1. HAMOODUR REHMAN, C. J-This appeal, by special leave, arises out of a judgment of a Division Bench of the former High Court of West Pakistan, Karachi seat, accepting Letters Patent Appeal No. 2 of 196-5 after setting aside the judgment of a learned Single Judge of the same High Court in Original Suit No. 78 of 1964.
2. This suit was in fact a proceeding under subsection (2) of section 14 of the Arbitration Act, 1950, which had been filed by an umpire for making his award a rule of the Court.
3. The facts giving rise to the litigation may briefly be stated as follows: The respondent-Government, being in need of lubricant oil, invited tenders. In response, the appellant-company filed a tender on the 28 of March 1961, giving quotations in respect of lubricant oils to be imported mainly from the United States. These prices were exclusive of duty and other taxes payable on imported oils but subject to the condition that import licences will be issued by the Government for the import of the oil. The company offered to import within 8 to 12 weeks after the receipt of the import licences on Government account.
4. This tender was accepted by an Assistant Director of Purchase for and on behalf of the Government of Pakistan by his letter No. POL-11/122/9 dated 22nd of July 1961. It mentioned the date of delivery as "shipment by 31-10-61 or earlier", which would have given the tender more than 8 to 12 weeks for import if the licences had been issued promptly.
5. The special instructions contained in this acceptance were as follows: - "(1) A/T (Acceptance of tender) is subject to issue of Import Licence on Government Account.
(2) The price is firm and final in all respects.th
(3) As the prices do not include Custom duty and Sales Tax, an exemption certificate will be issued by U. C. 216 or Embarkation Commandant, as defined under Ministry of Finance (Revenue Division) letter No. 18(105)50 dated 29-12-51 as amended by even number dated 15-2-56.
(4) The Import Licence Fee and Refugee Tax will be extra at cost if levied."
6. This was followed on the 12 of August 1961, by another letter from the Assistant Director of Purchase requesting the appellants to confirm that the order had been taken in hand and, to send the necessary import application immediately. This was done on the 16th of August 1961, and was forwarded by the same Assistant Director of Purchase to the Chief Controller of Imports and Exports by his letter No. POL-11/122/8 dated 29-8-61 with a request to arrange for the issue of the import licence in favour or, the appellants immediately. Nothing unfortunately was done by, the office of the Chief Controller of Imports and Exports till the 1st of September 1961 when they wrote to the appellants to submit licence form through their bankers for authentication.
7. The import licence was ultimately received on the 12 of September 1961. Hence the appellants, on the 19th of October 1961, wrote to the Director-General, Bureau of Mineral Resources, to extend the time of delivery up to the 12 of December 1961. As no reply was received to this letter, the appellants again wrote on the 2 of November 1961, asking for extension up to the 21 of December 1961. A third reminder was sent on the 28 of November 1961, and it was only thereafter that the Deputy Director of Purchase, by his letter No. POL/11/122/9/202 dated 18-12-61 extended the shipment date up to 31-12-61 subject to the reservation of all rights under the terms and conditions of the contract.
8. By this me, the validity of the import licence had also expired on the 30th of November 1961. The appellants, therefore, again, wrote to the Director-General of Mineral Resources to extend the shipment period to 8 to 12 weeks from the date of receipt of the renewed valid licence as per terms of his tender. nd of July 1961, 2 of September 1961 and the 24 of November 1961. These were also duly accepted by the Government won the 13 of September 1961, 4 of October 1961 and the 21st of March 1962 with shipments by; 30-11-61, 31-12-61 and 30-6-62 respectively. The last acceptance dated 13-3-62 (POL-11/438/80) also stated that "the contract is concluded by this acceptance".
9. The aggregate value of these accepted tenders stood at Rs. 4,88,125 as admitted by the Government in its letter No. POL-11/263/96 dated 2-10-61.
