Scottish Court of Session Decisions

By minute of agreement dated 15th and 20th April 1897 Messrs Oliver & Boyd, publishers, Edinburgh (of the first part) agreed to purchase the printer's business of Messrs J. Miller & Son, Rose Street North Lane, Edinburgh (of the second part). The minute, which stipulated that Andrew Carruthers Miller, the sole partner of J. Miller & Son, should be employed on certain terms by the first parties, inter alia contained the following clauses:— “Second, the rice of the goodwill of the said business of . Miller & Son has been mutually arranged between the parties to be £800 sterling, on the basis that the said second parties shall introduce not less than £1600 sterling per annum of business turnover to the first parties prior to 30th June 1898, and in the event of their failing to introduce business turnover to the amount of £1600 sterling, the parties agree that the price of the goodwill for which the second parties shall he credited in the books of the first parties shall be proportionately less: And the first parties bind themselves to pay to the second parties, as at 15th May 1897, said sum of £800 sterling, or such lesser sum as may be ascertained as aforesaid; but declaring that in no event shall payment of the said sum of £800 sterling in name of goodwill be demandable by the second parties, or their heirs or representatives, from the first parties until 15th May 1902, unless this agreement shall be terminated previous to that date by the first parties: And further declaring that at 15th May 1902 it shall be in the option of the second parties to demand payment of one half only of the sum to be ascertained in name of goodwill, the remaining one half of goodwill to remain in said business, and to be paid at 15th May 1907, and said first parties to pay interest on said remaining half of goodwill at five per centum from 15th May 1902 until

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15th May 1907.… Third, … [this clause contained the terms of employment of Andrew Carruthers Miller].… Fourth, The price to be paid by the first parties to the second parties for the stock, plant, and machinery and fittings at present belonging to and used by the second parties in the conduct of their business as printers in Rose Street North Lane, Edinburgh, and to be taken over by the parties of the first part, shall be fixed by mutual valuation; and said stock, plant, machinery, and fittings shall be property of the first parties from and after the 15th day of May 1897. Fifth, Meantime it is agreed that the first parties shall pay to the second parties the said price of their stocks, plant, machinery, and fittings as follows, videlicet—(1) the sum of £500 sterling at 15th May 1897, and (2) a farther sum of £500 sterling at 30th June 1898, said sums to bear interest at the rate of five per centum from 15th May 1897 till paid; and (3) the balance of any price exceeding £1000 sterling shall be paid at 15th May 1899, said balance to bear interest at five per centum from 15th May 1897 till paid. Sixth, Should any question arise between the parties regarding the true intent and meaning of these presents, the same is hereby referred to Charles Ritchie, Esq., S.S.C., whom failing, to James Morton, Esq., Secretary, Union Bank of Scotland, Limited, Edinburgh, whose decision, whether interim or final, shall be binding upon both parties.”

In accordance with clause fourth a valuation of the stock, plant, &c., was obtained bringing out the value at £1340, 9s. 3d., and this valuation was signed as accepted on 22nd July 1897 by J. Miller & Son. Acceptance by letter of the same date was also given by Oliver & Boyd.

On 10th August 1904 Miller & Son raised an action against Oliver & Boyd, in which they sought to recover, inter alia, £400, being the first instalment of the price of the goodwill, and £390, 9s. 3d., being the balance of the price, as brought out by the valuation, of the stock and plant.

