Scottish Court of Session Decisions

By lease dated 6th and 12th January 1869 Sir George Deas let to certain trustees for behoof of the Shotts Iron Co., then (and till 1871) an unincorporated company, “but expressly excluding assignees, legal and voluntary, and also excluding sub-tenants, except on condition of the said lessees remaining liable for the rent and prestations, and implement of all the stipulations in the lease, on which footing the lessees may subset, but not otherwise, All and Whole the seam of gas-coal or parrot-coal situated in the lands and others after described, known in the neighbourhood by the name of the Shotts or Shottsburn gas-coal, and sometime partially wrought by George Simpson as tenant thereof, together also with what common coal and ball ironstone and musselband ironstone may be found to be associated with the said gas-coal or parrot-coal, and falling to be wrought therewith in the ordinary course of working, but no other coal, mineral, or substance whatever … and that for twenty-nine years from and after Whitsunday 1867.” The Shotts or Shottsburn gas-coal thus let to the Shotts Iron Co. was situated in or under the lands of Hartwoodhill and others, in the county of Lanark. The gas-coal extends through the greater portion of these lands, and the workings are known as the Dykehead Colliery. The lessees bound themselves to work the said minerals and others by the long-wall system only, or other complete system of excavation, “and that in a regular, proper, and systematic manner according to the best practice, and to keep the whole mines and workings at all times in good order and repair.” The fixed rent to be paid by the lessees was £300 per annum, or, in the option of the landlord, certain specified lordships, which so far as regarded the gas-coal were to be is. per ton for the first five years of the lease, and thereafter at the rate of one-seventh part of the price of the coal thereof for the time being, after deducting the expense of taking the same to market. During the first five years lordships at the rate of 1s. per ton were accordingly paid instead of fixed rent. The lease then further bore—“Declaring that if in the course of any year, from time to time, after the lapse of the said five years, the working of the said gas or parrot-coal shall not be to an extent sufficient to yield a lordship equal in amount to the said fixed rent, the lessees shall be entitled to make up the difference from subsequent lordships at any time during the next three years immediately following the year in which the deficiency occurs; and if at any time during this lease, inclusive of the said first period of five years, it shall be judicially found, upon a report by an arbiter or arbiters, nominated in the manner hereinafter provided for, that the said gas-coal, from no fault, negligence, or irregularity on the part of the said lessees, has become not worth the expense of working, this lease shall come to an end at the first term of Whitsunday or Martinmas after it shall be so found, without prejudice to the subsistence and effect of this lease to every effect in so far as not thus legally terminated.” Then followed provisions intended to ensure the safe and careful working of the mine, and, inter alia, the clause quoted below in Mr Landale's separate report; also clauses relating to the restoration of the land to its former state at the termination of the lease.

By sub-lease dated in August and September 1870 the Shotts Company sub-let to La Cour, Watson, and Simpson, coal masters and coal exporters in Leith, a portion of the gas-coal and minerals associated therewith which had been let to them by Sir George Deas. Sir George Deas was no party to this sub-lease, and had not been consulted as to the granting of it or as to its terms. The sub-lease was to endure for the same period with the principal lease, and clauses had been inserted in it similar to those above quoted from the principal lease, as to recouping the shortcoming between lordships and the fixed rent of any one year from those of the next three years, and likewise as to the circumstances under which and the manner in which the sub-lease might be prematurely brought to an end.

La Cour, Watson, and Simpson entered upon the subject and wrought the coal till August 1875, when they ceased to do so, as was alleged, in consequence of its having ceased to pay the expense of working. They continued, however, to pay the stipulated lordships to the Shotts Company, and thus preserved entire their rights under their sub-lease. No communication passed between Sir George Deas and the sub-tenants, all the states of output and fixed rent rendered to him down to Whitsunday 1879 inclusive (when there ceased to be any) having been signed and certified by the Shotts Company's manager in the same manner as they would have been had the Shotts Company themselves been working the minerals.