10. It appears that the Director-General, Bureau of Mineral Resources, was at first hesitant to extend the periods of shipment, but after much correspondence ultimately, on the 22nd of February 1962, by his letter No. POL-11/122/9/291, extended the period of shipment of the first tender, accepted on the 22 of July 1961, up to the 31 of May 1962, and asked the appellant to submit his import licence within three days for necessary amendment.
11. There was, however, some hitch with regard to the issuance of the import licences, as the Chief Controller of Imports and, Exports was insisting that the licence forms should be submitted, through the applicant's bankers. Some differences also arose over the payment of the wharfage dues, as is evidenced by letter No. POL-11/438/61 dated 27-11-61, when the Assistant Director of Purchase asked the appellants to confirm that they were agreeable to keep their offers against the tenders open till 25-12-61 without any change in prices and delivery date, even though some delay was anticipated before a final decision as regards the disputes could be arrived at.
12. The appellants replied on the 19th of December 1961, saying --that indefinite extensions were uncalled for. These disputes thus continued right up to March 1962, without any concrete results as the Chief Controller of Imports and Exports was adamant that: the periods of the licences could not be extended, because, the appellants had failed to get their licences registered with the Staten Bank of Pakistan. The latter dispute was ultimately settled by-- the issuance of a sub-authorisation by the Government for the: total amount of the import licences but again this authorisation wasth th th nd st th nd th th th nd st forwarded to the appellant-company by the letter of the Assistant Director of Purchase No. POL- II/263/62 dated 12-5-62 when the period for shipment was about to expire. The: Company, on the 17 of May 1962, therefore, promptly replied saying that after such late issue of sub-authorisation which actually reached them on the 14 of May 1962, it was impossible for them to Import the goods before the 31 of May 1962, and as such the period of shipment should be further extended and. Certain other concessions granted to enable them to transport the oil through non- conference vessels.
13. It was only on the 22nd of May 1962, that the Assistant'. Director of Purchase, by his letter No. POL- II/263, ultimately agreed that registration of sub-authorisation issued under-- I. C. A. Aid with the State Bank of Pakistan was not necessary; but the extension or the period of shipment remained yet to be confirmed.
14. The appellants in the meantime, however, instructed their` Hankers to open irrevocable letters of credit, but the Governments: through its Assistant Director of Purchase continued to insist that the first shipment dates within June 1962, must be confirmed, As the appellants were not in a position to do so, the Govern--ment, through the letter of Assistant Director of Supplies No. POL- II/Lub/DEF/100 dated 3-10-62, finally cancelled all the contracts at the risk and cost of the appellants with full reserva--petition of the purchasers rights thereunder.
15. This letter of cancellation also contained a footnote in the copy endorsed to the Audit Officer, I. S. & F., Karachi, to the following effect: - "This has finance concurrence, vide their U. O. No. 1259--AFA(1)/62, dated 20-9-62. He is requested not to make payment to the firm against their pending bills till further orders."
16. This was the dispute that the appellants, under paragraph 21 of the Standard Conditions of the Contract (Form P. S. 35) then applicable, sought to refer to arbitration on the 1st of November 1962.
17. Paragraph 21, as it then stood, provided that all disputes arising under the agreement shall be referred to the decision of two arbitrators, one to be nominated by each party, and that in the case of a difference of opinion between the arbitrators, the matters shall be referred to an umpire and the decision of the umpire shall be final.
18. The appellants claimed that the Government had unlawfully and without reasonable cause cancelled the contract. They nominated Mr. M. M. Mahmoodi, an Advocate of Karachi, to act as their arbitrator and called upon the Government to nominate. Its arbitrator within the statutory period. In this letter the appellants claimed damages on account of anticipatory breach or contract amounting to Rs. 1,50,000, as also called upon the Director-General, Investment Promotion and Supplies, Government of Pakistan, to withdraw without further delay the advice given in the footnote of the cancellation letter for withholding payments of bills respecting other contracts.
