' This is an award dated 12-3-1973, given by Mr. S. Azam Ali, C. S. P. Who was, as stated at the Bar, at the relevant time, Additional Secretary to the Government of Pakistan in the Ministry of Defence.
2. By this award, the sole arbitrator has awarded a sum of Rs, 75,000 to the plaintiffs. The defendants have filed objections under sections 30 and 33 of the Arbitration Act, 1940 to the same.
3. The facts giving rise to the award and the objections, briefly stated, are as follows:- ' The plaintiffs by their letter dated 20th, of May 1970, offered to supply M. S. Corrogated-sheets of the specification, at the price, and on the terms and conditions mentioned therein. One of the terms was that the quotations mentioned in the letter were on the basis of the import policy for the period January to June 1970. That any change in the import policy would be on Government's account.
4. After correspondence, the parties on 27th of June 1970, entered into a contract in form D. P. 19, which inter alia, provided that the purchasers (defendants) would purchase and the suppliers (plaintiffs) would sell the stores described in the schedule at the price mentioned therein subject to special conditions attached and those mentioned in Form D. P.
35. One of the terms mentioned in the contract provided that the prices were firm and final and inclusive of all taxes, duties, octroi etc. As applicable on the date of the signing of the contract and any increase or decrease whatsoever, in taxes, duties etc. Would be on the purchaser's account.
5. Clause 38 of D. P. 35 provided settlement of disputes by arbitration. The clause reads as follows : "(38) Arbitration.-All matters of dispute or difference, except regarding rejection of stores by the Inspector under clause 12(e) and (f) and/ or cancellation of the contract by the Purchaser under clause 16, arising out of this agreement between the parties hereto, the settlement of which is not otherwise specially provided for in this agreement shall be referred to the decision of the Secretary, or Additional Secretary or Joint Secretary, Ministry of Defence and his decision shall be final and binding on the parties. Work under the contract shall if reasonably possible, continue during the proceedings before the said Secretary and no payment to or payable by the Director shall be withheld on account of such proceedings unless they are the subject of the dispute.
' The venue of arbitration shall be the place from which the contract is issued or such other place as the Purchaser at his discretion may determine."
6. It appears that, after entering into contracts there was a change in' import policy whereby import of the contracted goods was put on licence obtainable on full bonus vouchers instead of cash- cum-bonus vouchers. The plaintiffs, therefore, claimed escalation in prices because of change in import policy. The defendants denied the claim on the ground that the prices agreed were firm and final. The matter was, ultimately, referred to the arbitrator who gave the award now under consideration.
7. The defendants in paragraph 5 of the application under sections 30 and 33 of the Arbitration Act have raised the following objections :
(a) That the award is bad in law and fact as the learned Arbitrator after holding that the contract which was the basis of the claim, did not provide for payment of increased price in the event of change in the import Policy, made the award of Rs, 75,000 (Rupees seventy-five thousand only) in favour of the plaintiffs on their claim based solely on the basis of the resultant increase due to change in the Import Policy.
(b) That the learned Arbitrator has in the earlier part of the award given a definite finding and rejected plaintiff's claim by holding : "Besides, even under the revised Import Policy, a complete ban was not imposed on the import of the stores nor the import had become physically impossible or illegal. I do not accept the applicants' claim, therefore, to any legal right for an increase in the contracted price of the stores."
' While, in the later part, he has awarded sum of Rs, 75,000 (Rupees seventy-five thousand only), by observing : "In view of these mitigating circumstances and the fact that the firm actually imported the contracted stores after the execution of the contract at a considerably high cost, for which they have produced documentary evidence, I consider it fair and equitable that the respondents should compensate them to a reasonable extent. I, accordingly, declare and award that a sum of Rs, 75,000 (Rupees seventy-five thousand only) be paid to be applicant firm in addition to the price payable to them at the contracted rests."
' It is submitted that the award is in excess of legal limitations envisaged by the contract on the basis of which the matter was referred to the Arbitrator. The learned Arbitrator has thus exceeded his authority and jurisdiction by making an award, which, on the very face of it, is beyond the terms of the, contract.
