Scottish Court of Session Decisions

James Scott & Sons, Limited, merchants and manufacturers, Dundee, pursuers, brought an action against R. & N. Del Sel, merchants, Buenos Ayres, Rosario, and Dundee, and also against Thomas Agnew, solicitor, Dundee, defenders, in which the conclusions were for declarator “that the said Thomas Agnew as oversman appointed by the Sheriff-Substitute of Forfarshire at Dundee in the submissions contained in twenty-seven contracts entered into betwen the pursuers and defenders, the said R. & N. Del Sel, for the sale of hessian cloth and other jute goods by the pursuers to the said defenders, videlicet, two contracts dated 19th February, four contracts dated 22nd February, four contracts dated 5th March, five contracts dated 9th March, eight contracts dated 12th March, and four contracts dated 21st March, all in the year 1917, and under which arbiters were appointed respectively by the said defenders and by the pursuers under protest conform to a letter from the said defenders to the pursuers dated 8th, and a letter from the pursuers to the said defenders dated 20th, both days of March 1918, has no jurisdiction to determine whether said contracts were in consequence of the embargo or prohibition of exporting jute goods from India to the Argentine imposed by the

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Indian Government on or about 24th August 1917 in so far as regarded the balance of the 2800 bales sold for shipment to the said defenders during July and August 1917, but not shipped during these months, amounting said balance to 1875 bales, rendered void and not enforceable by the pursuers and the said defenders, or otherwise were rendered voidable at the option of the pursuers, and became void on their exercise of said option and ceased to be enforceable by the said defenders against the pursuers, and whether the pursuers were accordingly discharged of all obligation to ship and to deliver to the said defenders the said 1875 bales, or to pay damage in respect of their consequent failure to ship and deliver said 1875 bales, and further and in any event that the said Thomas Agnew as oversman foresaid has no jurisdiction to assess damage alleged to be due by the pursuers to the said defenders in respect of their failure to ship and deliver said 1875 bales of jute goods; and it ought and should be found and declared by decree of our said Lords that in consequence of said embargo or prohibition by the Indian Government the twenty-seven contracts before referred to, in so far as regards the balance of 2800 bales of jute goods thereby sold by the pursuers to the said defenders for shipment to the said defenders during July and August 1917, but not shipped during these months, amounting said balance to 1875 bales, became void or otherwise became voidable in the option of the pursuers, and were by them declared void, and that the said contracts to the extent aforesaid ceased to be and now are not enforceable at the instance of the said defenders against the pursuers; and for interdict against the said Thomas Agnew from determining the said question as to the effect of the embargo or prohibition by the Indian Government, and from proceeding to assess and determine the amount of damage alleged to be due by the pursuers to the said defenders in respect of their failure to ship and deliver said 1875 bales.”