19. The Government nominated Mr. M. A. Muzaffar, S. Q. A., Managing Director, National Investment Trust, Karachi, as its arbitrator by its letter No. POL-If/263/61 dated 14th of November 1962. The arbitrators then entered upon the arbitration on the 10th of December 1962, and appointed Mr. Muhammad Bakhsh Memon, an ex-Judge of the West Pakistan High Court, as an umpire and called upon the parties to appear before them on the 22nd of December 1962.
20. Since the Government did not withdraw the advice to the Audit October to withhold all payments in respect of other contracts as well, the appellants, again on the 29th of December 1962, referred that dispute as well to arbitration and appointed the same gentleman, Mr. Mahmoodi, to act as their arbitrator. The Government also, by its letter of the 12th of January 1963, appointed Mr. M. A.
21. Muzaffar, S. Q. A., Managing Director of the National Investment Trust, Karachi, to act as the arbitrator on its behalf in this dispute as well.
22. The appellants in their memorandum of claim filed before the arbitrators claimed Rs. 16,50,000 as total damages under various beads including an order for the immediate release of payment of pending bills in respect of other contracts. The Government, on the other hand, made a counter-th th st claim for liquidated damages under Clause 11 of the Standard Conditions of the Contract (Form P.
23. S. 35) for the sum of Rs. 70,491.
24. The arbitrators, after taking evidence and holding about 30 sittings, came to the conclusion that the breach was on the part of the Government but could not agree as to the quantum of damages.
25. In view of this disagreement, they referred "the matter to the umpire" chosen by them. The arbitrators were also agreed that the Government had no right to withhold payments of pending bills with respect to other contracts.
26. Before the umpire, for the first time, the Government made an application on the 13 December 1963, under Order VI, rule 17 of the Code of Civil Procedure, for the amendment of its pleadings by including an alternative plea to the following effect: - "That in the alternative it is submitted that there were no contracts between the Government and the firm, and as such the firm is not entitled to claim any damages."
27. The umpire rejected the application holding as follows: - "It is an admitted position that the contracts were com--pleted. The difference is only about the date of their completion. That can be argued even without allowing the proposed amendment."
28. Ultimately, the umpire gave his award on the 18 April 1964. In this award, he formulated the following points for decision: -
(1) Whether there was a valid and binding contract between the parties?
(2) Who committed breach of contract, if any?
(3) What should the order be about damages?"
29. On the first point, he came to the conclusion that there can be no doubt whatsoever that the five acceptances of tenders created valid and fully binding contracts which were cancelled on the 3 of October 1962, because-
(a) the parties throughout had treated these contracts as such and acted upon them on the basis that they were valid and binding contracts,
(b) the conduct of the respondent-Government also left no doubt that It had acquiesced in the matter and accepted the position that they were valid and binding contracts as evidenced by their various letters and their conduct throughout.
30. They were, therefore, estopped from challenging the validity of the contracts.
31. The umpire also came to the finding that it was the Depart--ment, which had committed the breach of contract.
32. As regards the quantum of damages, the umpire allowed Rs. 1,35,823 as damages for breach of contract and also directed that the Government should forthwith release the bills aggregating to the sum of Rs 95,000, which had been withheld under the advice of the Department to the Audit Officer. In addition to the above, he also allowed damages to the tune of Rs. 3,00,000 for the "very baneful effect on their goodwill and general business reputation" caused by the withholding of the payment of the other dues of the appellants.
33. When the matter came up before a learned Single Judge of the High Court, the Government opposed the award and again contended that the award was without jurisdiction, as there was no dispute, which could have been referred due to the fact that there was no complete and binding contract between the parties. It also complained that the umpire had been guilty of misconduct and had in any event awarded damages in total disregard of the principles governing the grant of damages for breach of contract. The contentions were, however, rejected and the award was made a rule of the Court. Running interest was also allowed at 6% per annum on the award from the date of the decree till the date of realisation.
