Scottish Court of Session Decisions

In the year 1869 Messrs John Morison senior, John Morison junior, and William Thomson, brewers in Edinburgh, entered into a contract of copartnery by which they agreed to carry on the business of brewing in premises in the Canongate of Edinburgh, called the Commercial Brewery, under the firm of J. & J. Morison & Thomson. The duration of the contract was fixed to be nineteen years. In the year 1878, certain differences having arisen between Mr Thomson and the Messrs Morison, it was agreed that Mr Thomson should, in consideration of the receipt of a sum of money, retire from the firm, and make over to Messrs Morison his whole interest therein, and in the stock and funds thereof. The sum to be paid to Mr Thomson was referred to the decision of Mr James Steel, formerly a brewer in Edinburgh, and now a spirit merchant in Glasgow. Mr Steel on 5th June 1878 accepted the reference, and appointed Mr J. A. Dixon, writer, Glasgow, to be clerk. Proof for both parties on the questions involved in the submission was led before him at various dates in the months of April, May, and June 1879, and counsel were heard on 16th July 1879, and he then made avizandum. For some time previous to that date Steel had been in very straitened circumstances, owing in great measure to the failure in October 1878 of the City of Glasgow Bank, from which he had an overdraft, for repayment of which the liquidators were pressing him. He had tried through his agents to raise money on his premises in Glasgow, which were already burdened to a considerable extent, but had failed to arrange a loan. On 16th July 1879 he called on Mr Duncan, agent for Messrs Morison in Glasgow, and told him he was in need of money; that he had got two persons—one a distiller, the other a brewer—to assist him on condition that he would purchase his stock of spirits and porter from them respectively; and asked him whether he or his firm in Edinburgh, Messrs Morison, would take into consideration a loan to him of the rest of the sum, of which he was in immediate need, provided that he bound himself to purchase from them his stock of beer. It appeared from the proof allowed in the case, and hereafter referred to, that it is a common practice in the trade for brewers to lend money to publicans on such an undertaking. Steel asked Mr Duncan to keep the matter private, and Mr Duncan on the same date (16th July 1879) wrote the following letter to Messrs Morison:—

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“ Private.

Dear Mr Morison,—I have had an interview with a mutual friend, and he has asked me to speak to you on his behalf. I will be glad to see you here, or I will run through to Edinr., or if you are cruising anywhere near, I would make it my study to meet you; it is our friend Mr Steel, who wants to borrow £1000—the details I can give you when we meet.”

Mr Steel's account of this interview on being examined as a witness in the cause was, so far as material, as follows:—“Mr Duncan undertook to submit my proposal to Messrs Morison. I said to him that we were engaged in an arbitration, and that I did not want to be compromised by these money matters until the arbitration was finished. I do not know that I said to Mr Duncan that it was a delicate matter to propose that they should lend me money on account of the submission. I might speak of the matter as being a delicate one altogether; borrowing is always a delicate matter. (Q) Did you say that on that account it would require to be kept private?—(A) No; I do not think I put him under any special obligation. (Q) Did you use any words to the effect that because of the submission it was a delicate matter and would need to be kept private?—(A) In a general way I told him that it was not to be the town's talk. (Q) Was it not delicate because you were the arbiter and Morison was a party-submitter before you at the time?—(A) There was no delicacy in the case; this gentleman was going to speak to Morison about it, and all delicacy and secrecy were taken away at once. I did not think there was any delicacy about it. I thought that Morison would do me the usual friendly turn, and I thought that I was going to do a good turn for them too. (Q) Was this the delicate point in the transaction, that you were seeking a loan, you being arbiter and Morison being a party-submitter?—(A) No; the delicacy was of a general nature. I had a general delicacy in seeking money from anybody. (Q) Had you no delicacy as an arbiter in seeking a loan from a party-submitter?—(A) Not from people whom I had known for many years, and with whom I had drunk so many bottles of champagne, and been invited to their yachting and their houses. By the Court—I asked that the matter should be kept private, simply because I did not wish my affairs to be a talk all over the town. Examination continued—I had not the slightest care whether Thomson knew or not that I was seeking a loan. That was not in my mind when I asked the matter to be kept private. I wanted it to be kept private from the general public—from the mob of spirit-dealers, ale-agents, and people of that kind. I never thought of telling the Thomsons about it. (Q) Did you think that Duncan would tell them about it?—(A) I never thought at all about it. (Q) But you would rather that they did not know?—(A) I cannot tell you if I would or would not.” Mr Duncan, who was also called as a witness, deponed on this matter as follows:—“Steel spoke about keeping the matter private. I cannot condescend on the very words he used, but he said something about the arbitration, and that he did not want it to become known. That was the reason why I marked the letter to Morison ‘Private.’ (Q) Steel did not want it known because of the dependence of the arbitration?—(A) I understood so. I rather think he said something about being indebted to Morison, but I would not swear positively. Having written that letter on the 16th July, I went through to Edinburgh on the following day, and had a meeting with the Messrs Morison. I explained to them Mr Steel's proposal. They asked my opinion about it, and I told them that I would not go into the transaction. By the Court—My impression was that it was not a good investment.” Mr Morison deponed as to the meeting with Mr Thomson on the 17th July:—“I said nothing to him about the submission. I felt it was a matter of delicacy, as I felt it was a matter in which I could not offend the arbiter by refusing point-blank until this case was settled.”