On 9th May 1879, and again more formally on 4th June of same year, La Cour, Wat son, and Simpson wrote to the Shotts Company stating “that the gas-coal, from no fault, negligence, or irregularity on their part, had become not worth the expense of working,” and that they nominated Alexander Simpson, mining engineer, their arbiter in terms of the lease, and thereafter the Shotts Company gave notice in similar terms to Sir George Deas (but without nominating any arbiter) on 4th June 1879. Sir George Deas answered the notice of the Shotts Company by calling upon them to state from what cause they alleged that the gas-coal had become not worth the expense of working—whether in respect of anything, and if so from what, in the state of the mineral—as upon that it depended whether the question was one for skilled engineers or one of relevancy to be determined by the Court. The Shotts Company made a call on La Cour, Watson, and Simpson in verbatim the same terms, but to neither call was any answer returned.

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La Cour & Watson proceeded to present a petition in the Bill Chamber repeating the terms of their notice of 4th May 1879 and the nomination of Mr Simpson as their arbiter, and calling upon the Shotts Company as respondents to make a similar nomination. On this petition an open record was made up, intended as information to be laid before the arbiters, and which ultimately was so. The Shotts Company followed suit by presenting a similar petition against Sir George Deas, upon which a similar record was made up between him and them. In this record he set forth, inter alia, that supposing the question to be one of profitable or unprofitable working, past profits would fall to be placed against subsequent loss, whether actual or prospective, and on this footing he called upon the Shotts Company to produce a state showing the profit they would have made for the years 1869 to 1878 inclusive if they had themselves wrought the gas-coal during these years, as they might have done. The Shotts Company thereupon obtained from La Cour, Watson, & Simpson a state entituled “Statement of profit and loss at Dykehead Colliery from 1869 to 1878, both inclusive.” This statement showed that the sub-tenants had during the early yeais of the lease realised clear profits to a large amount.

From the statement in these Bill Chamber records it also appeared that the Shotts Company in the discussion between them and La Cour, Watson, & Simpson had declined to appoint an arbiter unless La Cour, Watson, & Simpson should explicitly aver that a question of deterioration in the state of the mineral field or difficulties in working it were involved, which required to be solved by men of skill, and that Sir George Deas had urged a similar objection, but averments to the effect desiderated having been thereafter made by La Cour & Watson, and repeated by the Shotts Company in their respective Bill Chamber records, Sir George Deas then named Mr David Landale, mining engineer, to be arbiter on his part, and the Shotts Company also named Mr Landale to be arbiter on their part.

The nomination of the arbiters being then sanctioned by the Lord Ordinary on the Bills, the unclosed records prepared in the Bill Chamber were laid before them by way of pleadings and information for the respective parties. The subtenants then moved the arbiters before proceeding, and again in the course of the procedure, to appoint an oversman who might act in case of difference of opinion, but as the clause under which alone the lease could be prematurely brought to an end required “a report by an arbiter or arbiters” without mention of an oversman, the arbiters declined to make the appointment, as being incompetent, under the authority of Merry & Cuninghame v. Brown, 15th July 1859, 21 D. 1337, and whole Court, 22 D. 1148, aff. House of Lords 26th March 1863, 1 Macph. (H. of L. Cases) 1.

The report of the arbiters contained, inter alia, the following introductory narrative:—“The arbiters having been duly appointed, accepted the office conferred upon them, appointed William Barr Crawford, writer in Glasgow, to be clerk to the arbitration, and further they ordered Messrs La Cour, Watson, & Simpson to lodge with the clerk to the arbitration, within ten days from the date of said minute, a statement in writing of the grounds on which they claimed to hold the gas-coal mentioned in the said sub-lease had become and was now not worth the expense of working, to be seen and answered by the Shotts Iron Company within ten days thereafter. In answer to the latter part of said minute Messrs La Cour, Watson, & Simpson lodged a minute in which they adopted the revised statement for them in the petition at their instance against the Shotts Iron Company depending in the Bill Chamber to be their statement of facts in said arbitration.” On this narrative the arbiters on 16th July 1880, after a proof, issued their report in the following terms:—“The arbiters being now well and ripely advised in the whole matters referred to them, they hereby report, that from no fault, negligence, or irregularity on the part of the sub-tenants Messrs La Cour, Watson, & Simpson, the gas-coal let to them by said sublease has become not worth the expense of working. The arbiters think it right to add that the grounds on which they have arrived at this conclusion have reference solely to the state of the market for gas-coal at the time the tenants gave notice to the landlord of their intention to terminate the lease; and indeed the tenants, in the evidence laid before the arbiters, did not attempt to rest their case on any other grounds. Neither did they dispute, nor in the opinion of the arbiters could they have successfully disputed, either the existence of gas-coal in the lands let to them, other than those out of which the coal has been already wrought, or the fact that there is no physical difficulty in working the coal in said lands.

