[HOUSE OF LORDS.]

AND

Arbitration - Contract - Repudiation - Any dispute arising "in respect of this agreement" - Scope of arbitration clause.

When an arbitration clause in a contract provides without any qualification that any difference or dispute which may arise "in respect of" or "with regard to" or "under the contract" shall be referred to arbitration, and the parties are at one in asserting that they entered into a binding contract, the clause will apply even if the dispute involves an assertion by one party that circumstances have arisen, whether before or after the contract has been partly performed, which have the effect of discharging one or both parties from all subsequent liability under the contract, such as repudiation of the contract by one party accepted by the other, or frustration of the contract. Secus, generally, if the point

in dispute is whether the contract containing the clause was ever entered into at all or was void ab initio, for example, because the making of it was illegal.

Observations of Lord Loreburn L.C. and Lord Shaw in Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld., 1909 S. C. (H. L.) 53, at pp. 54, 56; and of Viscount Haldane L.C. in Jureidini v. National British and Irish Millers Insurance Co., Ld. [1915] A. C. 499, at p. 505, not adopted. Decision of the Judicial Committee of the Privy Council in Hirji Mulji v. Cheong Yue Steamship Co., Ld. [1926] A. C. 497, questioned.

An arbitration clause in a contract provided that "if any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained or anything arising hereout the same shall be referred for arbitration in accordance with the provisions of the Arbitration Act, 1889." A dispute having arisen between the parties, the appellants commenced an action against the respondents claiming (a) a declaration that the respondents had "repudiated and/or evinced an intention not to perform" the contract and (b) damages. The respondents, who admitted the existence of the contract and denied that they had repudiated it, applied to have the action stayed in order that it might be dealt with under the arbitration clause:-

Held, that the dispute fell within the terms of the arbitration clause and that the action ought to be stayed.

APPEAL from the Court of Appeal.

The facts were stated by Viscount Simon L.C. as follows:

By a written contract dated February 19, 1938, the respondents, manufacturers of steel in Sheffield, as principals appointed the appellants, whose business address was in New York, to be sole selling agents of their tool steels in a wide area of territories including the western hemisphere (excluding U.S.A. and Argentine), Australia, New Zealand and India. The appellants were to sell in the name of the respondents, the respondents fixing f.o.b. prices and the appellants charging the purchaser with such excess price over f.o.b. prices as they could obtain. Any excess price over the f.o.b. price was for the credit of the appellants and the respondents were to account to the appellants in respect of such excess price after the respondents had received payment in full from the purchaser. The duration of the agreement was to be for three years from April 1, 1938, as a minimum. The agreement contained an arbitration clause in the following terms: "If any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained or anything arising hereout the same shall be referred for arbitration in accordance with the provisions of

the Arbitration Act, 1889, or any then subsisting statutory modification thereof." Subsequently the respondents complained that the appellants were selling the respondents' steels for purposes for which the purchasers found they were not suitable, and that in consequence the respondents were faced with the risk of having to meet claims from dissatisfied buyers. Thus, the respondents wrote on July 18, 1939: "Under our contract with you these claims are your responsibility and we therefore cannot make any further remittances to you until we are satisfied that no such claims will be made, or alternatively that any that have been made have been settled." The appellants, who first heard by cable from their representative in England of this attitude of the respondents, wrote on July 24 to protest: "I do not know by what right you pretend to hold any of our money as guarantee against possible claims." Each party maintained its position, the appellants reporting their success in obtaining further orders in Australasia, and the respondents writing on August 24: "We can only accept further orders on the strict understanding that from the amounts due to you a certain percentage must be retained to build up a reserve for the reasons already stated." On September 8, the appellants replied that this seemed to them to be a breach of contract on the respondents' part and they refused to assent to any such stipulation. The anxiety of the respondents to get their profits promptly transferred from London to New York gained additional force by reason of the Treasury control established at the outbreak of the war. On November 7, the respondents wrote to express their dissatisfaction at the way in which the agreement was working out and added: "in the circumstances we would either suggest cancelling this agreement altogether or entering into negotiations with the view to drawing up another arrangement which would have to be such that satisfaction would be assured for all parties concerned." The appellants' solicitors wrote on December 21, referring to the letters of July 18, August 24, and November 7, and alleging that they showed that the respondents "have repudiated and/or evinced an intention not to perform" the agreement (an allegation which the respondents denied), and a writ was issued in the King's Bench Division on January 27, 1940, asking the court to make a declaration that the respondents "have repudiated and/or evinced an intention not to perform" the agreement, and also claiming damages under various

heads. The respondents applied for the action to be stayed under s. 4 of the Arbitration Act, 1889. Cassels J. in chambers held that the issue involved only a question of law and in the exercise of his discretion refused to grant a stay. The Court of Appeal allowed an appeal by the respondents, holding that the arbitration clause applied and that Cassels J. had wrongly exercised his discretion. The appellants appealed.

