1. This is an application under section 14(2) of the Arbitration Act and Rule 282 (1) of the Sind Chief Court Rules made by the Arbitrator at the request of the respondents.
2. Trading Corporation of Pakistan Ltd. (hereinafter called claimant) and Messrs Aslam Saeed & Co.
3. (hereinafter called as respondents) entered into a contract whereby the respondents agreed to purchase 30,000 ions of Basmati rice from the claimant for the purpose of export to foreign countries. An agreement dated 11th November 1969, was executed. This agreement provided a failure clause and it is clause 6 which reads asunder : "If the buyers fail to export the quantity stipulated in clause 1 above, in part or in full, according to the schedule of shipment stipulated to clause 3 above, or commit any other breach of this Agreement, then the entire amount of C. D. R. Held by the seller at the time of such breach shall stand forfeited to the seller as an agreed amount to meet storage, supervision, service and other charges, and the agreement shall stand terminated."
4. There is also annexure to this agreement providing amongst other an arbitration clause No. 10 which reads as under: "Any dispute or question of any kind arising out of or under the terms of the contract or otherwise herein provided for and any dispute relating to its construction or any portion thereof after the execution of the contract shall be referred to the decision of a sole arbitrator to be nominated by the seller, from amongst officers of the Government of Pakistan not lower in rank than a Joint Secretary to the Government of Pakistan. The decision of the sole arbitrator shall be final and binding upon the parties. The provisions of the Arbitration Act, 1940, and the rules thereunder an3 any statutory modifications thereof shall be deemed to apply to and be incorporated in this contract. Upon every and any such reference, the assessment of the cost incidental to the reference and award respectively shall be in the discretion of the arbitrator and a reference to arbitration shall be condition precedent to any action at law."
5. It appears that the respondents lifted 15000 and odd tons but failed to lift and ship 14853.17 tons. So there was a breach of contract. The claimants had to resell the quantity of rice which was not lifted and thereby sustained loss. The respondents had initially deposited an amount of Rs. 6,85,800 but at the time of the breach the balance of Rs. 3,42,900 remained with the claimants.
6. "We do hereby agree to the appointment of Mr. S. R. Karim, D. G., I P & S as sole arbitrator for the determination of the disputes between the parties. The appointment of the Sole Arbitrator has been made in terms of clause 10 of Annexure 1 of the above referred Agreement between the two parties. The parties can submit their respective claims and counter claims before the aforesaid Sole Arbitrator and he will decide the disputes so raised by the parties and his award shall be final and binding on both the parties above-named"
7. "(1) Whether the claimants (TC) are competent and the proper party to prefer any claim against the respondents ?
(2) Whether time was essence of the contract between the parties hereto. If so, to what effect ?Co
(3) Whether the original period of contract was extended v. Beyond 10th February 1970 and up to 18th February 1970 and or up to 20th March 1970. If so to what effect ?
(4) Which party to the contract has committed its breach and what shall be the effect of such breach ?
(5) Whether the claimants are competent to claim any sums from the respondents, by way of difference in price and interest in view of clause 6 of the contract between them ?
(6) Whether the claim of the claimants requiring payment in rupees from the respondent is maintainable in law ?
(7) Whether the contract between the parties was frustrated and if so, to what effect ?
(8) Which party to that contract is entitled to receive damages from the other party? On what account and in what sum or sums ?
(9) Cost.
(10) What should be the award ?
(11) Whether the respondents are entitled to the return of the 15 CDRs totalling Rs. 3,42,900 deposited by them with claimants.
(12) Whether the claimants (TCP) served any notice to the respondents prior to reselling the short shipped quantity of Basmati rice ?"
8. After the proceedings were concluded and arguments were heard the Arbitrator made the award allowing a sum of Rs. 5,94,199.98 to the claimants. It was further ordered that the balance of Rs.
9. 3,42,900 remaining with the claimants be appropriated towards the amount. The operative part of the award reads as under: "Now be it known that I, S. R. Karim, Sole Arbitrator, having summoned and heard the parties and their witnesses, examined the documents and other particulars, and considered the matters in all their aspects, do award and finally determine as follows:
(1) That time was essence of the contract between the 'applicant' and the 'respondent' signed at Karachi on the 11 November 1969, which expired on 10th February 1970 for exporting 30,000 metric tons of Basmati rice.