“All which is humbly reported by

D. Landale.

16th July 1880.

A. Simpson.”

Additional Report by David Landale.

“While my co-arbiter and I have arrived at the conclusion that the gas-coal in question is not worth the expense of working in the present state of the market, it is impossible for anyone to predict that it will continue up to the end of the lease in 1896, or any specified period, as it is found whenever the better class of gas-coal gets plentiful, and comes to be sold at or under 20s. per ton, second-class coal as this cannot be sold, as is the case just now. When the prices of the better ones rise to 25s. and upwards per ton there is a demand for second-class, and they occasionally become highly remunerative. The working of such coal is . therefore intermittent, and tenants in using ordinary foresight should be ready to meet the market when it is favourable to them, which the sub-tenants in this case have not done; they have not fulfilled the following clause in their lease, viz., ‘And the said lessees bind themselves to work the said minerals and others by the long-wall system only, or other complete system of excavation, and that in a regular, proper, and systematic manner, according to the best practice, and to keep the whole mines and workings at all times in good order and repair, and to keep secure, upred, and patent all levels, roads, wall-faces, rooms, and air-courses of going pits or inclined planes, so far as may be necessary for the proper working thereof, and to leave the going pits and works, and the levels and air-courses, and rooms and wall-faces of the going pits, at the natural expiry, or sooner termination, partial or

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total, of this lease, in good order and condition, and without any accumulation of water in the rise workings, and generally in such condition as shall enable the landlord or incoming tenant advantageously to pursue and carry on the same or other working therefrom of the minerals in his lands.’ On the contrary, they have worked out the easiest-got portions of the field by the pits Nos. 1 and 2, taken out the pillars, partially dismantled the pits, let the water rise to its natural level, and left the workings inaccessible, without open roads or air-courses to any wall-faces. They have also left about six acres of coal lying in a shallow trough between the pits unwatered, and have not left the workings in such condition as shall enable the landlord or incoming tenant advantageously to pursue and carry on the same or other workings therefrom of the minerals on his lands,’ when the state of the market permits of the coal being wrought to profit, which I consider to be all important, as by no exertion on the part of the tenants or an incoming tenant could the works be restored or got ready to produce coal, or to take advantage of a rise in the market, within half-a-year or more.

All which is humbly reported by

16th July 1880.

D. Landale.”

P.S.—“I wish to explain that by nothing in the joint-report did I intend to express or to indicate an opinion as to the legal construction of the words ‘owing to no fault, negligence, or irregularity on the part of the tenants,’ or any other question of legal construction of the lease, all which questions I consider to belong to, and to be left for, the decision of the Court.”

The arbiters having reported as above under the reference between La Cour, Watson, and Simpson and the Shotts Company, and in similar terms in the reference between the Shotts Company and Sir George Deas, La Cour, Watson, and Simpson, after calling on the Shotts Company to concur in declaring the sub-lease at an end, raised a summons of declarator against that company on 26th October 1880, concluding to have it found that, from no fault, negligence, or irregularity on the part of the pursuers, the sub-tenants, the gas-coal sub-let to them had become not worth the expense of working, and that the sub-lease “shall come to an end at the term of Martinmas 1880, or at such other date as shall be fixed by our said Lords in the course of the process to follow hereon, without prejudice to the subsistence and effect of said lease to every effect in so far as not thus legally terminated.”

The Shotts Company thereupon raised a summons of declarator applicable to the principal leases against Sir George Deas on 2d November 1880, containing conclusions verbatim the same with those above quoted from the summons brought against themselves by the sub-tenants applicable to the sub-lease. A record was made up and closed in each of these actions respectively. In the record so made up in the action against the Shotts Company at the instance of the sub-tenants, the Shotts Company repeated and adopted as their own the averments and pleas which Sir George Deas had stated in the action at their instance against him.

