Scottish Court of Session Decisions

The Lands Clauses (Scotland) Act 1845 (8 and 9 Vict. caj). 19) enacts—Section 23—“If the compensation claimed or offered in any case shall exceed fifty pounds, and if the party claiming such compensation desire to have the same settled by arbitration and signify such desire to the promoters of the undertaking … the same shall be settled by arbitration in the manner hereinafter provided.” Section 24—“When any question of disputed compensation … required to be settled by arbitration shall have arisen then unless both parties shall concur in the appointment of a single arbiter, each party, on the request of the other party, shall nominate and appoint an arbiter, to whom such dispute shall be referred, … and such appointment shall be delivered to the arbiters and shall be deemed a submission to arbitration on the part of the party by whom the same shall be made, and after any such appointment shall have been made neither party shall have power to revoke the same without the consent of the other, nor shall the death of either party operate as such revocation, and if for the space of fourteen days after such dispute shall have arisen, and after a request in writing, in which shall be stated the matters so required to be referred to arbitration, shall have been served by the one party on the other party to appoint an arbiter, such other party fail to appoint an arbiter, then upon such failure the party making the request and having himself appointed an arbiter may appoint such arbiter to act on behalf of both parties, and such arbiter may proceed to hear and determine the matters

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which shall be in dispute, and in such case the award or determination of such single arbiter shall be final.”

Colin Reid Sellar, pursuer, brought an action against the Highland Railway Company and others, defenders, concluding for reduction of a pretended decreet-arbitral pronounced in a reference between the pursuer and the Highland Railway Company, and for payment of £628, 14s. 11d., being the amount of the expenses incurred by the pursuer in the reference.

The submission between the pursuer and the defenders the Highland Railway Company was in the following terms—“The parties following, namely, the Highland Railway Company, incorporated by Act of Parliament, successors to and as coming in place of the Inverness and Aberdeen Junction Railway Company, incorporated by ‘The Inverness and Aberdeen Junction Railway Act 1856,’ on the one part, and Colin Reid Sellar, owner and lessee of salmon fishings, and residing in Aberdeen, heritable proprietor of the salmon fishings in the river Findhorn from the Red Craig to the entry of the river Findhorn in the sea on the other part—considering that the Railway Company began some time ago to execute works along the right or east bank of the river Findhorn near their bridge, carrying the Inverness and Aberdeen Railway across the river Findhorn, for the sake of protecting their line and said bridge against encroachment by the river, and that the said Colin Reid Sellar complained of said operations as an interference with his fishing rights while the work was in progress and as rendering them more difficult of operation, and as being besides a standing menace to his fishings of the Long Pool and those below, in case material from the first parties' embankment should at any time find its way into the Long Pool and fishing pools below the same, and intimated a claim for damage in terms of section 16 of ‘The Railway Clauses Consolidation (Scotland) Act 1845,’ and called upon the first parties to concur with him in naming an arbiter or arbiters under section 24 of ‘The Lands Clauses Consolidation (Scotland) Act 1845’ to deal with his claim, which the first parties have not admitted: Therefore the said Railway Company do hereby appoint Charles Pullar Hogg, civil engineer, Glasgow, to be arbiter on their behalf; and the said Colin Reid Sellar hereby appoints George Davidson of Wellwood, merchant and salmon fisher in Aberdeen, to be arbiter on his behalf, to determine the compensation, if any, to be paid by the Railway Company to the said Colin Reid Sellar ( one) for permanent deterioration of the Long Pool fishings through the said new works; ( two) for added risk to the Long Pool fishings and the other fishings below the same, arising from the possible insufficiency of these works; and ( three) for loss of fishing during the progress of the works, with powers, and subject to the provisions anent arbitrations contained in ‘The Lands Clauses Consolidation (Scotland) Act 1845.’’

After the reference had been devolved upon the oversman it was discovered that the arbiter nominated by the Highland Railway Company was a holder of ordinary stock in that company, and upon that ground the pursuer sought reduction of the decreet-arbitral pronounced by the oversman. On 16th May 1918 the First Division, affirming Lord Sands, Ordinary, reduced the decreet-arbitral and remitted the cause to the Lord Ordinary to proceed (see supra, p. 593).

The pursuer pleaded, on the question of damages,—“3. The defenders the Highland Railway Company being bound to appoint under the said submission a duly qualified arbiter in the said reference, and having failed to do so, are liable to make good to the pursuer the loss which he has sustained through their said failure. 4. Separatim. The defenders the Highland Railway Company being liable in terms of the Lands Clauses Consolidation (Scotland) Act 1845 to pay expenses incurred by the pursuer in the said arbitration, decree should be pronounced against them for the amount thereof.”