(2) That the 'respondents' having committed a breach of the above mentioned agreement, the 'applicant' is entitled to receive the difference between the contracted price of the defaulted quantity of rice, i.e. 1,48,53.17 metric tons and the price subsequently received for the above- mentioned quantity at --90 per ton equivalent to Rs. 5,94,199.98 and storage and other charges forth the said quantity at the rate of Rs. 0.33 per metric ton per month for 16 days only i.e., between the expiry of the contract and resale of the remaining quantity of rice on 27-2-1970.
(3) That the ---applicant--- is not entitled to receive interest on these amounts as there is no specific mention of it in the contrast.
(4) Teat the costs of this reference are payable by the 'respondents'.
(5) That the 15 CDRs totalling Rs. 3,42,900 may be retained by the 'applicant' to be set of against the amount due from the respondents and stated forfeited in favour of the applicant in accordance with the terms of the contract."
10. Both the parties filed objections to the award. However, at the time of arguments the learned counsel for the claimants abandoned his objections in view of the provisions of Order XXI, rules 49 and 50, C. P. C. So far the objections of the respondents are concerned their counsel confined himself to the following four grounds:
(i) In clause 6 of the Contract the Trading Corporation of Pakistan no provision for damages on breach of contract was made and so the arbitrator could not award those damages.
(ii) There was no resale.
(iii) No notice as required by section 54 of the Sale of Goods Act was given.
11. Elaborating these points the learned counsel stated with regard to ground No. 1 that under clause 6 of the Contract the claimants were only entitled to claim expenses for storage, supervision, service and other charges and there was no provision with regard to damages on account of loss suffered on resale of rice. The Arbitrator had assessed for storage and other charges at the rate of 33 paisa per metric ton per month for 16 days only and this could be the only amount which the arbitrator was competent to award under clause 6 of the contract: So far ground No. 2 is concerned it was urged that the quantity of rice which was not lifted was not separately resold but it was part of 120000 tons of rice which was sold by inviting tenders and, therefore, it could not be said that the disputed quantity was resold. With regard to ground No. 3, it was urged that section 54 of the Sale of Goods Act required prior notice before resale but no such notice was given and the inviting of tenders and the participation of the respondents in those tenders could not be treated to be a notice. To support these contentions reliance was placed upon the authority of the Supreme Court in the case of The Provincial Government N: W. F. P. v. M. K. Musafir and another (P L D1965 SC 489).
12. As regards ground No. 4, it was contended that the liability of the defendants depended upon the determination of issues Nos. 5 and 12 but the arbitrator did not decide these issues and therefore, serious prejudice had been caused. Since those issues had been framed, it was incumcent upon the arbitrator to have given his finding on those issues and by his failure to do so, he eras guilty of legal misconduct.
13. On the other hand, the learned counsel for the claimants raised a preliminary objection that grounds Nos. 1, 2 and 3 should not be pleaded in these proceedings. Dealing with merits, he stated with regard to ground No. 1, that the rule ejusdem generis was applicable to statutes only and not to the interpretation of documents and, therefore, the expression --"other charges" should be liberally interpreted Independent of what proceeded. So according to him the expression would include damages. With regard to ground No. 2 he pointed out that the quality of rice contracted with respondents was the same a9 was subsequently sold by inviting tenders and there was no evidence that proper, price was not thereby obtained. So no exception could be taken to the mode of resale. As regards ground No. 3, it was conceded that no notice in writing was given but it was contended that the public notice inviting tenders for the sale of rice coupled with the participation of the respondents in that sale could be regarded as notice under section 54 of the Sales of Goods Act. In the alternative, it was pleaded that claimants were entitled to damages on the basis of the market price prevailing on the date of breach and, therefore, the award could be remitted to the arbitrator to determine the damages that basis. So far ground No. 4 is concerned. It was contended that the arbitrator was not bound to give separate Findings on each Issue but what was required was that he had to give cleat decision on the case and this was exactly done in this case.
