Scottish Court of Session Decisions

On 15th September 1908 the Municipal Council of Johannesburg brought an action against D. Stewart & Company (1902), Limited, London Road Iron Works, Glasgow; William Beardmore, steel manufacturer, Flichity, Inverness-shire; and Mrs Beardmore, Moreton Lodge, Eye, Herts, widow of the late Joseph Beardmore, shipbuilder, Moreton Lodge, aforesaid, as his executrix.

The following narrative is taken from the opinion of the Lord President—“This is an action by the Municipal Council of Johannesburg against a firm of Scottish contractors, and also against another gentleman and the representatives of a deceased gentleman who were guarantors under a contract shortly to be mentioned.

The Municipal Council of Johannesburg wished to instal a system of electric power and electric lighting, and in order to do so they issued proposals for a contract for the necessary machinery for supplying the power. There were alternative proposals as to the method in which the power was to be supplied, one method being that it should be supplied with a gas generating plant, and the other that it should be supplied with a steam generating plant. Along with each of these there were also gas engines in the one case and steam engines in the other; and then appropriate for either there was the electric generating machinery that was necessary. The end of it was that a contract was entered into between the pursuers and the defenders Messrs Stewart & Company, Limited, Glasgow. The terms generally of the contract I need not advert to. The contract had detailed specifications of great length and particularity, and described with great detail the various classes of machinery to be supplied, and also with great detail and precision the precise tests which the various portions of the machinery were to undergo and pass before they were accepted.

The contract was partially implemented. The machinery was set up and was put in operation, but the tests which were demanded of the machinery were admittedly never passed. At the end of what I may call the first unsatisfactory period the parties came together and, realising that something had to be done, they entered into another contract which has been called ‘The Running Contract.’ This contract was not destructive but was supplementary of the original contract. The original contract, of course, had in view that the machinery, when made, and having passed its test, should be handed over to the Municipal Council, and that thereafter the Municipal Council should run the works. The Running Contract contemplated that inasmuch as the machinery had not passed its test and that therefore the Municipal Council were not in a position to accept it, the contractors should for a certain period run the works. It did not only do that, but it also provided for the supply of certain additional machinery which had been shown to be necessary. Of almost even date to it there was concluded another contract which is known by the name of ‘The Supplementary Contract,’ and which dealt principally, if not entirely, with the subject of the tests, and altered the conditions which had originally been laid down about them and provided new ones. Into the details of that it is not necessary I should go.

What happened was that after a certain time of running under the Running Contract the defenders found that they could not or would not—I do not say which—go on. There was a meeting between the parties, and then upon 15th May 1907 the defenders, by the hand of their director Mr Bell, wrote this letter to the pursuers—‘Sir, I regret to confirm that my company cannot continue the tram and lighting service

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under the main, running, and supplementary contracts, and that the works will be stopped at six p.m. to-day. This letter must not be taken as an admission of a breach of contract on the part of my company, which reserves any rights it may possess.’ That letter was acknowledged on the same day by the Town Clerk as follows:—‘With reference to your letter of to-day's date stating that your company cannot continue the tram and lighting service under the main, running, and supplementary contracts, and that the works will be stopped at six p.m. to-day, I beg to inform you that I, on behalf of the Council, accept this intimation as a confirmation of the statements and admissions made by you at the meeting between certain councillors and yourself and Messrs Ross & Grimmer, in my office at ten a.m. to-day, to the effect that your company does not intend to go on with any work under the main contract, running contract, or supplementary contract after six p.m. to-day, i.e., that the contractors throw up the main contract, the running contract, and the supplementary contract, and that they will not continue the work of placing the machinery into order for the tests.’