In the action raised by the Shotts Company they averred (6) that they soon after their term of entry proceeded to explore the field, and expended a considerable amount of capital in doing so, by sinking pits and otherwise. Thereafter, by sub-lease, dated 16th and 26th August and 22d and 23d September 1870, they sub-let a considerable portion of the field to Messrs La Cour & Watson, coalmasters and coal exporters in Leith, which sub-lease contained the same clauses in every respect (except that the royalties stipulated for were slightly higher) as those contained in the lease between the pursuers and defenders, and soon after Messrs La Cour & Watson's entry to said field they expended capital to the extent of £5607, 7s. 3d. in acquiring and erecting machinery, sinking shafts, and providing plant for prosecuting the undertaking. In the course of a few years they found the seam of coal thinner, while the cost of working had increased, and the coal from its inferior quality had become unsaleable. The said gas-coal, from no fault, negligence, or irregularity on the part of the pursuers, had become, and continues to be, not worth the expense of working, and on or about 9th May 1879 the said sub-tenants gave intimation to the pursuers in terms similar to the intimation thereafter given by the pursuers to the defender of their intention to terminate the lease.

The answer to this article was generally a denial of any knowledge of the expenditure said to have been made or of the negotiations for a sub-lease. It was explained that the quality of the coal was known to the pursuers from the first, and had never varied.

The remaining articles of the condescendence need not be quoted. They merely mentioned the letters of intimation, the nomination and acceptance of the arbiters, and that they had issued a report, which was referred to for its terms.

The statement of facts for the defender was in the following terms:—

“1. By the lease in question, which is dated 6th and 12th January 1869, the defender let to the trustees therein named for the Shotts Iron Company, now incorporated by Act of Parliament, the gas-coal or parrot-coal situated in parts of the lands and others thereinafter described, as shown on a plan subscribed by the parties thereto, being part of the lands of Hartwoodhill, together with what common coal and ball ironstone and musselband ironstone might be associated therewith, and falling to be wrought along with the gas-coal in the ordinary course of working; and that for the period of twenty-nine years from and after Whitsunday 1867, which was declared the term of entry thereto. No power was reserved to the proprietor to resume possession of the minerals let, otherwise than by the tenants’ voluntary act or consent, till the expiry of that full period. On the contrary, the lease was of the nature of an absolute sale to the sub-tenants of all minerals of the description specified which they might think proper to work and remove from the lands in the course of that period, and the price or consideration for them was the fixed rent of £300 a-year, payable half-yearly during the sub-lease, or certain lordships if these lordships should be in excess of the fixed rent.

2. The lands extend to between 200 and 300 acres. The seam of gas-coal let to the pursuers extends through the greater portion of the lands. It could not possibly be wrought out in the ordinary course of working within the stipulated endurance

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of the sub-lease. This was well known to the pursuers, and to Mr Ormiston their head manager, who is also their skilled resident engineer He is also quite raware of the fluctuating nature of the market prices of the gas-coal known as the Shotts or Shottsburn gas-coal, and that to estimate them fairly they must be reckoned on the average of a considerable period of years.

3. It is nowhere said in the lease that its endurance shall be dependent on the rise or fall of market prices. Neither prices nor market prices’ are anywhere mentioned in the lease. But by the lease the said lessees bind themselves to work the said minerals and others by the long-wall system only, or other complete system of excavation, and that in a regular, proper, and systematic manner, according to the best practice.’ It is with reference to this obligation that the onus is laid on the tenants, before they can ask a judicial finding terminating the lease, to prove by the report of men of skill that the gas-coal, from no fault, negligence, or irregularity on the part of the sub-tenants, has become not worth the expense of working. The only occurrences which might eventually have that result are described as occurrences which from their nature might have been caused by fault, negligence, or irregularity on the part of the tenants, and which shall be ascertained in a specially prescribed manner not to have been so caused.

4. The gas-coal known as the Shotts or Shottsburn gas-coal is a marketable mineral extensively found and wrought in various parts of the country, and extensively sold in the coal markets both at home and abroad at prices which are regulated by the state of supply and demand for the time being, independently of fault or merit on the part of the tenants or occupants who either directly or indirectly work and sell the same.