On 21st July Steel called on Messrs Morison at the brewery, the subject of his visit being the proposed loan. No definite answer was given at that meeting by Messrs Morison to his application—a circumstance which Mr Morison junior explained at the proof to be due to the fact that while he was afraid to offend Steel, and therefore did not wish to refuse, he was at the same time convinced that Steel's affairs were so deeply involved that it would be unsafe to lend him money.

On 28th July Steel issued notes of his proposed findings. These notes showed that he proposed to value Mr Thomson's interest in the business at £12,630, 17s. 9d. Both parties lodged representations against the method by which this result was reached. A few days after the notes were issued Steel called again on the Morisons at their brewery, when the subject of the loan was again discussed and was again left undecided, in consequence, as Mr Morison junior explained, of the same feeling on his part which had prevented the loan from being either granted or refused at the previous interview. About this time Mr Morison senior having consulted his law-agent, was advised by him that the proposal could not be entertained pending the submission. The submission was also a subject of conversation at this meeting, and Steel was informed that a representation against the grounds of his proposed finding was being prepared. The next meeting between Morison and Steel was in Glasgow on 20th August, when the representations were mentioned, but on the matter of the loan being mentioned Steel said he did not wish that matter further alluded to till the arbitration was settled, and the subject then dropped. On 14th October 1879 Steel issued a new set of notes, by which he reduced the sum at which he estimated Thomson's interest to £12,035, 12s. 8d., with interest from March 1878 till payment, being about half the amount claimed by Thomson in the submission. On 2d November 1879 Steel wrote to Mr Morison junior this letter—

“Dear Sir,—Is there any chance of your giving me a lift with the debt to the City Bank? They are writing again, and I suppose I must come to some definite understanding with them now. I will be at the Cross all day to-morrow.” To which Morison on the 3d November returned this answer:—

Dear Sir,—I have your note of yesterday. The overwhelming demand of Thomson's trust for the principal sum, interest, and two-thirds expenses of this very protracted finding have wholly taken us by surprise, and, God knows, loaded us with debt we are unable to meet.

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With the trade of the brewery down to one-half of what we have seen it, we are constrained, in self-preservation, with our clipt wings, to endeavour to pay off some of the debt hanging like a mill-stone round our necks, in case the lawyers get the whole carcase, and in these circumstances can hold out no hope that we can give you a lift out from the demands of the bank.”

Steel replied on the 4th by this letter:—

“Dear Sir,—You might go into the matter of the loan. I am told you have plenty of money, and that you are not generally easily frightened. The trade of the place is worth a fair venture, as it is worth a small agency. You might put your temper out of it and try and help me. I am sure it would be to your advantage.”