Shortly after that, upon 21st May, a further letter was written by a firm of lawyers on behalf of the Council, as follows:—‘We are instructed by the Municipal Council of Johannesburg to give you notice, as we hereby do, that in consequence of your principals having committed a material breach of the contract between them and our clients, dated 19th November 1906, and known as the “Running Contract,” in having entirely stopped working thereunder’ (which of course, I need scarcely say, had happened) ‘our clients, in terms of clause 28 (a) of that contract, terminate the same, and claim damages from your principals in respect of the said breach on their part.’ And then they go on to say that they cannot state the figure of damages, but that it will be afterwards made up. They supplement that afterwards by a letter in July in which, referring to that letter, they do assess the damages claimed under that head at £62,500. Then in a letter of the same date they wrote to the contractors and said—‘We hereby give you notice that all the plant supplied by your company to the Council under the main contract of 25th May 1905 has in every respect proved unsatisfactory, and that the Council, in exercise of its rights under the said contract, as modified by the running contract … and the supplementary contract … hereby rejects all the said plant, and calls upon your company forthwith to repay the part of the purchase money already paid, amounting to £143,095, 9s. 7d., and to remove the said plant. The Council hereby tenders the said plant, which is now at the Council's generating station, for removal, against payment of the above-mentioned sum. By reason of the failure of your company to fulfil the main contract, modified as aforesaid, the Council has further suffered damage amounting to £155,000,’ payment of which is demanded.

“Accordingly, the present action is raised by the Municipal Council against the contractors (I shall deal with the position of the guarantors afterwards), and concludes for three separate sums—first, £143,000 odds, which is simply repayment of the instalments which had been paid; second, £206,000, which is for damages under the main contract; and third, £69,000, which is for damages under the supplementary contract.”

The Main Contract, inter alia, contained this provision—“11. This contract shall be deemed for all purposes an English contract, enforceable in and subject to the

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jurisdiction of the English Courts.”

General Condition 23 of the Main Contract was—“In case any dispute or difference shall arise between the purchasers and the contractors, the same shall in the first instance be referred to the engineers, but if either the purchasers or the manufacturers refuse to accept the engineers' decision of the matter in dispute, it shall, after the complete delivery of the material, be referred to the arbitration of a single arbiter or umpire to be mutually agreed upon between the parties, or, failing agreement, to be nominated by the President for the time being of the Institution of Civil Engineers of London, or in the case of disputes arising with local contractors in Johannesburg, to be nominated by the Lieutenant-Governor of the Transvaal. The decision of such arbiter or umpire on the matter referred, including the cost of the reference, shall be final and binding on both parties, and the arbitration shall be an arbitration within the meaning of the Arbitration Act of 1889 (England), and shall be conducted in all respects as therein provided, and this clause shall stand for the submission as agreed between the parties thereto in the event of such arbitration becoming necessary.”

The Running Contract provided—Art. 38—“In the event of any dispute between the contractors and the Council under this contract, the matter shall in the first case be referred to the engineers; but if either party refuses to accept the engineers' decision, the matter in dispute shall be referred to a single arbiter or umpire to be mutually agreed upon, or, failing agreement, to be nominated by the Lieutenant-Governor of the Transvaal, and to hold the said arbitration in Johannesburg. The decision of such umpire on the matter referred to him, including the cost of such reference, shall be final and binding on both parties, and the arbitration shall be deemed to be an arbitration within the meaning of the Transvaal Arbitration Ordinance of 1904 (One thousand nine hundred and four), and shall be conducted in all respects as therein provided.”

The defenders, inter alia, pleaded—“1. The action should be dismissed in respect that the Scottish Courts have no jurisdiction to entertain the same, because (1) the whole parties have agreed that the contract founded on should be deemed an English contract, enforceable in and subject to the jurisdiction of the English Courts; (2) according to English law, the questions in dispute between the parties as to the execution of the contract fall to be determined by arbitration, conform to English law and procedure, in terms of the said contract; and (3) the liabilities of the individual defenders upon the bond are ancillary to the contract and fall to be ascertained under English law. 2. Forum non conveniens. … 4. Esto that the present action is to proceed, the matters in dispute between the pursuers and the defending company fall to be determined by arbitration in terms of the contract founded on, and the action should be sisted to await the arbiter's decision.”

