to the Asian Associated Agencies the amount of Contract in full being Dollars 34, 100.00 as the cost of 275 tons of B. H. C. 12% W. P. At Dollars 124 per ton. (3) President of Pakistan do pay Rupees Five Thousand only to Asian Associated Agencies by way of damages/compensation in respect of A/T No. VA-3/65373-4/AA/Chit/61/189, dated 27-12-1961. (4) Parties do bear their own cost." The award was filed in Court by one of the arbitrators, Mr. Muhammad Zulfiqar, on 16-5-1965. The appellant (Government of Pakistan), on 16-8-1965, preferred objections to that part of the award, which related to the contract for shipment of goods to Karachi. The grounds taken were that the arbitrators had "misconducted in law" in directing the Govern--ment to return the goods at their cost, after they had held that the goods were against the specification; that the arbitrators had gone beyond the scope of reference in awarding an amount to the plaintiffs (respondents) which they had not claimed and that the award even otherwise was invalid. These objections were contested by the respondent and were ultimately rejected, as already indicated, by the learned Single Judge, by his judgment dated 18-2-1966, on the ground that none of them come within the ambit of section 30 of the Arbitration Act. He was further of the opinion that there was no error on the face of the award and that there was no non--compliance of the provisions of section 43 of the Sale of Goods Act. It was also contended before the learned Single Judge by the respondent that the objections were time-barred, having been filed beyond the period of 30 days allowed under Article 158 of the Limitation Act. This contention, however, was repelled by the learned Single Judge on the ground that the defendant (the present appellant) was served with notice of the award on 10-6-1965 and although the period of 30 days expired on 10-6-1965, the Court was on summer vacation from 4-6-1965 and it re-opened on 16-8-1965, on which date the objections were actually filed.
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3. The contentions raised by Mr. Hamid Hussain, the learned counsel for the Government of Pakistan, in support of the appeal are: (1) that the arbitrators having found the goods not according to the specifica--tions, could not order Government to r:-ship the goods to Rotterdam at their expenses, and in so doing there was clearly an error of law on the face of the award ; (2) that the arbitrators misconducted themselves and acted in excess of their jurisdiction in ordering the return of the goods by Government to Rotterdam, when no such question was referred to them and (3) that the direction in the award in respect of the return of goods was separable from the rest of the award and hence the Court is empowered to modify the award and excise that portion under the provisions of section 15 of the Arbitration Act. We will deal with each of these points seriatem. 4. An error of law on the face of the award, broadly stated, means an erroneous legal proposition in the award, which is the basis of the award. "An error on the face of an award", as pointed out in Lekhraj A v. Vishindas (27 S L R 96) "is a very narrow ground, and that jurisdiction has to be administered Aith great care in order that extraneous considerations not g appearing on the face of the award are not introduced into the matter". In Champsey Bhara & Company v. Jivraj Balloo Spinning & Weaving Company Limited (AIR 1923 P C 66), Lord Dunedin observed: --- "An error of law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incor--porated thereto, as for instance, a note appended by the arbitrator stating reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous." Later on in Kelantan's case (1923 A. C 395), an exception was engrafted on this rule to the effect that when a specific point of law is referred to an arbitrator the award cannot be set aside if the arbitrator wrongly decides the point of law. The distinction between cases where disputes are referred to an arbit--rator in the decision of which a question of law becomes material from those in which a specific question of law has been referred to him for decision was emphasised by Lord Russel in F. R. Absalom Ltd. v. The Great Western (London) Garden Village Society (149 L T R 193), and he said "The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when any error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one." Mack, J. In Radhakrishnamurti v. Balasubramania & Company (AIR 1949 Mad. 559), expressed the view that the Arbitration Act, 1940 did not recognize this differentiation admitted in English Judge made law, but the Judicial Committee of the Privy Council in Durga Parsad Chamria v. Sewkishilzdas Buttar (AIR 1949 P C 334) applied the above English principle to Indian cases and held: "Their Lordships are satisfied that the two points of law as to which it is said that the arbitrator s error vitiates the award were specifically referred to him to decide, and, if this is so, it would be contrary to well-established principles such as are laid down In re: King and Duvun (1913) 