P L D 1985 SUPREME COURT 69 (PLP)

S. A. NUSRAT, J.-This appeal by leave of this Court is from the judgment and order of the erstwhile High Court of Sind and Baluchistan, Karachi, dated 10th May, 1972, arising out of arbitration proceedings. 2. The brief facts of the case are that under an agreement, dated 11th January, 1969 entered into between the respondents, Trading Corporation of Pakistan, and the appellants, the latter agreed to purchase 30,000 tons of Basmati rice from the former for the purpose of export. The appellants, however, lifted only 15,146.83 metric tons of rice leaving a balance of about 16,853.17 metric tons unlifted. The respondents resold the balance unlifted quantity of rice alleging breach of contract on the part of the appellants and in this proces claimed to have sustained loss. The allegations and the claims of the respondents were denied by the appellants which gave rise to a dispute between the parties. The respondents thereupon invoked the arbitration clause contained in the annexure to the agreement, dated 11th February, 1970. In the circumstances, the parties agreed, to appoint Mr. S. R. 'Karim, Director-General, Department of Investment Promotion and Supplies, Government of Pakistan to act as the sole arbitrator in the matter. The submission so made to the arbitrator was in the following terms : "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 X of Annexure I of the abovereferred 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." 3. The arbitrator entered upon the reference and called upon the parties to file their claims and objections. On the basis of the respective contentions of the parties the following issues were framed by the arbitrator :- "(1) Whether the claimants (T. C.) 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 ? (3) Whether the original period of contract was extended beyond 10th February, 1970 and up to 18th February, 1970 andior upto 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 respondents is maintainable in law. (7) Whether the contract between the parties was frustrated, and if so, to what effect ? (8) Which party to the 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 C. D. Rs. totalling Rs. 8,42,900 deposited by them with claimants. (12) Whether the claimants (T. C. P.) served any notice to the respondents prior to reselling of short-shipped quantity of Basmati rice." 4. On the conclusion of the arbitration proceedings the sole arbitrator made and published his award on 28-8-1970 allowing, inter alia, a sum of Rs. 5,94,199.98 to the respondents and further dire-oting that 15 Call Deposit Receipts (C. D. Rs.) in the custody of the respondents may be appropriated and set off against the amount awarded. The relevant portion of the award is reproduced hereunder : "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 `respondents' signed at Karachi on the 11th November, 1969, which expired on 10th February, 1970 for exporting 30,000 metric tons of Basmati rice. (2)? What 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. 14,853.17 metric tons and the price subsequently received for the above-mentioned quantity @ ? 90 per ton equivalent to Rs. 6,94,199.98 and storage and other charges for the said quantity at the rate of Re. 0.33 per metric ton per month for 16 days only, 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 contract. (4) That the costs of this reference are payable by the respondents. (5) That the 15 C. D. Rs. totalling Rs. 3,42,900 may be retained by applicant to be set off against the amount due from the respondents and stand forfeited in favour of the applicant in accordance with the terms of the contract. (6) The fee payable to the Sole Arbitrator is Rs. 1,500 and an amount of Rs. 100 to be paid to Mr. Aftab Ahmad Khan, P. A. to DirectorGeneral, Investment, Promotion and Supplies Department, Kandawala Building, Karachi, for assistance rendered in typing will be the first charge on the amounts to be received by the applicant. Signed and sealed hereunder. (Sd.) S. R. Karim, Sole Arbitrator." 5. The aforesaid award was filed at the instance of the appellants in the High Court under section 14(2) of the Arbitration Act, 1940 and was registered as a suit. The objections to the award filed by the respondents were dismissed by the learned High Court as per impugned judgment, the award was made the rule of the Court, and a decree in terms thereof was passed allowing interest at 9 % from the date of the decree till realisation of the decretal amount. Costs of the proceedings were also awarded to the respondents. 6. Leave to appeal was granted from the above judgment of the High Court, inter aria, to examine the following contentions raised on behalf of the appellants : (1) As clause 6 of the agreement between the parties specifically' provided for breach of the contract, the arbitrator was bound to apply the said particular provision. (2) The failure to enforce the above clause by the arbitrator was an error on the face of the record which called for interference by the High Court. (3) That prior to resale of unlifted quantity of rice a notice under section 54 of the Sale of Goods Act was required to have been served on the appellants. In the absence of such a notice the resale was illegal. (4) That in the absence of any provision for awarding of damages in clause 6 of the agreement, the award of damages by the arbitrator was illegal because he was not competent to import an agreement where none existed in this respect. 7. We heard Mr. Sharifuddin Pirzada, learned counsel for the appellants and Mr. Mansoorul Arifeen, learned Advocate for the respondents. 