On 30th January 1909 the Lord Ordinary ( Mackenzie), pronounced this interlocutor—“Repels the first and second pleas-in-law for the defenders: Finds that the arbitration clause founded on by the defenders falls to be construed by the law of England, and before further answer sists procedure hoc statu in order that the parties may carry through arbitration proceedings in England if on a true construction of said clause it is valid and covers the dispute in question: Sists the action in so far as directed against the defender William Beardmore.”

Opinion.—… [ A fter narrating nature and origin of action].… The pursuers meet the defenders' first plea with the argument that their case is not one of damages for breach of contract, but one for reparation. Their claim, they say, is founded upon a renunciation by D. Stewart & Company of the whole contract, adopted by the pursuers with the effect that the contract is at an end except for the purpose of bringing an action for the damage consequent upon the renunciation. Therefore clause 11, quoted above, they maintain, cannot be founded on by the defenders, who are liable to be sued in the courts of their domicile. The arbitration clause, clause 23, of the general conditions, which provides for an arbitration under the English Arbitration Act of 1889, goes also, according to the pursuers' contention. The argument was supported by a reference to such cases as Mersey Steel and Iron Company v. Naylor, 9 Q.B.D., 648, 9 A.C. 434, and Llanelly Railway and Dock Company v. London and North Western Railway, L.R. 8 Ch. App. 942, James, L.J., at p. 948.

In both the case of the main and the running contract I consider the pursuers' case is one of damages for breach of contract. The provisions of the contract must therefore be looked at to see what the rights of the parties are.

The defenders are therefore entitled to found on clause 11 of the main contract, quoted above. After giving all due attention to the argument submitted by the defenders, I am unable to hold that the jurisdiction of the courts in Scotland is excluded by its terms. The fact that the contract is to be deemed for all purposes an English contract is not sufficient, as the Court here can always ascertain, if and when necessary, any specialty which emerges in the construction of the contract, which depends on English law. Nor do the words ‘enforceable in and subject to the jurisdiction of the English courts,’ have the effect contended for. It is not said that the contract shall be enforced in the English courts; the word ‘enforceable’ means ‘may be enforced.’ Nor is it said that it is the English courts only that are to have jurisdiction, in which case a question would have arisen as to what effect should be given to such a stipulation. Upon a construction of the clause I hold there is nothing to prevent the pursuers suing the contractors, and also the surety William Beardmore, in the Scotch courts, the courts of their domicile. I do not overlook the specialty which was urged in the case of the surety, that his designation in the bond is given as of 36 Victoria Street, London, but that does not make a difference.

The first plea-in-law for the defenders will accordingly be repelled.

The defenders next maintained their second plea— forum non conveniens. In order that this plea may be sustained the Court must be satisfied that there is some other tribunal, having competent jurisdiction, in which the case may be tried more suitably for the interests of all parties and for the ends of justice— Clements v. Macaulay, 4 Macph. 593; Sim v. Robinson, 19 R. 665. The argument was to the effect that there was here a clause of arbitration covering the disputes between the parties; that the arbitration was plainly to be in accordance with English law; and that the Scotch Court would have nothing to do but to give effect to the award in an English arbitration after it had been pronounced. Assume, in the meantime, that the defenders are right in regard to the arbitration clause. I know of no case in which the plea of forum non conveniens has been successfully advanced by a defender who was sued in the court of his own domicile. The case of Williamson v. North-Eastern Railway, 11 R. 596, was quite different from the present. The same remark applies to Atkinson & Wood v. Mackintosh, 7 F. 598. If the argument were sound it might equally well have been advanced in the cases of Hamlyn & Company v. Talisker Distillery Company, 21 R. (H.L.) 21, and Robertson v. Brandes, Schonwald & Company, 8 F. 815. It was pointed out by counsel for the defenders here that the plea was not taken in those cases. I think, however, that the reasoning in the opinions in these cases indicate that the plea would have been repelled had it been taken. As Lord Watson pointed out in the case of Hamlyn & Company, the jurisdiction of the Court is not wholly ousted by a contract to submit the matter in dispute to arbitration. It deprives the Court of jurisdiction to inquire into and decide the merits of the case, while it leaves the Court free to entertain the suit and to pronounce a decree in conformity with the award of

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the arbiter. In the event of any lapse of the reference it would be for the Court of Session to dispose of the merits of the case.