14. These are, in short, the grounds and contentions raised before me. The necessity of dealing with them on merits will depend upon the disposal of the preliminary objection. Section 30 of the Arbitration Act, lays down the grounds for setting aside the award. These are (a) that the arbitrator has misconducted himself or the proceedings (b) that the award has been made after the issue of an order by the Court superseding the arbitration or after the proceedings have become invalid under section 35, and (c) that the award has been improperly procured or is otherwise invalid.
15. PLD 1960 Kar. 78) ant read out the, following observation quoted from another authority in the case of Gulzarllal Kanorla & Co. v. Bust and Stephenson Ltd. (AIR 1953 Cal. 621): "The second answer is that the award of the arbitrators on the face of it does not show the basis on which the damage is given. It is quite true that some idea could be obtained from the proceedings before the Arbitrators. But in an application to set aside an award, this Court does not make a sifting investigation of the entire proceedings before the Arbitrators. Before that can be done, the award must be shown to be bad on the face of it. The award itself in this saved case does not show the grounds on the basis of which the damage was given."
16. It was urged that it was clear from the aforesaid observation that if the basis of the decision of the arbitrator was shown in the award, it could betaken note of by the Court and if on scrutiny it was found to be wrong, the award could be treated to be bad in law and called for interference by the Court. So it was emphasised that in view of clause 6 of the contract the award was not sustainable.
17. "It appears to me that an arbitration clause in substance ousts the jurisdiction of the Court except for purpose of controlling and preventing misconduct and for regulating the procedure after the announcement of the award. If the award is otherwise valid, the Courts of law cannot interfere and review it on merits and say whether it is good, bad or in-- different.
18. It will thus be observed that the mare error of law does not vitiate the award. To set aside the award the error in law must appear on the face of it and not on the face of the record.
19. I have reproduced in the earlier part of the judgment the award. It clearly shows that the arbitrator has not given any reason and has not referred to any documents in arriving at his conclusion and there is nothing in the award itself which can lead me to the conclusion that he his committed an error of law on any question involving in the matter unless of course I start speculating as was done in the Bombay case, which, with respect, I am not permitted in law to do, to arrive at such a conclusion."
20. His Lordship made these observations on the basis of the principle laid down by the Privy Council in a few authorities. Referring to those authorities it was laid down by their Lordships that the arbitrators may have erred in law but they are Judges of law as well as Judges of fact and an error in law certainly does not vitiate an award, but the exception to this rule is that the award is result of corruption or fraud or the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. In their Lordships' view, an error in law on the face of the award means that one can find in the award or a document actually incorporat--ed 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 one can say is erroneous. An arbitrator is also entitled to interpret a clause in the agree--ment or any other article, and the award will stand unless, on the face of it they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound. With regard to the contention that there was no sufficient legal evidence to support the finding, it was observed that the question must depend upon the evidence as set out s in the award and it must be shown that it is patent upon the face of the award that there is no evidence at all on which the arbitrator could have come to the conclusion.
21. Finally, the following pertinent observation made in the Karachi authority may be noted: "On consideration of the case-law on the subject it is very clear that the Court hearing the application for setting aside an award cannot constitute itself into a Court of Appeal over the decision of an arbitrator and cannot make a sifting investigation of the entire proceedings before the arbitrator unless it is first shown that the award is bad on the face of it. I have already cite) the view of their Lordships of the Privy Council that arbitrators are both Judges of law and facts and in my view once the matter is found to be within the jurisdiction of the arbitrators, it is not permissible to Court of law to find out whether their decision is right or wrong on the facts urged before them by travelling outside the award for finding out what evidence was led before them and whether their conclusions are based on sufficient evidence."
22. Reference may also be made to another authority in the case of Overseas Cotton Company v. M.
23. Fuzail & Co. (PLD 1958 Kar. 27) and following observations may be noted: "Under subsection (2) of section 14 of the Arbitration Act, whatever the intention of the Legislature may have been in calling upon the arbitrators or the umpire to file the documents and deposition along with the award, such documents cannot be said to be documents actually incorporated in the award.
24. The proceedings before the arbitrators may be of some help to the Court in understanding the award, but in an application to set aside an award the Court cannot look into it in order to find out the error apparent on the face of the award."
