( Ante, July 17, 1900, 37 S.L.R. 961, and 2 F. 1201.)
Subject_Arbitration — Decree-Arbitral — Reduction — Informal Arbitration — Ultra Fines Com — Promissi — Right of Party to have Legal Assistance — Arbiter Proceeding on Personal Skill and Local Knowledge — Gross Sum Awarded where Separate Claims Referred.
A firm of contractors undertook a contract to construct a sewer for the Corporation of Glasgow at certain scheduled rates. During the progress of the work it was found impossible owing to the nature of the soil to drive a tunnel by the ordinary method. The contractors were then instructed to continue the work by means of the airpressure system, which was more costly, and the Corporation agreed to refer the question of the amount to be paid to them “in respect of the extra cost incurred by the necessary adoption of the said system of air-pressure” to a certain arbiter who was a civil engineer in Glasgow. No formal submission was entered into. The parties subsequently agreed to submit to the arbiter certain items of the contractors' account, other than those relating to the use of air-pressure, which they were unable to adjust. After hearing parties and examining the accounts and making certain measurements, the arbiter issued a note of proposed findings at which he had arrived without hearing evidence, but intimated that, although he did not consider it essential he was prepared to hear proof if desired. Thereafter he made an order for proof, and in a note appended thereto he added—“Both parties having distinctly agreed that they were not to be represented by law-agents, the arbiter cannot now see his way to allow this arrangement to be broken unless mutually agreed upon.” In the proceedings up to this time the parties had not been represented by law-agents. The contractors refused to accept a proof upon these conditions, and denied that they had entered into such an arrangement. The arbiter thereupon cancelled the order for proof, and issued a note of proposed findings, in which he awarded a gross sum “as the total amount due in respect of the work done by the claimants in connection with this contract.” After allowing time for representations the arbiter issued a formal decree-arbitral. The findings and the decree-arbitral did not show what sums were respectively awarded in respect of the use of air-pressure and in respect of the disputed items of the account.
In an action by the contractors for reduction of the decree-arbitral upon the ground (1) that the arbiter had refused to hear evidence as to the actual cost of using air-pressure; (2) that he had proceeded ultra fines compromissi by finding what was a reasonable sum to be allowed for the use of air-pressure instead of determining the actual extra cost of using it; (3) that the decree-arbitral did not distinguish between the amount allowed for the use of air-pressure and for the other disputed items; and (4) that he had acted illegally in refusing to hear proof except on condition that parties should not be represented by law-agents— held ( rev. judgment of the Second Division, and restoring judgment of the Lord Ordinary, Kyllachy) that the defenders were entitled to absolvitor, in. respect that this was an informal arbitration in which the matter in dispute was referred to the personal skill and local knowledge of the arbiter, and in which proof was not essential; that in the circumstances the arbiter was entitled to refuse to allow parties to be represented by law-agents—the understanding between parties acted on up to that time being that law-agents were not to be employed, and the question of whether law-agents should be allowed in an arbitration being one of procedure for the consideration of the arbiter; and that although he gave an opportunity of making representations against his proposed findings, no request was made to him by the contractors to divide the amount of the award into separate items.
This case is reported ante ut supra.
The Corporation of Glasgow, the defenders and respondents in the Court of Session, appealed to the House of Lords.
At delivering judgment—
Originally the contention appears to have been that the contractors were bound by the contract to execute the work as well as they could under the terms of the contract, that the Corporation had got them fixed by a contract which they were bound to fulfil, and therefore there was no original obligation upon the Corporation to make any allowance for the extra cost which had become necessary, but after correspondence between the parties an agreement appears to have been come to. The date should be observed, because the dates of the original contract and the intervention of Mr Copland are separated by a whole year, which becomes important upon further consideration of what happened thereupon. In a minute of the 3rd August 1894 we find—“After carful consideration of the whole circumstances the Sub-Committee agreed to recommend that the request made by Messrs Paterson & Son be, without prejudice to the rights and claims of the Commissioners, complied with, and that, as this payment is in respect of and applicable to the extra cost incurred by Messrs Paterson & Son in executing their contract by means of the system of air-pressure found by them to be necessary, Mr W. R. Copland be appointed arbitrator in the matter of the amount to be paid to Messrs Paterson & Son in respect of the extra cost incurred by the necessary adoption of the said system of air-pressure—the cost of such arbitration to be borne equally by Messrs Paterson & Son and the Commissioners.”