34. The Government went up in Letters Patent Appeal and raised the following four contentions: - "(1) that there is an error apparent on the face of the record in the umpire wrongly holding that the appellants were estopped from pleading that there was no concluded contract;th th rd
(2) that the umpire bad acted in excess of his authority in awarding damages to the respondents on account of the appellants withholding payment of Rs. 95,000 to them as the appellants had made no reference on this question to the arbitrators or the umpire;
(3) that the umpire had given an unconscionable away in allowing damages to the tune of Rs. 3 lakhs for stopping the payment of Rs. 95,000 only; and ,
(4) that the learned Single Judge had wrongly held that the allegation of misconduct against the umpire was vague and that his order rejecting the applications of the appellants for the examination of the umpire or other evidence had prejudiced the case of the appellants in that they had been denied the opportunity of substantiating the allegation of the misconduct against the umpire."
35. The Letters Patent Bench upheld the order of the umpire rejecting the application for amendment of the pleadings on the ground that the question, as to whether, the contracts were concluded or not, was not even taken up before him.
36. The Division Bench also upheld the finding of the umpire that the dispute with regard to the withholding of the payment of Rs.95,000 and damages in consequence thereof were disputes which had been referred to arbitration and the umpire, therefore, had the jurisdiction to give his award on these questions. He could not, as such, be said to have acted in excess of his authority.
37. On the third point, however, the Division Bench took the view that the damages of Rs. 3 lakhs granted to the appellants on account of loss in goodwill and reputation suffered due to the withholding of payments of Rs. 95,000 was a case of awarding damages completely disproportionate to the loss, which could be suffered. There was no direct connection between this alleged loss and the withholding of payment, even though the amount withheld was admitted. The award to the extent of Rs. 3 lakhs was, therefore, set aside.
38. Having done this, however, the learned Judges also went on to hold that the award of Re. 1,35,000 in respect of damages for breach of contract was also unsupportable. This was, accord--ingly, also set aside. The only amount given to the appellants was Rs. 95,000, which had been withheld by the Government, although this sum payable in respect of pending bills for other contracts had nothing whatever to do with the contracts in dispute.
39. On the fourth point, the learned Judges of the Division Bench also disagreed with the learned Single Judge and held that the latter acted with material irregularity in not allowing the respondents to examine the umpire in support of their allegation of misconduct on his part. The allegations were neither vague nor indefinite and, therefore, this opportunity should have been allowed to them.
40. Leave was granted in this case to consider whether the Letters Patent Bench of the High Court had rightly interfered with the award.
41. Learned counsel appearing in support of this appeal has very frankly conceded that, having regard to the rule of damages laid down in section 73 of the Contract Act and in the well known case of Medley v. Baxendale (156 E R 145=L R 9 Ex. D 341), he cannot press his claim for the damages of Rs. 3 lakhs awarded to the appellants on account of the withholding of the payment of Re. 95,000, for, such loss flowed neither naturally from the breach of the contract nor were there any special circumstances which would make it a reasonable and natural consequence of such breach of contract.
42. Section 73 of the Contract Act incorporates the above, principles by providing that the party who suffers by the breach v may claim compensation "for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it". Such compensation is not, however, to be givers "for any remote and: indirect loss or damage sustained by reason of the branch".
43. He, however, presses his claim for the recovery of damages amounting to Re. 1,35,823 for breach of contract and the refund, of Rs. 95,000.
44. With regard to the sum of Rs. 1,35,823, it is pointed out that this is the direct and natural consequence of the breach as it represents the loss of profits, which the appellant would have earned if the contracts had not been cancelled. We are in agreement with the learned counsel that this is a loss to which he can legitimately be entitled and the Letters Patent Bench in the High Court had wrongly treated this as too remote to be recoverable, merely because this had been treated in the same manner as the other amount of Rs. 3 lakhs by the Umpire. Details of the claim of Rs.
45. 1,35,000 were only furnished in the memorandum of claim filed on behalf of the appellants and we see nothing therein to suggest that the loss of profits claimed was .Not a direct and natural consequence of the breach, to which the, appellants were entitled under section 73 of the Contract Act.
