Say the ratio out loud before you open Reasoning — recalling it unprompted is exactly what the exam pays for.
Why it matters
The arbitrator's authority comes from the contract. This case states the consequence in the situation a construction lawyer meets every day — a claim for price escalation that the contract itself forbids.
Facts
In a works contract the contractor demanded extra costs on account of price escalation. The agreement specifically barred such a claim. The arbitrator nevertheless awarded the extra costs.
Held
The award of such extra costs was bad in law: the arbitrator acted in excess of the jurisdiction conferred on him.
Reasoning
Step one — trace the authority. An arbitrator derives his authority from the contract and from the agreement for his appointment. It is never open to him to reject any part of that agreement or to disregard a limitation placed on his authority.
Step two — a bar in the contract is such a limitation. Where the contract expressly excludes a head of claim, awarding it is not an error within jurisdiction; it is a decision on a matter the parties put outside his reach.
Step three — the character of the default. A deliberate departure from the contract is a manifest disregard of authority, and it is an integral part of the arbitrator's duty to adhere to the conditions of the contract and remain within the terms of reference.
Step four — how the court tests it. To decide whether the arbitrator has acted in excess of jurisdiction, ask whether the claimant could raise that claim before him at all. If the arbitration clause, a specific term of the contract, or the law bars the claim, any decision on it is in excess of jurisdiction; and for that limited purpose the court may look into the contract and the reference.
Exam use
It opens: When does an arbitrator exceed his jurisdiction? and any problem where the award grants a barred claim.
Pair it with Jivrajbhai Ujamshi Sheth, which supplies the remedy: what lies outside the reference is invalid, and if it cannot be severed the whole award falls.
Relate it to public policy. The proposition that an award contrary to the terms of the contract may be interfered with was later swept into the expanded public-policy test of ONGC v. Saw Pipes, and the 2015 amendment then confined the public-policy ground and restricted re-appreciation of the merits. Keep the jurisdictional point distinct from the public-policy point; only the first survives untouched.
It does not decide that a court may re-open the construction of the contract generally. Construing the contract is the arbitrator's task; awarding what it expressly bars is not.