' This is a petition under section 33 of the Arbitration Act for determining that there is no arbitration agreement between the petitioner and respondent No, 1 and the arbitrators and umpire appointed by respondent No, 2 cannot validly and legally enter upon the reterence.
1. Briefly the facts according to the petitioners are that on 20th September, 1978 they entered into a contract for and on behalf of and as agents of one .Yousuf Industries Ltd., Jampur Road, Dera Ghazi Khan with respondent No, 1 for sale to it by Yousuf Industries 1,500 bales of cotton to be delivered in the month of November, 1978 at the rate of Rs, 378 per maund ex-factory. It was a factory selection contract and the weighment of the goods was to take place at the factory of the sellers and 100% demand was to be made by respondent No, I to the sellers against delivery of goods. It is alleged that defendant No, I did not approach the sellers and by their letter dated 14th December, 1978 addressed to the petitioners wrongly alleged that the petitioners have neglected and failed to give delivery in terms of contract. On these allegations the respondent No, 1 claimed damages on the basis of the prevalent rate on 2nd December, 1978 which was alleged To be Rs, 500 per maund. The petitioners denied the claim stating that there is no contract between the petitioners and respondent No, 1 as the goods were sold by Yousuf Industries Ltd. And the petitioners had acted only as their agents. On 7th February, 1979 the respondent No, 1 addressed a letter to the Secretary, Karachi Cotton Association Ltd. The respondent No, 2, for appointment of arbitrator for the alleged dispute between the parties under the byelaws of the Association. The respondent No, 2 in terms of bye-laws by its letter dated 27th February, 1979 appointed the respondents Nos. 3 and 4 as arbitrators and respondent No, 5 as Umpire. The petitioners have challenged the appointment of arbitrators and Umpire inter alia, on the ground that there is no contract between the petitioners and the respondent No, 1 as they were acting as agents of the purchasers, secondly it has been contended that assuming that a contact between the petitioners and respondent No, 1 existed the claim made by the respondents No, 1 is barred under law and, therefore, there can be no valid arbitration proceedings and it cannot be made subject-matter of arbitration. The third contention is that as the contract in dispute was not registered as required by the bye-laws of Karachi Cotton Association Ltd., the arbitration clause will not apply. The learned counsel for the parties have addressed at length on all the aforestated contentions. However, as the contention whether the claim as agitated by respondents No, 1 can be referred to arbitration will dispose of the entire case it is not necessary to deal with other contentions.
2. In this regard the main contention of the learned counsel for the petitioners is that the respondent No, 1 is claiming damages on the basis of difference between contract price and black market rates which they are not entitled to claim. It has been contended that on this basis no damages can be awarded in law and as such the claim cannot be entertained by the arbitrators.
In this regard some material facts may be again stated. The contract (without in any manner deciding whether it existed between the petitioners and respondent No, 1) provided for supply of Cotton Act, 134 S J at the rate of 378 per maund ex-factory of 1978-79. Season delivery in November, 1978. It is an admitted position that under notification issued under the Price Control and Prevention of Profiteering and Hoarding Act (Act No, XXIX of 1977) the price of the cotton of the quality in question was fixed at Rs, 378 per maund subject to other conditions mentioned in the notification. The admitted position is that the claim of the respondent No, 1 for damages is based on the difference between the contracted price of Rs, 378 which happens to be the control price also and the alleged market price of Rs, 500 per maund.
' Mr. Mansoorul Arfin, the learned counsel for the petitioners has contended that by claiming damages on the basis. Of Rs, 500 per maund. The respondent No, 1 are claiming damages on the basis of black market rate which is prohibited under law. The learned counsel has referred to the case of Gul Ahmed Textile Mills v. Umer Sons. In this case the facts were similar to the present one with the difference that in this case the arbitrator had made an award on the basis of uncontrolled price. Naimuddin, J, while referring to the case of Bengal Oil. Mills Ltd. v. Dada Sons observed as follows :- "It clearly emerges from this case that where prices are fixed and controlled under the law and those become the prices which have to be taken into consideration for the purposes of performance of the contract as well as for the purposes of assessment of damages in cases of breach of contract."
' It was further observed that "Where the prices are controlled then such prices become the market price.