46. There can be no manner of doubt that in a case of this nature, where goods had to be imported from foreign countries, the supplier was at least entitled to be placed in the same situation with respect to damages as if the contract had been performed. Loss of profits, which the supplier could reasonably have been expected to earn may well, in such circumstances, be l treated as a fair measure of compensation for the breach.
47. As against this, the learned counsel appearing on behalf of She respondent-Government has not pressed his case with regard to the alleged misconduct on the part of the Umpire, nor has he contested the liability of the Government to refund the sum of Re. 95,000; but he has contended that the Umpire acted clearly illegally and committed an error apparent on the face of the record by refusing to allow him to amend his pleadings and raising the question with regard to the incomplete nature of the contract itself.
48. According to the learned counsel for the respondents the entire case was open before the umpire and, therefore, he should not have confined himself only to the question of the measure or quantum of damages.
49. We are unable to accept this contention of the learned counsel. The Umpire hid, in fact, gone into this question and given a clear and categorical finding that the five acceptances given by the Government constituted valid and binding contracts and that this conclusion found confirmation also from the subsequent conduct of the respondent-Government itself. If there was any suggestion at any time that there was no valid or concluded contract, there would have been no question of cancelling these contracts or calling upon the appellants to intimate whether they had opened confirmed letters of credit or not or to confirm whether they would be able to supply by the 30 of June 1962. The Arbitrators as well as the Umpire have clearly found that there was a valid and concluded contract. In the High Court also, this finding was not seriously challenged.
50. We too are of the opinion that there can be no manner of doubt that valid, binding and complete contracts had come into-- existence. The mere fact that in each acceptance a definite date-- of shipment was mentioned, does not necessarily mean that it varied the offer of the tenderer that he would make delivery within 8 to 12 weeks of the issuance of the import licence. The, period of time allowed could well have covered this 8 to 12 weeks if the import licences had been issued promptly, as was contemplated. It cannot, therefore, be said that this was a counter--offer and, therefore, there was no completed contract.
51. Even assuming but not accepting that it was a counter-offer, then even this counter-offer had been duly accepted by the appellants when they submitted their applications for import: licences.
52. They would not have done so, if they were not agreeable to the terms and conditions laid down in the acceptance-- and it was for this reason that they subsequently kept on asking for the variation of that term by requesting for extensions of the: shipment period. The entire correspondence between the parties proceeds on the basis that concluded contracts have been effected indeedth the Government say so in so many words in their last acceptance (vide POL-11/438/80 dated 13-3- 62). There is no substance, therefore, in this contention.
53. The next contention of the learned counsel is also untenable because, here, the award of the Umpire shows that he did go into this question and, therefore, he did not confine himself merely to the question of quantum of damages on which the arbitrators were in disagreement.
54. As a general rule, where an umpire enters upon the differences between the arbitrators, all the matters referred to arbitration are to be decided and not merely the matters on which the arbitrators have disagreed but there might well be cases where arbitrators might make an award on some matters and refer the others on which they have disagreed to the umpire. In such a case, the scope of the jurisdiction of the umpire will be confined to the matters, which have been referred to him. In the present case, this was not so, for, the arbitrators merely referred the matter to the umpire. The whole matter was, therefore, open before him for decision, as he has, in fact, decided by dealing with the entire case. The complaint, therefore, that the Umpire had not dealt with the entire case is not at all justified These are all the points urged in this appeal, and since we have come to the view that there was a valid, binding and com--plete contract between the parties and that the breach thereof was committed by the Government, the appellants were, in our view, clearly entitled to claim damages for breach of contract directly arising therefrom. The sum of Rs. 1,35,000, in oar view, fairly represented these damages.
55. This appeal must, accordingly, be allowed to that extent. There will be a decree for Rs 1,35,000 in favour of the appellants and they will also be entitled to a decree for the refund of Rs. 95,000 which, was wrongly withheld by the Government and they will furthermore be entitled to proportionate costs.
56. Since no interest on the decretal amount has been claimed, we make no order for interest.