ASIAN ASSOCIATED AGENCIES Versus PAKISTAN

MIAN BURHANUDDIN KHAN, J.‑ ‑The appellants are registered and approved bulk suppliers of chemicals and other commodities, with their headquarters at Karachi. They duly tendered and the respondents duly accepted 400 tons of BHC 12 % at the price of US$. 49,600 vide tender dated 22‑12‑1961. This contract for 100 tons was later split up into two Acceptance of Tender both dated 27‑12‑1961, one for 125 tons meant for Chittagong, valued at US$.15,500 and the other for 275 tons meant for Karachi, valued at US$.34,100. According to the contract, delivery of BHC was to take place F.O.B. Continental Ports after inspection, and grant of Inspection Certificates by the respondent/ Government. The inspection of BHC took place on 17‑5‑1962 and the Dutch Government Laboratory at Wageningen in Holland, which was, according to the appellants, chosen and nominated by the respondent/Government themselves, gave its report on 28‑5‑1962 that the BHC was according to specification. In flay 1962, owing to the urgency of the demand for BHC the respondents decided to cut short the agreed Inspection procedures and suggested shipment of laboratory approved BHC without awaiting Inspection Certificates as per their cable dated 24‑5‑1962 (certified copy filed 'D').

2. The aforesaid cabled arrangement, it is asserted, was duly accepted and acted upon by the parties and 400 tons of BHC were duly delivered F. O.B. Rotterdam by the appellants to the respondents on 30‑5‑1962 and shipped by them to Pakistan the same day. However, the Inspection Certificates for 400 tons of BHC were withheld by the inspecting Officer on the ground that the BHC was not according to specifications, and, consequently, payment for the BHC was also withheld. As a result, a dispute arose between the parties regarding the acceptability of the consignment and nature of goods as sub standard. The dispute was referred to the arbitrators namely Mr. M. Zulfiqar, then Joint Secretary, Ministry of Finance, Government of Pakistan and Mr. Muzaffar Hasan, Advocate, Karachi. The main points of dispute between the parties, before the Arbitrators were, firstly, whether the respondents were under duty as from 30‑5‑1962 to pay the full price of 400 tons of BHC to the appellants without any qualifications and conditions what s ever; secondly, whether on 30‑6‑1962 the respondents lost their right to reject the BHC; thirdly, considering that the respondents claimed that they were entitled to recover the cost of freight which they had themselves paid for the BHC from Rotterdam to Pakistan, and what was the relief that could be given in this case; fourthly whether the BHC was, in fact, according to the specification and fifthly whether having consumed 125 tons out of 400 tons in the contract, the respondents had lost their right to reject the remaining 275 tons of BHC even if it was not according to specification. The Arbitrators, after hearing the parties and considering the submissions made regarding their claims and counter claims, gave their Award on 21‑12‑1964. The award was, subsequently, made a rule of the Court in Suit No.97 of 1965 by the judgment and decree dated 18‑2‑1966 of the learned Single Judge of the High Court of West Pakistan, Karachi Bench.

The respondents, aggrieved of the aforesaid Award, filed Letters Patent Appeal No.120 of 1966 and a learned Division Bench of the High Court of Sind and Baluchistan, Karachi set aside a part of the Award.

3. Learned counsel for the appellants assailed the judgment of the learned Division Bench on the grounds that it had erred in holding that the Arbitrators misconducted the proceedings by exceeding their jurisdiction; that the dispute relating to the return of the goods had not been referred to the Arbitrators and there was no contest between the parties in regard to the return of goods to Rotterdam; that in their decision the learned Division Bench, the learned counsel contended, erred in ignoring the existence and import of the new contract set out in cable dated 24‑5‑1962; that the learned Judges also ignored that the real dispute was about the payment of US$.49,600 and this payment was inalienably linked with the right of rejection of the goods by the respondents which, in turn, was linked with the question of responsibility for the return of the goods at the cost of the respondents. It was further submitted that the Arbitrators were fully seized of the dispute relating to the return of the goods and that they decided this dispute in the light of: firstly, the original contract; secondly, the additional contract embodied in the cable dated 24‑5‑1962, and, thirdly, all other relevant circumstances. However, the learned Judges failed to appreciate that under the original contract the appellants could not possibly lose control over the 400 tons of BHC without first securing the relevant Inspection Certificate which would have entitled them to immediate payment of $.49,600. It was further submitted that the essence of the dispute before the Arbitrators was that even if the goods were not according to specifications, the 'successful) Wageningen Laboratory Report, read with cable dated 24‑5‑1962 which was duly acted upon by the parties, resulted in extinguishing the respondents' right of rejecting the goods and made them liable as from 30‑5‑1962 for full payment of $.49,600 to the appellants.

4. Leave was granted by this Court vide order dated 1‑2‑1974 inter alia on the ground raised by the learned counsel in the petition, and it was remarked by the learned Judges of this Court that this petition raises an important question of law, namely, as to whether the Award of the Arbitrators suffered from an error on the face of the record, because a buyer who was entitled to reject the goods, could not be compelled to return the goods to the place of delivery at his own cost; and that the petition involves the interpretation of the provisions of sections 42 and 43 of the Sale of Goods Act as also a number of decisions of the English Courts on the question as to what constitutes an error of law on the face of the Award.

