Scottish Court of Session Decisions

Andrew Gilmour, Blantyre, founding on a fire insurance policy, sued the Caledonian Insurance Company, Edinburgh, to recover the loss occasioned by a fire which took place on his premises in February 1891. The property was insured for £1700.

After the fire the defenders tendered £1350, which sum the pursuer refused. The policy provided—“Where the company does not claim to avoid its liability under the policy on the ground of fraud or non-fulfilment of any of the conditions hereinbefore set forth, but a difference at any time arises between the company and the insured, or any claimant under this policy, as to the amount payable in respect of any alleged loss or damage by fire, every such difference, when and as the same arises, shall be referred to the arbitration of one person to be chosen by both parties, or of two independent persons, one to be chosen by the party claiming and the other by the company, and in case either party shall refuse or neglect to appoint an arbitrator within twenty-eight days after notice, the other party shall appoint two arbitrators to act for both parties. Where two arbitrators are appointed they shall choose an umpire before entering on the reference, to provide for the possibility of a disagreement between them. And in

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case of the death of the arbitrators, or of one of them, or of the said umpire, another or others shall be appointed in his or their stead; each party shall pay his or their own costs of the reference, and a moiety of the costs of the award; and the award of the arbitrator or arbitrators, or umpire, as the case may be, shall be finally binding upon all parties, and shall be conclusive evidence of the amount payable in respect of the said loss or damage. And it is hereby expressly declared to be a condition of the making of this policy, and part of the contract between the company and the insured, that where the company does not claim to avoid its liability under the policy on the ground of fraud or non-fulfilment as aforesaid, the party insured or claimant shall not be entitled to commence or maintain any action at law or suit in equity on this policy till the amount due to the insured shall have been awarded as hereinbefore provided, and then only for the sum so awarded, and the obtaining of such award shall be a condition-precedent to the commencement of any action or suit upon the policy.”

The defenders pleaded, inter alia—“(1) The present action is excluded by the clause of reference in the policy. (2) In any view, the action ought to be sisted pending the decision of the pursuer's claim by arbitration in terms of the policy.”

By interlocutor of 23rd June 1891 the Lord Ordinary ( Stormonth Darling) repelled the first and second pleas-in-law for the defenders.

“ Opinion.—This is an action on a fire insurance policy to recover the loss occasioned by a fire which took place last February. The parties are at issue as to the amount of the loss, the pursuer claiming £1700, which is the full sum in the policy, and the defenders refusing to pay more than £1350.

What I have to dispose of now is the defence that the action is excluded by the clause of reference in the policy, or if not excluded, that it ought to be sisted pending the decision of the pursuer's claim by arbitration. To this the pursuer replies that the clause is ineffectual because no arbiters are named.

The clause is set out in answer 5. The substance of it is, that when a difference at any time arises between the company and the insured as to the amount payable in respect of any loss or damage by fire, there being no question of fraud or non-fulfilment of the conditions of the policy, such difference is to be referred to the arbitration of a person or persons to be chosen by the parties. Then there are provisions for working out the reference, and a declaration that the insured is not to be entitled to commence or maintain any action on the policy till the amount shall have been fixed by arbitration. Of course the efficacy of this last declaration must depend on whether there is an effectual agreement to refer.

The general rule of the law of Scotland that an agreement to refer future disputes or differences to unnamed arbiters is ineffectual, cannot at this time of day be called in question, and it received very recent recognition by the House of Lords in the case of Tancred, Arrol, & Company v. Steel Company of Scotland, 17 R. (H.L.) 31. There is an exception to the rule where the agreement to refer, to quote the words of Bell on Arbitration, p. 87, ‘does not contemplate the decision of proper disputes between the parties, but the adjustment of some condition, or the liquidation of some obligation, contained in the contract of which the agreement to submit forms a part.’ Examples of this exception are to be found in the common case of a landlord being bound in a lease to take the tenant's stock off his hands at valuation, or to pay a certain proportion of the value of buildings on the ground (as in the recent case of Lord Advocate v. Earl of Home, 18 R. 397), or of a mineral tenant being entitled to relinquish the lease when, in the opinion of skilled men mutually chosen, the minerals have become incapable of being worked to profit (as in Merry & Cuninghame v. Brown, 21 D. 1337). But these are all cases where the right, whether it be a right to receive money or to be rid of an obligation, is conferred by and made dependent on the very clause which binds the parties to nominate arbiters. There are also cases in which the fact to be ascertained, or the sum to be assessed by the arbiter is something quite subsidiary to the main purposes of the contract. In the present case the position is altogether different. The right to recover for damage by fire is the cardinal right conferred on the insured by the policy. It in no way depends on the agreement to refer; and the arbitration clause is simply an attempt to oust the jurisdiction of the courts of law from every action which the insured could have any possible interest to raise, except in the single case where the insurance company has intimated a defence of fraud or non-fulfilment of the conditions of the policy.

It seems to me, therefore, that this clause falls under the rule, and not under the exception, and that it offers no obstacle to the action going on in the ordinary way. This view renders it unnecessary for me to consider the pursuer's plea that the defenders are barred by their actings from founding on the arbitration clause.”

The defender reclaimed (with leave), and argued — The question of liability being admitted, all that remained was an assessment of damages. The case thus fell under the exception mentioned by Bell on Arbitration, p. 87, and the reference was not void from the arbiters not being named— Merry & Cuninghame, July 15, 1859, 21 D. 1337. The liability being admitted, the present action was excluded by the clause of reference— Ramsay v. Strain, February 6, 1881, 11 R. 527.

Argued for the respondent—This question was not not one of mere assessment. The value of the articles destroyed, their presence in the building at the time of the fire, whether or not they were included in the policy—these and other question were involved—

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and therefore the case fell under the general rule, and not under the exception, and the reference being to arbiters unnamed it was bad— Tancred, Arrol, & Company v. The Steel Company of Scotland, March 7, 1890, 17 R. (H. of L.) 31.

At advising—