4. Mr. Khurshid Anwar Shaikh, the learned counsel for respondent No, 1 has contended that the party claiming damages should be compensated for the loss suffered by him irrespective of the fact whether the price had been controlled or not and the determination of such a damage should be the difference between the controlled price and the open market price or the black market price available for such goods. The learned counsel has entirely relied upon the case of Mount v. Betts Motors Ltd.. In this Privy Council case the appellant bought a new car from the respondents who were dealers for and 1,207 which was a maximum control price. The import of such cars was regulated under the licenses granted to importers subject to conditions inter alia that the dealer would require a purchaser to enter into a deed of covenant that the purchaser would not within a period of 2 years from the date of the purchase of the car sell it unless he first offered back to the dealer at the original price less depreciation. By another Act the price in relation to the sale of this good was fixed. The appellant on purchasing the car entered into the convenant as required by the Board of Trade and in breach of that covenant within a period of 3 months he sold the car for 1.700.1 2 3 The respondent sued him for breach of contract claiming 543 as damage, the difference between 1,700 and 1,157 which was the contractual resale price by the respondent reached by deducting the depreciation of 50 from 1,157. The appellant contended that the covenant was illegal as contravening the Act of 1974 and that if the damages were recoverable the difference should be between 1,207 and 1,157 as the respondent could onlv charge the maximum control price on reselling the car. On these facts Lord Denning observed as follows :- "It does not lie in the appellant's mouth to say that, if he bad fulfilled his covenant, the respondents could only resell the car for 1207. That was a matter peculiar to the respondents which was no concern of his. The respondents were entitled in law to be put into as good a position as if he had fulfilled his covenant ; and to do this they were entitled to go into the market and buy a similar car at the market price : see William Bros. v. Ed. T. Agius, Ltd. (1914) A. C. 510 at 531. Per Lord Moulton). This rule applies even though the only available market is a surreptitious market which is fed by persons who have broken their covenants : see British Motor Trade Assocn v. Gilbert (1951) 2 A E R 641). The market price of this car in that market was 1,700. At any rate, the appellant can hardly deny that that was its market price, since that is the sum for which he sold it ; and the damages should be the difference between that market price of 1,700 and the contract price of 1,157."
' For this observation Lord Denning has entirely relied upon the case of British Motor Trade Assocn. v.
Gilbert and it is necessary to refer that case. In this case also the facts were same and in Mouat v.
Bette Motors Ltd., but the reasoning and the findings were based on the evidence and peculiar facts of that case. In British Trade Motor Associations case the defendant had entered into a covenant restricting the disposal of the car for a certain period of time. The defendant broke the terms of this covenant and plaintiff claimed an injunction against him from disposing off the car.
The defendant admitted that he had sold the car for 2,200. The defendant challenged the legality of the covenant putting restriction on the sale for a period of 2 years. The covenant was, however, held to be legal and it was "considered whether on the admitted breach of the covenant the plaintiffs were entitled to recover damages and to what extent". The basis on which the damage was granted has been stated in the following manner :- "I then come, there being admitted breaches of the covenant, to the question, whether the plaintiffs are entitled to recover any damages, and, if so, what. Evidence has been given before me establishing what is said to be the value of the car in the open market. Of course, in one sense there is no proper open market for a car of this kind, because, if people observe the covenants, they cannot dispose of a car for a period of two years from the time when they obtain delivery. Such dealings as there are with -cars which are subject to covenant of this nature are surreptitious. On the other hand, at the end of two years a purchaser of such a car could sell his car on the open market and would obtain a price of which evidence has been given. It appears that in 1953 a vendor who purchased this car in January, 1951 could, legitimately obtain a price, not of 1,263 odd, but of some 2,500. It has been suggested that the price of 2,200 at which the car was offered to the representative of the plaintiffs was not greatly different from the price which could have been obtained in the open market, and much the same figure is reached by taking that figure of 2,500 for 1953, and discounting on a 71 per cent, basis, so reducing it to a present price of 2,100. One way and another, therefore, it seems that, if I am to take the value in the open market, whether I treat it as what can be obtained surreptitiously at the present time, or a legitimate purchase price in 1953 discounted, I would come to the conclusion that the market value would be 2,100."
' From the above observation it is clear that in the peculiar facts and circumstances of the case it was observed that where the prices are controlled there could not be open market and dealings in car subject to restrictive covenants are surreptitious in nature. However, it was noted that at the end of 2 years the purchaser could sell his car in open market and would obtain a price. Evidence was led in this case to establish that after 2 years what would be the value of the car and it was this fact which influenced the assessment of the quantum of damages. It is, therefore, clear that the damages were not entirely assessed on the basis of surreptitious price or the black market rate, but it was granted on the basis of an open market rate available on the date when the car would have been available for open sale, which was proved by evidence and was treated as the market price for the purpose of assessing the damage. In view of these facts the observations made in the aforestated 2 cases do not support the contention of the learned counsel for defendant No,
1. There are string of cases as quoted in 1981 CLC 806 where it has been held that on the basis of black market price no damage can be claimed. To award damages on the basis of black market rate will amount to recognize illegal prices and transactions which will be against A public policy and violative of the very letter and spirit of the Act fixing the maximum price for the goods. In these circumstances the arbitrators even if they have jurisdiction cannot make an award as claimed by respondent No,
1. Mr. Mansoorul Arfin, the learned counsel for the petitioners has referred to the case of Muhammad Abdul Latif v. Nisaar Ahmed and others, where the Court refused to make an order of reference to arbitration as the claim had already become time barred.
It is thus clear that any claim which is illegal and barred by law cannot be referred to arbitration. In these circumstances I need not discuss the other two points raised by the learned counsel and hold that the arbitrators and Umpire cannot entertain and decide the claim of the respondent No, 1.
There will be no order as to costs. 1981 CLC 806 PLD. 1964 Kar. 18 (1958)3 EAR 402 PLD 1959 Kar. 465