Analysis by:- Soujanya Ramakant Shetti

Student at Presidency University

FACTS OF THE CASE:

On May 10, 1965, an agreement was forged between an English company and a Scottish company, outlining the Scottish company’s obligation to undertake specific conversion work at the English company’s factory located in Scotland. The agreement adhered to the prevailing standard form of the Royal Institute of British Architects (R.I.B.A.) contract, as at that time, no contract form tailored for Scottish use existed within the R.I.B.A. framework. Although an alternative Scottish contract format, drafted by a different professional body, was commonly employed.

Within the contractual framework, the arbitration clause stipulated that in the event of any dispute, resolution would be sought through arbitration. It allowed for the appointment of an arbitrator either by mutual agreement or, failing consensus, by the president of the R.I.B.A. Notably, the appointed architect was English, despite the agreement’s finalization occurring in Scotland.

Subsequently, a dispute arose between the contracting parties, prompting the Scottish company to petition the president of the R.I.B.A. for the designation of an arbitrator. The Scottish company asserted that a submission to arbitration, as defined by the Arbitration Act of 1950, was in effect. As a result, the president appointed a Scottish architect, practicing within Scotland, to serve as the arbitrator. The arbitration proceedings unfolded in Scotland, adhering to Scottish procedural norms.

Throughout the arbitration process, legal intricacies surfaced, prompting the English company to request the arbitrator to frame his decision as a special case for adjudication by the English High Court. However, the arbitrator declined this request, contending that the arbitration was subject to Scottish jurisdiction. Subsequently, the arbitrator issued a final ruling in favor of the Scottish company.

Upon the English company’s application, the master directed the arbitrator to formulate his award in the format of a special case. However, the Scottish company successfully appealed this decision before a judge, resulting in the rescission of the master’s directive. Nevertheless, the Court of Appeal later overturned this decision, ruling in favor of the English company. The Court held that English law governed the contract, including the arbitration process, consequently reinstating the master’s directive. However, the appeal was made by the Scottish Company and the case was decided by the House of Lords of 5 Judge Bench.

ISSUES OF THIS CASE:

1. Whether English law or Scottish law governs the arbitration process and any disputes arising from it.
2. Whether the proper authority is responsible for appointing the arbitrator.
3. Whether the arbitration should take place in England or Scotland and which procedural rules should apply.
4. Whether the arbitrator’s decision, refusal to state the award in a form suitable for adjudication by the English High Court, poses challenges to the enforceability of the arbitration award.
5. Whether the absence of a specifically tailored Scottish contract form within the R.I.B.A. framework exacerbates the conflict between English and Scottish law, impacting the validity and enforceability of the arbitration agreement.
6. Whether there are uncertainties regarding the interpretation and application of the arbitration clause within the contract, particularly concerning its intended scope and effectiveness in resolving disputes between the contracting parties.

APPLICATION OF LEGAL PRINCIPLES –

1. Arbitration Law: This encompasses the legal framework governing arbitration agreements, procedures, and enforcement. It may include statutory provisions such as the Arbitration Act of 1950 or subsequent arbitration legislation, as well as common law principles established through judicial precedent.
2. Contract Law: Contract law governs the formation, interpretation, and enforcement of contracts between parties. It includes principles such as offer and acceptance, consideration, and the interpretation of contractual terms, including arbitration clauses.
3. Conflict of Laws (Private International Law): Conflict of laws principles determine which jurisdiction’s laws apply to a particular legal issue with cross-border implications. In this case, the conflict arises between English and Scottish law, necessitating the resolution of jurisdictional conflicts and the determination of the applicable legal framework.
4. Administrative Law: Administrative law may be relevant if the arbitration agreement involves the appointment of an arbitrator by a professional body or organization, such as the president of the Royal Institute of British Architects (R.I.B.A.).

ANALYSIS OF THE CASE:

In this case, a dispute arose between a Scottish company and an English company concerning a building contract. The Scottish company initiated legal action by filing a writ in the Queen’s Bench Division on October 28, 1966, seeking payment for certain amounts owed. Concurrently, the English company applied for a stay of proceedings under section 4 of the Arbitration Act, 1950.
The Master, on November 30, 1966, dismissed the Scottish company’s application for judgment under R.S.C., Ord. 14, and issued an order staying further proceedings. Subsequently, on December 5, 1966, the Scottish company invoked the arbitration clause in the contract and requested the president of the Royal Institute of British Architects (R.I.B.A.) to nominate an arbitrator. The application explicitly mentioned the Arbitration Act, 1950.

The president of R.I.B.A. appointed a Scottish architect as the arbitrator, who conducted the arbitration proceedings in Scotland following Scottish procedural rules. When legal issues arose, the English company asked the arbitrator to state his award as a special case for the decision of the English High Court. However, the arbitrator declined, stating that the arbitration was subject to Scottish law.
Master Elton, on July 22, 1968, ordered the arbitrator to state his award as a special case, but this decision was appealed. On October 31, 1968, Eveleigh J. allowed an appeal by the Scottish company, overturning the order. However, on January 29, 1969, the Court of Appeal, in response to an appeal by the English company, ruled that English law governed the contract and the arbitration proceedings. Consequently, the Court of Appeal reinstated the Master’s order.