The following narrative is taken from the opinion of Lord Ormidale infra:—“The pursuers are jute merchants in Dundee. The defenders are merchants at Buenos Ayres, Rosario, and Dundee. By contracts dated in February and March 1917, entered into by the pursuers' branch at Calcutta and the defenders' house at Buenos Ayres the pursuers agreed to sell to the defenders certain jute goods and provided for shipment from Calcutta to Buenos Ayres in July, August, and September 1917. The contracts between the parties contained, inter alia, the following provisions:—[ Quoted supra in rubric.]. At the dates when the contracts were entered into there was no restriction on the export of manufactured jute goods from India to the Argentine. On 12th May, however, the Governor-General of India by Order in Council prohibited such export to all destinations other than the United Kingdom except under a licence granted by the chief customs officer at the place of export. The pursuers aver that they obtained the necessary licences and had made all the necessary arrangements to ship the goods contracted for on the only two vessels fixed to leave Calcutta for the Argentine during July and August, but that these vessels were commandeered by the British Government, and that they then arranged to ship by the ‘Amatonga,’ the only vessel thereafter available during these months, as much of the jute as the vessel would receive on board, viz., 925 bales, which left a balance of 1875 bales of the shipment for the months of July and August unexecuted. On 24th August the collector of customs issued an intimation that ‘the export of jute goods from India to the Argentine is prohibited. This Order will be enforced immediately after the sailing of the “Amatonga” now in port. It will not be possible for me to give any consideration to future commitments in the case of any later steamer proposing to load for the Argentine.’ In reply to inquiries the pursuers were informed by the India Office that ‘no licences are being granted at present for the export of jute goods from India to the Argentine. The embargo was imposed at the request of the Foreign Office, and this office is unable to say when it is likely to be removed.’ The pursuers then took up the position that in consequence of the embargo the implement of the contracts for shipment of jute in July and August became then and there impossible, and so informed the defenders. The latter, on the other hand, declined to accept this view, insisted on delivery, and finally with the object of getting fulfilment of the contracts, nominated an arbiter, and called upon the pursuers to do the same. A dispute they said had arisen under the contract, and in terms of the contract that dispute fell to be settled by arbitration. The pursuers, under protest and under reservation of the right to decline to proceed with the arbitration, thereupon also nominated an arbiter, and an oversman having thereafter been appointed by the Court a record was made up in the arbitration. The arbiters having differed in opinion devolved the submission on the oversman, who having considered the whole cause with reference to his jurisdiction found, inter alia, ‘(3) that the arbitrations as contemplated embrace the dispute between the parties whether respondents were bound to deliver the said 1875 bales.’ The pursuers then raised the present action to have it declared, inter alia, that the oversman had no jurisdiction to determine whether the contracts were in consequence of the embargo or prohibition of exporting goods from India to the Argentine rendered void and not enforceable, and for interdict against him from proceeding to determine the question.”

The pursuers pleaded, inter alia—“1 The question whether the pursuers were bound to deliver the 1875 bales referred to in the first item of the defenders' claim in the arbitration not being a question comprehended in the terms of the submission by the parties, the pursuers are entitled to decree of interdict as concluded for. 2. .” [Plea 2 was added by way of amendment in terms of the interlocutor of 25th June 1921 infra.]

The defenders pleaded inter alia—“5. The arbitration clause contained in the said contracts not having been brought to an end either by the said prohibition or by the suspension of the granting of licences or by the pursuers' attempt to cancel the contracts, or for any other reason, the same is binding upon the parties and enforceable according to its legal import.” [Plea 5 was added by way of amendment in terms of the interlocutor of 25th June 1921 infra.]

On 13th November 1920 the Lord Ordinary ( Sands) repelled the pursuers' first plea-in-law.

Opinion.—“In this action the pursuers seek to obtain a judicial interpretation of a contract between them and the defenders, and to restrain the oversman in an arbitration between them from proceeding to adjudicate uponit. Under contracts between the parties the pursuers were bound to ship certain consignments of jute goods from Calcutta to Buenos Ayres in July and August 1917. Timeous shipment was prevented by Government interposition, and the question between the parties is whether under the contract there was a continuing obligation to ship these goods when the Government embargo was removed, or whether on the other hand there was, as regards the contracts for the shipments in question, such a frustration as released the defenders altogether from the obligation to deliver. The contracts are not altogether easy of interpretation, but although I heard considerable argument upon them I do not think it necessary or desirable in the view I take to attempt to construe the provisions as regards delivery and delay.

One of the terms of the contracts is that ‘any dispute that may arise under this contract to be settled by arbitration in Dundee.’ It might perhaps seem surprising that a firm in the Argentine should subject themselves to arbitration in Dundee about goods which were to be shipped from Calcutta to Buenos Ayres, but Dundee is the centre of the jute market, and there is a well-established system of arbitration there. An arbitration has been begun between the parties at Dundee, the institution of which gave rise to proceedings in the Sheriff Court and in this Court, but although that arbitration was allowed to proceed the pursuers do not appear to have done anything to prejudice the pleas which they now advance. They maintain that the dispute upon which they desire judgment in the present action is not covered by the words of the arbitration clause—‘Any dispute that may arise under this contract.’ They maintain in the first place that the interpretation of the contract contended for by the defenders leads directly to a claim of damages, and that an arbiter has no power to assess and award damages unless that matter has been expressly remitted to him by the arbitration clause. Although the defenders did not formally abandon the point, they conceded that there is authority which is binding upon me that arbiters cannot assess or award damages under a general clause of reference in a contract. If there has been a breach of contract the amount of damages thereby suffered is certainly one of the questions arising out of the contract, but by a rule peculiar to the law of Scotland it is not so treated under a reference clause which does not contain an express reference of that matter. Whilst, however, I go with the pursuer so far, I cannot go as far as to hold that when the interpretation of a contract is referred to arbitration this provision is nullified whenever interpretation in a certain way will infer a claim of damages.