On 21st June 1918 the Lord Ordinary ( Sands) found the defenders liable to the pursuer in payment of the expenses incurred in the reference.

Opinion, from which the facts of the case appear:—“In this case the oversman's award has been set aside on account of an original disqualification of one of the arbiters. The question is whether a party to the abortive arbitration is entitled to recover the expenses to which he has been put in the arbitration proceedings from the party who nominated the disqualified arbiter. The first answer to the claim made on the part of the latter is that such a claim is unprecedented, and therefore presumably it has always been regarded as incompetent. The value, however, of an inductive argument of this kind, which seeks to set up a consensus communis, depends upon the number of possible occasions on which such a claim might have emerged. But I am informed that there is no reported case where the original disqualification of an arbiter was successfully insisted in after the expenses of the reference had been incurred. The question must therefore, I think, be treated as a new one upon which there is no authority.

“The arbiters here in question were appointed in accordance with an agreement between the parties made in compliance with a statutory requirement—section 24 of the Lands Clauses Consolidation (Scotland) Act 1845. It does not appear to me to be material for the purposes of this case to determine whether the agreement is to be treated simply as an appointment made in terms of the statute or as an independent arrangement between the parties. The result will, I think, be the same in either case.

There are two sets of circumstances in neither of which the question now before me would occasion much difficulty. If a party nominates an arbiter whom he knows to be disqualified he must, I think, bear the consequences as regards expenses incurred by the other party. In nominating an arbiter he agrees to nominate one who so

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far as he knows is competent to act. Again, where one of the parties nominates an arbiter whom he does not know to be disqualified, and has no reason to suppose may be disqualified, but who for some secret reason turns out to be disqualified, I think that the loss entailed by the abortive proceedings must just rest where it lights. It is a damnum fatale if, for example, prior to his appointment one of the arbiters has made a corrupt bargain unknown to the person appointing him with some person having an indirect interest in the result of the arbitration. The difficult case is the middle one, where the disqualification though not known to the party making the appointment is readily ascertainable and is not improbable. The difficulty is enhanced by the consideration that the disqualification may be ascertainable by either party. Each case of the kind must, I think, be judged of according to its own circumstances.

It is contended that the present case belongs to the first category, viz., where the disqualification is known, because a company cannot be heard to contend that it did not know who were its own shareholders, and must therefore be taken to have known that the arbiter was disqualified. I hesitate, however, to proceed upon this theory, which is undoubtedly artificial, when one considers the number of shareholders and the department by which an appointment like this is made. I prefer to treat the case as falling within the third category, for the disqualification, though it may not have been known to the party making the appointment, was readily ascertainable by him from documents in his own possession. I have come to the conclusion that, having regard to the comparatively large and widespread nature of the shareholding of the Highland Railway Company there was no improbability in a gentleman like the arbiter here appointed being a shareholder, that the defenders should have satisfied themselves with regard to this before appointing him, and that the pursuer was not put upon his inquiry, but was entitled to assume that the defenders would not appoint one of their own shareholders as arbiter.

I am accordingly of opinion that the defenders are liable to indemnify the pursuer for the consequences of their having appointed an arbiter who for reasons readily ascertainable by the defenders was disqualified from acting.

The other question which was argued before me was as to the scale upon which the expenses should be taxed. The pursuer argued that they should be taxed as between agent and client. I confess that the recognition of two scales for the taxation of an account payable by an adverse third party has never appeared to me to be very satisfactory. A party who has been successful in a litigation is entitled to be indemnified by the party who is found to have been in the wrong. This indemnity is designed to cover all that is necessary for the reasonable and prudent conduct of the litigation. Not a penny more can be recovered, no matter how vexatious or fraudulent the conduct of the other party may have been. If anything less is recoverable there is something unsatisfactory in our system of taxation, and this the Court cannot assume. As between an agent and his own client there may doubtless be other considerations. The client chooses the agent, and, it may be, gives him a discretion or even instructions which may involve expenses which it is proper that the client should pay. In certain cases too there may be special considerations even when a third party has to pay expenses, as, for example, the principle that gratuitous trustees acting bona fide must be kept personally indemnis. But apart from such specialities it seems to me to be contrary to principle that there should be two scales of taxation of accounts payable by third parties, and I am not disposed to extend the practice. If I direct this account to be taxed in the ordinary way as a judicial account it is, I conceive, the duty of the Auditor to allow all that was necessary for the conduct of the arbitration in a reasonable and prudent way. If he allows less there must be something amiss with our system of taxation. If he were to allow more he would be allowing something which was not the consequence of the breach of agreement or statutory duty (whichever it be regarded) of which the pursuer complains.

