Scottish Court of Session Decisions

By policy of insurance dated 17th November 1884, the Liverpool and London and Globe Insurance Company (which was unincorporated) insured the stock and utensils in trade of John Smith, shoemaker, Stenton, East Lothian, against loss by fire to the extent of £300. On 9th May 1885 the subjects insured were destroyed by fire. It was provided in the policy that differences between the company and the insured should be referred to arbitration. A deed of submission was accordingly entered into, in which Smith's claims were referred to the decision of Messrs James Brand, auctioneer, Dunbar, and John Stewart Mair, merchant, Glasgow. They accepted office, and nominated Mr William Lyon, auctioneer, Edinburgh, to be oversman, and he accepted office.

After having been nominated, Mr Lyon heard the proof in the arbitration along with the other arbiters, and the arguments of parties upon it. The proof occupied two days. Evidence was fully led and considered by the arbiters and oversman. The arbiters having differed in opinion as to the amount to which the pursuer was entitled, it was arranged that they should meet with the oversman in Edinburgh, and give in written reasons in support of their respective opinions. The day before this meeting it had been by accident recalled to Mr Lyon's memory that he was a shareholder in the defenders' company, and at the meeting on the following day, viz., 26th April 1886, he stated to the arbiters and the clerk that he held stock in the company. Both arbiters requested him to continue to act.

On Mr Lyon issuing notes of his proposed award, Smith raised objections to the competency of his acting as oversman. On 7th July 1886 Mr Lyon pronounced a decree-arbitral in the submission, awarding Smith £70 in full of his claims (£326, 2s. 9d.), finding him liable in one-half the expenses of the reference (£63, 4s. 10d.), and in his own expenses.

Smith raised an action of reduction of Mr Lyon's nomination, and of his decree-arbitral. He averred that Mr Lyon had been chosen by lot, and, secondly, that he was a shareholder in the

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company, and was employed as the company's valuator. He pleaded, inter alia—“(1) The nomination of the said William Lyon as oversman in the said submission having been determined by chance, and not by the mutual choice of the said arbiters, the said deed of nomination, and all that has followed on it, ought to be set aside. (4) The said William Lyon having been personally disqualified from acting as oversman, his said nomination and the said decree-arbital ought to be reduced.”

On 14th December 1886 the Lord Ordinary ( Lee) allowed a proof. The Lord Ordinary's note and the opinion of the Lord President contains the material facts proved.

On 23d March 1887 the Lord Ordinary sustained the reasons of reduction set forth in the first and fourth pleas-in-law for the pursuer, and therefore reduced in terms of the conclusions of the summons.

“ Note.—This is a reduction of a decreet—arbitral pronounced by the oversman in a submission between the Liverpool and London and Globe Insurance Company and the pursuer as a policy-holder, relative to the amount of damage suffered through a fire in the pursuer's shop.

“The grounds of reduction alleged are— Firstly, that the oversman was not properly appointed, having been selected by the arbiters by casting lots; and secondly, that the oversman was personally disqualified, being himself interested in the subject-matter of reference as a shareholder of the defenders' company, and also as a person employed by them as a professional valuator.

“The facts ascertained by the evidence are as follows:—

“1. The oversman was selected by casting lots. After some discussion as to the propriety of appointing a practical shoemaker, each arbiter proposed an auctioneer. The arbiter appointed by the company proposed Mr Lyon, and the arbiter appointed by the pursuer proposed Mr Dowell.

As neither would agree to the oversman proposed by the other, the arbiters agreed to cast lots, and the lot fell upon Mr Lyon.

“2. Mr Lyon was at this time, and still is, a holder of capital stock of the defenders' company to the extent of £50, and the present value of which is about £830, being 25 shares, each of the value of £33, 10s. The total stock of the company is £245,000. Mr Lyon had also been employed by the company occasionally as a valuator.

“3. At the time when he was so selected, Mr Lyon was unknown to both arbiters excepting by repute as an auctioneer of experience. Neither arbiter had made any inquiries as to his fitness, and neither was aware that he was a shareholder in the defenders' company. It is now stated by each of them that had this been known he would not have been proposed or appointed; but it was stated by the pursuer's arbiter at the time when this mode of selection was agreed to, that he had no objection to Mr Lyon, and supposed that he would be capable of filling the position although he did not know him.