(c)That the very reasons given for awarding a sum of Rs, 75,000 (Rupees seventy-five thousand only) besides being vague are contrary to the terms of the contract and law applicable in that behalf and, therefore, illegal and in excess of authority as the very clause governing the reference to Arbitration (clause 38 of D. P. 35) limits the disputes to be settled through arbitration to only such matters as arise out of the agreement and the award being on the basis not covered by the agreement is per se void."
8. I have heard Mr. Hassan A. Shaikh learned counsel for the plaintiffs and Mr. S. Murtaza Hussain, learned counsel for the defendants.
9. Mr. Murtaza Hussain has pointed out certain findings of the arbitrator in the award and submitted that the award is vitiated on account of illegality on the face of the award. He pointed out that the arbitrator has found that "There is no definite provision in the contract regarding payment of increased price to the Firm in the event of a change in the Import Policy, although such a provision does exist in respect of a change in taxes, duties etc. (vide item 13 on page 3 of the Contract). Besides, even under the revised Import Policy, a complete ban was not imposed on the import of the stores nor the import had become physically impossible or illegal. I do not accept the Applicant's claim, therefore, to any legal right for an increase in the contracted price of the stores corresponding to the Additional cost as stated to have been incurred by them due to the change in the Import Policy". Mr. Murtaza Hussain has submitted that the arbitrator, in spite of above findings, has awarded damages on the basis of equitable consideration.
10. I may here refer to the reasons given by the arbitrator which are as follows :- "I am inclined to accept, therefore, that it was within the knowledge of both the parties that the contracted stores were to be imported by the firm and supplied. The stores could not possibly be imported on cash-cum-bonus, as allowed under the Import Policy for Jan.- June 1970, as the last date for receipt of licence forms under that Policy had already expired by the time the Contract duly signed was received from the respondents. Under the revised Import Policy for the period July to December 1970, which was published in the Gazette dated 11-7-1970, this item of stores was removed from cash-cumbonus list and had to be imported under Bonus Scheme; which obviously meant higher cost. The firm represented on 27-7-1970 for the grant of an import licence for 50% of the C & F value of the stores or for admitting a corresponding increase in their prices. This request was rejected in the respondent's letter dated 16-3-1971 i,e, after about 8 months. The firm imported the stores under the bonus scheme and completed the supply. In view of these mitigating circumstances (underlining* is mine for emphasis) and the fact that the firm actually imported the contracted stores after the execution of the contract at a considerably high cost, for which they have produced documentary evidence. I consider it fair and equitable (underlining is mine for emphasis) that the respondents should compensate them to a reasonable extent."
11. Mr. Murtaza Hussain has relied on a decision of this Court given by my learned brother Zaffar Hussain Mirza, J., in Pakistan v. Messrs Rizvi & Company Karachi and another (1). In this case, the arbitrator had patently construed the contractual term contrary to the expressed stipulation of the contract. In this case, reliance was placed on Union of India v. Praim Satramdas (2) wherein it was held that the arbitrator having arrived at a finding of fact, that the plaintiff was not responsible for any loss that might have resulted to the defendants on account of another fair being
(1) PLD 1979 Kar. 744 (2) AIR 1951 Pat. 201 advertised, he was not justified to give a decision according to his notion of justice and morality.
The reliance was made also to Maruti v. Akaram (1), wherein it was observed that where the award was in direct contravention of the findings arrived at and definitely recorded by the arbitrator, the award would be illegal on the face of it. Mr. Murtaza Hussain also relied on David Taylor and Sons Ltd. v. Barnet (2) it was observed by Singleton L. J., at pages 846 of the report as follows :- "The duty of an arbitrator or umpire is to decide the questions submitted to him according to the legal rights of the parties, and not according to what he may consider fair and reasonable in the circumstances. It seems to me that the umpire in this case thought it fair and reasonable that the seller should pay the loss incurred by his breach of contract, and that he cannot have had any regard for the fact that the contract was an illegal contract. There cannot be any dispute as to that. If this be misconduct in law, the proper course is to move to set aside the award."
