Hamlyn & Co. v. Talisker Distillery and Others

Factual and Procedural Background

On 27 January 1892, Company A, a firm of merchants based in England, and Company B, owners of a distillery in Scotland, executed a written agreement in England. Under that agreement, Company A undertook to supply a patent grain-drying machine to Company B, while Company B agreed to maintain the machine, package dried grain in Company A’s sacks, and deliver the grain free on board at a Scottish port. The contract concluded with the following clause: “Should any dispute arise out of this contract, the same to be settled by arbitration by two members of The Corn Exchange or their umpire in the usual way.”

After execution of the contract, Company B (through its sole proprietor) brought an action for damages in the Scottish Court of Session, alleging breach of contract by Company A. Company A raised two preliminary pleas: (1) lack of jurisdiction, and (2) exclusion of the action by virtue of the arbitration clause. The Lord Ordinary rejected those pleas, and a majority of the Inner House (Judge Adam and Judge M'Laren, Judge Kinnear dissenting) affirmed. Company A appealed to the House of Lords.

Legal Issues Presented

1. Whether the arbitration clause should be interpreted under English law or Scottish law.
2. Whether, if governed by English law, the clause obliges Scottish courts to stay proceedings despite Scottish rules that invalidate references to unnamed arbiters.
3. Whether enforcement of such a clause is contrary to Scottish public policy or impermissibly interferes with the court’s procedural jurisdiction.

Arguments of the Parties

Appellant’s Arguments (Company A)

• The wording of the arbitration clause (“members of the Corn Exchange … in the usual way”) demonstrates the parties’ intention that English arbitration law apply.
• English law recognises the clause as valid and binding even though the arbiters are not named.
• Scottish courts regularly enforce arbitration clauses where arbiters are named; therefore, no fundamental policy prevents enforcement where arbiters are unnamed but otherwise identifiable under a foreign law.
• The court should either remit the dispute to arbitration or stay proceedings until arbitration is complete.

Respondent’s Arguments (Company B)

• Because the contract was to be performed in Scotland, the lex loci solutionis is Scottish law, which renders the reference to unnamed arbiters invalid.
• An arbitration clause concerns the remedy, not substantive rights; thus the Scottish forum should apply its own procedural rules and hear the merits.
• Enforcing a clause that names no arbiters would conflict with Scottish public policy.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

Writing for the majority, Judge Chancellor emphasised that in contracts involving parties subject to different legal systems, the governing law depends on the parties’ expressed or implied intention. Neither the place of contracting (lex loci contractus) nor the place of performance (lex loci solutionis) is in itself decisive.

The arbitration clause, by referring expressly to arbitration before two members of The Corn Exchange “in the usual way,” unmistakably pointed to English arbitral practice. Construed under English law, the clause was valid despite the absence of named arbiters. The majority rejected the Inner House’s view that Scottish law automatically governed all parts of the contract simply because performance occurred in Scotland.

On the public-policy objection, the House noted that Scottish courts have long enforced arbitration clauses where arbiters are named; the rule invalidating references to unnamed arbiters is technical rather than fundamental. Because Scottish law allows private parties to remove disputes from ordinary courts by arbitration, enforcing a valid foreign arbitration clause does not contravene essential policy.

The argument that arbitration affects only remedies and therefore must yield to the procedural law of the forum was also dismissed. The real question was whether the court should hear the merits at all; a valid arbitration agreement obliges the court to stay proceedings until the agreed arbitral process is tried.

Holding and Implications

HELD: The appeal is allowed; the interlocutors of the Scottish courts are reversed. The House remitted the cause with directions to sist (stay) further procedure, enabling the dispute to be determined by arbitration in accordance with the contract. The Respondent must pay the costs of the appeal and the costs in the Court of Session from the date of the Lord Ordinary’s interlocutor.

Implications: The decision affirms party autonomy in choosing the governing law of discrete contractual provisions and clarifies that Scottish courts will enforce foreign arbitration clauses—even those invalid under domestic rules—where doing so does not offend fundamental public policy. It underscores that neither the place of performance nor forum procedure overrides a clear contractual choice of law.