“4. When the result of the arbiters' meeting to select an oversman was communicated to the parties and to Mr Lyon, neither he nor the defenders noticed or adverted to the fact that he was a shareholder The fact appears to have been overlooked by them, and was not mentioned even when the formal nomination and acceptance were executed. It was not within the knowledge of the pursuer or his agents. It was first mentioned after the proof had been concluded, and at the meeting of arbiters and oversman for consideration of the award, when Mr Lyon stated that it had come to his recollection. At this meeting the agents of the parties were not present. But the arbiters, considering that the proceedings were so far advanced, concurred in asking Mr Lyon to proceed. The clerk suggested no difficulty, and Mr Lyon appears to have agreed to do so, without any communication with the parties or their agents. A minute of devolution was accordingly executed at this meeting.

“5. As soon as the fact came to the knowledge of the pursuer's agents, they lodged a minute declining the oversman's jurisdiction, and requesting the arbiters to name a new oversman. Notwithstanding of this, Mr Lyon proceeded to issue his notes of proposed award (against which the pursuer's agents represented under protest), and he subsequently, on 1st July 1886, issued the award now under reduction. The pursuer's agent appears also to have protested against the mode in which the oversman was selected when it came to their knowledge

“I. As to the question of casting lots, the law stands upon a clear principle. It requires that both arbiters shall exercise a judgment upon the fitness of the person selected— In re Cassel, 9 B. and C. 624; Hodson v. Drury. 16 East. 51; The European and American S. & M. Company v. Crosskey, Scott's Reps. 8 Com. B.N.S. 397, and 29 L.J., Com. PI. 155; Bell on Arb. 188; Russell on Arb. 226. A bare selection by lot cannot therefore be supported. If. however, each arbiter exercises his judgment as to the fitness of two persons, and both agree that both of these are fit and proper for the office, it is no objection that lots have been cast as to which of them shall be appointed. In such a case, however, it is essential and it is implied in the decisions overruling the objection, that both of the persons for whom lots have been cast must have been selected by each of the arbiters as fit for appointment— Neale v. Ledger, 16 East. 51; re Hopper, 2 L.R., Q.B. 367.

“In the present case I am of opinion that there was no agreement as to the fitness of Mr Lyon, such as existed with reference to the oversman appointed in the case of Hopper. A material fact, which was within the knowledge both of Mr Lyon and of the defenders at the time when the nomination was signed and accepted, was from inadvertence uncommunicated to the arbiter or to the other party. According to well-established practice, it was the duty of the oversman to intimate that he was a shareholder of the defenders' company when he was informed of the appointment, or at least before proceeding to exercise his functions; and Mr Lyon recognised this duty by mentioning the matter to the arbiters as soon as it came to his recollection. The nomination was intimated to him about 24th February. It was accepted by him on 2d March. But the fact that he was a shareholder was not mentioned to the arbiters until 26th April; and it did not reach the pursuer's agents until some days after he had agreed

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at the request of the arbiters to continued to act. Whether it was an absolute disqualification or not, I think that the parties interested should have been informed of it. They might have waived the objection, but the arbiters could not do so, nor did they until the 26th April when they did do so on account of the advanced stage of the proceedings, and without the concurrence of the parties. Both arbiters state that at the time of the appointment they would have recognised the fact as an objection, and would not have made the appointment had they known of it.

“I am therefore of opinion that the appointment in this case must be regarded as a bare appointment by lot, and that it cannot be supported.

“I think that the case is ruled by that of Crosskey, and is not in the same class as the cases of Neale v. Ledger and of Hopper.

“II. With regard to the other objection, my opinion is that it is also well-founded. No doubt the interest of Mr Lyon was extremely small; so small, that in no event could the arbitration affect him to the extent of more than a few shillings. But I cannot say that his interest was so remote or shadowy as to raise no duty of disclosure.

“I think that there was a duty of disclosure incumbent both upon him and upon the defenders. It cannot be said that it was immaterial whether that duty was discharged or not, for it is impossible now to say that the objection would have been waived.

“The question therefore is, whether it is a good ground of declinature that an oversman is a shareholder of the company which is concerned as one of the parties to the arbitration, and I think it is.

“Although it does not stand upon the same ground as the objection of relationship to one of the parties, which is statutory, it is clearly implied in recent enactments that at common law there is no answer to it—See Court of Session Act 1868. sec. 103, and Act of Sederunt, February 1, 1820. And there are many cases in which the objection has been given effect to (see Aberdeen Bank v. Scottish Equitable Insurance Company, 22 D. 162; Blaikie's Trustees v. Scottish Widows Fund, 2 Macph. 595, in which six Judges were allowed to decline).

