Scottish Court of Session Decisions

James Stiven, timber merchant, Dundee, entered into a contract with Douglas & Company, timber merchants, London, for the purchase of certain birch poles. The contract contained the following clause:— “Should any dispute arise respecting the fulfilment of this contract, the buyer is not entitled to reject the goods nor any part of them, but the dispute, if it cannot be arranged by agreement of buyer and Mr John H. Douglas on joint inspection, shall be referred to arbitration in the customary manner of the timber trade. The cost of the arbitration to be paid by the party in default.”

Disputes having arisen as to deductions from the price of the poles claimed by Stiven in respect of their alleged inferior quality, and in respect to other matters which it is not necessary to enter into, Douglas & Company brought an action against him concluding, inter alia, for payment of £85, 19s. 7d., being the balance of the price.

In his defence Stiven pleaded, inter alia—“(2) The action ought to be dismissed in respect of the arbitration clause, or at all events it ought to be sisted until determination by arbitration of the matters in dispute between the parties.”

In reference to this plea, by minute of amendment of the record, he made the following averment:—“By the custom of the timber trade disputes referred to arbitration are settled by two arbiters, one chosen by each party, and by an oversman appointed by said arbiters. The contract refers to said custom, and in terms thereof the price payable to the pursuers can only be determined after the matters in dispute referred to in this statement of facts have been decided in this manner by arbitration.”

To this amendment the pursuers made the following answer:—“In particular, the statement added by amendment to article 4 of the statement of facts for defender is denied. No custom of trade as to arbitration such as there alleged exists, and disputes in that trade are referred in all the ways known to the law. By the custom of the timber trade, where disputes are referred to arbitration in any form, it is invariably a condition-precedent of such arbitration that the buyer accepts the draft or drafts of the seller for the price of the goods, or pays for the goods before the arbitration is entered upon. In this case the defender has refused to accept such draft or pay for the goods, and he accordingly is not in a position to insist on arbitration.”

The Arbitration (Scotland) Act 1894 provides, section 1— “From and after the passing of the Act an agreement to refer to arbitration shall not be invalid or ineffectual by reason of the reference being to a person not named, or to a person to be named by another person, or to a person merely described as the holder from the time being of any office or appointment.” Section 2—“Should one of the parties to an agreement to refer to a single arbiter refuse to concur in the nomination of such arbiter, … an arbiter may be appointed by the Court.” Section 3—“Should one of the parties to an agreement to refer to two arbiters refuse to name an arbiter, … an arbiter may be appointed by the Court.”

On 30th November 1898 the Lord Ordinary ( Stormonth Darling) sisted the action until the matters in dispute between the parties should have been determined by arbitration in terms of the contract mentioned in the record, and granted leave to reclaim.

Opinion—“This is an action for the price of birch poles and squares sold by a timber merchant in London to a timber merchant in Dundee, and the defence on the merits consists of a claim to certain deductions from the price on the ground of late shipment and defective quality. But there is a preliminary plea that the action ought to be sisted till the matters in dispute have been determined by arbitration under a clause in the contract, which is set out in statement 4. The clause deals with the contingency of a dispute arising ‘respecting the fulfilment of this contract,’ and it provides that in such a case the buyer shall hot be entitled to reject the goods nor any part of them, but the dispute, if not arranged by the parties on joint inspection, ‘shall be referred to arbitration in the customary manner of the timber trade.’

This, says the pursuer, is not a valid clause of arbitration, even under the Arbitration (Scotland) Act 1894. His argument is that the reference is too vague, that the

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Act merely gets over the difficulty of the arbiter or arbiters not being named, but that it leaves the old law untouched in every other respect. In particular, he says, it postulates either an agreement to refer to a single arbiter or an agreement to refer to two arbiters, for its executory clauses (2, 3, and 4) are made applicable to these two cases only, and this agreement is neither of the one kind nor of the other.

The argument is plausible, but I think unsound. It comes with rather a bad grace from the pursuer, who, if I understood counsel aright, was the author of the clause, and at all events was a consenting party to its insertion; for the argument really comes to this, that the clause is meaningless. I say this all the more because the pursuer is an Englishman, and under the English Arbitration Act (52 and 53 Vict. cap. 49) the argument would be unstateable. Section 2 of that Act provides that a submission, or in other words (see section 27), ‘a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not,’ unless a contrary intention is expressed therein, shall be deemed to include the provisions set forth in the first schedule to the Act, and one of the provisions of that schedule is, that ‘if no other mode of reference is provided, the reference shall be to a single arbitrator.’

But although the Scottish Act does not contain any similar provision, I am not disposed to hold that it is inapplicable to a clause like this. Its leading purpose, I think, is that where parties to a contract have agreed to arbitration even in the most general terms, they shall be held to their bargain, and if either party refuses to carry it out the Court shall do so for him.