M. Turner-Samuels and D. J. Turner-Samuels for the appellants. Cassels J. in exercising his discretion in favour of the appellants followed no wrong principle and his discretion should not be interfered with. Further, the respondents in fact repudiated the contract by failing and refusing to perform it, as well as by the claim they made in a letter dated February 15, 1940, that by reason of the issue of the writ by the appellants and the claims made therein the appellants had repudiated the contract and the respondents accepted this repudiation. Accordingly, the whole contract is at an end and with it the arbitration clause, so that the dispute does not fall within it. The respondents who have repudiated the contract, are prohibited, by the doctrine of approbation and reprobation, from relying on a clause which constituted one of its terms. [They referred to Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (1); Jureidini v. National British and Irish Millers Insurance Co., Ld. (2) and Hirji Mulji v. Cheong Yue Steamship Co., Ld. (3).]

Sellers K.C. and Scott Cairns (for J. P. Ashworth, on war service) for the respondents. The contract was never repudiated by the respondents, and, accordingly, the arbitration clause applies to this dispute. The rule in Jureidini v. National British and Irish Millers Insurance Co., Ld. (2) only applies in the case of a repudiation going to the root of the contract. No such repudiation was proved and there was no sufficient evidence of any acceptance by the appellants of the alleged repudiation. Further, Cassels J. exercised his discretion wrongly since no difficult questions of law are involved in the interpretation either of the agreement or of the correspondence. No sufficient grounds have been shown why the appellants should not proceed by way of arbitration in accordance with their agreement.

The House took time for consideration.

(1) 1909 S. C. (H. L.) 53, 56.

(2) [1915] A. C. 499.

(3) [1926] A. C. 497.

1942. Feb. 20. VISCOUNT SIMON L.C . (read by Lord Macmillan). The question to be decided in this appeal is whether an action started in the King's Bench Division of the High Court by the appellants against the respondents should, on the application of the latter, be stayed pursuant to s. 4 of the Arbitration Act, 1889, in order that the matters in dispute between the parties may be dealt with under the arbitration clause. The appellants contend that the dispute does not fall within the arbitration clause at all, and, alternatively, that, if it does, the judge in chambers, Cassels J., rightly exercised his discretion in refusing to stay the action. The Court of Appeal (Scott, MacKinnon and Luxmoore L.JJ.) took a contrary view and held that the arbitration clause clearly applied, and that the learned judge made a wrong use of his discretion in refusing the stay. The Court of Appeal refused leave to appeal further, considering that the case was "a very simple one," but the appeal committee of the House, largely I think because of the uncertainty said to result from certain pronouncements in previous cases decided in the House of Lords and the Judicial Committee, gave leave.

The answer to the question whether a dispute falls within an arbitration clause in a contract must depend on (a) what is the dispute and (b) what disputes the arbitration clause covers. To take (b) first, the language of the arbitration clause in this agreement is as broad as can well be imagined. It embraces any dispute between the parties "in respect of" the agreement, or in respect of any provision in the agreement, or in respect of anything arising out of it. If the parties are at one on the point that they did enter into a binding agreement in terms which are not in dispute, and the difference that has arisen between them is as to their respective rights under the admitted agreement in the events that have happened for example, whether the agreement has been broken by either of them, or as to the damage resulting from such breach, or whether the breach by one of them goes to the root of the contract and entitles the other party to claim to be discharged from further performance, or whether events supervening since the agreement was made have brought the contract to an end so that neither party is required to perform further - in all such cases it seems to me that the difference is within such an arbitration clause as this. In view, however, of phrases to be found in the report of some earlier decisions, the availability of the

arbitration clause when "frustration" is alleged to have occurred will require closer consideration.

Turning now to the other question which I have called (a), what is the present dispute about? The answer has to be gathered from the affidavits filed in the application to stay, from the correspondence before writ exhibited to these affidavits and from the endorsement on the writ itself. The first head of claim in the writ appears to be advanced on the view that an agreement is automatically terminated if one party "repudiates" it. That is not so. "I have never been able to understand," said Scrutton L.J. in Golding v. London & Edinburgh Insurance Co., Ld. (1), "what effect the repudiation of one party has unless the other party accepts the repudiation." If one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further, the other party has an option as to the attitude he may take up. He may, notwithstanding the so-called repudiation, insist on holding his co-contractor to the bargain and continue to tender due performance on his part. In that event, the co-contractor has the opportunity of withdrawing from his false position, and even if he does not, may escape ultimate liability because of some supervening event not due to his own fault which excuses or puts an end to further performance: a classic example of this is to be found in Avery v. Bowden (2). Alternatively, the other party may rescind the contract, or (as it is sometimes expressed) "accept the repudiation," by so acting as to make plain that in view of the wrongful action of the party who has repudiated, he claims to treat the contract as at an end, in which case he can sue at once for damages. "Rescission (except by mutual consent or by a competent court)" said Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (3) "is the right of one party, arising upon conduct by the other, by which he intimates his intention to abide by the contract no longer. It is a right to treat the contract as at an end if he chooses, and to claim damages for its total breach, but it is a right in his option." But repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation, on the one side, and acceptance of the repudiation, on the other. Thus, in General Billposting Company, Ld. v. Atkinson (4), where the respondent's engagement as manager of the appellant