25. Applying the principles laid down by the aforesaid authorities so the present case, it is clear that the award cannot be assailed. The award has already been reproduced. No fault can be found with it. It therefore cannot be said that an error of law is apparent on the face of it. The clause 6 which has been pleaded as a ground has not been even referred to in the award much less interpreted.
26. Consequently, without travelling beyond the award and without examining clause 6, it is not possible to find whether clause 6 was rightly or wrongly interpreted and whether the damages on the basis of re-sale could be awarded or not. The principle, as has been laid down, does not make it permissable to examine the clause or look into the record of the proceedings conducted by the arbitrator for any of the grounds, sought to be canvassed before me. Indeed the damages had been allowed on the basis of resale but, apart from the conten--tions of the learned counsel for the respondents based on clause 6, such damages are permitted by law. So it cannot be said that the award was against any provision of law. Since the aforesaid clause has not been either incorporated or referred to in, the award and no reasons are given for not accepting the require-- ment or the validity of the notice contemplated by section 54 of the Sales of Goods Act, ft cannot be said that there is any error of law on the face of the award. Even the issues had neither been incorporated in the award nor referred to. Con--sequently, the grounds agitated on behalf of respondents cannot be sustained.
27. Mere omission of stipulation for resale at the risk of the respondents and the recovery of damages resulting from the loss on resale does not necessarily mean that the arbitrator acted beyond his authority in awarding damages on the basis of resale There may be an implied term In the contract or such an omission may have occurred through mere accident. The arbitrator was competent to decide whether the omission was inherent or the rule of expressio unius est exclusio alterious was applicable, or such a term could be implied. Although the damages on account of resale were not specifically provided but at the same time there is no express exclusion. Here I may refer to the authority of the Supreme Court reported in PLD 1965 SC 489, pressed into service by the learned counsel for the respondent and restate the quotation from the case of Colonohoun v.
28. Brooks ((1887) 19 Q B D 400) "an exclusion of this is often the result of inadvertence or accident and the maxim ought not to be applied where its application, having regard to the subject-matter to which it is applied, leads to inconsistency or injustice." In my view this fully applies to the present case. The authority of the Supreme Court is clearly distinguishable. It was on the basis of certain peculiar clauses in the contract that rule expressio unius was applies, whereas the clause 6 in the present case is not only in some way dissimilar but there is no other supporting clause. Moreover, that was a suit decided by the Court whiles I am dealing with the objections to the award made by the arbitrator. So different considerations prevail in examining the propriety of the opinion expressed in each case.
29. I may also refer to another authority in the case of Pakistan Builders Co. v. Pakistan (PLD 1961 Kar.
30. 365), wherein it had been laid down that wrong basis of damages is no ground for challenging the award. It was further laid down as under :- "An arbitrator is not bound to give reasons for his decision, nor is he bound by any technical rule or procedure and he 8 need not record separate findings on the point on which the parties are at issue. What has to be seen is whether he has given an intelligible decision which determines the rights of the parties in relation to the subject-matter of the reference."
31. This observation is a complete answer to the fourth ground that the arbitrator had not given findings on issues 5 and 12.
32. Another authority cited before me is in the case of Abdul Halim v. Faizunessa Bibi alias Sarada and others (PLD 1969 Dacca 670) It was observed as under :- "Non-consideration of the rights of the parties based on the ground of limitation is not a ground of misconduct of arbitrator. The parties could have obtained a decision on the point from the Court itself. 'The arbitrator is not the Court. The parties having agreed to refer the dispute to arbitration took the matter outside the ambit of legal rights. Their agreement to refer the dispute to an arbitrator implies a consent to have the dispute settled without reference to strict legal provisions."
33. Thus an Arbitrator is not bound to give specific finding on each of the issues, nor he is required to state reasons for his conclu--sions. What is required is that he should give a clear decision c on the case. So where the award is silent as to the objections raised before the arbitrator, it will be presumed that he had considered those objections and had rejected them.
34. Yet there is further consideration which arises in this case owing to the special provision contained in the submission to arbitrator. The jurisdiction of the arbitrator is derived solely from the agreement of the parties to refer the dispute to arbitrator. He cannot widen the area of his jurisdiction and arrogate to himself jurisdiction over a question which on the true consideration of the submission has not been referred to him. The agreement to refer to arbitration is a written document which cannot be abridged or varied by way of extrinsic evidence. So no evidence is admissible in determining the extent of limitation of the authority of the arbitrator.