The clause refers to the ‘customary manner of the timber trade,’ but the parties are at issue on this matter, the defender averring that the custom is to have two arbiters and an oversman, and the pursuer that ‘disputes in that trade are referred in all the ways known to the law.’ But if the defender is willing (as he says he is) to give the pursuer his choice of either a single arbiter or two arbiters and an oversman, I do not see that the pursuer can escape from the duty of doing what is necessary to carry out the particular mode which he selects. If he does, then I think the Court in its discretion might proceed under either section 2 or section 3 of the Act. But it is perhaps premature to suggest that the pursuer will act in that way.

I may observe that in the case of Gilmour v. The Caledonian Insurance Company (L.R. 1893, App. Ca. 85), the clause of reference was ‘to the arbitration of one person to be chosen by both parties, or of two independent persons, one to be chosen by the party claiming and the other by the company.’ The case arose before the passing of the Act of 1894, and the clause was held effectual on the ground that the contract, being one upon which no cause of action accrued until the amount of damage had been ascertained by arbitration, was excepted from the rule of Scots law that a reference to arbiters not named could not be enforced. But I do not find that it was suggested either in argument or by the House of Lords that the clause was ineffectual because of its alternative form. I shall therefore sist the action until the matters in dispute between the parties shall have been determined by arbitration.”

The defenders reclaimed, and on 19th January 1899 the First Division recalled the interlocutor of the Lord Ordinary, and remitted to him to allow a proof before answer of the averments contained in the minute of amendment for the defender and in the answers thereto (both quoted supra).

A proof was taken, from which it appeared that the usual mode of arbitration in the timber trade was by two arbiters and an oversman, though occasionally by express provision a single arbiter was employed.

On 22nd June 1899 the Lord Ordinary pronounced an interlocutor sisting the action till the matters in dispute between the parties shall have been determined by arbitration in terms of the contract mentioned in the record.

Opinion.—“What the First Division remitted to me to do was to allow a proof before answer of the averments contained in the minute of amendment for the defender and in the answer for the pursuers. I have now taken that proof, and it seems to me that the averment of the defender in his minute is conclusively proved. That averment is that by the custom of the timber trade disputes referred to arbitration are settled by two arbiters, one chosen by each party, and by an oversman appointed by the arbiters. It would be very strange if that were not the custom, because any other custom would make a clause of arbitration almost nugatory unless parties could agree beforehand in naming a single arbiter. But as one would expect from business men, those engaged in the timber trade have anticipated that difficulty, and accordingly the witnesses for the pursuers are just as emphatic as the witnesses for the defender in saying that the customary mode is to provide for a reference to two arbiters and an oversman. Be it observed that the object and purpose of this proof is not to read into a mercantile contract something which is not there, but to interpret a phrase which requires interpretation from the evidence of witnesses. The words requiring to be interpreted are ‘in the customary manner of the timber trade.’ Now, the parties must be assumed to have meant something effective by using these words, and therefore I apprehend that a court of law ought to be satisfied with evidence of a prevailing custom without demanding that decree of universality which the law does require where the purpose of the proof is to read into the contract something that does not occur in it at all, but which both parties must be understood to have had it in their minds though they have said nothing about it. If that be the proper standard to apply in the present case, it seems to me that the defender has amply proved his averment …

“I shall therefore practically repeat my

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former judgment, basing it, of course, on the evidence taken.”

The pursuers reclaimed, and argued—The case was not advanced by the proof, all that was established was that in the timber trade, as was doubtless the case in all trades, reference was usually made to two arbiters and an oversman. No universal custom had been proved. The case must therefore be taken as a mere general obligation to refer, which was not binding, and did not fall under the Arbitration Act 1894. That Act provided machinery for carrying out an agreement to refer to a single arbiter, or an agreement to refer to two arbiters, but it provided no machinery for carrying out a general agreement to refer, which was therefore inoperative. In order to read into the contract, instead of an agreement to refer in the manner customary in the timber trade, a reference to two arbiters and an oversman, the evidence would require to show that the custom so to refer was universal in that trade, which the defender had failed to do— Fawkes v. Lamb, February 12, 1862, 31 L.J., Q.B. 98; Field v. Lelean, February 5, 1861, 30 L.J., Exch. 168. Separation, the evidence showed that in the timber trade payment of the price was a condition-precedent to arbitration, and that condition the defender had not yet fulfilled.

Argued for the defender—The pursuers had agreed to arbitration in the mode customary in the timber trade. That had been shown to be by two arbiters. Why, then, should they refuse to carry out their agreement. The proof did not add any new term to the contract; it only explained a phrase of doubtful meaning— Hamlyn Company v. Talisker Distillery Company, May 10, 1894, 21 R. (H.L.) 21.

At advising—