2 K B 32 (82 L J K B 733) and F. R. Absalom Ltd. v. Great Western (Garden) Village Society, 1933 A C 592 (102 L J K B 648) for a Court of Law to interfere with the award even if the Court itself would have taken a different view of either of the points of law had they been before it." Our own Supreme Court also, in the case of A. Z. Company v. S. Moula Bukhsh Muhammad Bashir (PLD 1965 SC 505) has referred to the exception engrafted on the general rule propounded in Kelanton's case and Absaloms' case. The Indian Supreme Court has also, following the English authorities and the Privy Council decision already referred to, recognized the distinction and except--petition to the general rule, and in the case of Thawardas v. Union of India (AIR 1955 SC 468) while dealing with the power of the Court under section 16 (1) (c) to remit an award for reconsideration "where an objection to the legality of the award is apparent on the face of it", held that:
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"In determining what such error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentaly material (however necessary) in order to decide the question referred." 5. The contention of Mr. Hamid Hussain is that since the arbitrators found that the B. H. C. 12% W. P. Relating to the A/T for Karachi did not answer the specifications, the directions of the arbitrators that the appellant should return, at their own expense, these goods to Rotterdam, from where they were shipped, and on failure to do so within four months from the date of the award, the appellant should pay to the respondent the full contract price for the entire quantity of 275 Tons of B. H. C. 12 Y. W. P., is not only in conflict with their finding in regard to the specifications but it is also in violation of the provisions of section 43 of the Sale of Goods Act. The argument in other words is that breach on the part of the seller having been found by the arbitrators, the buyer was entitled to reject the goods and cannot be compelled or directed to return the goods to Rotterdam at his cost, and this direction being in conflict with the finding that the goods were not in accordance with the specifications, there was an error of law on the face of the award. Mr. Hamid Hussain's further contention is that this is not a case where any specific question of law was referred to the arbitrators, and hence the exception to the general rule enunciated in Kelanton's case would not apply. 6. Mr. Samad Khan, who appears for the respondent, conceded the position that no specific question of law was referred to the arbitrators but contended that there was no error of law on the face of the award, and in support of his contention relied upon the decision of the House of Lords in Absalom's case. He supported the direction in the award for the return of the goods by the Government of Pakistan (appellant) to the respondent, on the grounds that there was no finding by the arbitrators that the appellant was entitled to reject the goods; that the appellant, through his agents, having accepted delivery of the goods at Rotterdam and shipped them to Pakistan and consumed part of the goods, has lost the right to eject the goods and that even if the decision of the Arbitrators that B. C. H. 12; relating to the A/T for Karachi was not according to specifications could he construed as entitling the appellant to reject these goods, there was no conflict between the direction of the arbitrators to the appellant to return the goods to Rotterdam at his cost and the provisions of section 43 of the Sale of Goods Act, as the exemption from liability provided to the buyer under 'lie said section to return the goods is not unqualified or complete but :s subject to any agreement between the parties to the contrary. Mr. Samad Khan, in the alternative, also tried to raise the plea that the finding in the award that the Karachi consignment of B. H. C. 12% was not according to specifications, was wholly erroneous, but when we pointed out to him that he had not filed any objections to the award and hence could not question any finding or decision in the award, he conceded this position and gave up this contention. 7. Under section 43 of the Sale of Goods Act, on which Mr. Hamid Hussain has mainly relied in support of his contention that there is an error of law on the face of the award, a buyer, who refuses to accept goods delivered to him, having a right so to do, is not obliged to return them to the seller but is merely required to intimate the seller that he refuses to accept them. If, however, the buyer has accepted or is deemed to have accepted the goods under section 42 of the Sale of Goods Act, he cannot lake advantage of the provisions of section 43. One of the ways by which a buyer is deemed to have manifested acceptance of the goods is where he uses them in a manner proper only for the assumption of his assent to be the true owner or does an act proper for an owner to do. The provisions of sections 42 and 43 of the Sale of Goods Act are, however, subject to, and can be varied by, any agreement to the contrary between the parties. The question that arises for consideration thus is whether it is permissible for the Court, for the purposes of determining whether there is an error of law on the face of the award, to look into the terms and conditions of the contract. The rule followed by the English Courts is that it is not permissible for this purpose to