5. Accordingly, the pursuers in their notices of 9th May and 4th August 1879, and again in their petition in the Bill Chamber, named Mr Alexander Simpson, mining engineer, as their arbiter under the clause in the sub-lease founded on by them, and called upon the defenders to name an arbiter on their part to act along with the said Alexander Simpson. The defender objected, both in his answers to the notices and in his answers to the petition in the Bill Chamber, that nothing specific had been averred requiring to be inquired into by skilled engineers, and called upon the pursuers to make their statements specific. The petition was followed by explanatory or supplementary statements and answers, in the course of which the defender averred upon his part, in order to bring the pursuers to the point, that no symptoms of sterility had appeared, and no obstructions had arisen to the working of the gas-coal and minerals associated therewith. This averment was denied by the pursuers, and it was only after and in consequence of that denikl and relative averments made by the pursuers in article 3 of their said revised statements that the defender agreed, by article 8 of his revised statement in the Bill Chamber, to nominate an arbiter on his part to report along with the arbiter nominated by the petitioners (now pursuers), subject to all questions of law and relevancy which may competently arise upon the terms of the report when received.’

7. By the said sub-lease the fixed rent payable by the sub-tenants to the pursuers is the same with the fixed rent payable by the defenders to the defender, but the lordships payable to the pursuers by the sub-tenants are somewhat higher than the lordships payable by the pursuers to the defenders under the principal lease. The period fixed upon by the arbiters, at which alone they report that the gas-coal was not worth the expense of working if the then market price was to be the rule, is the date of the pursuers' notices to the defender, viz., 3d June 1879.

8. The pursuers' notice of 3d Jane 1879, and their petition to the Lord Ordinary on the Bills, proceeded on the assumption, that according to the true and sound construction of the clause in the lease which they now rely upon as entitling them to have the lease brought to an end, that clause was not applicable unless obstructions or other unforeseen difficulties of a physical nature had arisen to the working of the gas-coal. It was on this assumption also that the defender nominated an arbiter of skill to (tut along with the arbiter nominated by the pursuers.”

This statement of facts concluded by quoting the reports of the arbiters already given.

The pleas-in-law for the pursuers were—“(1) It having been judicially found, upon a report by arbiters nominated in manner provided in said lease, that the gas-coal let to the pursuers by said lease has become not worth the expense of working, the said lease is thereby terminated as at the term of Martinmas 1880, and the pursuers are entitled to declarator as concluded for. (2) Or otherwise, the pursuers are, in respect of the terms of the report of the said arbiters, entitled to have it judicially found that the said coal, from no fault, negligence, or irregularity on the part of the pursuers, has become not worth the expense of working, and to obtain decree of declarator as concluded for.”

The defender pleaded—“(1) According to a sound construction of the lease in question, it is not contracted that a fall of market prices shall in any way affect the endurance of the lease; and the defender is therefore entitled to obtain a finding to that effect, and to be assoilzied from the conclusions of the action. (2) Even assuming that a fall in market prices might in some circumstances affect or limit the endurance of the lease, it would not be held to do so where the arbiters have not affirmed the fall except at the particular date of the pursuers' notice, and there is nothing to show that the fall will continue throughout the future years of the lease.”

As already noticed, the averments and pleas of Sir George Deas in this action were mutatis mutandis adopted by the Shotts Company in the action raised against them by La Cour. Watson, and Simpson, the pursuers' averments and pleas in that action being identical with those quoted here as made by the Shotts Company in the action raised by them.

Lord Rutherfurd Clark, after hearing counsel for the parties successively in both actions, pronounced this interlocutor in the action at the instance of the Shotts Company against Sir George Deas:—

“The Lord Ordinary having considered the cause, declares and decerns in terms of the

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libel to the effect that the sub-lease libelled terminated at Martinmas 1880: Finds the defender liable in expenses,” &c.

His Lordship's note was as follows:—“The chief question in this case is, Whether the pursuers are entitled to put an end to the lease on the ground that the coal has become unworkable to profit, or whether it is necessary, in order to the exercise of this right, that there should be some change in the condition of the coal, either as regards quantity, quality, or accessibility, so that thereby it ‘has become not worth the expense of working?’ In either form of the question it is assumed that there has been no fault, negligence, or irregularity on the part of the lessees.’

The Lord Ordinary is disposed to think that the pursuers are in the right, and that the clause was inserted in the lease in order to enable them to free themselves from the obligations of the lease when the coal had from any cause not due to their fault become unworkable to profit. It appears to him that the question whether the coal is worth the expense of working’ cannot be dissociated from any of the considerations which would determine any ordinary judgment in continuing or abstaining from working it. The expense of working necessarily introduces elements beyond the mere condition of the coal itself. In the sense of a commercial contract, nothing, it is thought, can be worth the expense of working which yields no profit, whether the absence of profit is due to the fall in value of the article or to the actual expense of working it.