8. It was contended by the learned counsel for the appellants that the award given by the Arbitrator was a speaking award because specific references to the terms of the agreement are made in the award and the Arbitrator has given his finding in relation thereto which is borne out from the following : ?(1) It was held that the time was the essence of the contract and the appellants have committed breach of the contract. (2) The question of difference in the contracted and resale price was specifically raised as a point for consideration which was worked out and awarded to the respondents. (3) The Call Deposit Receipts (C. D. Rs.) amounting to Rs. 3,42,90( were allowed to be retained by the respondents and to be set of against the amount found due against the appellants. The above findings directly arise out of contract and are also covered by the issues Nos. 2 to 5 and 8 to 12, 9. It is clear from the judgment, and it has also not been disputed on behalf of the respondents, that no notice under section 54 of the Sale of Goods Act was served upon the appellants before resale of the unlifted quantity of rice and the respondents had based their claim of damages under the head "other charges" mentioned in the clause 6 of the agreement (hereinafter referred to as the default clause). It was the case of the respondents that the expression "other charges" was to be liberally interpreted and read independently of the preceding expressions occurring in default clause and the rule ejusdem generis was applicable to statutes only and not to the interpretation of document. 10. The said clause 6 of the agreement is reproduced hereunder : "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 in 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. The above clause, for the sake of interpretation can be recast as under : "If the buyer fails to export the quantity stipulated in clause 1 above (i) in part or in full. (ii) according to schedule of shipment stipulated in clause 3 above, or (iii) commits any other breach of this agreement then (1) the entire amount of C. D. Rs. held by the seller at the time of such breach shall stand forfeited to the seller as an agreed amount to meet (1) Storage. (2) Supervision. (3) Servicing, and (4) other charges, and (2) the agreement shall stand terminated." As mentioned earlier the case of the respondents firmly was that they were entitled to claim damages under the head "other charges" mentioned in the aforesaid default clause. 11. The learned Judge in the High Court without going into the merits of the case first proceeded to decide the preliminary objection raised on behalf of the respondents regarding the scope of jurisdiction of the Court for setting aside an award under the provisions contained in clauses (a) to (c) of section 30 of the Arbitration Act. 12. In reply to the above preliminary objection it was contended on behalf of the appellants that although clause 6 of the contract permitted imposition of penalty of forfeiture of the amount deposited with the respondents in the form of Call Deposit Receipts to meet storage, supervision, service and other charges as well as the termination of contract but there was no stipulation for the award of damages either on resale of the goods or otherwise, and since the Arbitrator had awarded damages on the basis of difference between the contracted price and the price received on resale of the defaulted quantity of rice, he had, therefore, exceeded his authority by importing an agreement which was riot contained in the agreement. 13. The above contention of the appellants was repelled by the learned Judge in the High Court upon his interpretation of the case-law on the question of power of the Court to set aside an award within the scope of section 30 of the Arbitration Act referred in the judgment, and it was found that : "A" "the clause 6 which has been pleaded as a ground has not even referred to in the award much less interpreted. 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 resale could be awarded or not. The principle, as has been laid down, does not make it permissible 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." It was next observed as under . "B" "Indeed the damages had been allowed on the basis of resale but, . . apart from the contention of the learned counsel for the respondents (now the appellants before us) 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 requirement or the validity of the notice contemplated by section 54 of the Sale of Goods Act, it 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. Consequently, the grounds agitated on behalf of respondents cannot be sustained." Having given such findings the conclusion has been reached as under : "C" "Turning now 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." 14. The findings at "A" and "B" are apparently inconsistent and irreconcilable with what has been observed at "C" above. 15. The finding of the learned High Court that damages could be allowed on the basis of resale because such damages are permitted by law is contrary to the decision of this Court in the case of West Pakistan Industrial Development Corporation v. Aziz Qureshi (P L D 1973 S C 222), wherein the question for consideration was "whether under the agreement as contained in the letter dated 13th December, 1955 (Exh. 7) the appellant corporation was liable to pay any damages for non-supply of goods by it to the respondent." After examining the facts of the case a question was posed that "assuming, however, that the appellant was guilty of breach of contract, the question is what is the measure of damages that should be allowed to the respondent." After making reference to certain exhibits it was held that any speculative exercise was not permissible in the case of a written contract. If Exh. 7 was silent about the terms and conditions, it was not for the Court to supply them with reference to an earlier contract for a similar distributorship. In support of the above finding, the following view expressed in the case of Official Assignee of Madras v. Frank Johnson Sons & Co. and another (A I R 1931 Mad. 65), was approvingly cited : "The principle is well-settled that a stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be a reasonable thing to imply it. Such an implication can be made only if, on a consideration of the terms of the contract in a reasonable and business manner, the Court is satisfied that it should necessarily have been intended by the parties when the contract was made." The above rule is clearly attracted on the facts of this case. The judgment of this Court in the case of the Provincial Government of N.