Kelantan Government v Duff Development Company

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeThe Lord Chancellor,Lord Shaw of Dunfermline,Lord Sumner,Lord Parmoor,Lord Trevethin,.
Judgment Date22 Mar 1923
Judgment citation (vLex)[1923] UKHL J0322-2

[1923] UKHL J0322-2

House of Lords

Lord Chancellor.

Lord Shaw.

Lord Sumner.

Lord Parmoor.

Lord Trevethin.

Government of Kelantan
and
Duff Development Company, Limited.

Whereas Thursday the 15th day of February last was appointed for hearing Counsel upon the Petition and Appeal of the Government of Kelantan, praying. That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 24th of May 1922, might be reviewed before His Majesty the King in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King in His Court of Parliament might seem meet; as also upon the printed Case of the Duff Development Company, Limited, lodged in answer to the said Appeal; Counsel were accordingly called in, and a preliminary objection having been taken to the competency of the said Appeal, and Counsel having been heard thereon, Counsel were directed to argue the merits of the Appeal; then Counsel having been heard, as well on Thursday the 15th, as on Friday the 16th and Monday the 19th, days of February last; and due consideration being had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 24th day of May 1922, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

The Lord Chancellor .

My Lords,

1

This is an appeal from an order of the Court of Appeal in England affirming an order of Mr. Justice Russell, who refused a motion to set aside an award.

2

By an indenture dated the 15th July, 1912, and made between the Crown Agents for the Colonies on behalf of the Government of Kelantan of the one part, and the respondents, the Duff Development Co., Ltd., of the other part (which has been referred to in these proceedings as "the Deed of Cancellation"), after a recital showing that the respondents were entitled under an agreement with the Ruler of Kelantan to certain rights and privileges over certain districts in that State (which were referred to as "the Concession"), and after a recital that "it was the intention of the Government to make certain railways and roads in and through the Concession," it was agreed that the existing agreement should, as from the 31st December, 1912, be cancelled in consideration of a payment by the Government to the respondents of sums amounting to 300,000 l., and for the other considerations appearing in the Deed. The following clauses of the Deed are material on this appeal:—

"4. The Government will (subject as hereinafter provided) grant to the Company the sole right of selecting to hold in perpetuity at a yearly quit rent of 25 cents per acre such blocks of State lands within the Concession not exceeding in the aggregate 50,000 acres as the Company shall select Provided that (a) the blocks shall be selected within 12 calendar months after the Government shall have delivered to the Company a plan showing the definite line of route proposed to be adopted by the Government for a railway intended to be made by the Government from Pahang to Siamese Territory through the Concession or part thereof such plan to be delivered as soon as the general line of route has been settled Provided that the Government shall be at full liberty in constructing the said Railway to make all such deviations from the line of route shown on the said plan as may be thought fit . . . ."

"8. The Government will also if required by the Company so to do at any time after the construction of the Railway referred to in Clause 4 shall have been completed up to a point on a line running East and West through Manson's Shaft grant to the Company (subject as hereinafter provided) an exclusive licence for a period of five years computed from the date when the construction of the said Railway shall have been so completed (of which date the certificate of the Government's Engineer in charge of the works shall be conclusive evidence) to prospect for minerals over the area within a radius of five miles from Manson's Shaft with the right to call for a mining lease or mining leases for a term or terms expiring on the 10th day of October 1940 of any lands to be selected by the Company within that area not exceeding in the whole 3,000 acres."

"18. The Government will within four years from the date hereof make a cart road within the Concession from a point upstream of Kuala Tui to the Railway referred to in Clause 4 in such line or route of such materials and mode of construction as the Government may think fit and the Company shall surrender and give up or cause to be surrendered and given up to the Government without any compensation whatsoever a strip of land one chain wide for the purposes of such road to over or in relation to which the Company or any person claiming under it may be entitled or have any right title or interest under these presents or any grant lease or licence made or to be made hereunder."

"21. Any and every dispute difference or question which shall at at any time arise between the parties hereto touching the construction meaning or effect of these presents or of any Clause or thing herein contained or the rights or liabilities of the parties hereunder or otherwise howsoever relating to the premises shall be referred to the arbitration of a sole Arbitrator to be agreed upon between the parties or failing agreement to be nominated by the Secretary of State for the Colonies for the time being and this shall be deemed a submission to arbitration within the Arbitration Act 1889 or any statutory modification or re-enactment thereof for the time being in force the provisions whereof shall apply so far as applicable."

3

The plan referred to in clause 4 of the Deed of Cancellation was duly delivered to the respondent company, and the company in pursuance of that clause selected certain blocks of the aggregate area of 50,000 acres. But neither the railway nor the road referred to in the Deed was in fact constructed; and the company, alleging an obligation on the part of the Government to construct both the road and the railway, claimed damages from the Government for their breach of the stipulations in the Deed. The parties being unable to agree upon an arbitrator, application was made to Lord Milner, the Secretary of State for the Colonies, to appoint an arbitrator under clause 21 of the Deed; and the Secretary of State by an instrument under his hand dated the 12th April, 1920, after recitals showing that the company claimed damages for the failure of the Government in accordance with the provisions of the Deed of Cancellation to construct a railway or to make a road as therein provided, and that such claim was disputed by the Government, appointed Sir Edwin Arney Speed to be the sole arbitrator to whom those matters of dispute should be referred. By the direction of the arbitrator pleadings were delivered, which showed clearly that the failure to make a railway and road was admitted, and that the only questions to be determined by the arbitrator were questions as to the construction and effect of the Deed.

4

The arbitrator's award was dated the 17th November, 1921, and was in somewhat unusual form. The arbitrator thereby declared that he had been pressed to state his views on the points of law raised in the proceedings, and that as to the alleged implied obligation on the part of the Government to build a railway his award was based on a full consideration of all the cases quoted in the arguments, including the cases of ( Hamlyn v. Wood L.R. 1891. 2 Q.B., page 488), arid ( The Moorcock L.R., 14 P.D., page 68) passages from which cases he quoted in the award; and proceeded—

"I am of opinion that any attempt to construe the Deed of Cancellation without taking into account (A) the natural features of the country wherein the obligations of the Agreement were intended to be performed and (B) the position of the parties and the circumstances attending the preliminary negotiations and the conclusion of the Agreement must lead to a construction which involves a failure of consideration which cannot have been within the contemplation of either party and will rob the transaction of such efficacy as both parties must have intended that at all events it should have."

5

And the arbitrator found and awarded as follows:—

"(1) That the Government was by the express terms of the Deed of Cancellation under contract to construct a cart road within the Concession from a point upstream, i.e., south of Kuala Tui to a railway running from Pahang to Siamese Territory within a period of four years from 15th July 1912.

(2) That it was an implied term of the Contract that the said road should commence on the west side of the river should proceed in a northerly direction and should have its terminus on the line of the said railway and within the Concession.

(3) That it was an implied term of the Contract that the said railway should be constructed within the time limited for the completion of the said road and should be so constructed as to admit of the construction of the said road having a terminus as aforesaid.

(4) That the Government has failed to fulfil the said terms of the Contract and that by reason of such failure the Company has suffered damage and I direct an inquiry as to the nature and amount of such damage."

6

On the 22nd December, 1921,...

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