In a statement of facts the defenders made the following averment—“(Stat. 9) After the agreement between the pursuers and defenders was entered into, the pursuer Andrew Carruthers Miller accepted work at prices greatly below the current rate, and which he knew or ought to have known must result in a considerable loss. [He did so in order to procure an apparent turnover of £1600, and so enable him to claim £800 for goodwill. In point of fact, however, the said turnover was not a business turnover in the sense of the contract, it being an implied condition of the pursuers being entitled to a payment as for goodwill that the business which he introduced was capable of yielding a profit at the ordinary trade rate.] He did so in order to attempt to procure an apparent turnover of £1600, and so enable him to claim £800 for goodwill. The said pretended turnover which, as appearing from the pursuer's statements thereof, amounts to the sum of £1470, consists only of a business turnover in the sense of the said agreement to the extent of £627. The balance thereof did not consist of legitimate business, but was introduced by the pursuer without the knowledge or consent of the defenders, and to the extent of at least £710 was so introduced in order to create a fictitious appearance of turnover introduced by him. The said turnover was not a business turnover in the sense of the minute of agreement. On a sound construction of articles 2 and 3 of the said minute of agreement the defenders contend that the business turnover referred to meant either a turnover capable of yielding a profit at the ordinary trade rate to the defenders, or at all events such a turnover as a prudent manager of the defenders with a practical knowledge of the trade would introduce into their business. The defenders suffered damage through the failure of the pursuers to implement their part of the agreement, amounting to at least £1000. This sum the defenders are entitled to set against any sum to which the pursuers may be found entitled …” (The portion in brackets was deleted and the portion in italics added by amendment in the Inner House.)

There had already been arbitration proceedings before the arbiter Ritchie, and the arbiter's final award and the proceedings after the 30th October 1899, i.e., practically everything from the making up of the record in the reference, had been reduced partly on the ground that it did not appear that he had exhausted the questions, and partly on the ground that the award was in part ultra vires. The claims in the reference went beyond the clause of reference, but on the arbiter allowing a general proof in order to determine whether the claims fell within the reference, the pursuer had protested against evidence being led save to expiscate facts to prove the true intent and meaning of the agreement (41 S.L.R. 26, and 6 F. 77).

The defenders now, inter alia, pleaded—“(2) The action ought to be dismissed in respect that the questions raised fall to be determined by Mr Ritchie acting as arbiter in terms of the agreement. (3) At all events the action ought to be sisted until the questions submitted by the parties to arbitration have been determined by Mr Ritchie as arbiter.”

The pursuers, inter alia, pleaded—“7. The present action is not excluded by the clause of reference in the minute of agreement or by the former arbitration proceedings in respect that—(1) No question regarding the true intent and meaning of the agreement is now raised. (2) Any consent to submit questions not strictly falling within the clause of reference was limited to the arbitration before Mr Ritchie, et separatim, was limited to the last date to which Mr Ritchie's jurisdiction was prorogated by consent of parties, namely, 4th July 1900. (3) The said arbitration before Mr Ritchie lapsed on 4th July 1900. (4)

Separatim, it lapsed by the issue of his final decree-arbitral, on which event he became functus officio. (5) The whole arbitration proceedings have been reduced and set aside by the decree of reduction referred

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to. (6) Mr Ritchie has become disqualified from acting as arbiter under said minute of agreement. (7) Esto that the reference to Mr Ritchie is left untouched as regards the proceedings prior to 30th October 1899, the pursuers had not at that date agreed to extend the scope of the reference.”

On 8th August 1905 the Lord Ordinary ( Pearson) pronounced an interlocutor sisting process that the parties might proceed with the reference to Ritchie the arbiter.

Opinion.—[After narrating the origin of the action and the provisions of the said clauses of the minute of agreement, supra]—… “The present action relates (1) to the payment to the pursuer of the price of the goodwill, with interest; (2) to a small sum of £4, 18s. 8d. of salary due to the pursuer down to 12th December 1898, on which date he was dismissed by the defenders; and (3) to a sum of £340, 9s. 3d., being the balance of the price of the plant and machinery said to have been due and unpaid to the pursuer at the date of his dismissal.

“The defence mainly relied on is, that the action is excluded by a subsisting reference to Mr Charles Ritchie, S.S.C., as arbiter, and that in any view the action should be sisted until the questions have been determined in that reference.

