Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Johannesburg Municipal Council v. D. Stewart & Co. (1902) Ltd and Others [1909] UKHL 20 (06 July 1909)
URL: http://www.bailii.org/uk/cases/UKHL/1909/47SLR0020.html
Cite as: [1909] UKHL 20, 47 ScotLR 20
[New search] [Printable PDF version] [Help]
SCOTTISH_SLR_House_of_Lords
Page: 20↓
House of Lords.
(Before the
v.
(In the Court of Session, March 19, 1909, 46 S.L.R. 657, and 1909 S.C. 860.)
Subject_Contract — Process — Jurisdiction — Arbitration — Foreign — Breach — Non-fulfilment — Damages — Contract, to be Deemed an English Contract, to be Implemented in the Transvaal, Containing Clause of Reference to Arbitration in England and in the Transvaal, English Law to Govern Arbitration, with Supplementary Contract having Clause for Arbitration in Transvaal, Transvaal Law to Govern.
Cautioner — Beneficium ordinis — Arrestment on Dependence — Guarantee for Performance of Contract — Action of Damages for Breach or Non-fulfilment against Principal and Cautioner — Validity of Arrestments against Cautioner.
Facts:
A contract, declared to be an English contract enforceable in and subject to the jurisdiction of the English Courts, whereby a Scottish company undertook to supply engineering plant to the Johannesburg Municipal Council, contained this clause of reference—“In case any dispute or difference shall arise between the purchasers and the contractors … it shall, after the complete delivery of the material, be referred to the arbitration of a single umpire or referee to be mutually agreed upon between the parties, or failing agreement, to be nominated by the president for the time being of the Institution of Civil Engineers of London, or in the case of disputes with local contractors in Johannesburg to be nominated by the Lieutenant-Governor of the Transvaal …. and the arbitra
Page: 21↓
tion shall be an arbitration within the meaning of the Arbitration Act of 1889 (England) and shall be conducted in all respects as therein provided.” A supplementary contract called “The Running Contract” contained this clause of reference—“In the event of any dispute between the contractors and the Council under this contract, the matter shall in the first place be referred to the engineers, but if either party refuses to accept the engineers' decision the matter in dispute shall be referred to a single arbiter or umpire to be mutually agreed upon, or failing agreement to be nominated by the Lieutenant-Governor of the Transvaal, and to hold the said arbitration in Johannesburg …. and the arbitration shall be deemed to be an arbitration within the meaning of the Transvaal Ordinance of 1904, and shall be conducted in all respects as therein provided.”
The contractors having refused to continue the tests under the “Running Contract,” the Council rejected the whole material as unsatisfactory and brought an action in the Scottish Courts in which they sought to recover the payment made to account and also two separate sums as damages under the “Main” and “Running” contracts respectively. The Court of Session directed the parties to prepare a stated case for the opinion of the English Courts on the ground that the scope and validity of the arbitration clauses fell to be decided by these Courts, and it was necessary for the proper disposal of the case to ascertain whether the arbitration clauses covered the dispute between the parties.
Held (1) that the question whether the dispute between the parties fell within the arbitration clauses was as much a question of fact as of law; (2) that the action should therefore have gone to proof in the ordinary way in the Scottish Courts; and (3) that these Courts would, under the law of England, have the power, but would not be under necessity, should they find the dispute to be within the contract, to refer any part thereof to arbitration if that course were convenient and in accordance with Scottish practice.
Per the Lord Chancellor—“If the cause of action which is really established be that there has been complete repudiation and breaking of this contract, then it would not be within the arbitration clauses in either of these contracts.”
Opinion, per Lord Shaw, that the clauses of arbitration were executorial only and could not include a reference to an arbiter of the question whether a repudiation of the contract was justifiable, and further that the two contracts were so intermixed that procedure by arbitration was unworkable.
