1. This is an appeal from the decision of Pratt J.
2. The appellants, the Jivraj Baloo Spinning and Weaving Co, Ltd., filed a petition to set aside an award in favour of the respondents Messrs. Champsey Bhara & Co. which had been made in the following circumstances.
3. On the 17th August 1918 the respondents contracted to sell to the appellants 100 bales New Machine Ginned Fully Good Mundra Cotton at Rs. 905 a candy, delivery 1st October to 25th November.
4. On the 4th September 1918, a similar contract was made for the sale of 100 bales at Rs. 950 a candy. Both the said contracts were subject to the Rules and Regulations of the Bombay Cotton Trade Association, Ltd.
5. Against the said contracts the respondents tendered cotton. Surveys were held and in each case the arbitrators made awards giving an allowance of Rs. 10-8-0 per candy. These awards were confirmed on appeal by the Appeal Committee. Rule 52 of the Bombay Cotton Trade Association Rules lays down what are the buyer's rights if the tender is not approved. If the final award for inferiority of quality be in excess of Rs. 5 a candy the buyer shall have the option either to take the cotton at the allowance fixed by the arbitrators or the Appeal Committee, or upon giving notice in writing to the seller and original tenderer to refuse the same.
6. Accordingly, on the 25th November, the appellants gave the respondents notice that they refused the cotton tendered.
7. The rule then provides that; if the buyer refuses the cotton he may either buy in the market at a reasonable rate on account, risk and expense of the seller or invoice it back to the seller at the market rate of the day upon which the final award shall have been made. In the event of the buyer exercising his option of invoicing the cotton back to the seller at the market rate of the day upon which the final award has been made, he shall notify his immediate seller and the original tenderer within twenty four hours of the arbitration and/or appeal if any being finally disposed of.
8. The appellants did not exercise either of the options mentioned in the rule. The obvious reason was that the market had fallen.
9. On the 29th November the respondents wrote to the appellants claiming Rs. 25,000 being the difference between the contract rates and the room rates when the cotton was rejected. This appellants replied on the 30th November that the contracts were broken and therefore they were not liable to the respondents.
10. On the 4th December the respondents wrote that they proposed to refer the matter to arbitration under the provisions of Rule 13.
11. The appellants replied that they were not bound to refer the matter to arbitration.
12. At the request of the respondents the Association appointed two arbitrators under the Rules to decide the alleged claim preferred by the respondents. The appellants submitted their contentions to the arbitrators in writing.
13. On the 23rd of December the arbitrators published their award.
14. After reciting the contracts above-mentioned, the rejection of the cotton tendered, the claim of the respondents, and the denial of liability by the appellants, the arbitrators awarded and directed that the appellants should pay to the respondents the sum of Rs. 25,000.
15. This award was confirmed by the Appeal Board on the 9th June. The appellants thereupon filed a petition to set aside the award. It was argued before the learned Judge (1) that there was no dispute which could be referred to arbitration, (2) that the arbitrators had no jurisdiction, (3) that there was an error of law patent on the face of the award. All these objections were held to be untenable and the petition was dismissed.
16. In the view I take of the proper construction of Rule 52 a dispute could only validly arise in the event of the buyer exercising one of the options mentioned in the rule. But I think that really the first two points are involved in the third, since, if the third cannot be found in the appellant's favour, it' would follow that there was a dispute which it was within the jurisdiction of the arbitrators to decide. The question whether there was an error patent on the face of the award presents many difficulties.
17. The rule is clear, as laid down in Landauer v. Asser (1905) 2 K.B. 184that the Court will set aside an award if there is an error of law patent on the face of it. It was contended that the arbitrators having given no reasons for their award, the error of law which it is said they have committed is a matter of speculation only so that it cannot be patent on the face of the award.
18. But the arbitrators have recited the contracts which include the Rules of the Association, the rejection of the cotton tendered, and the reasons for such rejection, and the claim of the respondents, and it seems perfectly obvious from their award that they have allowed the claim made by the respondents in their letter of the 29th November, based on their construction of the provisions of Rule 52.