It is the case that questions having arisen between the parties, they requested Mr Ritchie to act as arbiter under the agreement, and after an ineffectual attempt to adjust a separate minute of reference embracing all the points in dispute, the parties proceeded with the reference under a simple acceptance by Mr Ritchie as ‘arbiter nominated in the submission contained in the witliin-written minute of agreement.’ The arbiter's acceptance is dated 5th April 1899, and on the same date he appointed parties to lodge claims within fourteen days, and answers in eight days thereafter. The adjustment of the record on the claims and answers was continued from time to time, and on 29th May 1899 the record was closed. Shortly afterwards certain amendments by the defenders were allowed to be added, with answers for the pursuer, and the record was of new closed on 22nd June 1899.

Although the scope of the reference clause as set forth in the agreement was limited to questions ‘regarding the true intent and meaning of these presents,’ the record made up before the arbiter and closed by him on 22nd June 1899 went considerably beyond the scope of the reference clause. The parties were thus committed, so far as regards the proceedings before Mr Ritchie, to a considerably wider reference than the clause itself would have covered, although as soon as a proof was allowed (which was not until six months later) the pursuer lodged a minute of protest against any evidence being given to establish facts other than those bearing on the true intent and meaning of the agreement, and reserved his objections against the competency of the arbiter adjudicating on any other matters.

In the result, after a proof which lasted for several days, Mr Ritchie on 1st June 1900, pronounced a ‘ decree-arbitral,’ in which he found the present defenders liable to the pursuer in a lump sum of £618,7s. 11d., and decerned and ordained the defenders to make payment thereof to the pursuer, with interest at five percent, from the date of the decree. He further found the pursuer liable to the defenders in two-thirds of their expenses, and on the parties implementing the decree—arbitral he declared them respectively freed and discharged of all claims hinc inde in consequence of the minute of agreement or of the claims lodged in the submission, and ordained them each to execute and deliver a valid discharge accordingly.

The present pursuer being dissatisfied with this award challenged it in an action of reduction, in which he obtained decree of reduction on 10th November 1903. He maintains that the way is thus clear for the present action upon the agreement. The defenders, on the other hand, maintain that the matters in dispute in the present action were within the scope of the reference to Mr Ritchie, that the reduction had not the effect attributed to it by the pursuer, and that there is nothing in the legal position of the parties to prevent the arbiter from proceeding with the reference by taking it up at the point from which the reduction is operative, but prior to which it has no operation.

Now, the documents reduced and set aside by the decree of reduction, which was in terms of the conclusions of the summons, were the orders of the arbiter from 24th November 1899 to 26th January 1900 both inclusive, and also (1) the proposed findings issued on 24th March 1900; (2) the proposed decree-arbitral issued on 4th May 1900; and (3) the decree-arbitral dated 1st June 1900. The first order reduced (24th November 1899) allowed to both parties a proof of certain specified averments and to each a conjunct probation, and the remaining orders were consequential upon that, in the way of recovery of documents and the like. All this leaves untouched the reference itself, and the procedure therein down to and inclusive of the closed record, which contains the claims now made in this action so far as these are in dispute. I note in passing (as bearing upon an argument which I shall have to deal with presently) that on 4th April 1900 the arbiter, ‘of consent and by request of the parties,’ prorogated the submission to the 4th day of July 1900.

The grounds of reduction are set forth, I think quite accurately, in the rubric of the case as reported (Miller & Son, 1903, 6 F. 78). They were (1) that the pursuer's claims were not ejusdem generis, and it was impossible to discover ex facie of the decree how far the arbiter had considered all of them; (2) that the decree-arbitral did not show how the arbiter had dealt with the defenders' counter-claim; and (3) that the order for mutual discharges, which was admittedly ultra vires, was not separable from the rest of the decree. In other words, it was not clear that the arbiter had exhausted the reference, while in another direction he had gone ultra fines. I should

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add that there was no allegation of misconduct on the part of the arbiter, except that it was alleged he had received and considered statements bearing on the submission which were made to him by the defenders outwith the knowledge of the pursuer. But these averments were not proved, and did not enter into the grounds on which decree of reduction was pronounced.