The pursuers, however, further maintain that the question of frustration is not within the contract but lies altogether outside it, and that accordingly the question of whether they are released by frustration is not a matter which they are bound to refer to arbitration as being a question arising under the contract. A number of recent cases upon this branch of the law were cited. The Court of last resort has undoubtedly in the cases which have arisen since the outbreak of the war carried the doctrine of frustration by the occurrence of the unforeseen further than seems reminiscent of the Boyd & Forrest litigations. But the learned Lords have always been most careful to disclaim the idea of release from fulfilment of a contract through change of circumstances otherwise than by giving effect to an express or implied condition of the contract itself. Mr Chree argued that this is a pious fiction—a fiction because it does not correspond with anything that was in the minds of parties at the time—pious because it seeks to do homage to a very sacred legal principle—the sanctity of contract. I confess I have some sympathy with Mr Chree. It does seem to me somewhat far fetched to hold that the non-occurrence of some event which was not within the contemplation or even the imagination of the parties was an implied term of the contract. The Campanile at Venice fell a few years ago after standing for many centuries. One can figure the case of an artist who had entered into a contract to make a painting of the Campanile. That his contract should be treated as frustrated by the collapse of the Campanile is a reasonable view, but it seems somewhat far fetched to suggest that this is so because it was an implied condition of the contract that the Campanile should remain standing instead of simply putting it upon the supervening impossibility of fulfilment. No doubt this theory has been developed to square with the rule of the English common law in regard to supervening impossibility. A tiger has escaped from a travelling menagerie. The milk-girl fails to deliver the milk. Possibly the milkman may be

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exonerated from any breach of contract, but even so it would seem hardly reasonable to base that exoneration on the ground that ‘tiger days excepted’ must be held as if written into the milk contract. But though I sympathise with Mr Chree's difficulty I am unable to adopt his reasoning. His contention is this. We must accept it from the House of Lords that the contract may be treated as frustrated in respect of the failure of an implied condition of the contract. But as this is a legal fiction we must not carry it to its logical consequences. We may attribute the frustration to the non-fulfilment of an implied term of the contract, but we are not to treat the ascertainment of whether there is such an implied term as a question of interpretation of the contract. I think, however, on the contrary, that the doctrine of implied term of the contract must be given its logical consequence, and that if contracts are to be held as frustrated in virtue of the failure of an implied term, the question whether there is such an implied term is a question arising under the contract.

A third contention for the pursuers I understood to be this. Even though the question is in terms one arising under the contract, if it raises the issue whether the obligations of the contract any longer subsist, then that is not a question arising under the contract in the sense of a clause of reference; in other words that a clause of reference is not applicable where a decision in a certain way would be not merely interpretative but resolutive of the contract. I am unable, however, to accept this view and I do not think that there is any authority in support of it.

I shall accordingly repel the first plea-in-law for the pursuers, continue the cause, and grant leave to reclaim.”

The pursuers reclaimed, and on 25th June 1921 the Second Division pronounced this interlocutor—“Recal said interlocutor: Open up the record in the action: Allow same to be amended in terms of the minute of amendments and answers thereto, and the said amendments having been added of new close the record: Appoint pursuers to reprint the record embodying said amendments; and remit the cause back to the Lord Ordinary.…”

The Lord Ordinary having resumed consideration of the cause, on 15th March 1922 repelled the first and second pleas-in-law for pursuers and sustained the fifth plea-in-law for the defenders.

