Scott v. Local Authority of Carluke

Factual and Procedural Background

The dispute arose under contracts between Company A and Contractor for the execution of certain water-works. The contracts contained a clause appointing an engineer as arbiter in the event of any dispute relating to the execution, construction, or completion of the work. During the project, the engineer reported to Company A that the works were in a "disgraceful state" due to the contractor’s faults, detailing specific deficiencies in the work. Following this report, Company A refused to pay the sums claimed by the contractor under the contract. The contractor then initiated legal action seeking payment.

The contractor alleged that the engineer, appointed as arbiter, was disqualified from acting impartially due to partiality and adverse views expressed in letters and reports, including accusations of dishonest practices. Company A contended that the dispute was subject to the arbitration clause and that the engineer was not disqualified. The Lord Ordinary found that the claims fell within the arbitration clause and that the engineer had not disqualified himself from acting as arbiter. The contractor reclaimed, arguing that the engineer’s report, particularly the allegations of dishonest practices, disqualified him from acting as arbiter. Company A maintained that the roles of engineer and arbiter were not incompatible and that the engineer had acted properly in his capacity as engineer.

Legal Issues Presented

1. Whether the engineer appointed as arbiter was disqualified from acting due to alleged partiality and prior adverse reports.
2. Whether the dual role of engineer and arbiter is incompatible in the context of the contract and arbitration clause.

Arguments of the Parties

Appellant's Arguments

• The engineer had disqualified himself from acting as arbiter by expressing adverse views and alleging dishonest practices against the contractor.
• Had the engineer not been involved in the works as engineer, there would be no doubt about his disqualification.
• It was improper for the engineer, in his role, to impute motives or act partially.
• The case was analogous to a precedent where such disqualification was recognized.

Appellee's Arguments

• The roles of engineer and arbiter were not incompatible under the contract.
• The engineer had performed his duties properly in his capacity as engineer.
• Nothing done by the engineer as arbiter or engineer disqualified him from acting in either capacity.

Table of Precedents Cited

Court's Reasoning and Analysis

The court emphasized the unique nature of the reference, where the engineer held dual roles as both supervisor of the work and appointed arbiter. The engineer’s detailed report criticized the faulty execution of the work by the contractor but did not contain vague or unfounded allegations. The court held that faithfully performing duties as engineer, including reporting faults, did not disqualify the engineer from acting as arbiter. To hold otherwise would mean that the offices of engineer and arbiter are incompatible, a position the court found untenable given established practice. The court found no evidence beyond the engineer’s reports and letters to support claims of partiality or disqualification. The decision respected the arbitration clause’s intent to have disputes resolved by the appointed arbiter, even where that person had supervisory duties under the contract.

Holding and Implications

The court affirmed the interlocutor of the Lord Ordinary, holding that the engineer was not disqualified from acting as arbiter despite his prior reports and alleged partiality. The arbitration was to proceed forthwith under the clause in the contracts.

The direct effect is that the contractor’s claims must be submitted to arbitration before the appointed engineer-arbiter. No new legal precedent was established beyond affirming the compatibility of the dual role of engineer and arbiter in such contractual contexts.