In these circumstances the pursuer, in replying to the defenders' appeal to the reference as still subsisting, maintains in his seventh plea-in-law that it is at an end and cannot now be invoked for the decision of the questions raised in this action; and this on several grounds.

In the first place, it is said there was a time limit which has long since expired. This does not refer to the expiry of year and day before the final award; for though this was alluded to in argument it was not pressed. It could not apply so far as the reference depended on the clause in the agreement; and even beyond this, the authorities are to the effect that the proper case for the application of the rule as to year and day is where the usual blank is left in the clause as to prorogation. The time limit here is said to have been fixed by the arbiter's order of 4th April 1900, already mentioned, by which he ‘of consent and by request of parties ’ prorogated the submission to 4th July 1900. I cannot attribute such an effect to this order. It seems to have been pronounced ob majorem. cautelam and in consequence of some one having raised a doubt on the point. But it proceeded on the erroneous assumption that the reference would fall unless prorogated; and I am unable to hold this as imposing a term upon its duration to which it would not otherwise have been subject.

then it is said that the arbiter, by reason of having issued his award as and for a final award, was functus officio, and that this ended the matter so far as he is concerned. This is undoubtedly the case while the award stands, as is illustrated by many decisions. But where the award has been reduced in toto together with the documents immediately leading up to it, namely, the proposed findings and the proposed award, that rule can have no application. The rule excludes all dealing on the part of the arbiter with a final award once issued. But whatever other objections may be urged here, that particular rule cannot apply, for it is not the arbiter but the Court which has dealt with the award by setting it aside as if it had never been.

Further, it is urged that the arbiter himself is disqualified by what has happened from again taking up the reference. As I have already said, nothing of the nature of misconduct can be imputed to him. But the disqualification is said to attach—first, by reason of the issuing of the final award, which shows that his mind is already made up on the disputed points; and secondly, by his having given evidence in the reduction on the defenders' citation and as their witness. As to the first point, I think it is necessary to distinguish, and in particular to have regard to the precise grounds of reduction. Misconduct on the part of the arbiter would of course preclude his dealing with the matter again, on general grounds. He then becomes absolutely disqualified from judging in that dispute. But here the grounds of reduction were that in certain matters he had gone beyond his powers, and that in certain other respects he had not exhausted the reference or might not have exhausted it. I know of no authority for holding that in such circumstances an arbiter is disqualified from again taking up and adjudging on the reference; nor am I aware of any rule or principle of law which should compel such a decision. But it is said that the arbiter having been cited and examined as a witness for the defenders in the reduction must be held as disqualified from judging fairly between the parties. That would no doubt have been so if he had been examined on the merits of the dispute, as in the case of Dickson v. Grant. 1870, 8 Macph. 566. But his evidence was confined within the usual and well-known limits imposed in a case where the arbiter is examined; and this seems to me to distinguish this case also from that of Reid v. Walker (1826, 5 S. 130), where the arbiter, having issued his award, had given a quite erroneous explanation of the meaning of it to one of the parties privately, and the Court declined in the circumstances to send the case back to the same arbiter.

On the whole matter, taking the facts as they stand, I do not find any sufficient cause for withdrawing the case from the cognizance of the tribunal selected by the parties. It was strenuously urged for the pursuer that there is no question now raised which falls even within the scope of the reference clause of the agreement, inasmuch as there can be no doubt or question as to the intent and meaning of the agreement as regards the expression ‘business turnover.’ To me it appears that there is a bona fide difference between the parties as to the meaning of that expression in this agreement, however easy it may be of solution; and I regard that as clearly a matter for the arbiter to decide, along with such other questions in dispute as may have been put in issue by the parties in the closed record which was made up in the reference. But since the arbiter has no power to pronounce a decree for payment, I think the proper course is to sist this action.”