5. The learned Judges of the Division Bench while considering the question raised before them, observed as follows:

"The question that arises for consideration thus, is whether it is permissible for the Court, for the purposes of determining whether there is an error of law on the face of the Award, to look into the terms and conditions of the contract. The rule followed by the English Courts is that it is not permissible for this purpose to look into the contract terms unless they are incorporated, either expressly or impliedly in the Award."

6. After citing the cases of Lekhraj v. Vishindas 27. S.L.R. 96; Champsey Pharma and Company v. Jivraj Balloo Spinning and Weaving Company Limited A I R 1923 PC 66; Kelantan 1923 A C 395; F. R. Absolon Ltd. v. The Great Western (London) Garden Village Society 149 Law Times Reports 193; Radhakrishanamurti v. Balasubramania and Company A I R 1949 Mad. 559; Durga Parsad Chamria v . Sewkishindas Battar A I R 1949 P C 334; In re: King and Davun (1913) 2 K.B. 32 (82. L.J.K.B.733); F.R. Absalom Ltd. v. Great Western (Garden) Village Society (1933) A C 592 (102 L.J.K.B.648); A.Z. Company v. S.Moula Bukhsh Muhammad Bashir P L D 1965 S C 505; Thawardas v. Union of India A I R 1955 A C 468; D.S. Blaiber and Company Ltd. v. Newborne (London) Ltd. 1953 2. Lloyd's Resp.427; Giacomo Costa Fu Andrea v. British Italian Trading Company Ltd. 2962.2.Al1.E.R.65; and Saleh Muhammad Umar Dossul v. Nathomal Kissomal 54 Indian Appeal. 427; the learned Judges observed as under:

"The position in the instant case appears to be precisely the same and in the above reported case for the reference or allusion to the contract has been made very guardedly in the Award and solely for the purpose of earmarking the disputes in question. We are therefore of the opinion that the contract has not been incorporated in the Award and cannot be looked into by the Court for purpose of determining whether there is an error of law on the face of the Award."

7. Regarding the Arbitrators having mis-conducted the proceedings the learned Judges referred to Halsbury Law of England:

"An award which does‑not decide the differences referred to arbitration is bad and unenforceable as also is an award which purports to determine matter not comprises in the agreement of reference, unless the part of the award which was beyond the scope of the agreement of reference, can be severed from what which deals with the matters comprised within it in which case the latter part will be held good and valid."

8. The respondent has raised objection to the award on various grounds. One of the grounds raised was that the award was liable to be set aside on the ground of error of law on the face of the award and in this connection it was urged that the direction of the Arbitrators regarding return by the appellant of the goods at its cost and on failure to do so, to pay for them was an error on the face of the Award, in so far as the same was material in the decision of the matter referred to arbitration. This contention was repelled by the Division Bench. However, the learned Judges of the Division Bench accepted the second ground of objection, namely, that the question of return of the goods to Rotterdam was not referred to the Arbitrators and in giving this direction, they exceeded their jurisdiction. Having accepted this contention, the learned Judges examined the pleadings of the parties and the issues framed by the Arbitrators. They came to the conclusion that there was no contest between the parties in regard to the return of the goods to Rotterdam, as according to the Judges, obviously the parties were well aware of the position in this behalf in case it was held that the goods were not according to specifications and thus, liable to rejection. In this connection reference was made to clause 13 (viii) of the Contract whereby the contractor was liable to remove at his cost, the rejected goods and in case of his failure to do so, the purchaser was entitled to return the rejected goods at the contractor's cost and risk. On these grounds the learned Judges held that this issue was not referable to the arbitration and was not actually in contest, and, therefore, the arbitrators exceeded their jurisdiction in giving such direction.

9. Perusal of the statement of claim of the contractor at paragraphs (5), (18), (36) and (37) clearly shows that the contractor's claim was that he delivered the goods to the purchasers F.O.B. Rotterdam and was entitled to full payment of their price. Their case was that the goods were accepted under the modified new contract at Rotterdam and were shipped by the respondent through their own shipping arrangement and, therefore, the same could not be rejected subsequently. These paragraphs of the claim of the contractor were denied in the written statement of the respondent and their plea was that they had never accepted the goods. According to paragraph 37 of the written statement, the plea of the respondent was that the contracted goods were not supplied. In replication filed by the contractor to the written statement of the respondent it was asserted that the purported rejection of the contracted goods was illegal, invalid and in breach of contract. Issue No.5 framed by the Arbitrators relates to the question whether 400 tons of the contracted goods were duly tendered and were supplied in accordance with the specification. Issue No.7 is important and reads as follows:‑

"Whether upon delivery of the contracted stores to the purchasers F.O.B. Rotterdam, the contractors became entitled to full payment of their price under the A/T's in dispute?"