About the last-mentioned date Steel wrote to Mr J. S. Thomson, a son and trustee of the submitter Thomson, who had died a few months before, and whose trustees had been sisted as parties in his room, asking him to advance £1000 to make up a sum of £25,000, if he could do it without inconvenience. Thomson replied that he could not himself lend the money, but that his mother might do so out of his father's trust-estate money. Steel replied that it was not an investment for a woman to make, and advising him to consult his lawyers. He enclosed a rent-roll and valuation of his property. Mr Thomson then consulted his law-agent on the subject, and was by him advised that the proposal could not, pending the submission, be entertained, and advised Thomson to burn Steel's letters, which Thomson did. Thomson then wrote to Steel saying the proposal could not be entertained.

On the 11th November the Morisons lodged a note craving an oral hearing by counsel regarding the grounds of the interlocutor of 14th October. This the arbiter, by interlocutor of the next day's date, refused. On the 13th he wrote to Morison as follows:—

“Dear Sir,—I was surprised that you had rebelled against my last decision, as Mr Dickson eight days ago told me the thing was settled. I wonder at your making such a difficulty over a few thousands, when you get brewery and profit and all the comfort of singleness of management to yourself. I thought you'd been more of a philosopher.”

On 12th December 1880 the Messrs Morison, who were not aware of the application to Steel, lodged a protest with the arbiter, in which they narrated the whole communings and correspondence which had taken place between themselves and the arbiter, as above narrated, and protested that these transactions amounted to “grossly improper and illegal conduct on the part of an arbiter, and to corruption within the meaning of the Act of Regulations 1695, and that any award or decree-arbitral which the arbiter may pronounce will be illegal and invalid.” The protest went on to declare that if the arbiter persisted in going on with the proceedings they would only appear under protest, and reserve their rights to bring a reduction of any decree which the arbiter might pronounce.

On 24th January 1880 the agents for Thomson's trustees wrote to Mr Dixon, clerk to the reference, asking him to inform them what in his opinion would be a proper fee for the arbiter. Mr Dixon replied on the same day stating that the arbiter's fee would be £210. The Messrs Morison having become aware of this correspondence their agent wrote to Mr Dixon protesting against any fee being paid to arbiter, on the ground that, for the reasons stated in their protest, he had forfeited all claim to any fee. In any view, they said the sum proposed was extravagant. On 4th February the arbiter issued his final award and decreearbitral, finding Messrs Morison bound to pay to Thomson's trustees a sum amounting in all to £12,035, 12s. 8d., with interest from 31st March 1878, together with two-thirds of the expenses of the reference.

Messrs Morison, who had now become aware of the communings between Mr J. S. Thomson and the arbiter, then brought this action against Thomson's trustees and Steel, concluding for reduction of the decree-arbitral on the ground of corruption within the meaning of the Act of Regulations 1695.

They pleaded, inter alia—“(1) The arbiter having been guilty of grossly improper and illegal conduct and of corruption, within the meaning of the Act of Regulations 1695, the said decree-arbitral is illegal and corrupt, and ought to be reduced. (2) The loan asked by the arbiter from the pursuers having been of the character of a gift, or at all events involving large benefit to the arbiter, the whole subsequent proceedings in the submission were and are corrupt, illegal, and invalid. (3) The arbiter having acted improperly, illegally, and corruptly in unfairly increasing his original findings in several particulars, in refusing the reasonable request of the pursuers for a further hearing, and in refusing to correct errors pointed out to him by them, and otherwise as condescended on, the said decree-arbitral is corrupt, illegal, and invalid. (6) The arbiter having misconducted himself and given reasonable grounds for a suspicion of unfairness, and of having negotiated with both parties to the submission for loans and favours, the said decree-arbitral cannot be sustained.”

Thomson's trustees alone defended the action. They pleaded—“(3) The arbiter not having been guilty of corrupt conduct, or of bargaining or taking bribes, and having exercised his functions as arbiter to the best of his ability, the defenders should be assoilzied.”