“It was argued that the case of a Judge of the Supreme Court is different, and that his declinature rests entirely upon privilege. I cannot assent to this view. I think that the right to decline arises out of the existence of a ground of objection. In so far as it can be called a privilege, it is possessed, even in a more unqualified way, by arbiters and oversmen. For a judge is under obligation to exercise his office, and cannot refuse to do his duty towards any of the public except upon a sufficient ground. The situation of an arbiter or oversman is not less delicate than that of a judge, and he can always decline. The only peculiarity in the case of a judge arises from the limited number. For it was held in two cases that where the duty of deciding a cause could not be done if a declinator was sustained, it must be repelled— Douglas, Heron, & Company, 1774, Hailes, 563; Friendly Insurance Company, Elch. Jurisdiction, 50.

“III. It was contended that even if these objections were well founded, they were not a sufficient ground for reducing the nomination and decreet-arbitral after so much procedure. I think that the case of Ommany v. Smith, 13 D. 678, and the two cases in 5 Brown's Supp. there mentioned, are decisive against this contention. It cannot be said that in this case there was any delay in taking the objection.”

The defenders reclaimed, and argued—(1) That as regarded the selection by casting lots, it was proved that both of the persons for whom lots were cast had been chosen by each of the arbiters as fit for the office. Each arbiter no doubt preferred his own nominee, but at the same time he considered the other arbiter's nominee as a fit and proper person. This was just the case of Neale v. Ledger, June 3, 1812, 16 East. 51; and in re Hopper, January 17, 1867, L.R., 2 Q.B. 367, where the nomination had been sustained. (2) As regarded the question of interest, there might be an inquiry into what interest would bias—Bell on Arbitration, secs. 234, 240, 244. Now, the utmost interest that that Lyon could have in the result of the arbitration was a shilling. It was not any interest thatwould disqualify— Drew v. Drew and Leburn, March 8, 1855, 2 Macq 1; in re Elliot, January 31, 1848, 2 De G. & Sm. 17. It was to be observed that all the cases upon Which the Lord Ordinary founded dealt with the objection on the ground of relationship, and that was a statutory objection. The disqualification of judges on this ground where there was not the slightest interest had been found to operate the greatest inconvenience—Commissioners of Highland Roads and M'Neil v. Machray, Croat, & Company, June 25, 1858, 20 D. 1165—and it was to be distinguished from all other obj ections— Duke of Athole v. Robertson, December 15, 1869, 8 Macph. 299. In the case of other objections, the Court had full power to deal with them— Lord Advocate v. Commissioners of Supply for the County of Edinburgh, June 5, 1861, 23 D. 933, 944; Sibbald's Trustees v. Greig, January 13, 1871, 9 Macph. 399; Gray v. Fowlis, March 5, 1847, 9 D. 811. It was impossible to say that in these cases there was no interest, but the Court considered themselves free to judge of the circumstances. Besides, in the case of an arbiter, the question was not of such delicacy as in the case of a judge. The only question was whether the interest was sufficient to bias the mind of an ordinary man. A further argument was to be drawn from the provisions of the Court of Session Act 1868, sec. 103. This applied to the case of the judges in all inferior courts, and an arbiter was on the same footing as an inferior judge— Forbes v. Underwood, January 22, 1886, 13 R. 465.

Argued for the respondent—(1) That there were three classes of cases which dealt with choice by lot—(a) tossing for exclusive right to appoint. That was plainly bad. ( b) Tossing for the appointment of one of a class of selected persons. That was good. ( c) Tossing for one of a class of persons taken haphazard. That was bad, and that was the present case. The presumption was against appointment by lot, and therefore it must be clearly shown that the arbiters selected the parties to toss for— In re Cassel, June 22, 1629, 9 B. & C. 624; Ford v. Jones,

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January 28, 1832, 3 B. & Ad. 248; in re Greenwood, January 29, 1839, 9 Ad. & E. 699; The European and American S. & M. Company v. Crosskey, January 27, 1860, Scott's Rep. 8 C.B. N.S. 397, 29 L.J., C.P. 155. In all the cases founded on by the reclaimer there was a judgment as to fitness. That was absent here. (2) As regarded interest—( a) The oversman held shares in the company. There was therefore on him a duty of disclosure. He must have known of his holding—Bell on Arbitration, sec. 234. In any case there was a duty of disclosure on the company. They must have known that he was on the register, ( b) As to the question of the amount of interest—It was very doubtful if there was any interest in the case of Drew, supra cit. At all events, both in that case and in the case of Elliot, supra cit., the objection was waived. Here the objection was not waived. The parties were in ignorance of its existence, and the arbiters were not entitled to waive it—Bell on Arbitration, sec. 250; in re Hodson, 1839, 7 Dowling's Rep. 569. The arbiters' mandate was unlimited except in this, that they should not appoint a person exceptionable at law.

During the discussion the Lord President called attention to the case of Dimes v. Grand Junction Canal Proprietors, June 29, 1852, 3 Clark's H. of L. Cas. 759.

At advising—