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1923 Supreme(SC) 8
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD DUNEDIN, LORD ATKINSON, AND LORD WRENBURY.
CHAMPSEY BHARA AND COMPANY - Appellant
Versus
JIVRAJ BALLOO SPINNING AND WEAVING COMPANY, LIMITED - Respondents
On Appeal from the High Court of Bombay.
Decided On : March 6. 1923.
Solicitors for appellants:T. L. Wilson & Co. Solicitors for respondents: Hughes & Sons.
An error of law on the face of an arbitration award exists only if an erroneous legal proposition is explicitly stated in the award or an incorporated document. Narrative references to evidence or party contentions do not permit the court to review the underlying contract for errors.
Headnote:(A) Arbitration - Setting aside an award - Error of law on the face of the award - An error in law on the face of the award exists only when a legal proposition, which forms the basis of the award, is stated within the award or a document actually incorporated into it, such as a note of reasons, and is found to be erroneous - A narrative reference to a party's contention or a document, such as a letter, does not entitle the court to examine the underlying contract to determine if the arbitrator's conclusion was based on a misinterpretation of the contract terms.
(B) Arbitration - Jurisdiction - Repudiation of contract - Whether an arbitrator acts within jurisdiction depends solely on the clause of reference - If the arbitration clause covers all disputes arising out of or in relation to the contract, the arbitrator has the jurisdiction to decide the effect of a rejection of goods, and such rejection does not automatically terminate the operation of the arbitration clause.
Facts of the case:
Sellers and buyers entered into contracts for the sale of cotton subject to the rules of a trade association. Following an arbitration on quality, the buyers rejected the goods. The sellers claimed damages, leading to a second arbitration under the association's rules for general disputes. The arbitrators awarded damages to the sellers. The buyers sought to set aside the award, arguing there was an error of law on the face of the award and that the contract had been repudiated, thus ousting the arbitrators' jurisdiction.
Findings of Court:
The court found that the award did not state any legal proposition upon which the decision was based; the reference to the buyers' letters was merely narrative. Therefore, no error of law appeared on the face of the award. Regarding jurisdiction, the dispute clearly fell within the scope of the arbitration clause, and the arbitrator was the proper authority to determine the legal effect of the rejection of goods.
Issues: (i) Whether a reference to a party's correspondence in the narrative of an award allows a court to examine the contract to find an error of law on the face of the award; and (ii) whether the rejection of goods constitutes a repudiation that terminates the jurisdiction of the arbitration clause.
Ratio Decidendi: An error on the face of the award requires the presence of an erroneous legal proposition that is the basis of the award. It is insufficient to infer a mistake by comparing the award's result with the contract terms. Furthermore, the jurisdiction of an arbitrator is determined by the reference clause; if the clause covers disputes arising from the contract, the arbitrator is competent to decide on the consequences of a repudiation.
Result: First appeal allowed; second appeal dismissed.
Legal Category Hierarchy
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practice and procedure
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arbitration
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setting aside awards
- error of law on the face of the award
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setting aside awards
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arbitration
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contract law
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breach of contract
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repudiation
- jurisdiction of arbitrator
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repudiation
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breach of contract
Judgement
Consolidated Appeals (No.73 of 1921, and No.16 of 1922) from decree of the High Court in its appellate jurisdiction (July 29, 1919, and November 20, 1919) each reversing an order of the Court in its original civil jurisdiction.
The consolidated appeals arose out of petitions in the High Court to set aside two awards of arbitrators dated respectively September 23, 1918, and March 10, 1919.
The awards were made upon claims by the appellants, Champsey Bhara & Co., to damages for the rejection of cotton delivered under contracts expressed to be subject to the rules and regulations of the Bombay Cotton Trade Association. The facts sufficiently appear from the judgment of the Judicial Committee.
A petition to set aside the first award was rejected by Pratt J., but upon appeal the award was set aside. The appeal is reported at I. L. R. 44 B. 780. Shortly stated the learned judges (Macleod C.J. and Heaton J.) held that the terms of the contracts were so referred to in the award that the Court could take cognizance of them, that upon the true construction of r. 52 of the Associations rules the respondents had the option to reject the cotton without liability to damages, and that consequently there was an error on the face of the award.
A petition to set aside the second award was allowed by Kajiji J., who considered himself bound by the above decision of the Appellate Court. Upon appeal his decision was reversed, Macleod C.J. and Heaton J. being of opinion that recitals in that award did not, as in the other award, so incorporate the terms of the contract as to entitle the Court to refer to them.
In the first case the sellers, and in the second the buyers, appealed; the appeals were consolidated.
1923. Feb. 5, 6. Upjohn K.C. and Wallach for the appellants (sellers). The award could be set aside only for error apparent on its face, or upon a document forming part of the award. A reference by the arbitrators to a document in stating the facts does not entitle the Court to look at it, unless it is made part of the decision. The rules of the Association therefore could not be referred to. [Reference was made to Hodgkinson v. Fernie (( 1857) 2 C. B. (N. S.) 189, 202.); British Westinghouse Co. v. Underground By. Co. ([ 1912] A. C. 673.); Attorney-General for Manitoba v. Kelly . ([ 1922] 1 A. C. 268, 281.)] Landauer v. Asser ([ 1905] 2 K. B. 184.) is distinguishable. In that case the arbitrator stated the effect of the relevant term of the contract, and he based his award on the construction he put upon it; if the decision has a wider application it was erroneous.
[LORD DUNEDIN referred to Holmes Oil Co. v. Pumpherston Oil Co. (( 1891) 18 R. (H. L.) 52.)]
Sir George Lowndes K.C., E. B. Raikes and Claughton Scott for the respondents (buyers). The awards were made without jurisdiction. Upon the buyers rejection of the cotton there was a repudiation, and the contract and submission ceased to operate. It is for the Court to inquire whether there was a repudiation and termination of the contract; if there was the arbitration clause does not apply. Johannesburg Municipal Council v. D. Stewart & Co. ( 1909 S. C. (H. L.) 53.); Piercy v. Young (( 1879) 14 Ch. D. 200, 207,208.); Kennedy v. Barrow-in-Furness Corporation. (Hudsons Building Contracts, vol. ii., 411, 415.) Jurisdiction could not be obtained by an erroneous finding on the part of the arbitrators May v. Mills . (( 1914) 30 Times L. R. 287.) The question has to be tried as though the buyers had sued for an injunction to restrain the arbitrators Sassoon & Co. v. Ramdutt Ramkissen Das. (( 1922) L. R. 49 I. A. 366, 373.)
[LORD DUNEDIN referred to Sanderson & Son v. Armour & Co. ( 1922 S. C. (H. L.) 117.)]
The present case is distinguishable, because on the documents there was at least a prima facie case of repudiation. Further, in Scotland a submission to arbitration acts as a complete ouster of the jurisdiction of the Court, whereas in India, as in England, it does not.
March 6.