The Lord Ordinary allowed a proof, at which the facts above narrated were proved. It also appeared that Steel had for a considerable time been on terms of friendship both with the Morisons and Thomson.

On 21st July 1880 he pronounced this interlocutor:—“The Lord Ordinary having considered the debate, proof, and whole cause, Finds that the defender James Steel did not act corruptly in pronouncing the decree-arbitral libelled: Finds that the pursuers, on or about 16th July 1879, and while the arbitration referred to in the summons was still depending, received from the arbiter, through Mr James Duncan, their agent in Glasgow, an application for a loan of £1000, and that they entertained the proposal, or allowed the said James Steel to proceed in the arbitration, to issue notes of his proposed findings, and to receive representations and answers with reference thereto, in the belief that it was a proposal which could be entertained: And finds that they thereby waived any right which they might have had to found upon the said proposal as disqualifying the arbiter: Finds, further, that the procedure

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in the submission was regular, and that the pursuers have failed to prove any unfairness, excess of power, or neglect of duty on the part of the arbiter: Therefore repels the reasons of reduction, assoilzies the defenders from the conclusions of the action, and decerns.”

He added this note:—“In May 1878 it was agreed between the pursuers and their now deceased partner Mr William Thomson that the latter should retire from the brewing business carried on by them, upon payment to him by the pursuers of the value of his share and interest in the concern under the contract of copartnery, and a submission was entered into for the purpose of determining the amount so to be paid. The arbiter named was Mr James Steel, a friend of both parties, and formerly a brewer in Glasgow. He is called as a defender in this action, which craves reduction of the decree-arbitral, dated 6th February 1880. The chief ground of reduction libelled is that the arbiter acted corruptly in pronouncing his decree, inasmuch as pending the submission he made a proposal to the pursuers for a loan of £1000, and was influenced in his final award by the pursuers' conduct in not agreeing to the proposal. There are other grounds stated. In particular, it was urged that he improperly refused to the pursuers an oral hearing upon the proposed findings, and that he communicated to the parties before the decree-arbitral was signed, through the clerk to the reference, the amount of the fee which he expected as arbiter. But as the refusal of an oral hearing was after written representations and answers for both parties upon the subject had been received and considered, the Lord Ordinary is of opinion that the case is not one in which such refusal affords a ground of reduction. It is not suggested that the pursuers had less opportunity of being heard than the other party, and it appears to the Lord Ordinary that both parties were allowed abundant opportunity of submitting their views. And as regards the communication about the arbiter's fee, it is sufficient to say that it took place after the award had been finally settled, and in consequence of an inquiry at the clerk to the reference; it was not a case of bargaining about the fee pending the submission.

“But the proceedings with reference to the arbiter's proposal for a loan require to be more particularly considered. The facts are as follows:—The arbiter had heard counsel for the parties on 16th June 1879, after the conclusion of the proof, and he then proceeded to consider his decision. He appears to have made a very full investigation; and as his proposed findings were issued on 28th July, his statement that on 16th July he had substantially settled with the clerk to the reference the general principles of his award is probably correct. On that day (16th July) he went to Mr Duncan, the agent in Glasgow for the pursuers' brewery, and inquired as to the probability of the pursuers being able and willing to lend him £1000 on the security of property which he valued at £22,000, but which was already burdened to the extent of £16,000, and on the further security of his beer business, which he estimated as worth to a brewer about £400 or £500 a-year. The result was that Mr Duncan wrote on that day to the pursuers the letter No. 440 of process. Although marked private, it is evident that Mr Duncan saw no impropriety in such a proposal; for he not only transmitted it without hesitation, but explained in answer to the Lord Ordinary that he saw no objection to the transaction except that it was not a good investment. There is no doubt that Mr Steel was pressed for money at the time, owing to his debt to the City of Glasgow Bank (to which he owed £3000, for which decree had been taken); but his unwillingness to sell his property at that time is very intelligible, and there is no reason to doubt that he had a fair going business, and some reason to think that his credit was. not so bad but that he might look for assistance from friends upon such security as he could offer. He had already been promised £1500 by two friends upon the security of his wine and porter business. And, on the whole, the Lord Ordinary is satisfied, both upon his own evidence and the other evidence in the case, that there was no corrupt idea or consciousness of impropriety in the mind of Mr Steel in making the proposal.