Opinion.—“In this case I dealt with one of the pursuers' pleas, and my judgment was submitted to review in the Inner House. There my interlocutor having been recalled in hoe statu the pursuers made extensive amendments of their pleadings, and the case was remitted back to me. When the case came before me again it was matter of agreement by counsel upon both sides that it was difficult to submit any argument that was not covered by my former judgment. Only one point was raised, not as having been altogether overlooked before, but as having not been sufficiently emphasised. The pursuers contended that the contract having, as they averred, been rendered impossible of fulfilment, the whole contract, including the arbitration clause, was at an end. This clause, they maintained, being ancillary could not stand upon its own legs. I was referred to the following cases:— Municipal Council of Johannesburg v. D. Stewart & Company (1902) Limited, 1909 S.C. (H.L.) 53, 47 S.L.R. 20; Hudson's Building Contracts (4th ed.), vol. ii, p. 414, reporting Kennedy v. Mayor of Barrow-in-Furness (1909); Sanderson & Son v. Armour & Company, 1921 S.C. 18, 58 S.L.R. 355; Scott v. Gerrard, 1916 S.C. 793, 53 S.L.R. 642. Where in the course of the execution of a contract containing a general arbitration clause one of the parties fails to fulfil certain parts of it for reasons which he proposes to justify, the other party is entitled to invoke the arbitration clause to have the validity of these reasons adjudicated upon. I am unable to hold that it makes a fundamental difference if what the party fails to perform and the nonperformance of which he proposes to justify happens to be all that remains to be done to complete the execution of the contract, and that accordingly in such circumstances the other party cannot invoke the arbitration clause. An illustration which occurs to me is that of a contract for the purchase of heritage. If there were an arbitration clause wide enough to cover a dispute as to title, I think that the purchaser could not successfully avoid the reference by pleading that he had cancelled the whole contract as being impossible of performance owing to the inability of the seller to give him a satisfactory title.

I shall accordingly repel the first and second pleas-in-law for the pursuers, sustain the fifth plea-in-law for the defenders, continue the cause, and grant leave to reclaim. [ His Lordship then dealt with the question of expenses.]”

The pursuers reclaimed, and argued—(1) The contract was frustrated because a vis major had prevented the pursuers from fulfilling it— Sanderson & Son v. Armour & Company, 1921 S.C. 18, 58 S.L.R. 355, affd. (1922) 59 S.L.R. 268, per Lord President Clyde at 1921 S.C. 25 and 26, 58 S.L.R. 360 and 361, and Lord Shaw at 59 S.L.R. 274; M'Master & Company v. Cox, M'Ewan & Company, 1921 S.C. (H.L.) 24, 58 S.L.R. 70, per Lord Dunedin at 1921 S.C. (H.L.) 28, 58 S.L.R. 72, and Lord Shaw at 1921 S.C. (H.L.) 30, 58 S.L.R. 73; Bank Line, Limited v. Arthur Capel & Company, [1919] AC 435, per Lord Finlay, L.C., at 441, 442, and 443, Lord Shaw at 419 and 450, Lord Sumner at 451, 454, and 455, and Lord Wrenbury at 462; Metropolitan Water Board v. Dick, Kerr, & Company, [1918] AC 119, per Lord Finlay, L.C., at 125 and 126, Lord Dunedin at 128, and Lord Parmoor at 140; Anglo-Russian Merchant Traders and John Batt & Company (London), in re, [1917] 2 K.B. 679, per Viscount Reading, C.-J., at 686 and 688; F. A. Tamplin Steamship Company, Limited Anglo-Mexican Petroleum Products Company, Limited, [1916] 2 A. C. 397