I shall accordingly find that the defenders are liable to the pursuer in payment of the expenses incurred in the reference, and remit the accounts to the Auditor for taxation.”

The defenders reclaimed. In the course of the discussion the pursuer obtained leave to amend his record and the defenders to answer his amendments.

The pursuer's averments as amended were—“(Cond. 2) Part of the river fishings now belonging to the pursuer is known as the Long Pool, and this pool is intersected and crossed at right angles or nearly so by the line of the Highland Railway between Forres and Inverness. This railway was constructed under the Inverness and Aberdeen Junction Railway Act 1856, and now belongs to the defenders the Highland Railway Company. The railway is carried across the river by an iron girder bridge on stone piers and consisting of three large spans. For many years the river has shown a tendency to run more and more to the east, and the erosion on the east bank immediately above the said bridge has been considerable. After the end of the fishing season of 1915 the Railway Company, acting under the powers anent maintenance of their works contained in the Railway Clauses Act (8 and 9 Vict, cap. 33), section 16, entered on extensive operations with a view to checking the encroachments of the river on the east bank and with the object of protecting their line and bridge. The effect of these operations has been seriously to diminish the value of the pursuer's fishing rights, which he acquired at a cost of £15,507. [In consequence the pursuer became entitled to compensation in respect of the diminution of the value of the said fishings, in terms of

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section 16 of the Railway Clauses Consolidation (Scotland) Act 1845. The pursuer, in terms of section 23 of the said last-mentioned Act, desired his claim to be settled by arbitration, and accordingly called on the defenders the Highland Railway Company to concur with him in appointing an arbiter or arbiters under section 24 of the said Lands Clauses Act to deal with his said claim.] (Cond. 3) [By virtue of the sections of the Acts referred to in condescendence 2 the defenders became bound to nominate an arbiter, failing which the pursuer was entitled to appoint an arbiter to act on behalf of both parties. The defenders accepted the procedure prescribed by the first part of section 24, and] by submission, dated 23rd December 1916 and 12th and 13th January 1917, the pursuer and the defenders the Highland Railway Company referred to the determination of the defender Charles Pullar Hogg, as arbiter appointed by the Railway Company, and of the defender George Davidson, as arbiter appointed by the pursuer, the compensation, if any, to be paid by the said Railway Company to the pursuer (1) for permanent deterioration of the Long Pool fishings through the said new works; (2) for added risk to the Long Pool fishings and the other fishings below the same, arising from the possible insufficiency of these works; and (3) for loss of fishing during the progress of the works, with powers, and subject to the provisions anent arbitrations contained in the Lands Clauses Consolidation (Scotland) Act 1845…. (Cond. 10.) [Under and by virtue of the statutory provisions above referred to there was a statutory obligation on the defenders the Highland Railway Company, and it was also] an implied condition of the contract contained in the said submission between the pursuer and the [said] defenders, that the arbiters appointed by the [said defenders] should be duly qualified to adjudicate on the dispute which was thereby referred to arbitration. [In any case there was a statutory obligation or otherwise an implied obligation undertaken by the said defenders that they would not appoint an arbiter who was known to them to be disqualified or whom they might with reasonable diligence have ascertained to be disqualified]. The arbiter appointed by the said Railway Company was not so qualified, and in consequence the said decreet-arbitral is invalid. The expenses incurred by the pursuer in the said reference, amounting to £628, 14s. 11d., have been thrown away, and the pursuer has sustained loss to the extent of the sum sued for. This loss is the direct result of the said defenders having improperly and illegally named as arbiter one of their own shareholders, known to them [or whom they might with reasonable diligence have ascertained] to be disqualified from acting in that capacity. Further, the expenses incurred by the pursuer in the said arbitration fall in any event to be paid by the defending company under and in terms of section 32 of the Lands Clauses Consolidation (Scotland) Act 1845, inasmuch as no effective award has been pronounced therein of the same sum as or a less sum than was tendered by the defending company. The pursuer is willing that his accounts of expenses should be taxed by the Auditor of the Court of Session.” The pursuer's pleas-in-law as amended included plea 4 supra, and the following:—“3. The defenders the Highland Railway Company being [statutorily bound under the procedure accepted by them prescribed by section 24 of the Lands Clauses Consolidation (Scotland) Act 1845, or otherwise being] bound under the said submission [to appoint] a duly qualified arbiter in the said reference and having failed to do so are liable to make good to the pursuer the loss which he has sustained through their said failure. [3a. In any event the defenders the Highland Railway Company having in breach of their statutory or contractual obligation appointed as their arbiter a person whom they knew, or otherwise whom with reasonable diligence they could have ascertained, to be disqualified are liable for the loss thereby caused to the pursuer.]”