The question remains, however, whether at any subsequent stage of the proceedings prior to his final award he acted corruptly in connection with this matter of the proposed loan, or allowed himself to be influenced by pursuers' conduct in regard to it? What happened was that he personally saw the pursuers on the subject. He states that he did not see them until after the proposed findings were in their hands, and gives a reason for that impression. But the Lord Ordinary is not disposed to doubt the accuracy of the pursuers' statement that he saw them both on the 21st July and in the beginning of August, about eight days after the proposed findings were issued. The way in which the pursuers treated the proposal is not satisfactory. They say that they felt at once that the proposal placed them in a situation of delicacy and embarrassment, but that they did not like to offend the arbiter by refusing to entertain his proposal, and accordingly professed to entertain it and to be desirous of receiving further information as to the securities offered. They allowed him to leave under the idea that he would have the loan if the securities were satisfactory. Before Mr Steel's visit in the beginning of August they had consulted their law-agent on the subject, and he had told them at once to let the arbiter know that the proposal could not be entertained during the dependence of the submission. This was very proper advice, and the Lord Ordinary sees no reason why the pursuers should not have acted on it. There was no awkwardness whatever in their letting Mr Steel know that they had been so advised. They had no right to assume that he would be offended at them for doing so, and no reason to fear him if he did take offence and act unjustly in consequence of their doing what was right. Mr Steel might have exposed himself to an objection as arbiter by his indiscreet conduct. But they were not entitled to hoard up the objection, and to allow him to go on in the belief that the pursuers, as well as himself, felt no difficulty in treating for the loan as a matter which should not affect in any way the arbitration proceedings. Instead of doing so, however, they allowed him to go on in ignorance of the advice they had got, and of the feeling of delicacy and embarrassment which they say troubled them. Mr Morison junior went to Glasgow to see Mr Steel on the subject about 22d August. At that time, if not sooner, it was known that the pursuers were to put in a representation

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against the proposed findings; and on that occasion Mr Steel gave Mr Morison junior to understand that the loan proposal would have to wait until the arbitration was settled; and nothing more was said or done about the matter until after 14th October, when the arbiter issued the interlocutor or note disposing of the representations and of the question of expenses in the arbitration. The terms of that interlocutor or note show that the arbiter had fully considered the matters brought before him in the representations, and then finally committed himself to the views (to a considerable extent favourable to the pursuers) upon which his valuation proceeded. The alterations which he made were insignificant and are explained. The letters of 2d and 4th November were thus written after the arbiter had not only intimated his decision, but had disposed of the representations on both sides, and of the matter of expenses. The pursuers' note of 11th November asking an oral hearing was, in the Lord Ordinary's opinion, quite legitimately refused; and the evidence affords no support to the allegation that it was issued under feelings of irritation on account of the pursuers' refusal of the arbiter's request for a loan. The letter of 13th November shows no irritation whatever; and on 27th November the arbiter issued the interlocutor in reference to a point which had occurred in preparing the decree-arbitral as to the form of the decerniture. It was not until 12th December that the pursuers lodged their note protesting against the arbiter proceeding further in the reference.

The Lord Ordinary is of opinion that the pursuers, unless they could have proved actual corruption on the part of the arbiter (which they have failed to do), had previously waived any right which they might have had to allege that the arbiter by the mere fact of his proposal for a loan had disqualified himself from acting as arbiter. The mere statement of the facts as disclosed in the proceedings and in the evidence of the pursuers themselves appears sufficient to show this.