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look into the contract terms unless hey are incorporated, either expressly or impliedly, in the award. In D. S. Blaiber & Company Ltd. v. Newborne (London) Ltd. ((1953) 2 L R 427), an arbitrator had awarded that the buyer should return the goods purchased (20 tons of fondant) less the quantity already delivered to the sub-purchasers by the seller to the buyer's order and the sellers moved to set aside the award on he point of error of law on the face of the award, since under normal conditions the buyer, having accepted a part, could not reject the balance. The Court of Appeal held that as the contract was not incorporated into the award, either expressly or by implication, it was not open to the Court to go behind the award and look at the contract terms; and accordingly it was impossible to say that the award was necessarily bad on the face of it. Denning, L. J. In that case went to the extent of saying that "I have strong suspicion that the arbitrators went wrong in law", but he nevertheless agreed that the award could not be interfered with as it was not possible to hold that the arbitrators went wrong in law "without looking at the contract, because the terms of the contract may vary the ordinary legal rights and implications", and the difficulty was that he was not at liberty to look into the contract as it was neither expressly nor impliedly incorporated in the award. The test laid down by Denning, L. J. In that case, which has, been referred to and followed by the Court of Appeal in the case of Giacomo Costa Fu. Andrea v. British Italian Trading Company Ltd. ((1962) 2 All E R 65) (where the entire law on the subject has been reviewed at some length), whether a --contract or a clause thereof has been incorporated into the award is: "As I read the cases, if the arbitrator says on the wording of the clause I hold so-and-so, then that clause is incorporated into the award because he invites the reading of it; but if an arbitrator simply says: `I hold that there was breach of contract, then there is no incorporation." 8. Sellers L. J. In the Giacomo's case further elaborates the point whether a contract or any provision thereof can be looked into for the purposes of determining the question whether there is any error of law on the face of the award, and states as follows: "Neither does it open the door to look at a contract because it happens, to be mentioned in the recital, or mentioned in what is in effect the conclusion or the order which the award makes. The difficulty is in its application-not, I think, whether any particular document has-- been expressly incorporated in an award but whether it has, in the circumstances, to be regarded as the intention of the tribunal which made the award to include the document in question as part of its, award and its reasoning. Of course, if any document is intended to form part of an award, it should be, if things are properly conducted: appended or set out in full. It should be made clear that it is the inten--petition of the award that the document should be actually incorporated into it. It is only infrequently, I hope, that an arbitrator or tribunal making an award fails to include in an award all the relevant matters which it-intended so to do." 9. Although we are rather hesitant to go as far as Denning L. J. Went: in Blaibar's case or Sellers, L. J. In the Giacomo's case, the law in this country is settled that it is not permissible for the Court to look into the contract or any specific provision thereof for the purposes of ascertaining or determining whether there is an error of law on the face of the award unless the contract or the provision thereof is incorporated in the award and the mere making of a reference to the contract in the narrative portion of the award or for the purposes of ear-marking the disputes between the parties which have been referred to the arbitration cannot be construed as incorporation of the contract in the award. In Champsey Bhara & Co.'s. Case, Lord Dunnedin said: "It does not mean that if in a narrative a reference is made to a. Contention of a party, that opens the door to seeing first what that contention is, and then going to the contract on which the parties" rights depend to see if that contention is sound." "Their Lordships, independently of the Judgment of the Board in Jivraj Baloo Spinning & Weaving Co. v. Champsey Bharu & Co., could not have entertained that view, because it appears to them. Quite plain that this award, the terms of which are very precisely stated, makes its allusion to the