The Scottish company then appealed against the Court of Appeal’s decision and the decisions or opinion of House of Lords are as follows:

LORD RIED-

in his opinion, the question in this appeal is whether this was a Scottish or an English arbitration. If it was governed by the law of Scotland the arbiter acted correctly but if the arbitration was governed by the law of England, then it would be decided as per the English Court.
Two questions were mainly concerned firstly, whether the proper law of parties’ original contract was Scots or English law and secondly, if the proper law was English law, was the arbitration nevertheless governed by the law of Scotland.
The court acknowledged the fundamental principle granting parties the autonomy to designate the governing law of their contract. However, in cases where no explicit agreement exists, the court must discern the proper law by weighing various factors. These factors include the form of the contract, the geographical location of performance, and any other notable connections between the contract and the legal systems in question.

Two slightly different tests have been formulated, firstly, as per Lord Simonds in Bonython v. Commonwealth of Australia [1951] A.C. 201, 219) “the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connexion” and secondly, as per Lord Denning in In re United Railways of Havana and Regla Warehouses Ltd. [1961] A.C. 1007, 1068. “with what country has the transaction the closest and most real connection” Despite the contract’s English form, the court identified significant ties to Scottish law. Notably, all contractual work was designated to take place in Scotland, and the contracting party was of Scottish origin. Moreover, specific contractual clauses, such as those pertaining to legislative compliance and indemnification against claims, inherently intertwined with Scottish legal principles.

 Thus, despite some connections to English law, the court concluded that Scottish law exhibited a more profound association with the contract, rendering it the proper law.Secondly, in the event that English law applied to the contract, the court scrutinized the governing law of the arbitration proceedings. Post-appointment of the arbitrator, the conduct of the parties was evaluated to ascertain whether an implied agreement existed to apply Scottish law to the arbitration process. The court discerned from the subsequent actions of the parties an implicit agreement to subject the arbitration proceedings to Scottish law. This inferred agreement was deduced from the parties’ conduct, indicating their acknowledgment of Scottish law as the governing authority for arbitration, notwithstanding the broader contractual context potentially subject to English law.

In essence, the court’s ruling hinged upon the determination that Scottish law constituted the proper law of the contract due to its substantial connections with Scotland. Furthermore, even if English law were to apply, the actions of the parties implied an agreement to govern the arbitration proceedings by Scottish law. Consequently, the court upheld the appeal, confirming the application of Scottish law to both the contract and the arbitration process.

LORD HODSON-

In his opinion, the Lord in the House of Lords emphasized the importance of determining the proper law of the contract by assessing the system of law with which the transaction has its closest and most significant connections. While recognizing factors such as the performance of the contract in Scotland and the involvement of a Scottish contractor, the Lord highlighted the intentional use of the English R.I.B.A. form and the engagement of an English architect. These factors suggested a clear intention by the parties to be governed by English law.

Regarding the arbitration proceedings, the Lord emphasized the principle that procedural matters are subject to the lex fori, or law of the forum, irrespective of whether English or Scottish law applies to the substantive aspects of the contract. The leading case of Don v. Lippman (1837) 5 Cl. & F. 1, a Scottish appeal to your Lordships’ House, was concerned with the law of prescription and it was held that the sexennial period according to the lex fori prevailed over the lex contractus. Lord Brougham, at p. 13, held that there is this distinction between the contract and the remedy: that whatever relates to the remedy is to be governed by the lex fori, the law of the country to whose court’s application is made for performance. He didn’t see any reason why this principle should not be applied to arbitration proceedings2.

It appears from Norske Atlas Insurance Co. Ltd. v. London General Insurance Co. Ltd. (1927) 43 T.L.R. 541, 542, that MacKinnon J. was of this opinion. An opinion to the same effect is to be found in Dicey and Morris, Conflict of Laws , 8th ed. (1967) , where the editors submit, at p. 1048:Thus, the Lord concluded that Scottish law governed the arbitration proceedings, given both parties’ acceptance of a Scottish arbiter and adherence to Scottish arbitration procedure2.

The Lord’s opinion supported the appeal by confirming Scottish law as governing the arbitration proceedings and upholding the final award in favor of the contractors. This comprehensive analysis underscores the importance of considering both substantive and procedural aspects of the law in resolving disputes arising from international contracts.

LORD GUEST-

The Lord acknowledged the complexity in determining whether the proper law of the contract was governed by Scots or English law. Despite persuasive arguments on both sides, the Lord ultimately aligned with the majority view that English law governed the contract. This conclusion was based on factors such as the use of the R.I.B.A. form of contract, the involvement of an English architect, and the absence of explicit agreement to be bound by Scots law.