(1) (1932) 43 Ll. L. Rep. 487, 488.

(2) (1855) 5 E. & B. 714.

(3) [1926] A. C. 497, 509.

(4) [1909] A. C. 118.

company was subject to twelve months' notice and the latter wrongfully dismissed him without notice, Lord Collins (with whose judgment Lord Halsbury expressly concurred) said(1): "I think the true test applicable to the facts of this case is that which was laid down by Lord Coleridge C.J. in Freeth v. Burr (2), and approved in Mersey Steel & Iron Co., Ld. v. Naylor (3) in the House of Lords, 'that the true question is whether 'the acts and conduct of the party evince an intention no longer to be bound by the contract.' I think the Court of Appeal had ample ground for drawing this inference from the conduct of the appellants here in dismissing the respondent in deliberate disregard of the terms of the contract, and that the latter was thereupon justified in rescinding the contract and treating himself as absolved from the further performance of it on his part." In the present case, the proper form in which to seek relief under the first head of the endorsement of the writ would be to ask for a declaration that the agreement had been terminated by the wrongful repudiation by the defendants which had been accepted by the plaintiffs. The issue of the writ may, however, sometimes be regarded as amounting to the exercise of the plaintiffs' claim to rescind and for the purposes of the appeal I am content so to regard it.

But, even so, I do not see how this claim, however expressed, together with the other claims in the writ, can be regarded otherwise than as involving a dispute "in respect of the agreement" and in respect of something arising out of it. The fallacy of the other view arises from supposing that, if the respondents have so acted as to refuse further performance of the agreement, this amounts to saying that they deny that the agreement ever existed. If the respondents were denying that the contract had ever bound them at all, such an attitude would disentitle them from relying on the arbitration clause which it contains, but that is not the position they take up. They admit the contract, and deny that they have repudiated it. Whether they have, or have not, is one of the disputes arising out of the agreement. Even if the arbitrator finds that they have, and that on the appellants' acceptance of the repudiation the contract is at an end, that finding does not oust the arbitrator's jurisdiction. "The proposition," said Lord Finlay in Sanderson & Son v. Armour & Co., Ld. (4),

(1) [1909] A. C. 118, 122.

(2) (1874) L. R. 9 C. P. 208, 213.

(3) (1884) 9 App. Cas. 434.

(4) 1922 S. C. (H. L.) 117, 121.

that the mere allegation by one party of repudiation of the contract by the other deprives the latter of the right to take advantage of an arbitration clause is unreasonable in itself, and there is no authority to support it." Moreover, the damages due from the respondents for this breach of the obligations of the agreement, as well as damages for any other breaches of it, are also disputed matters arising "in respect of" the agreement.

I now turn to certain earlier decisions which, as they stand in the reports, may seem to restrict the application of an arbitration clause where the contract has, for some reason or another, come to an end. The first of these is the appeal to this House from Scotland in Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (1). The situation there was unusual - indeed, Lord Shaw, when offering an explanation of it thirteen years later in Sanderson's case(2), described the circumstances as "very singular and very special" and the case as "extremely complex." The Scottish firm who were respondents had agreed to supply plant to the appellants under a contract which was to be "deemed for all purposes an English contract, enforceable in and subject to the jurisdiction of the English courts," and the contract contained an arbitration clause agreeing, "in case any dispute or difference shall arise between the purchasers and the contractors" to refer it to arbitration under the English Act of 1889. The municipal council brought an action for damages in the Scottish courts, averring (inter alia) that the whole contract had been repudiated by the defenders. The Court of Session considered that it was necessary that the parties should ascertain from the English courts, by stated case, whether the arbitration clause applied. This House reversed this decision, holding that, as English law (unlike the law of Scotland) did not compel reference to arbitration even though the clause applied, the courts in Scotland had jurisdiction to entertain the cause. I regard this as the true ground of the decision, and in doing so I am following the view of it expressed by Viscount Finlay in Sanderson's case(3). There was a second ground which Lord Loreburn L.C. is reported(4) to have formulated thus: "If the course of action which is established be that there has been repudiation or a breaking of contract in the sense that the contract has been frustrated

(1) 1909 S. C. (H. L.) 53.

