North British Railway Company v Newburgh and North Fife Railway Company
| Jurisdiction | Scotland |
| Judgment Date | 22 February 1911 |
| Docket Number | No. 96. |
| Date | 22 February 1911 |
| Court | Court of Session |
Lord Dewar, Lord President, Lord Johnston, Lord Skerrington, Lord Kinnear, Lord Mackenzie.
Arbitration—Clause of general reference—Exclusion of jurisdiction of Court—Clause referring to arbitration all questions as to import, meaning, or carrying out of a contract—Question as to ultra vires actings—Question involving a point of law.
By an agreement between the N. B. Railway Company and the F. Railway Company it was provided that, in the event of an Act of Parliament being obtained and the capital being subscribed, a line of railway should be constructed by the F. Company, and thereafter worked by the N. B. Company on certain terms. It was further provided that the N. B. Company should be bound to contribute to the F. Company a sum sufficient to make up a dividend of 4 per cent on the ‘paid-up share capital’ of the F. Company, and that all questions which might arise between the parties in relation to the agreement, or the import or meaning thereof, or the carrying out of the same, should be referred to arbitration, in terms of the Railway Companies Arbitration Act, 1859. The line of railway was thereafter constructed and worked in terms of the agreement.
In an action at the instance of the N. B. Company against the F. Company, concluding for declarator, inter alia, that the pursuers were freed and relieved of all liability to make up the dividend of the F. Company to 4 per cent, and that the articles of the agreement thereanent were null and of no effect, the pursuers averred that the ex facie capital of the defenders' company was not the ‘paid-up share capital’ on which the dividend had been guaranteed, in respect that the defenders had raised that capital in a manner which was illegal and ultra vires of their statutory authority. The pursuers maintained that this depended on a legal interpretation of matters outwith the agreement, and consequently that the clause of arbitration did not apply, and that the question raised in the action fell to be decided by the Court of Session.
Held (rev. judgment of Lord Dewar, who had allowed a proof) that the arbitration clause was a general clause, by which the parties had contracted themselves out of the jurisdiction of the Court as to anything which fell within the clause; that the questions raised were questions of the construction of the agreement, and, accordingly, must be determined by the arbiter, even although their determination depended upon the question of ultra vires and although it involved a point of law; and action dismissed.
Observed (per the Lord President),—‘It is not within our powers, as it is within the powers of the Court in England, to determine whether in our discretion a case should be tried under an arbitration clause or not. If the parties here have contracted themselves out of the jurisdiction of the Court, according to the law of Scotland we cannot help ourselves, and the tribunal they have elected is the tribunal to which they must go.’
On 3rd December 1909 the North British Railway Company brought an action against the Newburgh and North Fife Railway Company, in which the pursuers sought declarator of certain rights under an agreement, in terms of which the defenders' Company had been incorporated and its line of railway constructed and worked.
The agreement in question was entered into between the pursuers, of the first part, and the promoters of the defenders' Company, of the second part, and proceeded on the preamble that the second parties were promoting a bill in Parliament for the formation of the Company and for authority to construct a railway of about twelve miles in length, between Newburgh and St Fort in Fife, connected with the pursuers' railway system. The agreement provided, inter alia, (Article First) that in the event of an Act being obtained and the capital being subscribed, the second parties should construct the railway, which (Article Second) the first parties should thereafter maintain and work in perpetuity. It was further provided (Article Fourth) that the first parties should collect the gross revenues of the railway, and should be entitled to retain 50 per cent thereof as remuneration for maintaining and working the railway, and should pay over the balance of 50 per cent to the second parties. (Article Seventh) ‘If the net revenue accruing to the second parties is not sufficient to pay a dividend of four per centum per annum on the paid-up share capital of the second parties then the first parties shall out of fifty per centum of the mileage proportion of receipts accruing to them on their own railway from traffic including mails passing over their system or any part thereof to or from any place on the railway contribute such sum as may be necessary to make up that dividend so far as the said fifty per centum of mileage receipts accruing in each half year to the first parties shall suffice to pay such deficiency.’ (Article Eighth) ‘Should the sum to be contributed under the immediately preceding article along with the said net revenue of the second parties not be sufficient to pay a dividend of four per centum per annum on the paid-up share capital of the second parties then the first parties shall out of twenty-five per centum of the mileage receipts accruing to them on their own railway from traffic including mails passing over their system or any part thereof and over the railway contribute such further sum as may be necessary to make up the said dividend of four per centum per annum so far as the said twenty-five per centum of mileage receipts accruing in each half year to the first parties shall suffice to pay such deficiency. …’
The agreement further provided:—(Article Fourteenth) ‘All questions which may arise between the parties hereto in relation to this agreement or to the import or meaning thereof or to the carrying out of the same shall be referred to arbitration under and in terms of the Railway Companies Arbitration Act, 1859.’ Article Fifteenth provided that upon the passing of the Act the Company thereby incorporated should become the second parties to the agreement.
The Act of Parliament (the Newburgh and North Fife Railway Act, 1897), to which the foregoing agreement was scheduled, and by which it was confirmed, was obtained, and the railway was completed and opened in January 1909, and was thereafter worked by the pursuers in terms of the agreement.
The conclusions of the action were for declarator ‘(1) that the pursuers are freed and relieved from liability under Articles Seventh and Eighth of the agreement, dated 31st March and 5th and 6th April 1897, scheduled to and confirmed by the Newburgh and North Fife Railway Act, 1897, to contribute any sum or sums to make up any dividend or dividends of the defenders, and that the said articles of the said agreement are null and of no effect as from the 25th day of January 1909, or from such other date as our said Lords may determine: Or (2) otherwise and alternatively, that the pursuers and the defenders are freed and relieved from the said agreement, and that the said agreement is null and of no effect as from the 25th day of January 1909, or from such other date as our said Lords may determine: Or (3) otherwise and alternatively, that the liability of the pursuers under Articles Seventh and Eighth of the said agreement to contribute any sum or sums to make up any dividend or dividends of the defenders does not extend or apply to a dividend or dividends on £180,000 of share capital of the defenders, but only to a dividend or dividends of 4 per centum per annum on such smaller amount of share capital as our said Lords may, after such inquiry, remits, reports, or other procedure as they shall think proper, ascertain and determine in the course of the process to follow hereon to be the equivalent in amount of the legal and proper capital expenditure of the defenders.’
The following summary of the pursuers' averments is taken from the opinion of the Lord Ordinary:—‘The pursuers aver that it has recently come to their knowledge that in raising capital and constructing the railway, the defenders disregarded the provisions of the Act of Parliament which they obtained and also of the Companies Clauses Consolidation (Scotland) Act. 1845, and other Acts which it incorporated, and have acted in a wrongful and illegal manner so prejudicial to the interests of the pursuers that they are now entitled to be freed from the agreement, or in any event to have their liabilities under it considered and determined. In their condescendence the pursuers charge...
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