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Suit No. 210 of 1959, decided on 15th August 1961.
S. 30‑Dispute arising out of contract referred to arbitrators‑Award by arbitrators‑Objections filed‑Arbitrators deciding question not referred to them‑Error patent on face of record‑Award liable to be set aside.
F. R. Absalom, Limited v. Great Western (London) Garden Village Society Ltd. 1933 A C 592; Government of Kelantan v. Duff Development Co. 1923 A C 395; Attorney‑General for Mani toba v. Kelly (1922) 1 A C 268; In re King and Duveen (1913) 2 K B 32 and Chamsey Co. v. Jivraj Baloo Co. A I R 1923 P C 66 ref.
S. M. Sohail for Plaintiffs.
Noorul Arfin for Defendant.
Dates of hearing : 11th, sl2th and 13th May 1961.
Mr. Muhammad Asim Faruqi and Mr. Zafar Hussain, who were nominated as arbitrators by the defendant, namely, the Government of Pakistan, and by the plaintiffs, namely, Messrs Shaikh Muhammad Sadiq Muhammad Afzal respectively, have unanimously awarded Rs. 4,95,250 to the plaintiffs as damages recoverable from the defendant. The defendant has questioned the correctness of the award. Mr. Noorul Arfin, Advocate, appear ing for the defendant, has challenged it on one ground only, which is that it suffers from an error which is apparent on its face. He has contended that it is liable to be set aside on this ground because this error arises from the construction of the contract which duty was not specifically entrusted to the arbitrators.
2. Mr. Sohail, for the plaintiffs, considered it unnecessary to dispute whether the award was erroneous or not, and whether the error was apparent on its face or not because, according to him, it could not be set aside without establishing an allegation which falls under section 30 of the Arbitration Act, and which can be only:
(a) that the arbitrators had misconducted themselves or the proceedings; and/or
(b) that they had made the award after the issue of an order by the Court superseding the arbitration, or the arbitration proceedings had become invalid under section 35 of the Arbitration Act ; and/or
(c) that it had been improperly procured or was otherwise invalid.
As admittedly none of these objections has been raised, it was immaterial whether the award was erroneous or not, because the arbitrators were the judges of fact as well as law. Moreover, disagreement existed between the parties at the time of reference on the meaning of the provisions of the contract ; therefore, it bad to be assumed that the duty of construing them was specifically though impliedly entrusted to the arbitrators.
3. Counsel for the parties rightly concentrated on the ques tion of specific reference. The arguments addressed by them were technical, but It is necessary to state the facts in order to make them fully understandable. The facts are that the Chief Engineer, West Pakistan Electricity Department, Peshawar sent a demand on the 10th of April 1956, to the Department of Supply and Deve lopment, Government of Pakistan for procuring 20 thousand poles of Sundri Wood which were intended for use on aerial transmission lines. This wood was available in East Pakistan. The Director General of Supply and Development invited quotations from intending suppliers on the 2nd of June 1956 and accepted the offer of the plaintiffs on the 28th of June 1956. The total price was agreed to be Rs. 13,78,750. The quality of the material was described in three clauses; general requirements were stated in clause 2 which, in brief, were that the poles shall be straight and shall taper from top to bottom; shall be thoroughly peeled ; shall be free from cracks ; shall have all knots trimmed close; and shall be of certain dimensions. Clause 3 provided that they could be rejected if the requirements mentioned in clause 2 were not satisfied and if they had certain knots, cracks, chinks or curves. Clause 1 provided that they were‑-
"to be treated by creosote forced in under pressure or by any other approved method."
4. The plaintiffs tendered poles without treating them with creosote oil; therefore, they were not inspected. The plaintiffs thereafter wrote to the Superintending Engineer on the 27th of December 1957, as follows:‑
"With reference to the above please note that we presented 4,000 poles for inspection to the Inspecting Authority in the month of November 1957, but those poles could not be inspect ed due to the technical reason (treatment). We could not arrange the treatment of poles due to non‑availability of treatment plant and oil In Pakistan."
They were informed on behalf of the Director General of Supply and Development, by a letter dated the Ist of March 1958, that there were two plants in the country where the poles could be treated with creosote oil‑one in East Pakistan and the other in West Pakistan. The Chief Engineer, West Pakistan Electricity Department, Peshawar also concurred in this view in as much as he wrote to the Director General of Supply and Development on the 29th of March 1958 that if the plaintiffs could not get the poles treated at the plant situated in East Pakistan, they could get them treated in West Pakistan, but that the terms of the contract were to be carried out.