12. It is submitted by Mr. Murtaza Hussain that in the case under consideration, the arbitrator, in spite of the finding that the plaintiffs had no legal right to increase in the contracted price of the stores, has awarded,B compensation on equitable consideration which is illegal. The decision of my learned brother Zaffar Hussain Mirza, J., and the two decisions mentioned therein and the English decision cited above clearly support the contention of Mr. Hussain.
13. Mr. Hussain also referred to Messrs Alopi Parshad and Sons Ltd. v. Union of India (3), in support of his submission that prices were firm and final and any variation in the import policy could not give rise to any equitable consideration for awarding higher price for the parties must have contemplated all the eventualities at the time of entering into the contract. In this connection, he particularly relied on the observations made in paragraphs 21 and 22 of the judgment which read as follows : "21.-Section 56 of the Indian Contract Act provides that ; "A contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Performance of the contract had not become impossible or unlawful; the contract was, in fact performed by the Agents, and they have received remuneration expressly stipulated to be paid therein. The Indian Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind
(1) AIR 1947 Bom. 400 (2) (1953) All E R 843
(3) AIR 1960 SC 588 at that point-not because the Court in its discretions thinks it just and reasonable to qualify the terms of the contract, but because, on its true construction, it does not apply in that situation. When it is said that in such circumstances the Court reaches a conclusion which is just and reasonable (Lord Wright in Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd., 1942 A C 154 or one which justice demands (Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co. Ltd. 1926 A C 497."
(22) There is no general liberty reserved to the Courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous. That is the law both in India and in England, and there is, in our opinion, no general rule to which recourse may be had as contended by Mr. Chatterjee, relying upon which a party may ignore the express covenants on account of an uncontemplated turn of events since the date of the contract. In India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, "completely outside the contemplation of parties" at the time when the contract was entered into, will justify a Court, while holding the parties bound by the contract in departing from the express terms thereof (1949) 2 K B 632 was a case in which on the true interpretation of a contract."
' Mr. Murtaza Hussain also cited the following other cases in support of his contention that where there is an error of law patent on the face of the award, the same is liable to be set aside.
' Messrs Jaffer Brothers Limited v. Islamic Republic of Pakistan and another (1), Messrs Crescent Jute Products Ltd. Karachi v. Government of (2), Mst. Umar Bibi and another v. Bashir Ahmad and others (3), Shaikh Muhammad Sadiq Muhammad Afzal v. Ministry of Industry, Department of Supply and Development, Government of Pakistan, Karachi (4).
' In the first named case, it was ruled by Dr. I. Mahmud, J., that where an arbitrator states reasons for his decision, and they are erroneous on a point of law, there is an error of law on the face of the award and the award is liable to be set aside. In this case, the arbitrator had construed the contract between the parties and had given his own construction or interpretation of the document as a reason for his award, It was observed that it was open to the Court, to examine the reasons and set aside the award if the error in the construction was apparent on the face of the award. The reference was made to the case of Firm of Mahmomedali A. Karimji & Sons v.
Charatsing Budsing (5), The Union of India v. Premchand Satram Das and another (6). In this case, reliance was also placed on the following observation of the Privy Council in Champsey Bhara Company v. The Jivraj Balloo Spinning and Weaving Company Ltd. (7).
"An error in law on the face of the award means, in their Lordships' view, that you find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating
(1) PLD 1978 Kar. 585 (2) PLD 1976 Kar. 31
(3) PLD 1968 Lah. 629 (4) PLD 1966 Kar. 412
(5) AIR 1925 Sind 51 (6) AIR 1951 Pat. 201
(7) AIR 1923 P C 66 the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous.