I may say in passing, with reference to another argument put forward on the part of the respondents, that that document is “approved” on the “17th of August 1894” by the Corporation; so that in respect of the authority to enter into this contract being brought home to the Corporation, it really is not necessary to proseed further. There is the deliberate adoption by the Corporation of this bargain.
The work proceeds and is apparently executed, and then comes the question which has given rise to this appeal. After a considerable delay, the arbitrator so selected hears the parties and is occupied in going into the accounts and ascertaining the amount due between the parties in the manner which was arranged by the parties themselves at the time, in order that he should have before him the materials upon which he should make his award. That appears to have been in the contemplation of both parties on the three days during which they were occupied—that was in November 1898.
It is said now that the award which was then made or proposed to be made is to be set aside because the arbitrator refused to allow further proof to be given. In the view that I take of the matter the answer to that is a very simple one—that it is not true. He never refused to hear them. He offered to hear them; but the parties declined on two occasions to attend a meeting which he had arranged, because he insisted upon preserving an arrangement which he had entered into by the consent of both parties to refuse to hear professional advisers instead of the parties themselves.
I confess I had very great difficulty in following the reasoning of the learned Judges who reversed the judgment of Lord Kyllachy. They say, in more than one passage in their judgments—two of them at least,—that there was no evidence of any such agreement. To my mind the agreement is proved beyond doubt or question, and I cannot but think that there must have been some omission to bring before their Lordships the evidence upon which that agreement rests. It is abundantly proved, I think, both in the correspondence and by verbal statement. At page 89 Messrs Paterson & Son, Limited in answer to a suggestion by Mr Whyte, that professional assistance should be called in because a new point had arisen and a point of law was involved, write thus—“We have yours of yesterday's date with pressed copy of letter from Mr Whyte, and in reply beg to say that the other matters in dispute, besides the compressed air, were excluded at the time by the Corporation themselves from the reference as then existing.” On that matter I may say in passing that that was perfectly true, but at a subsequent date there is clear evidence of remitting all matters in dispute between the parties. The letter goes on—“A considerable time ago, on the suggestion of Mr Whyte, we agreed that the matter of the compressed air should be referred to you to adjust between us”—that is between Mr Whyte and themselves—“without the formalities of a legal arbitration, and with a view to an amicable settlement so as to save legal and other expenses. We would like to know now if Mr Whyte departs from this position, because, if so, we must reconsider the whole matter and the terms of its submission.”
I am wholly unable to imagine a more complete answer to the suggestion that there was no such agreement. So far from there being no such agreement, the person who now insists upon it at that time in answer to a request by Mr Whyte that legal assistance might be permitted, says—one can read between the lines of such a letter, and what it means is this—If you depart from the arrangement we have
That seems to me to determine the question whether or not upon the mere refusal, which was the ground mainly put forward, there was any reason why this award should be set aside. It appears to me, on the contrary, that the arbitrator has done that which the parties Agreed that he should do. If he had not done it he would have departed from that which the parties had agreed upon in the first instance; indeed, on that ground his award might very readily have been set aside, because then he would have been acting without the consent of the parties and taking a course which they had agreed should not be pursued.
But then comes another question—it is said on the face of this award upon the admitted facts the arbitrator has not pursued the course which was agreed upon between the parties—that he has departed from the arrangement in this respect, that he has not either inspected or had proof of, or in any way entered into the question of the amount to be paid by the one to the other in respect of the measure of value, the cost of labour and material which has been expended in the extra cost of this compressed air system. Upon that point to my mind the question is a very simple one. The whole object and purpose of referring the dispute to a person like Mr Copland was, that with his technical knowledge of those elements which make up the amount which is to be paid by the one to the other for this extra work, which in truth is the measure of value, he was to have the materials before him which the parties thought proper to produce. The answer to my mind is this, that he has taken—I do not care whether you call it the basis or whether you call it the mode of ascertaining the amount—I do not care what you call it—what he did was this, for three days he heard the parties upon all the matters relevant to that question which he had to consider, together with his technical knowledge and his own local knowledge of what the proper sums to be charged were, and it is not suggested that at the end of the third day anybody ever said that he was to have another meeting to consider his award, or another meeting to hear the parties. On the contrary, the hypothesis on both sides was that they had both been heard out, and when he makes his intended award known to the parties, then, and not till then, is this question raised, that he was bound to have another meeting and to have legal assistance provided upon both sides.