A Scottish company, by a contract which was declared to be deemed an English contract, contracted to supply certain engineering plant to a colonial municipal council. A bond, in English form, guaranteeing the fulfilment of the contract, was granted by an individual. The municipal council brought an action of damages for breach or non-fulfilment against the company and also against the guarantor, and used arrestments on the dependence against the latter.
Held ( rev. First Division) that the action as against the guarantor was not premature, and that the arrestments should not be recalled. Question whether if the law of Scotland alone had been in question the decision would have been otherwise.
This case is reported ante ut supra.
The Johannesburg Municipal Council (pursuers) appealed to the House of Lords.
Clauses 33 and 34 of the “Running Contract,” which are referred to by Lord Shaw, were as follows:—“33. New works and alterations.—The contractors shall at their own expense carry out the works set out in Schedule ‘A’ appended to this contract, which are hereby declared to be considered by both parties to this contract to be required for the successful completion of the works contracted for in the main contract.” [Schedule “A,” which was headed “A list of the more important additions, alterations, and adjustments to be made by the contractors,” contained 41 different heads.] “34. Further alterations and works.—The contractors shall further, at their own expense, carry out such further details and do all things as may be necessary to attain complete success with the generating station and all the works under the main contract as early as possible.”
At the conclusion of the arguments—
Page: 22↓
I must add another thing, and it is this—according to the English law (and this is a contract specifically declared to be an English contract) the arbitration clause, which contains a reference to the English Act of 1889, would not compel an English Court to refer any of these matters to arbitration. And accordingly, in my opinion, even if the subject-matters in dispute were all matters, and it was ascertained that they were all matters, that came within the terms of the two arbitration clauses to which we have been referred, it would not follow that they ought to be referred; and the Court of Session, in my opinion, is not bound to refer any one of these matters that come before them in the course of this trial under these arbitration clauses unless they think it is suitable, and in their discretion right, to do so, because the contract is an English contract.
I consider that the Court of Session has jurisdiction to entertain the entire case, and if it thinks fit and has the power, in accordance with Scottish law and practice, to refer any part of it to arbitration, then the Court in Scotland can do so; otherwise it need not do so. And it is possible, in my mind — although I do not in the least degree anticipate what will be proved as to the merits of the case—that a case may be put forward by the now appellants, by the pursuers, saying—“Here is a contract; you admit that every part of it has been broken; you admit that no part of the machinery has passed the test; you have stated you will do no more in the way of carrying out that contract”—I say the parties might put forward that claim and ask for damages upon that footing. Whether they will do so or not I do not know.
The other matter which has been decided by the Court of Session is that they have dismissed the surety William Beardmore from the proceedings. I must confess that I can see no reason for doing that. He was a surety for the performance of this contract, and under a bond which again declared that it was an English bond. And yet the Court of Session have struck him out of the case, apparently upon the ground that it was incumbent upon the creditor to prove the amount of his debt against the debtor before he could take any steps whatever against the surety.
That is not the law of England, I do not know without further inquiry whether it is the law of Scotland, but I understand it is not necessarily the law of Scotland either in all cases of sureties. At all events, I think it is wrong in this case, and that the order which dismisses Mr Beardmore and dismisses the arrestments is erroneous.
The result is that I think the order should be set aside and the case should go to proof in the ordinary way.
Standing upon those averments, the natural course of the case in Scotland would have been to remit them to probation. In addition, however, to those broad averments, a variety of statements were made by the pursuers, and in my opinion very properly made, so as to give notice to the defenders of the various stages which these transactions reached and at which the various steps of and leading up to repudiation took place.
I can perfectly understand the arguments submitted to us to the effect that if the documents referred to in substantiation of the pursuers' averments had been upon examination found to be so inconsistent with those averments as plainly to show that they were unfounded, then this Court would have been entitled to look at them for that purpose, because so to speak they would disestablish completely the pursuers' case. I have looked at these documents so referred to, and instead of upsetting the pursuers' case, I think, at first sight (although I make no final pronouncement upon them) they seem to confirm it.