' In the case of Messrs Crescent Jute Products Ltd., Karachi v. Government of Pakistan, it was observed by Mushtak Ali Kazi, J., at page 34 of the report as follows :- "The Court can only interfere if the award is bad on the face of it or there is an error of law apparent on a mere perusal of the award. In the absence of any such indication if the award substantially decides the actual disputes between the parties, it would not render the award as invalid or without jurisdiction, if the precise questions referred are not answered in the manner indicated in the reference. Nor can the award be set aside as illegal on the ground that the arbitrator has committed error of law in arriving at the decision. The arbitrators are supposed to be laymen not conversant with the niceties of the law and rules and if the award is badly stated it cannot for that reason be considered as liable to be set aside. Only when a legal proposition forming the basis of the award is, on the face of it, erroneous, can the award be set aside or remitted. It must be contrary to the specific provisions of the law and this error should be apparent on the face of the award."
' In the case of Umar Bibi v. Basher Ahmad the observations of A. R. Shaikh, J., are to the following effect.
"It is no doubt a well-established principle of law that if a mistake of law appears on the face of the award of an arbitration, that makes the award bad, and it can be set aside but it is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside. Otherwise, it would be futile ever to submit a question of law to an arbitrator. A distinction exists between two types of cases viz. Where disputes are referred to arbitrators in the decision of which a question of law has been referred to them for decision. The authorities make a clear distinction between these two cases, and, 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."
' In the last-named case, the meaning of the expressions, 'error of law apparent on the face of the award' was discussed.
' I would now consider the submission of Mr. Hassan A. Shaikh, Advocate.
' On the previous date of hearing, Mr. Hassan A. Shaikh had argued that since defendants had failed to furnish security, as was required under section 33 of the Arbitration Act, the objections could not be heard. However, today in view of the decision of this Court in Messrs Zaman Textile Mills Ltd., Karachi v. Messrs Anwar & Co., Karachi (1) he did not press this objection.
(1) PLJ 1979 Kar. 121 ' His other objection to the application under sections 30 and 33 of the Arbitration Act is that it is signed on behalf of the defendants by the Assistant Director of Defence Purchases for the defendants, who was not competent to sign the same. His further objection is that the application under sections 30 and 33 of the Arbitration Act, should have been filed in the name of the Government as required under section 79 of the Code of Civil Procedure, 1908.
' In my view, both these objections are not well-founded, for, in paragraph 6 of the application, it is clearly stated that Major Aftab Abmad, Director of Procurement Army, Karachi, is ' duly authorised to sign and verify the objections, on behalf of the defendants, and the Government of Pakistan through (D. P. Army) are shown as the defendants. Moreover, in the counter-affidavit filed, no such objection is taken. I, therefore, overrule both the objections.
' Now, on merits, it is submitted that the terms of the offer whereby it was provided that the prices mentioned were on the basis of the import policy then in force and that any change in the Import Policy would be on Government account, were part of the contract. Mr. Shaikh further submitted that the letter containing the terms, the tender documents and the entire correspondence was appended to the contract. Firstly, I do not find the letter or tender documents or the correspondence or for that matter, any document appended to the contract. Even if they were, they would not override the specific provisions of the 'contract. Further, clause 2 sub-clause (h) of the D. P. 35 clearly provides that the terms contained in the contract shall not be taken to include the preliminaries such as invitation to tenders. It also provides that instructions to tenders and connected correspondence are also deemed to have become inoperative as soon as the relevant document had been signed by the parties. Here, I may mention that clause 13 of the contract provides that the prices were firm and final and inclusive of all taxes, duties, octroi etc. As was applicable on the date of signing the contract.
' In reply, Mr. Murtaza Hussain relied on Harihar Prasad Sing and another v. Maharaja Kesho Prasad (1), wherein, at page 83, it was observed by Dawson Miller, C. J. That where the parties were negotiating as to the term of agreement and it was contemplated that a written documents shall eventually be signed everything which took place until the document was finally signed amounted merely to negotiations but where, at the time of agreement, it was not so contemplated, the principle did not apply.
' I am therefore, of the view that no reliance could be placed on the terms contained in the letter dated 20th of May 1970.
