Scottish Court of Session Decisions

On 18th May 1903 C. Leary & Company, timber-brokers, Lombard Court, Gracechurch Street, London, E.C., sold to Francis Briggs & Company, timber merchants, Hope Street, Glasgow, a shipment of 125 loads of Moulmein teak logs. The contract-note bore that the sale was “for account of our principals,” and contained the following stipulations—“The shipment as a whole is guaranteed to be of fair merchantable quality, conversion, and condition. Payment to be made on arrival of the steamer in cash, less 2 1 2per cent. discount, the freight to be allowed in account and paid by buyers according to bill of lading. Should any dispute arise in connection with this contract, the buyer shall nevertheless take delivery of the goods as shipped and make due payment as herein agreed; such dispute shall be referred to the undersigned, whose decision, as independent parties between seller and buyer, shall be final.”

The logs were shipped from Moulmein in the steamship “Burma,” which arrived in Glasgow on 16th September 1903, and Leary & Company's representatives there tendered to Briggs & Company the bill of lading in exchange for the price, amounting, after freight and discount had been deducted, to £1244, 8s. 9d. Briggs & Company refused to accept the shipping documents or to pay for the goods, and thereupon Leary & Company raised an action for the price. In their defences Briggs & Company averred that “the logs were not of fair merchantable quality, conversion, and condition as stipulated for in the said contract;” and

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pleaded—“(2) The arbitration clause being inoperative, the defenders are not bound thereby, and the action should be dismissed. (3) The goods sold to the defenders not having been of merchantable quality, as required by the contract, the defenders were not bound to take delivery thereof, and they are entitled to absolvitor, with expenses.”

On 10th November 1903 the Sheriff-Substitute ( Fyfe) issued an interlocutor repeling the defences as irrelevant, and decerning as craved. In his note he said—… “On the merits, defenders, while admiting that the goods were tendered and refused, plead that the refusal to take delivery was justified because the goods were ‘not of fair merchantable quality, conversion, and condition.’ This is a mere quoting of an expression in the contract note, and conveys nothing at all to the pursuers as to what specific complaint they have to meet. A bald statement of this sort is not a relevant averment of disconformity to contract.

“But even if the defence were relevantly stated it cannot be entertained in this process, for it is excluded by the arbitration clause. The exact case which the defenders aim at setting up has been contemplated and is provided for in the contract. The buyer has contracted that, whether he has a claim for disconformity or not, he will nevertheless take delivery of the cargo and pay the price. This may be a peculiar stipulation, but there it is, and it must get effect. The contemplation of the contracting parties evidently was that any objection to the quality of the goods must be formulated in a claim of damages, and that that claim should be referred to arbitration; but that, claim or no claim, delivery must be taken.

Defenders further plead that the arbitration clause is inoperative because the arbiter named is one of the contracting parties. But this is what both parties accepted as their arrangements, and having done so neither can evade the arbitration clause. ( Buchan v. Melville, 28th February 1902, 4 F. 620.)”

The defenders appealed, and amended their defences by adding the following to their averment as to the defective character of the goods tendered—“In particular, the timber shows plain signs of worming, fully one-third of it is bent and rambling in shape and also wormy. These faults make it impossible to cut up the timber profitably, and seriously depreciate its merchantable quality and conversion.”

On 16th March 1904 the Sheriff ( Guthrie) recalled the interlocutor of the Sheriff-Substitute of 10th November, and before answer allowed a proof.

The pursuers appealed, and argued—The Sheriff's interlocutor was wrong and that of the Sheriff-Substitute right. The contract was quite clear that the goods were to be accepted, any dispute being reserved, and payment was to be made. What had occurred was exactly what the contract had contemplated and provided for. The arbitration clause was not yet called into force, and so no question had yet arisen as to disqualification of arbiters, and no such question could yet be discussed. If, however, that question was now to be looked into, there was no disqualification here, for the brokers had as yet in no way prejudged any dispute as to the quality of the goods, and certainly had not done so when payment became due and the action was raised— Buchan v. Melville, February 28, 1902, 4 F. 620, 39 S.L.R. 398.

Argued for the respondents—The Sheriff's interlocutor should not be disturbed, but the inquiry should be proceeded with. The condition that the goods were to be of fair merchantable quality, conversion, and condition underlay the whole contract, and if it were not fulfilled the defenders were not bound to take delivery. If it were proved that the goods were not what had been ordered, as was averred, then the arbitration clause did not apply to the dispute— Vigers Brothers v. Sanderson Brothers [1901], 1 K.B. 608. But further, the arbitration clause was inoperative, for in it the reference was to independent parties, and the pursuers had not maintained their independent position as brokers only, but had throughout identified themselves with the sellers. They were therefore disqualified— M'Dougall v. Laird & Sons, November 16, 1894, 22 R. 71, 32 S.L.R. 52. That at least was the averment, and it should go to proof.