-W. F. P. v. M. K. Musaffir (P L D 1965 S C 489) was cited on behalf of the appellants in support of their case but the learned High Court held the same to be distinguishable on facts and instead placed reliance on a quotation from the case of Colquohoun v. Brooks ((1887) 19 Q B D 400), which reads as under : "an exclusion of this kind 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 to be applied, leads to inconsistency or injustice." 16. In the case of Provincial Government v. M. K Musafftr it was found that reading the various clauses of the agreement of the contract together it was clear "that the omission of a stipulation for resale at the risk of the purchasers, upon breach of the conditions specified in clause 11, was by no means inadvertent, and consequently the rule of expressio unius est exclusio alterius was applicable to the determination of the remedies available to the Government. In the circumstances established, the Government was confined in respect of remedies to those expressly mentioned in clause 11 and the suit for damages was rightly dismissed. The expressio unius est exclusio alterius rule is applicable to the interpretation of such deeds provided the Court is satisfied that the omission has not occurred through mere accident." 17. The above judgment is on' all fours and since, for the reasons appearing hereinafter we are of the view that we can look at the agreement and default clause itself incorporated therein, in the present case too all contingencies are covered in the relevant default clause 6 of the agreement, and, therefore, the principle of exclusion applied 'by the learned High Court on the basis of the maxim expressia unius est exclusio alterius was notl attracted in the facts and circumstances of the case. 18. On the question as to what amounts to error of law arising on the face of the award, it has been held by the Privy Council in the case of Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Company Limited (A I R 1923 P C 66), as under : "An error in law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the. reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous." In that case the reference to the letters was only in the narrative and, therefore, the Privy Council held that there was no error on the face of the award. However, from the observations of Lord Dunedin, it is clear that there would have been an error on the face of even that award, if it would have run somewhat thus : "In respect of the ground of rejection contained in the letters and clause 52 of the Articles, I decide that, etc." 19. This was clearly brought out by McNair, J., as he then was, in Nils Heime Akt v. G. Merel & Co. Ltd. ((1959) 2 Lloyd's Rep. 292) at p. 295 :-. "The first question which arises on the part of this motion which seeks to set aside on the ground that the award contains an error of law on its face is whether, on this form of award, I am entitled to look at the contract. I think it is clear, on the authority of the decision of the Court of Appeal in D. S. Blaiber & Co. Ltd. v. Leopold Newborne (London) Ltd. (1953) 2 Lloyd's Rep. 427, that the mere fact that the contract is referred to in the award, especially if it is referred to in a recital to an award, does not make that contract a document which is incorporated in the award so that the Court can took at it for the purposes of seeing whether there is an error of law. But it seems to me that, in this award, the arbitrator has gone further than merely referring to the contract by date and name, inasmuch as he has set out one at least of the material clauses, namely, that the specification was for "I x 4 and wider". It is argued on behalf of the sellers that the findings in the award are inconsistent with that express term of the contract and that, therefore, the error does appear. On the whole 1 think it is permissible to look at the contract, and I accordingly have looked at the contract." The above case is on all fours, as discussed above. Alongwith the statement of claim filled on behalf of the respondents a copy of the agreement was also filed and marked as Annexure "P. 1" which we are, therefore, entitled to look into and we have done accordingly. 