Similarly, in issue No.10(iii) the question was whether the purchasers could reject the goods if not properly marked as per A/T and when the rejection took place and where. The perusal of pleadings and the issues framed, leaves no manner of doubt that the question whether the goods conformed to the specifications and whether they could be rejected or at what place the goods could be rejected. The learned Judges determined the question as to the scope of the reference by looking at the pleading and the issues. Even the Award itself clearly mentioned that all matters in difference as contained in the pleading, were the subject‑matter of arbitration. Therefore, the questions mentioned above were properly the subject‑matter of arbitration.

It may be pointed out that the rule of law that in order to discover an error of law on the face of the Award, the Court cannot go beyond the Award and look at material which is not made the part of the Award or incorporated in the same, is a test for determining whether the Award is invalid under section 30 of the Arbitration Act. The question whether the Award is on a matter not referred to arbitration so as to be excised and the Award to be modified, falls under section 15 of the Arbitration Act. Whether a particular matter on which a part of the Award is based was not referred to arbitration, the rule mentioned above, is no obstacle. Obviously the Court, in order to find what matters were referred to arbitration, can go behind the Award and look at the submission to the arbitration made by the parties, which in the present case consists of the pleadings of the parties.

Therefore, although the pleadings and the issues have not been incorporated in the Award in extenso, it is permissible to look at the pleadings and the issues.

10. The only question is whether the Division Bench was right in holding the question of the return of goods and the consequential direction in case the goods are not returned, is a matter not referred to arbitration. The disputes which are referred to arbitration and which determined the scope of jurisdiction of the Arbitrators, are comparable to the disputes raised by parries in a suit relating to a cause of action by their pleadings on which the Court frames the issues. The facts pleaded by the plaintiff relate to the cause of action upon the proof of which he is entitled to the relief claimed by him. It is well settled that the relief that can be granted by the Court is a matter within its power and a Court can grant relief according to the circumstances of the case. It is also well‑settled that the Arbitrators are bound by rules of law as govern the Courts of law. Therefore, if the Arbitrators come to a finding that the goods were not in accordance with the specification but were nevertheless accepted by the purchasers, and if they still want to reject the same, they must return the goods to the place of delivery, could it be said that this can only be directed if a specific plea to that effect was taken or an issue framed? Or whether this could be part of the relief within the discretion of the Arbitrators as a consequential direction upon a finding on an issue. This question can be determined with reference to sections 42 and 43 of the Sale of Goods Act as observed in the Leave Granting Order. According to section 41 of the Sale of Goods Act the buyer has a right of examining the goods and he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them. In the present case, the admitted position seems to be that the goods were to be delivered at the foreign ports and were to be shipped by the purchasers. Therefore, it was for the respondent to have exercised his right of examination of goods within reasonable time at the foreign port where it was stipulated that the delivery of goods will be made. However, this was not done and the goods were brought to Pakistan.

According to section 42 of the Sale of Goods Act, if the buyer received delivery of goods and does any act relating to them which is inconsistent with the ownership of the seller, he is deemed to have accepted the delivery. Section 43 provides that unless otherwise agreed. once the goods are delivered to the buyer, and he refused to accept them, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refused to accept them. This right of the seller must be exercised at the proper place of examination, which will obviously be the place of delivery.

In the present case the place of delivery was Rotterdam. The question is whether having brought the goods to Pakistan, the respondent could reject them even if they had a right to do so". and ask the contractor to arrange their shipment back to Rotterdam at their own cost. It would appear that the Arbitrators may have examined this question and come to the conclusion that instead of rejecting the goods at Rotterdam, they rejected them at Karachi, and were, therefore, liable to return the goods to the place of delivery. It is significant that although the question of right to reject the goods was in issue between the parties, the Award does not expressly state whether the goods were properly rejected by the respondent. But even assuming that the Arbitrators held that the respondent had the right to reject them, the award clearly holds that the direction to return the goods was being made because the delivery was taken at Rotterdam, and the goods were shipped by the respondent to Karachi. This is clear from the following words in the Award:

" ---------and the President of Pakistan do return the goods to Asian Associated Agencies at Rotterdam being the port from which it was shipped by the agent of the Government of Pakistan ...."

Clearly, therefore, the Arbitrators found that the Government was responsible for restoring the goods to the place of delivery because of their own act of shipping them without rejection. The consequential direction is also part of the relief so that if the respondents were not able to return the goods to the appellant at Rotterdam at their own cost, they must pay the price thereof. The learned Judges having themselves laid down the principle that an error of law on the face of the Award cannot be discovered by going into the terms of the contract if the contract is not incorporated in the Award, went against this principle in referring to clause 13 (viii) of the Contract which could not be done. In any case the perusal of this clause shows that rejected goods are to be removed by the contractors when they were submitted for inspection, which obviously means at the place of delivery. Therefore, in my view clause 13 (viii) does not cover the facts of this case and will also be not a ground for holding that the question of rejection and removal of goods was not referable to the arbitration in the facts of the present case. Therefore, the learned Judges of the Division Bench were not right in holding that part of the Award was on a matter not referred to arbitration. For the reasons given above, we allow this appeal. Parties to bear their own costs,

S.Q./A‑170/S Appeal allowed.