Scottish Court of Session Decisions

On 22nd January 1906 John Robertson, grain merchant, Perth, raised an action against Brandes, Schönwald, & Company, 87 Place de Meir, Antwerp (against whom arrestments had been used jurisdictionis fundandai causa), for payment of £250 as damages for breach of contract. The contracts in question, which were to be implemented in Scotland, contained this clause—“ Arbitration.—Any dispute on this contract to be settled by friendly arbitration in London in the usual way.”

In defence the defenders, inter alia, pleaded—“(3) The action ought to be dismissed, or at all events sisted in respect that the validity of the arbitration clause falls to be determined by the law of England, according to which law the reference is valid and binding.”

The circumstances of the case are given in the opinion infra of the Lord Ordinary ( Salvesen).

On 27th March 1906 the Lord Ordinary pronounced the following interlocutor :—“Finds that the validity of the arbitration clause in the contracts libelled falls to be determined by the law of England: Allows the defenders a proof of their averments to the effect that according to said law the said clause constitutes a valid and binding reference of the dispute out of which this action has arisen; and reserves all questions of expenses.”

Opinion.—“On 8th May 1905 the defenders sold to the pursuer two parcels of ground basic slag, of different qualities and prices, which included the freight and insurance to Perth. The goods were loaded on board a sailing vessel called the Emma,’ the master of which granted bills of lading dated 30th November 1905 in which he acknowledged that the slag had been shipped in good order and condition. The defenders sent copies of the bills of lading to the pursuer along with an invoice and a draft for £330, 6s. as the price of the goods, less an advance on freight. This draft the pursuer accepted, and in exchange received from the defenders' bankers the endorsed bill of lading with two covering insurance notes. Before the portion of the ‘Emma's’ cargo which belonged to the pursuer was discharged, the bill for £330, 6s. had fallen due and been paid. Shortly thereafter the pursuer discovered that the cargo was in bad condition, and he has now brought this action in order to recover from the defenders the difference in value between the goods contracted for and the goods delivered. The claim also includes a sum in name of damages in respect of the slag delivered having a smaller percentage of phosphate of lime than the minimum guaranteed in the contracts.

“Both contracts are embodied in written sale-notes which contain the following clause:—‘ Arbitration.—Any dispute on this contract to be settled by friendly arbitration in London in the usual way; ’ and the defenders plead that the action should be sisted until the matters in dispute have been determined by arbitration in terms of this clause. The pursuer, on the other hand, argued that according to the fair construction of the reference clause nothing was referred except questions as to the meaning or intent of the contract, and alternatively that as the pursuer's claim was one of damages, and no power had been conferred on the arbiters to assess damages, the dispute which had arisen was not one which fell under the arbitration clause. This argument proceeded on the assumption that the validity of the clause fell to be ascertained according to the law of Scotland.

In the course of the debate the defenders' counsel maintained that the clause of reference fell to be interpreted and governed by the law of England, in accordance with which it was valid and binding on the parties, and barred either from raising or insisting in an action at law. On the record, as it originally stood, the pleadings did not properly raise this question, but they have been amended, and I have now to decide whether the third plea-in-law for the defenders, which states the legal proposition which they maintain, is well founded.

In my opinion the case cannot be distinguished from that of Hamlyn & Company, 21 R. (H.L.) 21. That also was an action of damages for breach of a contract which contained an arbitration clause in general terms, the only difference being that while here the words used are ‘ by arbitration in London in the usual way,’ the clause in that case was ‘ by arbitration by two members of the London Corn Exchange or their umpire in the usual way.’ That, however, is not material to the decision of the only point which I feel at liberty to decide at this stage, namely, whether the validity of the clause itself falls to be determined by English law. Now, in Hamlyn's case the House of Lords decided that although the contract was for most purposes a Scotch contract, there was nothing to prevent parties agreeing that their rights under the arbitration clause should he determined according to the law of England, and it was held that

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the clause of reference was expressed in terms which clearly indicated that the parties had in contemplation and agreed that it should be interpreted according to the rules of English law. I think the same can be said with equal force here. The arbitration was to be in London in the usual way—that is to say, it was to be an English arbitration and not a Scotch one.

If parties had been agreed that this clause of reference is valid according to English law, I would have been in a position at once to have sisted the action until the matters in dispute had been ascertained by arbitration in London. But as there is no agreement on the subject, and as every question of foreign law is a question of fact which falls to be ascertained by evidence, I have no alternative but to allow a proof, however pedantic the proceeding may appear to be in the present case. …”

The pursuer reclaimed, and argued—The validity of the arbitration clause fell to be determined by the law of Scotland. London was merely the locus of the arbitration. The contract as a whole was governed by the law of Scotland. One of the parties to it was Scotch. Performance was to be made in Scotland. By the law of Scotland the arbitration clause was bad as no arbiters were named. The present case differed from that of Hamlyn & Company v. TalisJcer Distillery, May 10, 1891, 21 R. (H.L.) 21, 31 S.L.R. 642. In that case the arbitration clause contained the names of English arbiters, e.g., “two members of the London Corn Exchange.” Assuming that the clause was governed by the law of England, by that law the clause was ineffectual. The present dispute was not a dispute in the sense of the contract. The clause did not cover disputes as to alleged defects in quality. In any event the pursuer was entitled to a conjunct probation.

Counsel for the respondents were not called upon.