It seems to me, therefore, that every part of the case which has been put forward on the part of the respondents is answered. There was such an agreement as the appellants insist upon; the arbitrator proceeded I think substantially in the way that it was intended he should proceed, applying his technical knowledge to technical matters which were within his knowledge, and applying his local knowledge of the particular place where this work was to be done. He having done that, it appears to me it is far too late for the parties now to complain, the award having been made—or rather it having been published—what the award would be, and to claim that they should now have a new arbitration and commence these proceedings afresh. It seems to me that it would entirely destroy the value of any arbitration if that could be allowed; it would be a very bad precedent, and certainly would prevent people from entering into any such arbitrations, which are often carried on with great advantage to the parties, and without the expense attending a regular litigation. At any rate, so far as your Lordships are concerned, I think we are all argeed that it is impossible to say that there is any misconduct here. I confess that I rather protest against the Scottish term “misconduct,” which at first sight seems to imply corruption: it seems to me a very inappropriate word, but by judicial decision the Scottish Courts have included under it any mistake committed by an arbitrator in the mode of carrying on an arbitration. It appears to me that there has been no misconduct in any sense in this case. The arbitrator has arrived at the conclusion which he has arrived at upon the materials on which the parties themselves contemplated he would arrive at it, and the whole object of having an arbitration conducted in this fashion by a man of skill without the formal procedure of a legal arbitration was to induce him to do the very thing he has done—apply his own technical knowledge in the consideration of the books and accounts placed before him, knowing, as he must have known if he was the person both parties assumed him to be, what was the appropriate price of labour in such work as this, and the nature of the work. I know it has been said he never had this sort of work to do
Under these circumstances there is no. reason why this arbitration and the award should not proceed to its proper consummation, and I move your Lordships that the interlocutor of the Inner House be recalled and the original judgment of Lord Kyllachy restored, and that the respondents should pay to the appellants the costs both here and below.
Now, if this be correct, the question upon which evidence was ultimately proposed was not the main issue, but had only a very indirect bearing on the result. It follows from this, first, that there was no duty on the part of the arbiter under the reference to find what had actually been spent, and second, that the question about agents in any evidence about actual expenditure becomes one of the most incidental procedure. But then it is said that the parties have by their pleadings committed themselves to a different view. I do not think that the terms of the rather inartificial pleadings support this contention. I read the admitted part of the respondents' pleadings as a statement of historical fact that the appellants agreed to the work being proceeded with on a time and material basis. But then this applies to a period anterior to the minute of reference, and it cannot alter the subject-matter agreed to be referred. And if it does not avail for this it has no further effect in the controversy.
The next objection to the terms of the award seems to me wholly untenable. The arbiter had by the reference of 1894 to deal with the question of air-pressure, and by the reference of 1898 he had to deal with what are called the remaining items of difference. Now, the identification of the remaining items of difference took place in a way proposed by the respondents themselves, viz., by the appellants lodging the account, and along with it a statement of the items in that account which they disputed. There is not the slightest ground in fact for supposing that the arbiter dealt with any but the disputed items, and there is most certainly No legal presumption that he did so.
Then as regards the complaint that the arbiter has not separated the amount which he has allowed for the compressed air from the amount which he has allowed for the remaining items of difference, I think that, even on the strictest view of his duties, he was not bound to do so unless he was asked, the reference of 1898 and the proceedings of parties having merged or consolidated the two references. And the respondents' leading witness says in so many words that “neither by representation nor request, direct or indirect, was Mr Copland asked to distinguish the amounts in his decree which were applicable to the compressed air contract and to the general contract”. On the other hand Mr Copland himself tells us that he had the materials at hand enabling him to satisfy such request had it ever been made. These facts become the more striking when we know that, according to a frequent practice in Scotland, the arbiter issued a memorandum of his proposed findings and the respondents made no request to know how much applied to either reference.
The other and more important objection as to law-agents is, I think, very judiciously handled by Lord Kyllachy. Prima facie it is for the arbiter to decide questions of procedure. Lord Rutherfurd Clark, whose precise and guarded statements of law have a special authority, says (in Holmes, 17 R. 656)—“All the incidental questions which
Appeal allowed, judgment appealed from reversed, and judgment of Lord Kyllachy, Ordinary, restored, with costs both in the House of Lords and in the Court below.
Counsel for the Pursuers (Reclaimers and Respondents)— Salvesen, K.C.— Guy. Agents— Lloyd George, Roberts, & Co., for Alex. Morison & Co., W.S.
Counsel for the Defenders (Respondents and Appellants)— Shaw, K.C.— Lees. Agents— Martin & Leslie, for Campbell & Smith, S.S.C.