United Kingdom House of Lords Decisions

The defenders in this action, the Greenock and Wemyss Bay Railway Company, were incorporated by the Act 25 and 26 Vict., c. 160,17th July 1862. The share capital of the company was fixed at £120,000, and the borrowing powers at £40,000. By an agreement, dated 1st and 2d April 1862, entered into by the pursuers, the Caledonian Railway Company, and the provisional directors of the Greenock and Wemyss Bay Railway Company, and afterwards confirmed by the latter company's Act (1862), it was agreed that the Caledonian Railway Company should contribute and hold in perpetuity £30,000, or one-fourth of the capital stock of the Wemyss Bay Company, but that only under the conditions, stipulations, and provisions thereinafter written. It was also provided that the Greenock and Wemyss Bay. Company should make and maintain the line, and that when completed the Caledonian Company should supply the necessary rolling stock and work it on the terms set forth in Article 8th of the said agreement, which is as follows:—“That the cost of working the traffic upon the said railway and pier, and of the stock and plant to be provided by the said Caledonian Railway Company as aforesaid, shall be borne and defrayed by the said Caledonian Railway Company, in respect whereof the said Caledonian Railway Company shall be entitled, from time to time, to receive and retain for their own use £50 out of every £100 of the gross amount of money earned, realised, and levied on the said railway and pier, until, from time to time, the said gross receipts shall so far exceed £8000 in the year, as at £45 per cent thereof to yield for the said working a sum not less than £4000, in which case £45 out of every £100 of the said gross receipts shall be received and retained by the Caledonian Railway Company for the said working, instead of £50 per cent as aforesaid, and the remainder of the said gross receipts shall belong to the Greenock and Wemyss Bay Railway Company.

The charges upon the balance of the gross receipts, after paying the working expenses in terms of Article 8th, and the manner in which the residue is to be divided, are thus settled by Article 9th of the said agreement:—“That out of the said Greenock and Wemyss Bay Railway Company's share of the gross receipts there shall be paid by them— First, The whole charges and expenses of maintaining the said railway, pier, and other works, and also all public and parish burdens, including poors-rates, county rates, prison assessment,

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and taxes generally that may be chargeable upon the said railway and pier in respect of the said line and works, also the government-duty on passengers, and all payments, if any, to be made for land to be held by the said Greenock and Wemyss Bay Railway Company in feu or lease. Second, The ‘general charges’ to be incurred in conducting the ordinary directorial and financial business of the company; and Third, After providing for these payments, one-fourth of the balance shall belong to and be paid to the Caledonian Railway Company, in respect of their said contribution of £30,000, as further provided for in Article 14th hereof, and the remaining three—fourths of the said balance shall belong to the other shareholders in said Greenock and Wemyss Bay Railway Company.” And it is further provided by Article 14th:—“That in respect of the payment of the said £30,000 of capital, and the other provisions above-written, the Caledonian Railway shall, in perpetuity, have right to one-fourth part or share, neither more nor less, of the nett revenue, as defined in Article 9th hereof, of the proposed company, whatever may be their expenditure in making the intended railway, pier, and works connected therewith, or otherwise; and the said first parties shall be bound to provide for all excess of cost beyond the amount of capital above specified necessary for completing the said undertaking; and the interest or dividend payable in respect of the said excess of expenditure, and the interest on all money borrowed, shall form a charge on the remaining three-fourths of the nett revenue of the said company, but that, subject to the above condition, the proposed company may borrow on mortgage of the whole of the proposed undertaking any sum not exceeding £40,000.”

The foresaid sum of £30,000 was contributed by the Caledonian Company to the capital stock of the Wemyss Bay Company, and the line was opened in the first half of 1865, and has since been worked by the Caledonian Company in terms of the foresaid agreement. For the half-years ending 31st July 1865, 31st January 1866, and 31st July 1866, there were paid by the Wemyss Bay Railway Company to the Caledonian the several sums of £317, 13s. 5d., £351, 7s. 6d., and £440, 0s. 7 1 2d., “being one-fourth of nett receipts, after deducting working expenses, in terms of Act and agreement.” In the reports and accounts of the Wemyss Bay Company, from half-year ending 31st January 1867 to half-year ending 31st July 1869, there were similarly brought out various sums, amounting in all to £2498, Is. 3 1 4d., as due to the Caledonian Company as one-fourth of the nett revenue. Although thus credited to the pursuers, these sums were never paid. The present action was brought to recover payment of the said sum of £2498, Is. 3 1 4d, as also of £428, 11s. 4d,, and £538, 19s., being the one-fourth of the nett revenue for the half-years ending 31st January and 31st July 1870.

The defenders stated that the payments made as averred by the pursuers in 1865 and 1866 were made in error, and that the sums credited to the pursuers in the accounts for 1866 to 1869 were erroneous entries, and that the sums sued for were not due, as during those years there was truly no available revenue out of which the pursuers could claim one-fourth—as the working expenses, maintenance, passenger-duty, rates, and taxes, payments on account of land, and interest, exceeded the gross receipts of the line. The dispute between the parties thus depended upon the reading of Articles 9th and 14th of the agreement.

By Article 18th of the said agreement it was provided that “all differences which may arise between the parties hereto respecting the true meaning or effect of this agreement, or the mode of carrying the same into operation, shall, from time to time, so often as any such questions or differences shall arise, be referred to arbitration, in terms of the Railways Clauses Consolidation (Scotland) Act, 1845, and the provisions with respect to the settlement of disputes by arbitration contained in such Act shall be held to be incorporated with this agreement, and be operative in the same manner as if they were verbatim inserted therein.”

The defenders accordingly pleaded, inter alia—“(1) The present action is excluded by Article 18 of the agreement libelled; (2) The defenders ought to be assoilzied, in respect that in none of the half-years in question did any balance of revenue remain after meeting the requisite charges, and that thus there was no sum divisible between the pursuers' and the defenders' shareholders, in terms of Article 9th of the said agreement.”

The Lord Ordinary ( Ormidale) sustained the defender's first plea in law, and dismissed the action.

On a reclaiming note the First Division recalled the interlocutor of the Lord Ordinary, and appointed the case to be argued before seven Judges upon the question, “Whether the question raised by the defenders' second plea, in the circumstances disclosed on the record, and in the accounts produced by the defenders, falls to be settled by arbitration, under the 18th article of the agreement libelled.” After hearing, their Lordships gave judgment answering the question in the affirmative.

The pursuers appealed to the House of Lords.

In giving judgment—