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, per Earl Loreburn at 403 and Viscount Haldane at 407; Horloek v. Beal, [1016] 1 A.C. 486, per Lord Atkinson at 496 and 502, Lord Shaw at 513, and Lord Wrenbury at 525; Andrew Millar & Company, Limited v. Taylor & Company, Limited, [1916] 1 K.B. 402; Jackson v. Union Marine Insurance Company, (1873) L.R., 8 C.P. 572, affd. (1874) L.R., 10 C.P. 125, per Brett, J., at L.R. 8 C.P. 581, and Bramwell, B., at L.R., 10 A. P. 143 and 145; Baily v. De Crespigny, (1869) L.R., 4 Q.B. 180, per Hannen, J., at 185; Eposito v. Bowden, (1857) 7 E. &. B. 763, per Willes, J., at 784. (2) The question in the present case was not one for the arbiter. The question was as to whether or not the contract still stood, and the dispute between the parties did not fall within the category of “any dispute that may arise under this contract.” The dispute that had arisen was not a dispute under the contract. It had been brought about by the occurrence of an event which was never in the contemplation of the parties— Mackay & Son v. Leven Police Commissioners, (1893) 20 R. 1093, 30 S.L.R. 919, per Lord Adam at 20 R. 1101, 30 S.L.R. 923; M'Alpine v. Lanarkshire and Ayrshire Railway Company, (1889) 17 R. 113, 27 S.L.R. 81, per Lord President Inglis at 17 R. 121, 27 S.L.R. 84; Hogg v. Corporation of Belfast, [1919] 21. R. 305, per Madden, J., at 312; Lawson v. Wallasey Local Board, (1883) L.R., 11 Q.B.D. 229. The arbitration clause in Municipal Council of Johannesburg v. D. Stewart & Company, (1902) Limited, 1909 S.C. (H.L.) 53, 47 S.L.R. 20, was treated as executorial. (See Lord Dunedin in Sanderson & Son v. Armour & Company, cit., at 59 S.L.R. 273.) Moore v. M'Cosh, (1903) 5 F. 946, 40 S.L.R. 691, was also referred to.

Argued for the respondents—The dispute that had arisen between the parties was a dispute which they had agreed to refer to arbitration. The decisions in the frustration cases were based upon the assumption of an implied condition in the contract. In the present case the question of frustration was a question under the contract, because it was necessary to examine the contract to ascertain whether there was an implied condition in it, and therefore the question was one for the arbiter— Sanderson & Son v. Armour & Company ( cit.), per Lord Dunedin at 59 S.L.R. 272; James Nimmo & Company, Limited v. North British Railway Company and Another ((H.L.), 12th March 1919, not reported); Bank Line, Limited v. Arthur Capel & Company ( cit.), per Lord Sumner at pp. 455 and 456; Metropolitan Water Board v. Dick, Kerr, & Company ( cit.), per Lord Dunedin at pp. 128 and 129; F. A. Tamplin Steamship Company, Limited v. Anglo-Mexican Petroleum Products Company, Limited ( cit.), per Lord Parker at p. 422 and Earl Loreburn at p. 404; North British Railway Company v. Newburgh and North Fife Railway Company, 1911 S.C. 710, 48 S.L.R. 450, per Lord President (Dunedin) at 1911 S.C. 718 and 719, 48 S.L.R. 454; Taylor v. Caldwell, (1863) 3 B. & S. 826, per Blackburn, J., at pp. 833 and 839; Hogg v. Corporation of Belfast ( cit.) was a case under Irish law, and under that law as under English law the Court had a discretionary power to retain for its own determination questions of law. In that case the Court merely decided to exercise its discretion (see Kenny, J., at p. 315), but under Scots law the Court had no such discretionary power. Municipal Council of Johannesburg v. D. Stewart & Company, (1902) Limited ( cit.), was really an English case, because in that case it was a term of the contract that English law was to be applied. (2) Although an arbiter could not assess the quantum of damage unless the question of the quantum had been specially referred to him, nevertheless he could decide questions of liability for damage— Aberdeen Railway Company v. Blaikie Brothers, (1851) 13 D. 527, (1852) 15 D. (H.L.) 20, 24 S. J. 537, (1854) 16 D. 470 (see 24 S. J. at pp. 538 and 539, and 16 D. 470). A fear that the arbiter might exceed his jurisdiction was not a good reason for depriving him of it— North British Railway Company v. Newburgh and North Fife Railway Company ( cit.), per Lord President (Dunedin) at 1911 S.C. 720, 48 S.L.R. 454.

At advising—