Scottish Court of Session Decisions

By contract of sale dated 29th May 1895, entered into between Stewart, Brown, & Govan, merchants, Glasgow, who were members of the Beetroot Sugar Association, and James Grime, Rosebank, Busby, who was not a member of that association, the former, “subject always to the printed rules, regulations, and bye-laws of the Beetroot Sugar Association,” sold to Grime 1500 bags of beetroot sugar of 100 kilos each, the crop of 1895–96 at 10s. 9d. per cwt., free on board at Hamburg, the sugar to be at the shipping port ready for shipment in October-December, in equal quantities per month. By the contract it was provided—“The above-mentioned rules, regulations, and bye-laws are incorporated in this contract as fully as if the same had been expressly inserted therein,” and further, “the Council of the Beetroot Sugar Association of London is the referee of all disputes.”

Rule No. 32 of the rules relating to contracts of the association provides as follows:—“If any member liable on the face of unmatured contracts shall suspend payment or be declared a defaulter, or when through death his firm ceases to exist, the Council of the United Kingdom Association to which he belongs shall, as soon as possible after the suspension or death has become officially known, or be satisfactorily proved to the council by other members concerned in such contracts, meet, fix, and publish official quotations and due dates for all periods of delivery that may be in question, the prices to be according to the average buying and selling market value of the day on which the member defaulted or suspended payment. The contracts in question shall then be closed upon the terms so fixed. It shall also, on any given day, be in the power of any member, on payment of fees according to rule 45, to call upon the council of his association to fix official prices and to certify thereto. Such certificates may be used for the closing of contracts with non-members who may have suspended payment, or may have been declared defaulters.”

Rule No. 35 of these rules provides as follows:—“Any disputes that may arise out of or in relation to any contract shall be referred either to such member of the association at the port of destination, as both parties may agree on, or else to two members thereof, one to be chosen by each party or else to the council.”

Rule 41 of these rules provides as follows:—“A registration fee of 10s. shall be paid

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upon such application to the secretary for arbitration, and shall follow the fees in the award. New members of the Beetroot Sugar Association, who have entered into contracts with members, may apply to the council for arbitration, paying at the time of application a registration fee of £1, 11s., which will not follow the award.”

On 15th June 1895, before the sugar fell to be delivered, Stewart, Brown, & Company suspended payment, and in terms of rule No. 32 the contract of sale fell to be closed according to a price to be fixed by the council of the Beetroot Sugar Association. The price was accordingly fixed at 10s. 3d per cwt., and in applying this price to the contract, there was a balance of £73, 6s. due to Stewart, Brown, & Company by Grime, being the difference between 10s. 9d. per cwt., the price at which the sugar was bought, and 10s. 3d., the price fixed by the association when closing the contract. On application being made to Grime for payment of the balance, he refused to pay, on the ground that rule 32 did not apply to contracts between members of the association and outsiders.

Thereafter Stewart, Brown, & Company submitted the matter to the council of the association for arbitration, due notice being given to Grime. On 16th June 1896 the council issued an award, whereby they decided that the defender should pay Stewart, Brown, & Company £73, 6s., being the difference in price between his contract and that fixed by the council on 15th June 1896.

Grime refused to recognise the award, and Stewart, Brown, & Company thereupon raised an action against him for £73, 6s. with interest, in the Sheriff Court at Glasgow.

On 24th November 1896 the Sheriff-Substitute ( Strachan) pronounced an interlocutor, in which, after pronouncing findings of the facts above mentioned, he found in law that the award was valid and binding on the defender, and that he was indebted to the pursuers in the sum thereby decided to be paid by him, and therefore decerned against the defender for the sum sued for.

Against this interlocutor the defender reclaimed, and argued—There was no valid reference of the present dispute between the parties to the council of the Beetroot Association. The council were to be arbiters only in reference to disputes arising in regard to contracts falling under the rules, and if he could show that the present contract did not fall under the rules in question, then the clause of reference did not apply to the dispute, and the matter having been referred to the council without his consent, he was not bound by the award— Howden & Company v. Dobie & Company, March 16, 1882, 9 R. 758. Rule 32 was applicable only to members of the association inter se, and therefore could not affect him in any way, he not being a member. The general rules relating to contracts of the association, such as those dealing with quantity, sampling, delivery, and questions of that kind incidental to sale, were imported into the contract, and were binding upon him. But rule 32 was not of that character; it was strictly limited by its terms to members of the association, and could not affect outsiders. It was in the same position as rule 41, in which a distinction was drawn between members and non-members, and under the latter rule non-members could not free themselves from their liability to pay a larger registration fee on applying to the council for arbitration by incorporating the rules in their contracts with members. Rule 32 could only have applied to the defender if he had become insolvent. As it did not apply in his case, and as he had never consented to the arbitration, he could not be held liable for a loss incurred through the fault of the pursuers— Duncan v. Hill, 1873, L.R., 8 Exch. 242.

Argued for pursuers—Under the contract all disputes were to be referred to the council as arbiter. The question whether rule 32 applied to the contract had been referred to the council, and the question had thus been decided by the tribunal to whom the parties had agreed to refer their disputes. That was sufficient to determine the case. But even apart from that, it was quite plain that rule 32 was binding on the defender, as the whole rules and bye-laws of the association had been incorporated in the contract.

At advising—