Arbitral award set aside for applying the wrong measure of damages in wrongful contract cancellation claims.

An arbitral award may be set aside for error of law apparent on its face where the arbitrator discloses the legal basis of compensation and applies an incorrect measure of damages. The majority held that the award for wrongful cancellation of contracts was legally flawed because the value of steel used in unfinished bins was not the proper basis for compensation for non-acceptance or breach; the correct measure was ordinarily the difference between contract price and market price, or in suitable cases between contract price and manufacturing cost. The award was therefore vitiated by legal error.

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Issues: Whether the award was vitiated by an error of law apparent on the face of the award in the assessment of compensation for wrongful cancellation of the contracts.

Analysis: The majority held that the arbitrator had expressly stated the basis of compensation and had awarded damages for wrongful termination. Where reasons are disclosed, the Court may examine whether the legal principle applied is correct. On the facts, the value of steel used in component parts of unfinished bins was not a legally correct measure of damages for non-acceptance or breach of contract. The normal measure would be the difference between the contract price and the relevant market price, or where appropriate the difference between the contract price and the cost of labour and material needed for manufacture. The arbitrator therefore adopted an erroneous legal basis and ignored the governing rule as to compensation for breach.

Conclusion: The award was rightly set aside as being vitiated by an error of law apparent on the face of the award.

Dissenting Opinion: Bhargava J. held that the arbitrator had not proceeded on any disclosed legal principle capable of being tested for error on the face of the record, but had exercised his discretion in fixing compensation. On that view, the award was not open to interference and the appeals ought to have been allowed.

Ratio Decidendi: An arbitral award is liable to be set aside for error of law apparent on its face where the arbitrator states the legal basis of compensation and applies an incorrect measure of damages.

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