20. This brings us to directly the question raised in the appeal with regard to the interpretation of default clause 6 of the agreement. It was the case of the respondents themselves that they were entitled to claim damages on the basis of the provison contained in the clause itself which was covered under the head "other charges". Not only this the respondents had conceded before the High Court that the award could be remitted to the arbitrator to determine the damages on the basis of the market price because admittedly no notice in writing was given as required under section 54 of the Sales of Goods Act before the resale of the goods. The respondents, therefore, are bound by their own admissions and the question, of law which arises is whether the default clause was exhaustive of all contingencies following the breach of the agreement. The answer to this question in our view must be in the affirmative but because no provision of damages is to be found in the agreement. In this view of the matter l, we are unable to agree with the finding of the learned Judge in the High Court that the damages were permitted by law even outside the scope ofl clause 6 of the agreement. It has been held by this Court in the case of West Pakistan Industrial Development Corporation v. Aziz Qureshi that according to well-settled principle a stipulation not expressed to a written contract should not be implied merely because the Court thinks that it would be a reasonable thing to imply it. Such an implication can be made only if, on a consideration of the terms of the contract in a reasonable and business manner, the Court is satisfied that it should necessarily have been; intended by the parties when the contract was made. 21. Having gone thus far it is now left for us to examine contention raised on behalf of the appellants that even if the case of the respondents on their own showing was covered under the head " other charges" then too an amount over and above what was specified in the default clause could not be awarded to the respondents. As we lave held that since no provision was made for the award of damages in the default clause the case of the respondents must rest on the interpretation of the same. All contingencies, including the cancellation of the agreement, were well within, the contemplation of the parties at the time of the drawing of the agreement and there is much force in the argument raised by the learned counsel for the appellants that the arbitrator was not competent to import an agreement for the award of damages when none in fact was provided for or existed in the contract itself. 22. Section 74 of the Contract Act which is attracted in the case reads as under : "74. Compensation for breach of contract where penalty stipulated for.-When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for." The above section does not recognize the difference that exists in the English law between the liquidated damages and penalty. Reference in? this connection may be made to Syed Sibte Raza and another v. Habib Bank Ltd. (PLD 1971 SC743) wherein it has been held as under : "Section 73 of the Contract Act, 1872 covers cases of breach of contract where no amount of compensation is stipulated in the agreement itself, and the compensation has to be assessed strictly on the basis of the loss which has accrued to either of the contracting parties in the usual course of things on account of such breach, or which the parties knew when they made the contract, to be the, likely result of the breach. Section 74 provides for cases where a sum is named in the contract itself as the amount to be paid in' the case of the breach of the contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach has to be compensated, regardless of the proof of any actual damage or loss, and is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or the penalty so stipulated. Since the amount is stipulated in the present cases, by whatever name it may be described, whether liquidated damages, penalty, recompense or, earnest money, the respondent Bank, on breach of contract by the appellants, was entitled to receive reasonable compensation not exceeding the amount of Rs. 2,000 as provided in the contract." In the light of the above judgment the respondents are not entitled to l the award of damages in excess of what has been provided in the default o clause. 23. The contention of the learned counsel for the appellants that prior to resale of unlifted quantity of rice a notice under section 54 of the Sales of l Goods Act was required to have been served on the appellants and in the absence of such notice the resale was illegal has also considerable force. F There is no dispute on the question that such notice was never served upon the appellants and the contention of the respondents before the High Court was that although such notice was not given but the defect was cured as tenders were invited and the appellants had participated in those tenders. In other words the inviting of tenders could be treated as a notice required under section 54 of the Sales of Goods Act. This point stands concluded by, a decision of this Court in the case of Provincial Government of N.-W. F. P. v. M. K. Musaffir referred to earlier. 24. The Government in that case had sought to rely upon section 54 of the Sales of Goods Act and the contention that although no notice of intention to resell was given to the contractors such notice should be deemed to have been given because the sale was on the basis of tenders received after notice of sale was published and had been sent to all registered contractors was rejected by the High Court and such finding was approved by this Court. The relevant portion of the judgment may be advantageously quoted and is as under : "The Government also sought to rely upon section 54 of the Sale of Goods Act, 1930, which gives the right to an unpaid seller, who has exercised his right of lien on the goods; to resell the said goods after notice to the buyer of such intention, and if upon the resale there be a loss, to recover damages to the extent of the loss from the buyer. This section expressly provides that if no notice be given, the unpaid seller should not have the right to recover such damages. It was contended before the High Court that although no notice of intention to resell was given to the contractors in this case, such notice should be deemed to have been given because the sale was on the basis of tenders received after notice of sale was published, and had been sent to all registered contractors. The argument was rejected by the High Court, on the sufficient ground that such a public notice was not to be regarded as being in compliance with the particular notice required under section 54 of the Sale of Goods Act. Concluding `that no legal right vested in the Government to file a suit for damages to recoup the loss', the learned Judges allowed the appeal and dismissed the Government suit with costs throughout." 