It is upon these views of the case that the Lord Ordinary has pronounced the foregoing interlocutor. He considers it unnecessary to go into the details of the proof. But it is proper to add that the evidence of the leading witnesses was in his opinion creditably free from any attempt at exaggeration. The pursuers did not in the least conceal their unfortunate want of candour and sincerity in their communications with Mr Steel. And Mr Steel, on the other hand, while he admitted, under the searching examination through which he was put, his consciousness now of the indiscretion he committed in opening such a proposal before the arbitration was finally settled, gave his evidence in such a manner as to convince the Lord Ordinary that he was entirely free from corrupt motive.

The evidence relating to the proposal to Mr Thomson on 4th November really throws no additional light on the matter. Before that date the arbiter had finally intimated his decision, and his proposal of the loan to Mr Thomson when he ascertained that the pursuers were not going on with it does not appear to the Lord Ordinary, in the whole circumstances, to afford evidence of corruption, or of any such misconduct as should vitiate the decree-arbitral.”

The pursuers reclaimed, and argued—The circumstances of the case clearly showed corruption on the part of the arbiter. Without maintaining that an arbiter could in no case have an ordinary business transaction for a loan with a party-submitter, the circumstances of this case were that an arbiter in desperate circumstances asked a loan from first one and then the other of the party-submitters without security, and after he had failed to get money in the market. Such a loan was practically a gift. Such a transaction was inconsistent with the position he held, and it would be pessimi exempli to support it. This was “a plain failure in duty” by an arbiter, and therefore corruption within the Act of Regulations—Lord Mackenzie in Mitchell v. Cable, 17th June 1848, 10 D. 1297. It is corruption in the legal sense for an arbiter to put himself in a position inconsistent with that of a judge— Elliot v. Elliot, 15th Dec. 1789, M. 668; Fraser v. Gordon, 5th July 1834, 12 S. 887, and sequel to that case, Fraser v. Wright, 26th May 1838, 16 S. 1049; M'Kenzie v. Clark, 19th Dec. 1828, 7 S. 215. In point of fact the arbiter was influenced by the refusal of the loan. There was no other explanation of the manner in which he had altered certain figures in the award, nor of his refusing an oral hearing on 12th November. (2) The Morisons were not excluded from redress by having entertained the proposals of the arbiter. They asked their agent's advice, and when he advised them not to enter on the negotiation they did what he recommended. There could be no waiver of an objection on the ground of corruption. The opinions of the Judges in Fraser v. Wright, supra, were inconsistent with such a doctrine.

Argued for defenders—As to the refusal of oral hearing, it is quite right in an arbiter, when the whole case is fully before him, to refuse additional hearing. As to the negotiations about a loan, mere irregularity preceding the award is not enough to vitiate it. It is quite distinct from corruption. Thus, it has been held that a mere indiscretion on the arbiter's part is not enough to set aside the award unless there is connected with it an effect on the mind of the arbiter— In re Hopper, 17th Jan. 1867, 2 L.R. Q.B. 567; Mosely v. Simpson, 8th May 1873, 16 L.R. Eq. 226. So also the mere fact that one of the parties is a creditor of the arbiter will not per se invalidate the award— Morgan v. Morgan, 1832, 1 Dowling, 611. In this case the facts only disclosed a case of irregularity on the part of Steel not amounting to corruption. He was a friend of both parties, and asked the loan in that capacity. The most pressing application he made was made after the notes were issued, when he considered the matter practically over, and was thus made quite unconnected with the arbitration. The words “I am sure it would be to your advantage,” in his letter of 4th November, related to the trade in beer which he could offer the Morisons, and not to the arbitration. The evidence showed that his mind had not been affected in the least degree by the refusal. The pursuers had waived any right to object to the irregularity committed by going on with the proceedings and pleading before the arbiter after they knew of the alleged disqualification—Bell on Arbitration, sec. 238, p. 132 (2d ed.), with cases of Drew v. Drew, 2 Macq. 7, and Johnston v. Cheape, 5 Dow, 247, there cited; Mosely v. Simpson, sup. cit.