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contract very guardedly and for the purpose only of ear-marking the origin' of the dispute in question." The position in the instant case appears to be precisely the same as I the above reported case, for the reference or allusion to the contract has been made very guardedly in the award and solely for the purpose of ear-marking the disputes in question. We are, therefore, of the opinion that the contract has not been incorporated in the award and cannot be looked into by the Court for purpose of determining whether there is an error o law on the fact of the award. 10. This brings us to a consideration of the question whether the arbitrators had misconduted the proceedings. Broadly speaking, the expression `misconducted himself or the proceedings' in relation to an arbitrator would seem to be wide enough to include all such irregularities as would cause miscarriage of justice. In the words of Atkin, J. In Williams v. Wallis & Co. ((1914) 2 K B 478) the expression `misconducted the proceedings' "does not really amount to much more that such a mis-handling of the arbitration as is likely to cause some substantial miscarriage of justice, and one instance that may be given is were the arbitrator refuses to hear evidence upon a material issue." In Halsbury's Laws of England, 3rd Edn. Vol. II, p. 57, it is stated that the expression `misconducted' is "of wide import" and includes: "on the one hand bribery and corruption and on the other hand a mere mistake as to the scope of authority conferred by the agreement of reference or an error of law appearing on the face of the award. Thus mis--conduct occurs if the arbitrator or umpire, as the case may be, fails to decide all the matters which are referred to him; if by his award he purports to decide matters which have not in fact been included in the agreement of reference; if the award is inconsistent---------.". At page 43 of the same edition, while dealing with the scope of the award, it is stated as follows: "The award must determine all the differences which the parties by their agreement referred to arbitration; and on the other hand, it must not purport to determine matters which are not so referred. An award which does not decide the differences referred to arbitration is bad and unenforceable so also is an award which purports to determine matters not comprised in the agreement of reference, unless the part of the award which was beyond the scope of the agreement of reference can be severed from that which deals with the matters comprised within it, in which case the latter part will be held good and valid." At page 332 of Russel's Treatise on Arbitration, 17th Edn. There is the following illuminating passage: "Misconduct is often used in a technical sense as denoting irregularity and not any moral turpitude. But the tertm also covers cases where there is a breach of natural justice. Much confusion is caused by the fact that the expression is used to describe both these quite separate grounds for setting aside an award; and it is not wholly clear in some of the decided cases on which of these two grounds a particular award has been set aside." The term misconduct with reference to arbitration proceedings thus clearly has a wider significance and connotation than personal misconduct by an arbitrator and certainly includes acting by an arbitrator in excess of the terms of reference. 11. The contention of Mr. Hamid Hussain that the arbitrators have misconducted the proceedings is founded on two separate grounds. The first is that they apparently were of the opinion, in view of their direction to the appellant that it should at his own cost return Vie goods to Rotterdam, that the delivery and acceptance of the goods tools place at Rotterdam, but there was no evidence before the arbitrators on this point. The second ground is that the question of return of the goods to Rotterdam was not referred to the arbitrators and in giving this direction they exceeded their jurisdiction. In support of the latter ground he placed reliance on the A. Z. Co.'s case. We are not impressed with the first objection, because the arbitrators in their award, in our opinion, have neither directly nor impliedly held that the delivery of the goods was either taken or the goods were
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accepted by the appellant or his agents at Rotterdam. All that they have held in their award is that Rotterdam was the port from where the goods were shipped by the agents of the Govern--ment. This position is not disputed by Mr. Hamid Hussain. From the mere fact that the arbitrators directed the appellant to return the goods at its cost to the respondent at Rotterdam, it does not necessarily follow that the arbitrators held or came to the conclusion that delivery of the goods was either taken or accepted by the appellant or its agents at Rotterdam. It may further be pointed out that on 8-11-1965 the learned Single Judge had directed Mr. Samad Khan to file an of davit or other material in support of the respondent's claim that the buyers had agreed to take delivery without inspection or that any other mode of inspection was agreed upon by the buyers and in compliance with…
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