The pursuers reclaimed and argued—They were not bound to submit the questions in dispute to arbitration. There was no question on the true intent and meaning of the agreement. As to the £340, 9s. 3d., that was a liquid debt about which there could be no dispute. There was the valuation accepted by the parties which fixed the sum of £1340, 9s. 3d. as the price of the plant, &c., and of this £1000 had been paid. As to the claim for £800, the only question could be whether the conditions under I which it was payable were fulfilled. The

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defenders said that raised a question about the meaning of the words “business turnover,” but no construction was required for these words, and the nature of the turnover was a question of fact. There must be a real question of construction if the arbitration clause was to be brought into force— Mackay & Son v. Leven Police Commissioners, July 20, 1893, 20 R. 1093, 30 S.L.R. 919. The defenders' contention that the turnover was a fraudulent one raised a question of fact, not of construction. Further, the arbitration could not be taken up at the point it had reached prior to the proceedings which had been reduced. On the pronouncing of a decree-arbitral the arbiter was functus officio, and on reduction of the decree his jurisdiction could not be revived—Bell on Arbitration, 295, s. 584; Russell on Arbitration, 8th edition, 100; Bannatyne v. Gibson & Clark, December 2, 1862, 1 Macph. 90; North British Railway Co. v. Barr, November 27, 1855, 18 D. 102; Wilson v. Porter, June 19, 1880, 17 S.L.R. 675; in re arbitration Stringer & Riley Brothers, [1901] 1 K.B. 105. The contract was to take an award from the arbiter once for all. If he failed to issue a valid decree he could no longer look on the case with an unbiassed mind. The slightest bias was enough to disqualify a person from acting as arbiter unless the parties went into the arbitration with the facts which caused the bias full in view— Peckholtz & Co. v. Russell and Others (O.H.), July 13, 1899, 7 S.L.T. 135; M'Lauchlan v. Brown & Morrison (O.H.), December 1, 1900, 8 S.L.T. 279; Dickson v. Grant and Others, February 17, 1870, 8 Macph. 566, 7 S.L.R. 317; M'Dougall v. Laird & Sons, November 16, 1894, 22 R. 71, 32 S.L.R. 52; Buchan v. Melville, February 28, 1902, 4 F. 620, 39 S.L.R. 398. In one case it was considered but not decided whether a dispute in which arbitration proceedings had been set aside should be sent back to the same arbiter— Reid v. Walker, December 15, 1826, 5 S. 140, n.e. 130. The reasons for sisting a case that a reference might be proceeded with were stated in Lord Watson's opinion in Hamlyn & Co. v. Talisker Distillery, May 10, 1894, 21 R. (H.L.) 21, 31 S.L.R. 642, but were not applicable here where there should be no reference. The proceedings in the arbitration did not extend the scope of the reference, and besides, any proceedings which could have this effect had been swept away by the decree of reduction.

The defenders argued—The scope of the reference had been widened by the claims made by the pursuers in the arbitration. The presentation of a claim going beyond the scope of the reference involved a new agreement to refer. No objection being taken and the record closed (not as a technical act but as a formal adjustment of the pleadings) the agreement was complete. The arbiter was not functus officio Bell on Arbitration, 297. There were no averments tending to show that the arbiter was disqualified through bias as in the cases cited. There was something to refer under the reference clause in the agreement. The words “business turnover” meant turnover capable of yielding a profit— Mordue v. Palmer, 1870, L.R. 6 Ch. 22; in re Stringer and Bannatyne v. Gibson & Clark, cit. sup. The turnover introduced by the pursuer was a fictitious turnover fraudulently introduced.

After argument had been partially heard the Court pointed out that the defenders' averments did not sufficiently specify and distinguish their two replies to the claim for £800, viz. (a) that the pursuer took advantage of his position as manager to create a fraudulent turnover; and (b) that “business turnover” meant a turnover which was capable of producing an ordinary business profit, and that this was a question of construction with which the arbiter ought to deal. The defenders therefore by permission of the Court amended their averments in this respect ( v. sup.).

At advising—