I am of opinion that the plea of forum non conveniens should be repelled.

The next question is whether the case should be sisted in order that parties may have their disputes settled by arbitration in the manner provided by the contract.

Upon this I consider the cases of Hamlyn & Company and Robertson to be direct authorities. In Hamlyn's case it was held that the arbitration clause there was to be construed and governed by the law of England, as its terms showed that that was the intention of the parties; that by the law of England it was valid; and that there was no principle of public policy to prevent the Courts of Scotland from giving it effect. The case of Robertson followed that of Hamlyn. There the interlocutor pronounced was in these terms—‘Find that the arbitration clause falls to be construed by the law of England, and before further answer, sist procedure hoc statu in order that the parties may carry through arbitration proceedings in England if on a true construction of said clause it is valid and covers the dispute in question.’

The only question, therefore, I have to determine at present is whether the clause of reference contained in clause 23 of the general conditions of the main contract means that the questions which it governs are to be determined in an arbitration, the seat of which is to be in England, acoording to the usual methods in which arbitrations are there conducted. If so, then the parties should go to the High Court at once, when the question may be determined authoritatively. It was argued that I should now decide, in accordance with the Scotch decision, whether the arbitration clause covered the matters in dispute, or whether it is merely executional. In this connection clause 26 of the running contract was founded on. The only question for determination in England, according to the pursuers' argument, is whether the arbitration is valid according to the law of England. They maintain that the Court here must first decide whether the dispute falls within the arbitration clause or not. The interlocutor, however, in Robertson's case expressly bears that the parties are to carry through arbitration proceedings in England if on a-true construction of the clause it is valid, and also if it ‘covers the dispute in question.’ On the authority of this case I am of opinion that this point must be settled in the arbitration proceedings. It is as evident in the present case as it was in Hamlyn that it was the intention of parties that the arbitration should be English.

The difficulty I have upon this branch of the case arises from the fact that there is no reference in the pleadings to the arbitration clause (clause 38) in the running contract. [ The defenders met this objection by amendment in the Inner House to the effect of pleading the arbitration clause contained in the running contract.] This seems to point to an arbitration in the Transvaal as regards the disputes under the running contract. The Dean of Faculty contended that this applied only to disputes with local contractors of the nature expressly provided for by clause 23 of the main contract. I should have great doubt as regards this if I were called on to decide the point, but the contractors are entitled to maintain their argument when proceedings are taken to start an arbitration in England.

The interlocutor, therefore, should, in my opinion, be in the same terms as the one pronounced in Robertson's case.

“As regards the conclusion against William Beardmore, I am of opinion that his liability, being that of a surety, will only emerge after it has been ascertained that there has been a failure on the part of the contractors to fulfil their contracts. This conclusion cannot be dealt with at present. A complaint was made that the sole purpose of bringing these proceedings in Scotland was to get the benefit of arrestment and inhibition against William Beard-more's estate. I do not think, however, the action, so far as directed against him, can be dismissed. It will be sisted.”

The pursuers reclaimed.

The summons in the action contained warrant to arrest, and on 16th September 1908 the pursuers used arrestments against the defender William Beardmore in the hands of the National Bank of Scotland and others. A petition for their recal was presented on 3rd March 1909. The petition was heard and disposal of at the same time as the reclaiming note.