Argued for the reclaimers the Highland Railway Company—The contract of submission consisted in the appointment of an arbiter under section 24 of the Lands Clause Consolidation (Scotland) Act 1845 (8 and 9 Vict. cap. 19). The arbiter was disqualified—that rendered the contract merely voidable; but the pursuer having the option to adopt the contract or not had reduced it, and had thus by his own act swept it away and with it any conditions implied in it. Hence he could not plead that the contract implied a condition that the arbiter chosen would be free from exception. But in any event the contract did not imply any such condition, for a condition could only be implied when it necessarily followed from the intention of parties that showed a condition should be implied— Hamlyn & Company v. Wood & Company, [1891] 2 QB 488, per Lord Esher, M.R., at p. 491, citing The Moorcock, 1889, 14 P.D. 64, per Bowen, L.J., at p. 68; Reigate v. Union Manufacturing Company (Ramsbottom), [1918]1 K.B. 592, per Scrutton, L.J., at p. 605. No such necessary implication arose here. The Lord Ordinary had assumed that there was an obligation upon the defenders to take reasonable care not to appoint a person who might be disqualified, and had found the defenders liable because they had failed to consider the probability of the arbiter named holding stock in their company and had not ascertained from information in their possession whether or not that was the case. That ground of decision could not be supported, for a railway company could not be held to have always in mind the names of all its shareholders, and in point of fact the disqualification of the arbiter in question had escaped, till a late stage of the reference, the notice of all concerned. Further, the index of shareholders' names would not supply the requisite information, for e.g., if stock was held by trustees only the first of several trustees' names appeared in the index. Further, the arbiter being disqualified, it followed that no appointment of an arbiter had ever been made, but the pursuer could not recover damages for breach of an obligation to refer. He could not

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have sued the defenders for implement of an obligation to refer, for if either party refused to nominate an arbiter an alternative procedure was provided—section 24. The defenders were not bound absolutely to warrant the competency of the arbiter appointed by them. The cases cited by the pursuer were not in point, for they were cases of delict.

Argued for the respondent—The contract of submission necessarily implied that the arbiter chosen would be competent to act as such in the matter referred— The Moorcock ( cit.). The contract being voidable reduction of it did not exclude a claim for damages. The contract necessarily involved an absolute warranty that the arbiter was fit at the date of the submission, or, if not, a warranty that so far as known to the defenders the arbiter was fit, or in any event that the defenders had used reasonable care to find out if the arbiter was fit. Further, if that did not arise ex contractu, it did arise upon the terms of section 24 of the Lands Clauses Act. Assuming the least onerous of these obligations was the obligation upon the defenders, they had not fulfilled it, for the company was bound to keep a register of their shareholders authenticated by their seal at each ordinary meeting—Companies Clauses Consolidation (Scotland) Act 1845 (8 and 9 Vict. cap. 17), sections 9, 10, and 16; Palmer's Company Law, 9th ed., p. 260. The company's officials were seised with knowledge of the names upon the register, and as their knowledge was official and was acquired by them as servants of the company, the company must also be held to be fixed with knowledge of the contents of the register, and therefore of the disqualification of the arbiter— Bawden v. London, Edinburgh, and Glasgow Assurance Company, [1892] 2 QB 534, per Lord Esher, M.R., at p. 539; Stiles v. Cardiff Steam Navigation Company, 1864, 33 L.J., Q.B. 310; William Brandt's Sons & Company v. Dunlop Rubber Company, [1905] AC 454, per Lord Macnaghten, at p. 463; Vizelelly v. Mudie's Select Library, Limited, [1900] 2 QB 170; John v. Dodwell & Company, [1918] AC 563, per Viscount Haldane, at p. 568. Of the two persons upon whom the loss might light the defenders could easily have ascertained the disqualification of the arbiter. The pursuer could not, for he had no right to inspect the register of shareholders— Davies v. Gas Light and Coke Company, [1909] 1 Ch 708.

At advising—