Transitioning to the procedural law governing the arbitration, the Lord emphasized the significance of parties’ conduct in indicating their intentions. While no explicit agreement was reached regarding procedural law, the actions of all parties involved—particularly the appointment of a Scottish arbiter and the adoption of Scots procedural norms—clearly suggested a preference for Scots law. The Lord underscored the importance of this implicit agreement, noting that procedural law is often determined by the conduct of the parties involved.
In conclusion, the Lord emphasized the importance of discerning parties’ intentions from their actions and emphasized the significance of procedural law in governing arbitration proceedings. The Lord’s opinion provided a comprehensive analysis of both the proper law of the contract and the procedural law of the arbitration, ultimately supporting the appeal and advocating for the restoration of Eveleigh J.’s order.

VISCOUNT DILHORNE:

Viscount Dilhorne initiates his analysis by examining the essence of the contractual relationship between the involved parties. Despite the physical execution of the construction work in Scotland, the adoption of the Royal Institute of British Architects (R.I.B.A.) form for the contract indicates a connection with English law. While common sense might suggest that a contract involving Scottish labor and construction would be governed by Scottish law, the use of the R.I.B.A. form and the parties’ conduct during contracting suggest otherwise. He underscores that the absence of an explicit choice of law in the contract does not hinder the court’s ability to determine the governing law based on contextual cues and the parties’ behavior. In this context, the adoption of an English-style contract form by both parties, despite the Scottish context of the project, implies an intention to be bound by English law.

Viscount Dilhorne then shifts his attention to the procedural dimension of the arbitration proceedings. In this case Widgery L.J. said in the Court of Appeal [1969] 1 W.L.R. 377, 383 : “To solve a problem such as arises in this case one looks first at the express terms of the contract to see whether that intention is there to be found. If it is not, then in my judgment the next step is to consider the conduct of the parties to see whether that conduct shows that a decision in regard to the proper law of the contract can be inferred from it. If the parties’ conduct shows that they have adopted a particular view with regard to the proper law, then it may be inferred that they have agreed that that law shall govern the contract accordingly. Finally, if one fails in this inquiry also and is driven to the conclusion that the parties never applied their minds to the question at all, then one has to go to the third stage and see what is the proper law of the contract by considering what system of law is the one with which the transaction has its closest and most real connection2.” He highlights the appointment of a Scottish solicitor as the arbiter’s clerk and the use of terminology such as “our procedure” in correspondence, indicating a preference for adhering to Scottish arbitration norms. Moreover, he points out the respondents’ acceptance of Scottish solicitors and procedural practices throughout the arbitration process.

Based on these observations, Viscount Dilhorne concludes that the arbitration proceedings were conducted in accordance with Scottish procedural law. Consequently, he supports the reinstatement of Eveleigh J.’s order, which validated the arbitration process under Scottish law.
He ultimately asserts that while English law governs the contract, Scottish procedural law governs the arbitration process, leading him to advocate for the allowance of the appeal.

LORD WILBERFORCE-

Lord Wilberforce began by discussing the context of the dispute, which stemmed from a building contract between an English company and a Scottish company. Despite the contract adopting the Royal Institute of British Architects’ form without specifying the governing law, Lord Wilberforce emphasized the importance of contextual factors in determining the proper law of a contract. He highlighted that the place of performance, in this case, Scotland, holds significant weight. Despite considerations such as English terminology and the involvement of an English architect, Lord Wilberforce concluded that the localization of performance in Scotland was the most decisive factor, leading him to determine that Scottish law governs the contract.

Lord Wilberforce turned his attention to the law governing the arbitration procedure. He acknowledged that if the proper law of the contract is Scottish, there would be no basis for applying English procedural law to the arbitration process. However, if English law governed the contract, English procedural law would typically apply. Despite this, Lord Wilberforce noted actions by the arbitrator, such as appointing a Scottish solicitor as clerk and indicating an intention to follow Scottish arbitration procedure, which demonstrated a clear commitment to Scottish law. He dismissed the respondents’ argument that referencing the Arbitration Act, of 1950, in the initial application for arbitration nomination signified a commitment to English procedural law, stating it was a standard reference. Lord Wilberforce concluded that the arbitration proceedings should be governed by Scottish law.

Thus, Lord Wilberforce’s opinion favored applying Scottish law to both the contract and the arbitration procedure, emphasizing the localization of contract performance and the conduct of the arbitration process as primary factors in his decision. He also allowed the appeal.

CONCLUSION:

This case centered on a contractual disagreement between a Scottish company and an English company, primarily concerning the applicable law to the contract and the subsequent arbitration procedures. After a series of legal actions, the Court of Appeal decided in favor of the English company, affirming that English law governed both the contract and the arbitration process. Consequently, the Master’s decision to require the arbitrator to present their award as a special case was reinstated. This outcome underscores the critical importance of correctly determining the governing law in transnational contractual disputes, as it significantly influences the legal framework governing the rights and obligations of the parties involved.