Now the proof that is asked for has been refused by the learned Judges of the Court of Session upon two grounds. In the first place, they proceed to analyse somewhat minutely those documents, with a result of setting up certain inconsistencies with the shape of the pleadings—a result which does not seem to be borne out completely by the text of the documents themselves, and in the course of reaching which the broad and relevant averments to which I have referred have been, I fear, left on one side. In the second place, their Lordships find themselves confronted with the arbitration clause, and appear to attach considerable weight to it.
I can only say that having considered this both in the light of the arguments deduced from the law of England and the law of Scotland, I do not agree that the conclusion arrived at either by Lord Mackenzie or the Judges of the First Division is sound. I treat this case as a case of total repudiation upon the averments, and I demur to the argument that it is possible in a question as to proof to investigate the averments upon the other side, because you must take pro veritate the pursuers,
Page: 23↓
But if that be so, this contract was wholly repudiated. It does not appear to me to be sound law to permit a person to repudiate a contract, and thereupon specifically to found upon a term in that contract which he has thus repudiated.
In the second place, on examination these contracts were not one but were three. In the first contract a certain arbiter in this country was named; in the second an arbiter in the Transvaal; and in the third no arbiter at all. If your Lordships look at clauses 33 and 34 of the running contract, it will be found that it is impossible to work out the running contract except as ancillary and supplementary to the main contract, and that these two contracts were so interlinked and intermixed as to make it most difficult and in all likelihood impossible to extricate by separate arbitration the rights emerging under the respective contracts. In these circumstances it does not appear to me that either under the law of Scotland or the law of England courts of law are bound by a judicial enforcement of an arbitration clause to place the parties in a situation not only embarrassing but unworkable.
Finally, the language of this contract appears to me to show that the arbitration was nothing but an executorial arbitration — a term perfectly familiar to the law of Scotland, and I suppose also to the law of England. But to read into an arbitration of that character a power such as I put plainly to Sir Robert Finlay, and which he, for the purposes of his argument, most properly admitted, namely, a power to the arbiter to determine that this repudiation upon the part of his clients was a justifiable repudiation, would be to throw the whole of these protracted proceedings again into the melting pot and to start again under the worst auspices before an arbiter even after he was selected. Upon these grounds I am of opinion that the judgment arrived at fails to achieve the true justice of the situation as between these parties; and I can only say in concluding this part of my opinion that I should not myself anticipate anything of the protracted nature which has been foreshadowed by way of argument. If, for instance, the averments of the pursuers should be substantially proved, they will go largely to dispel the necessity for any protracted inquiry with regard to detail. But upon the merits of the case upon that or other heads, I give, of course, no opinion whatsoever.
On the matter of the guarantee I desire especially to call attention to one passage in the opinion given by Lord M'Laren. He says that “until the failure” of the principals “is established by competent process, either in a court of law or in a court of arbitration, no claim arises against the surety.” As your Lordship has pointed out from the woolsack, this contract falls by agreement of parties to be interpreted by the law of England, and so far as that proposition applies, it does not express English law. That being so, I am absolved from the necessity of pronouncing upon that as a Scotch matter, but it having been judicially affirmed in the Court below, I wish distinctly to intimate that I can have no part in such an affirmation, and must reserve my opinion upon any such point.
Their Lordships pronounced an order whereby they remitted the case back to the Court of Session with a direction to allow the parties a proof of their averments and to refuse the prayer of the petition for recal of the arrestments, with expenses to the appellants from the closing of the record.
Counsel for the Pursuers (Appellants) — Clyde, K.C.— Morison, K.C.— Mitchell. Agents— P. Morison & Son, S.S.C., Edinburgh— Faithful & Owen, Solicitors, London.
Counsel for the Defenders (Respondents)— Sir R. Finlay, K.C.— Macmillan— Hon. W. Watson— Fletcher Moulton. Agents— Davidson & Syme, W.S., Edinburgh— Nicholson, Graham, & Beesly, Solicitors, London.