' Mr. Hassan A. Shaikh then argued that this clause also provided that any increase/decrease whatsoever in taxes and duties etc. Was on Government account, therefore, if the plaintiffs had to incur additional expenditure purchasing the honours vouchers, the Government is liable to pay increased prices. In this connection, he emphasised the word 'etc.' used in the term but in my view, the word 'etc.' succeeds the words "taxes and duties", therefore, it has to be read ejusdem generis.
Accordingly, the price would not include the amount of any expenditure incurred on the purchase of the bonus vouchers for obtaining the import licence, for importing the sheets. Further, it is not even contended that because of import of the contracted
(1) AIR 1925 Pat. 68 goods on licence obtained on bonus vouchers, any additional duty or taxes was paid by the plaintiffs.
' Mr. Hassan A. Shaikh then submitted that the parties had specifically referred the question of entitlement of increase in prices to the arbitrator and, therefore, even if his decision is erroneous, it is final and binding on the parties. However, the submission is not correct for firstly, this was not a question of law, secondly, after having given a finding that the plaintiff has no legal right to the increase of prices, the arbitrator fell into an error of law, which is apparent on the face of the award when he awarded compensation on equitable consideration.
' It is also submitted by Mr. Shaikh that the defendants were estopped from challenging the decision in view of the following agreement : "Whereas a Contract in writing Bearing No, 1519-0213/61379/DDP/P-14 dated 27-6-1970 was entered into between the above-mentioned parties for the supply of certain stores and whereas due to a change in the Import Policy for July-December 1970, the Applicant Firm claimed a Corresponding increase in their price as given in the Contract, which the respondents refused to agree to, with the result that the said Messrs Nawab Brothers applied for arbitration under clause 38 of D. P. 35 attached to their Contract Agreement.
' It is hereby agreed by both the parties referred to above that the said dispute be referred to Mr. S. Azam Ali, C. S. P. Additional Secretary, Ministry of Defence for arbitration, who is fully acceptable to us as an Arbitrator, and that both the said parties shall be estopped from questioning the fact of the Agreement that the said officer Mr. Azam Ali, C. S. P. Shall act as Arbitrator in the above- mentioned case.
' This agreement is hereby signed by both the above-mentioned parties as under.;"
' But, by this agreement, the parties agreed to accept Mr. Azam Ali as sole arbitrator and had further agreed that he was entitled to act as such. This agreement does not refer any question of law for decision to the arbitrator so as to make it unexceptional. In this connection, Mr. Hassan A.
Shaikh cited :
(1) Messrs Transocean Asia v. Secretary to Government of Pakistan, Ministry of Agriculture and Works PLD 1967 Kar.
445.
(2) Mst. Umar Bibi and others v. Bashir Ahmad and others PLD 1968 Lah.
620.
' But I need not deal with these cases in detail for they are distinguishable because no question of law was specifically referred to the arbitrator so as to bind the parties by his decision thereof.
' Mr. Hassan A. Shaikh also relied on Messrs Jatoi Cotton Ginning and Pressing Factory v. Mst. Zainab Usman (1). This was a case of frustration of contract by prohibition imposed by Martial Law. Firstly, this case has no relevancy to the facts of the present case for it has not been pleaded at any stage that the contract was frustrated, in fact, the contract was performed, secondly, if the contract was frustrated, then how could the plaintiffs have claimed additional prices.
' Mr. Hassan A. Shaikh then relying on Ramsahai v. Harishchandra (2)
(1) PLD 1965 Kar. 22 (2) AIR 1963 Madh. Pra. 143 (Vytla) Sitanna v. Marivada Viranna and others (1) and The Province of Punjab and another v.
Messrs Industrial Machine Tool, Lahore (2) argued that the award was just and fair and, therefore, it should not be interfered with. But in the face of finding that the plaintiffs have no legal right, award of compensation cannot be considered fair.
' I therefore hold, that there is an error of law apparent on the face of the award and even otherwise the arbitrator committed legal misconduct in awarding compensation without legal right.
' For the reasons stated above, I accept the objections and set aside the award leaving the parties to bear their own costs.
(1) AIR 1934 P C 105 (2) PLD 1978 Lah. 829