5. On the 1st of May 1958, the plaintiffs wrote to the Direc tor General of Supply and Development that the plaintiffs were prepared to get the poles treated with creosote oil by pressure method, provided the charges were reasonable but that they were experiencing difficulty in procuring from the Pakistan market the required quantity of the oil. In their letter dated the 6th of June 1958, they requested the Director General for an import licence, but in their letter of the 30th of July 1958, to the Director General they have stated that they were unable to use the pressure method for treating the‑ poles, because the charges were heavy which they could not bear as they were in loss without it. Moreover, they desired that the poles be inspected in East Pakistan before they swabbed them with creosote for they were prepared to apply creosote oil to them in West Pakistan. After writing; this, they appear to have further reviewed their stand because in their letter of the 9th of September 1958, they have for the first time raised the contention that in terms of the contract, they were not bound to treat the poles by pressure method, that swabbing was a method which was accepted by the Military authorities who themselves treated the poles further as they liked after receiv ing them. They concluded their letter as follows:‑
"Since considerable time has elapsed and appreciably our huge amount has blocked please direct the inspection authority to accept swabbing which method is only applicable as per terms of the A/T."
A few days afterwards the Assistant Director of Supplies wrote to them with reference to a previous letter and personal discussion as follows:‑
"Please refer to the discussion your representative had with Mr. M. Munaweruddin, D. D. S. and communicate any alterna tive method of treatment of poles as promised by him. Mere swabbing of poles is not acceptable."
6. These two letters are of special significance in this transac tion because the stands taken by the two parties respectively have become settled as well as clear‑the plaintiffs have declined to use the pressure method and offered to swab the poles with creosote, oil as the only method which the contract required of them; but the defendant has rejected the method of swabbing, though recog nizing at the same time that a method other than treatment by pressure could be proposed for their approval. No other method was proposed or approved. On the 10th of October 1958 the: Government cancelled the contract.
7. Against this background the plaintiffs demanded on the 7th of February 1959, that their disputes be referred to arbitration. As the terms of reference are to be considered, I produce three paragraphs from their letter:‑
"(2) Lately a controversy has been going on as to the method of treatment of poles. The contract provided for the poles to be treated by creosote forced in under pressure or by any other approved method. Since the firm had no plant for treatment to force creosote under pressure they entered into the contract on the understanding that the swabbing of the poles would be acceptable as a mode of treatment. The department however, declined to accept the latter treatment and in consequence, my clients demanded of the Government to indicate other method acceptable to them. Thereupon the Department of Supply and Development referred the matter to D. I. Incharge, Muhammadi Building, Karachi. While the matter was under reference as aforesaid and before my clients received any reply to their demand on the subject of treatment of poles, the contract of supply was cancelled by your Department's letter No. Misc /42773/W/56/679, dated 10th October 1958, on the basis of a plea to the effect that since the firm had failed to supply the stores as per terms of the contract the indentor has withdrawn the demand.
(3) My clients protested in reply that in view of the contro versy on the method of treatment of poles raised by the depart ment, there was no failure on the part of my clients to supply the stores and that since the proposed cancellation of contract was calculated to involve them 1n enormous and irreparable loss they did not agree to the cancellation. My clients, therefore, demanded re‑instatement of the contract within 20 days of their letter, but the department by their letter in reply dated the 5th December 1958, declined to do the same and reiterated the plea of the cancellation of the contract.
(4) The proposed cancellation of the contract is not acceptable to my clients. They are prepared, as always, to supply the stipu lated stores and thus to perform their part of the contract and they Insist that the department should receive the supplies fn fulfillment of the contract. In the alternative, my clients claim Rs. 6,00,000 (Rs. Six lacs only) as damages for breach of contract on the part of the department."
8. Counsel for the defendant has challenged the award as erroneous on the face of it owing to the following observations which form a part of the award:
"Inasmuch as the method of treatment is provided in clause 1 and not in clause 2 it follows that poles could not be rejected on the score of an objection as to the method of treatment, That being so, the plea of the Government that it was entitled to reject poles for want of pressure treatment, and therefore to cancel contract, is devoid of force and is not tenable."
Further:
". . . . . . It was not open to the Government to read in the A/T that only the pressure method of treatment, to the exclusion of the other approved method, was prescribed. Such a construction will be doing violence to the plain language used in A/T, It may be said that the contract should have got the other approved method' clarified before putting in the quotations. This point does not create any complications as the contractor did make the enquiry during the subsistence of the contract, Had the Government suggested the other approved method of treatment at any time during the subsistence of the contract and had the contractor failed to comply, the case would have been quite different and the responsibility could be pinned on the contractor."
These observations which form the basis of the award are erro neous on their face; but as pointed out above, Mr. Sohail has argued that the meaning of the contract having been specifically, though impliedly, referred to the decision of the arbitrators, their mistakes in that respect are not open to review.