Argued for reclaimers—The respondents could not found on the arbitration clauses in the contracts, for the contract as a whole had been rescinded, including the arbitration clauses— Turnbull v. M'Lean & Company, March 5, 1874, 1 R. 730, 11 S.L.R. 319; Freeth v. Burr, (1874) L.R., 9 C.P. 208; Mersey Steel and Iron Company v. Naylor, Benzon, & Company, (1884) L.R., 9 A.C. 434; Lodder v. Slewey, [1904] AC 442; Bottoms v. Mayor of York, (1892) reported in Hudson on Building Contracts, ii, p. 220; Hochster v. De La Tour, (1853) 2 E. & B. 678; Pickering v. Cape Town Railway Company, (1865) L.R., 1 Eq. 84; Leake on Contracts (5th ed.) 39; Llanelly Railway and Dock Company v. London and North-Western Railway Company, (1873) L. R., 8 Ch. App. 94 2. Neither the case of Hamlyn & Company v. Talisker Distillery, May 10. 1894, 21 R. (H.L.) 21, 31 S.L.R. 143, nor that of Robertson v. Brandes, Schonwald, & Company, May 23, 1906, 8 F. 815, 43 S.L.R. 635, was in point, for in neither of these cases was the contract at an end. The respondents were not entitled to found on an arbitration clause which by their own actings they had rendered non-existent. There was no arbitration clause applicable to all three contracts, for while the clause in the main contract said that disputes were to be settled by English law, that in the remaining contract said disputes under it were to be settled by the law of the Trans

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vaal, and in the supplementary contract there was no arbitration clause at all. Accordingly, ex necessitate rei, the matters in dispute fell to be disposed of here. In any event, the arbitration clauses were merely executorial and did not cover the questions in dispute— Electric Construction Company v. Hurry & Young, January 14, 1897, 24 R. 312, 34 S.L.R. 295; Savile Street Foundry Company v. Rothesay Tramways Company, March 20, 1883, 10 R. 821, 20 S.L.R. 562; Tough v. Dumbarton Waterworks Commissioners, December 20, 1872, 11 Macph. 236, 10 S.L.R. 160. It was for the Court to determine the scope of the clauses— Griffith's Judicial Factor v. Griffith's Executors, January 31, 1905, 7 F. 470, 42 S.L.R. 361. The pursuers were entitled to proceed against the respondents Beardmore as sureties. The bond was an English bond, and by English law a surety, after default by the principal, could be proceeded against without first discussing the principal—De Colyar on Guarantees, 3rd ed. 211; Ex parte Young, (1881) L.R., 17 Ch.Div. 668.

Argued for respondents—The Lord Ordinary was right. This was an ordinary claim of damages for breach of contract. It was not a claim for reparation as distinct from a claim of damages, for the action was laid on the contract itself. The contract therefore was not at an end, but subsisted for the ascertainment of damages—Leake on Contracts, 618–19; Johnstone v. Milling, (1886) L.R., 16 Q.B.D. 460. The arbitration clauses covered the whole dispute, and the action should therefore be sisted to await arbitration, in the one case in England, and in the other in the Transvaal— Hamlyn ( cit. supra); Robertson ( cit. supra). That was the natural inference from the language of the clauses, for they expressly provided for that course being followed. The scope of the clauses was for the arbiters to decide— M'Cosh v. Moore, October 27, 1905, 8 F. 31, 43 S.L.R. 167; Muir v. Muir, January 9, 1906, 8 F. 365, 43 S.L.R. 240; Levy & Company v. Thomsons, July 10, 1883, 10 R. 1134, 20 S.L.R. 753. The respondents Beardmore were only liable as sureties, i.e., they could only be sued if the contract had been broken, if damages were due, and if the principal debtor failed to

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ay, so that there was a long interval between this application and their liability. They were entitled, therefore, to have the action against them dismissed—Bell's Prins. secs. 252–3; Ersk. Inst, iii, 3, 61. The case of cautioners ad facta pr·standa was not affected by sec. 8 of the Mercantile Law Amendment Act 1856 (19 and 20 Vict. cap. 60), which was limited to the case of cautioners for debt—Ersk. Inst. iii. 3, 62 (note). Further, the respondent Mrs Beardmore was not executrix at the time the arrestments to found jurisdiction were used. That fact was admitted, and therefore the action, so far as against her, fell to be dismissed. The respondent W. Beardmore was entitled to have the arrestments used against him recalled, for the action was premature and he might never be called on to pay. In these circumstances the nexus placed on his funds ought to be removed.

At advising—