25. The above judgment is conclusive on the point and applies with full force and hence the contention of the learned counsel for the appellants cannot but be accepted. 26. It was lastly contended by the learned counsel for the appellants that the Court had sufficient power under clause (e) of section 30 of the Arbitration Act to set aside an award if it finds that the award "was otherwise invalid". 27. The words "otherwise invalid" are not ejusdem generic with the other cases mentioned in section 30. The same are meant to include all S cases of invalidity on grounds other than those mentioned. According to the learned counsel the appellants were .mulcted with damages by the Arbitrator in disregard of the fact that a bulk sale of huge quantity of 1,20,00 tons of rice had been made by the respondents whereas the actual unlifted quantity of rice by the appellants was only 14,853.17 tons. Needless to say that in the case of .bulk sale the price offered by the purchasers may not be the same as in respect of any smaller quantity. Thus, it was asserted by the learned counsel. that the appellants have suffered on account of such method of sale and a definite prejudice was caused to them in awarding the damages on account of difference in the contracted and the resale price. In the judgment of this Court in the case of the Provincial Government v. M. K. Musaffir, the respondent Mr. Musaffir had averred that the sawn timber had been sold at less than Rs. 3.00 per T cubic feet while the market rate was Rs. 5.00 per cubic feet. It was observed by this Court that since the quantity of sawn timber sold after the confiscation was 21.683 cubic feet considerable difference might have been made' in the price received, had not the sale been upset sale, as was also the sale of standing trees. The contention of the learned counsel, therefore, that prejudice in the matter was caused on account of bulk sale is, there fore, not without force. 28. In defending the appeal it was contended by Mr. Mansoorul Arifeen learned counsel for the respondent that inasmuch as no reasons had been given in the award but only conclusions had been recorded the same, therefore, cannot be treated as a speaking award. This question has been already examined earlier and needs no further discussion. The learned counsel referred to a Karachi decision in the case of Messrs Moosa Oomar & Company Ltd. v. Messrs Haji E. Dossa & Sons and another( P L D 1971 Kar. 899) and invited our attention wherein the appellants' contention that the Arbitrator should have awarded damages on the basis of difference between the contracted price rather than resale price and, thus committed misconduct was not accepted and it was held that even if the Arbitrator had not awarded damages upon settled principle still the award could not be challenged on that score. This case is distinguishable on facts and needs no consideration in view of our findings given above. It was lastly contended by the learned counsel for the respondents that since a public notice had been published before resale of the rice, the requirement of service of notice under section 54 of the Sales of Goods Act was dispensed with. The argument has no force as discussed above. 29. We have given anxious consideration to the question of granting relief in the appeal, and as a result of our findings given as above, several options are open to us as under : (1) To set aside the award and remit the case to the High Court with the direction to decide the suit afresh after hearing the parties.? (2) To set aside the award as a whole, as admittedly no notice as required under section 54 of the Sale of Goods Act was served upon the appellants as a consequence whereof the resale of the goods by the respondents was illegal ; and with such finding remit the case to the Arbitrator after setting aside the judgment of the High Court. (3) To remit the award to the arbitrator with a direction to state the reasons for the award in sufficient detail, as required under Ordinance XV of 1981 as the said Ordinance applies to pending proceedings as it is well established that an appeal is a continuation of the proceedings. . (4) To grant relief in the appeal, ourselves. 3. In order to do complete justice between the parties we have. however, chosen the last option because the proceedings have been pending for a long time and it is desirable that there should be an end to litigation particularly when the parties had chosen the short-cut of having their disputes decided through the mediation of a Sole Arbitrator. 31. The upshot of the above discussion is that the respondents are entitled to the encashment of the C. D. Rs. and appropriate the amount of the said receipts which were held by them at the time of the termination 'of the contract and their claim, therefore, is restricted to a sum of Rs. 3,42,900. As regards the interest the respondents will be paid the same from the date of the decree up to the date of encashment of C. D. Rs. because if they have already cashed the same earlier, the question of payment of any interest does not arise. The decree, therefore, shall stand varied as stated above and as to any other benefits the parties can have recourse to restitution under section 144 of the Code of Civil Procedure. 32. The appeal thus succeeds and is allowed as indicated above. The appellants shall also have the cost of the proceedings throughout. M. Z. M?? Appeal accepted.