9. There is ample authority in support of the proposition of law advanced by both learned counsel. The proposition advanced by Mr. Nurul Arfin that an award will not be allowed to stand if on the face of it, it appears to be based on a mistaken proposi tion of law; unless the mistake has been made by the arbitrators on a specific reference to them of that question of law, is supported by the judgment of the House of Lords in F. R. Absalom, Limited v. Great Western (London) Garden Village Society, Ltd. (1933 A C 592) in which the judgment given in Government of Kelantan v. Duff Development Co. (1923 A C 395); Attorney‑General for Manitoba v. Kelly ((1922) 1 A C 268) and in re King and Dueen ((1913) 2 K B 32) have been referred to with approval. Champsey Co. v. Jivraj Baloo Co. (AIR 1923 P C 66) can also be mentioned as a judgment of the same class. Mr. Sohail was, on the other hand, right in contending on the authority of Government of Kelantan v. Duff Development Co. and In re King and Duveen that such a specific reference need not be express or on undisputed facts. In Kelantan Government's case Lord Parmoor has observed as follows:‑
"in the present appeal it was argued by the counsel on behalf of the appellants that the question of the construction of the deed, had not been specifically referred to the arbitrator, although the construction of the deed was absolutely necessary for the determination of the disputes which had been referred to him. In my opinion this contention is not maintainable. Whether, however, a question of law has been specifically submitted to arbitration, falls in each case to be determined on the terms of the particular submission. If the Court, before which the award ]s sought to be impeached, comes to the conclusion that the alleged error in law, even if it can be maintained, arises in the decision, of a question of law directly submitted to the arbitrator for his decision then the principle stated by Channel], J. in In re King and Duveen (1913) 2 K B 32, 36 applies, and the parties having chosen their Tribunal, and not having successfully applied to the Court under either section 4, or section 19 of the Arbitration Act, 1889 are not in a position to question the award, or to claim to set it aside."
In In re King and Duveen the facts were in dispute.
10. But the difficulty in the way of Mr. Sohail is that there was no dispute between the parties as to whether treatment by pressure was the only method of treating the poles with creosote oil, because the Government had itself called upon the plaintiffs to suggest an alternative method other than swabbing for their approval. The arbitrators have erroneously assumed, without an, issue on this question between the parties, that the Government was not prepared to consider any method as an alternative to treatment by pressure and have further thought that it was the duty of the Government to suggest an alternative method of their own choice so that their failure to do so was a breach of the con tract by them, making them liable to pay damages. The first dispute did not exist, and the latter question, namely whether it was the duty of the Government or of the contractor to propose an alternative method, was not referred to arbitration either expressly or impliedly.
11. Thirdly, there are observations in the award which reveal that the arbitrators took the view that the expression "any other approved method" meant "any other recognised method". They have, for Instance stated
"At this stage, it may be observed that the contractor has pro duced an expert, A. W. 2 Mr. Manzoor Ahmad in support of his plea that apart from the mechanical pressure method of treatment, there are several other methods current in the market for treatment of poles, and the swabbing is one of them. Mr. Manzoor Ahmad is a Retired Deputy Conservator of Forests. He has written a Book also on conversion of soft wood into hard wood. His views are also entitled to some weight. As against it, the expert produced on behalf of the Government, R. W. 1, Mr. Z. H. Ansari while asserting that the mechanical pressure method of treatment is more advantageous, has failed to categorically negative the suggestion that there can be other methods of treatment also. Furthermore, it is evident from the supplementary statement of R. W. 2 Mr. Abdul Malik that the clause regarding treatment as contained in A/T was in accordance with the Demand Notice of the Indenting Department. That being so, the Indenting Department having in their demand agreed to the specification of treatment by pressure method or by other approved method, could not reasonably turn round and insist upon the pressure method only."
Mr. Sohail has argued that the Government could not reject the method of swabbing because it was a method recognised by the trade and that the arbitrators had the jurisdiction to understand the expression "approved" as "recognised" because it was a material issue for determining the conflicting claims. This inter pretation, according to counsel, therefore, was not open to review by this Court. Here again the obstacle in his way is that this question was not specifically referred by the parties to arbitration. An error patent on the face of the record is not excusable on the ground that the decision of the question in which the error has been made was material for the decision of the reference.
12. Here I may state for clarification that a mention in the reference to arbitration of the provisions of the contract or the necessity of construing them does not by itself make the interpre tation of the contract as a whole or of any part of it a specific question submitted for decision. It is inconsistent with the sense of definiteness that such a mention of the provisions or the neces sity of their construction should be taken, without sufficient reasons arising from the submission to imply a specific reference to arbitration of those questions which would be expected in the ordinary course to be precisely framed and referred to arbitration if the parties intended to submit them specifically. Applying this test, then fundamental decisions are open to review by this Court.
13. For these reasons I set aside the award, revoke the autho rity of the arbitrators in the interest of justice, and leave the parties to refer their disputes, in terms of the arbitration clause, to other arbitrators of their choice.
K. M. A.
Order accordingly.
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