35. Taking up the submission agreement, it pertinently provides, "the parties can submit their respective claims and counter--claims before the aforesaid sole arbitrator and he will decide the disputes so raised by the parties and his award shall be final and binding on both the parties above-named." This submission must be construed according to its language and in the light of the circumstances in which it was made. Judging the range of the terms of the submission in the light of the circumstances ; I see no reason why I should not hold that terms are wide enough to cover the dispute as to damages on the basis of resale. Admittedly the claimants had claimed the damages on that ground and as it appears that was main dispute between the parties and so the necessity for invoking the arbitration clause arose. The submission itself permitted the parties to file claim and counter-claim and conferred the authority upon the arbitrator to decide the dispute so raised by the parties. So the scope of the submission was enlarged Having agreed to refer a particular dispute to arbitration, neither party can be permitted to challenge the authority of the arbitrator to decide that dispute within its scope. It has also been provided by the very sub--mission that the decision of the arbitrator shall be final and binding on the parties.
36. Coming to arbitration clause 10, the opening portion reads, "Any dispute or question of any kind arising out of or under the terms of the contract not otherwise herein provided for and any dispute relating to its construction or any portion thereof after the execution of the contract shall be referred to the decision of a sole arbitrator".
37. It is clear that the arbitrator was competent to interpret the terms of the contract including clause 6 which was pressed into service and form an opinion. Notwithstanding this com--petency, the question still arises whether any construction placed by the arbitrator can be questioned in these proceedings or not. The answer to this question depends upon another crucial question ; whether a specific question of law as to the construction of the document was referred to the decision of the arbitrator as the sole tribunal or a reference to the question of construction arose as being material in the decision of the matter which had been referred to arbitration. In the former case, the decision of the arbitrator cannot be questioned while in the latter it is open to scrutiny by the Court and can be interfered with if the decision is found to be wrong. The law on this point has been fully discussed by the House of Lords in the case of Frallsalom v. Great Western (London) Garden Village Society (1933 A C 592). It was observed by Lord Russel of Killomen at page 607 as under: "My Lords, it is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision. I am not sure that the Court of Appeal has done so. 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."
38. Turning to the present case, it is clear that the question with regard to clause 6 was actually raised and an issue was framed to the effect. So the arbitrator was required to make the award on consideration of that clause. It, therefore, follows that the question of construction of the document was directly referred to him for decision and not merely it arose incidentally against a general issue about liability for damages. Moreover, the expres--sion, "error of law appears on the face of the award." Is equally important and must be given its due weight. The mean--ing of this expression has already been referred to. Keeping that meaning in view it is clear that the award does not show how the aforesaid clause had been interpreted. It has also been pointed out that the clause was neither incorporated nor any reference to it was made in the award. In this connection the observation of Lord Wright at page 613 of the same case of the House of Lords, may be noted. It reads "As these are not referred to in the award they cannot in strictness be considered." Similar view was taken in the case of Champsey Bhara & Company v. Jivraj Balloo Spinning & Weaving Company Ltd. (1923 A C 480) The head-note reads as under :- "An award of arbitration can be set aside on the ground of error of law on the face of the award only when in the award or in a document incorporated with it, as for instance a note appended by the arbitrator stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous."
39. Reference may also be made to the case of Government of Kalantan v. Duff Development Company Ltd. (1923 A C 395) in which the arbitration clause was in substance similar to the clause in the present case and it was laid down that where a question of construction was specifically referred to arbitration the decision of the arbitrator on that point could not be set aside because the Court would have to come to a different, conclusion, unless it appeared on the face of the award that the arbitrator had proceeded illegally, e. g. That he had decided on evidence which was inadmissible or on principles of construction, which the law did not countenance.
40. Lastly, the case of Durga Prosad Chamria and others v. Sewkishen--das Bhattar and others (PLD 1949 P C 187) may be noted. Reference to arbitration was made in a pending suit after the issue had been framed. The arbitrator, however, reframed the issues excluding one of the issues framed by the Court. It was held that the points of law were specifically referred to the arbitrator to decide and it would be contrary to the well established principle a 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 it been before it.