19. If then it is patent that the arbitrators have wrongly construed the contracts it seems on the authority of Landauer v. Asser that we are entitled to set aside the award. Kennedy J., at p. 191, after reading the terms of the award, said:-
The reasoning of the umpire, which he puts forward in the expression 'as the parties to the contract, etc., were by the terms thereof principals thereto,' is as counsel for both parties seemed to agree, far from clear. I do not understand how in any case the facts help Messrs. Asser. But whatever this expression means it is, I think, quite clear that the umpire bases his decision that Messrs. Asser, the sellers, are, and Messrs. Landauer, the buyers, are not entitled to the sum in dispute, entirely upon the terms of the contract of November 3, 1803.
20. I think it may be said, to use the language of Kennedy J., that the arbitrators in this case have based their decision that the respondents are entitled to the sum they claim entirely upon the terms of the contract.
21. Now if it is clear that in no case under Rule 52 can the buyer be liable to pay a sum of money as damages or compensation or whatever else it may be called to the seller after he has rightly rejected the cotton, then it seems to me that an award directing him to pay in such a case a certain sum of money is bad on the face of it in point of law.
22. What are the buyer's rights if he rejects the cotton? (1) He may buy in the market at a reasonable rate on account, risk and expense of the seller. That is to say, if the market has gone up and he buys he can call upon the seller to pay the difference. If the market has gone down and he buys, it is obvious he has no claim against the seller, but the seller has certainly no claim on the buyer for the saving the buyer has effected. (2) The buyer may invoice the cotton back to the seller at the market rate of the day upon which the final award has been made. This he could only do if the market had risen. There is no compulsion upon him to invoice the cotton back to the seller if the market has fallen. These two options are the usual ones given to a buyer as a foundation for a claim against his seller for damages (compare Rules 37, 38 and 47) and no man in his senses would exercise either of them unless the market had risen. If the market falls, he has no claim against the seller and he can either buy or not as he chooses. The argument that the word 'may' must be read 'shall' is based on an obvious misreading of the rule. The marginal note shows that paragraph 1 of the Rule deals only with the buyer's rights if the tender is not approved. It is entirely opposed to the general provisions of the Contract Act and to the Common Law that a buyer who has rightly rejected goods tendered under a contract of purchase and sale should be in any way liable to the seller. If the members of the Association think that there should be such a liability then they must provide for it by express conditions in the contract.
23. I am aware that my opinion is contrary to the view of the arbitrators and the members of the Board of Appeal who were persons of great experience in the Cotton Trade, but as they have imposed, as I think they have done, a liability on the buyer which cannot possibly be said to have been provided for by the contract on a proper construction of its terms, I think there is an error of law patent upon the face of the award which entitles the Court to set it aside.
24. The appellants must have their costs in both Courts.
25. As the appellants have paid the sum awarded they will be entitled to a refund and interest at 6 per cent, from the date of payment.
26. It is to me quite plain from the facts stated in the judgment of my Lord the Chief Justice that no Court of law would allow damages or compensation to the seller in this case. fie broke the contract by tendering goods of a quality such that the buyer was entitled to reject them and did so. It is directly contrary to law that the person who breaks the contract should receive damages or compensation for the breach. Undoubtedly, therefore, there is an error of law and it is so startling, so fundamental, that it becomes plainly apparent as soon as the award and the papers recited in the award are read. This is so because from the admitted facts and the contract and the rules, both of which are recited in the award, it is apparent that the buyer rightly and not wrongly rejected the goods. I have added this brief statement to the judgment of my Lord the Chief Justice with which I agree because at first it seemed to me doubtful whether the error could be described as apparent on the face of the award. But as the award imports by reference the contract, the rales, and the correspondence between the par-ties, it may, I think, properly be said that the error of law is apparent on the face of the award.
27. I agree that the appeal should be allowed.