It is said that this construction of the lease gives the tenant the whole benefit of high prices, and throws on the landlord all the loss resulting from low prices. This is not true. The landlord gets the advantage of a prosperous time through the royalties which are stipulated for. On the other hand, when no profit is to be mado, the landlord retains his minerals, which by a change in the market may become valuable, and the tenant merely avoids a loss in circumstances when it would be absurd to work them.

Further, it was urged that the arbiters merely find that the coal was not worth the expense of working at the time when the pursuers gave notice of their intention to terminate the lease, and that this finding may be referred to a state of the market which might be of short duration, and which had already passed away. But in the opinion of the Lord Ordinary it is not the fair meaning of the award. He thinks that it must be read as referring to a state of the market of indefinite—not of temporary or even measurable—duration. This is the only sense in which men of intelligence could address themselves to the question which they had to decide. It is worth notice that the defender does not aver that even now there has been a change, or even an indication of change, in the condition of the market.”

The interlocutor in the action at the instance of the sub-tenants was to the same effect, and his Lordship referred to his note quoted above. Both interlocutors were dated 16th December 1880.

On a reclaiming note for Sir George Deas and a reclaiming note for the Shotts Company in the sub-tenants’ action against them, it was argued for Sir George Deas, and the same argument was held as repeated for the Shotts Company against the sub-tenants:—

1st, As to the effect of a fall of prices.—In a mineral lease the landlord is understood to warrant the existence of the mineral and its being physically workable. The risk of market prices is in all cases presumed to be upon the tenant. If this risk was intended in the present case to be laid upon the landlord, a stipulation so unusual would have required to be expressed in the most distinct and unmistakeable language. The onus of so expressing it lay on the party who was to claim benefit from it. The construction of the words used in the clause under consideration was not a question for the arbiters any more than the analogous question in Dixon v. Campbell, where, although the arbiters had found the coal was “incapable of being wrought to advantage,” the Court and the House of Lords found the reverse. In the present case the import of the clause had been under the notice of the arbiters, but they rightly refrained from giving or expressing an opinion upon it. It was left for the Court to determine what the legal construction of this clause was.

2d, Under a lease and sub-lease, each binding the lessees absolutely for twenty-nine years, and having still seventeen years to run, can it be held that such a period of depression has been affirmed by the arbiters as to entitle a tenant or sub-tenant who has realised large profits to be forthwith free from his lease?—Past profits fall to be taken into view whatever be the ground upon which a mineral tenant attempts to get rid of his lease—whether it be obstructions in the mine short of absolute sterility, or coupled with a fall of prices and increased expense of working, or whatever else it may be. Lord Reston's opinion in Dixon v. Campbell ( 2 Shaw's App. 177). In their joint-report in the present case the arbiters say they have arrived at their conclusion with reference “solely to the state of the market for gas-coal at the time the tenants gave notice to the landlord of their intention to terminate the lease.” In Dixon's case the fixed rent was £900 a-year, and apparently the coal during several years of the lease, which was only for nineteen years in all, had not been wrought to advantage. Still, because it might be so in future, it was ultimately held that the lessees could not abandon. It was the duty of the arbiters in the present case to have instituted a comparison between past profits and fixed rents, past and prospective, without which neither they nor the Court had the requisite data for considering the effect which ought to be attributed to the alleged depression, and still less for holding it conclusive. Words similar to those of the House of Lords’ judgment in Dixon's case might not be inappropriate to the present case, viz., to find that in hoc statu it is not in the power of the tenants and sub-tenants to give up the lease and sub-lease.

It was argued for the pursuers in their respective actions that the words of the clause in the lease and sub-lease were too comprehensive to admit of being affected by any of the views urged for the principal tenants and the landlord. They apply to all causes, whether in the state of the mine or the state of the markets, which cannot be attributed to fault, negligence, or irregularity on the part of the lessees.

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As to the length of the period of depression, it must be presumed that the arbiters were of opinion that it could not be held as merely temporary, otherwise they would have said so. And as to the argument founded on past profits the sub-tenants were entitled to these in consideration of capital expended and the risk they run in a precarious trade.