(2) 1922 S. C. (H. L.) 117, 129.

(3) 1922 S. C. (H. L.) 117, 121.

(4) 1909 S. C. (H. L.) 53, 54.

by the breach, then it would not be within the arbitration clause." Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1), indicated that he found this sentence obscure, and I share his difficulty. It is to be noted that it occurs in the report of a judgment which was delivered ex tempore, and was, apparently, never revised by the speaker, for the word "course" must surely be "cause." In any case, the decision to allow the appeal is sufficiently based on the first ground, which I prefer. Lord Shaw's observation in the same case(2): "It does not appear to me to be sound law to permit a person to repudiate a contract and thereupon specifically to found upon a term in that contract which he has thus repudiated" - is best understood as referring to the exercise of judicial discretion by refusing a stay, for it seems impossible to construe the language of an arbitration clause as though its range could be reduced by the action of one of the parties. Its range depends on its terms, and if its terms are wide enough to cover a dispute whether one party has repudiated, or as to damages due to repudiation, the fact that there has been repudiation may in some cases incline the judge to let the action proceed, but will not alter the interpretation of the clause itself.

The next case calling for special examination is Jureidini v. National British and Irish Millers Insurance Co., Ld. (3). Here, again, the decision was not reserved, and here, again, the speeches do not all give the same ground for allowing the appeal. Viscount Haldane L.C. who had during the argument referred to the above observation of Lord Shaw in the Johannesburg case(2), said(4): "Now, my Lords, speaking for myself, when there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up that repudiation can be entitled to insist on a subordinate term of the contract still being enforced." By the person setting up the repudiation is meant the insurance company, which denied liability under the policy on the ground that the appellants had set fire to their own property, and it is not at all clear to me why, if the policy contained an arbitration clause covering all claims arising under the policy, it should not cover such a dispute. But the arbitration clause in the policy was not framed so widely. It applied "if any difference arises as to the amount of any loss or

(1) [1926] A. C. 497, 511.

(2) 1909 S. C. (H. L.) 53, 56.

(3) [1915] A. C. 499.

(4) Ibid. 505.

damage," and provided that "it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators, or umpire of the amount of the loss or damage if disputed shall be first obtained." Lord Dunedin pointed out(1) that the arbitration clause only applied to differences as to amount of loss, and, therefore, not to a claim which the respondents rejected altogether, whatever the loss might be. Lord Atkinson(1) rested his judgment on this last point alone. Lord Parker concurred without distinguishing reasons. Lord Parmoor said expressly(2) that no difference had arisen as regards matters which could come for decision under the arbitration clause and that consequently the clause had no application. It is on this second ground that I think the majority of the House should be regarded as having decided the appeal.

Last, in this trilogy of difficult decisions, comes the judgment of the Judicial Committee in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (3). It was the case of a time charterparty, where the ship was requisitioned on behalf of His Majesty's government before the date at which she was to have entered upon the performance of the charter and remained in government service until more than a year had elapsed after the period of ten months during which her service under the charter was to have been rendered. Lord Sumner's judgment contains an elaborate and authoritative exposition of the nature of frustration, and a contrast between the operation of frustration, which is automatic, and the consequence of wrongful repudiation, which depends on the choice of the other party. On this point, the judgment has always been regarded as a pronouncement of the highest authority, but I confess to considerable difficulty in accepting the conclusion that the dispute whether such a requisition had frustrated the performance of the charterparty, or whether on the other hand, the shipowner was entitled to damages for the charterers' refusal to take delivery of the ship when she was at length released, was not a "dispute arising under this charter." Lord Sumner held that it was not, on the ground that the execution of the contract had not begun, and that the dispute first arose when "this charter" no longer existed. A decision of the Judicial Committee is not binding on this House - nor indeed on the courts below: Leask v. Scott (4);

(1) [1915] A. C. 499, 507.

(2) Ibid. 508.

(3) [1926] A. C. 497.

(4) (1877) 2 Q. B. D. 376, 380.

and, while any opinion delivered by Lord Sumner must command the respect due to that great master of the law, I think the judgment in Hirji Mulji's case(1), so far as the effect of frustration of contract on an arbitration clause is concerned, must not be taken as having established a general rule. Ordinarily speaking, there seems no reason at all why a widely drawn arbitration clause should not embrace a dispute whether a party is discharged from future performance by frustration, whether the time for performance has already arrived or not.

My Lords, it is of much practical importance that the law should be quite plain as to the scope of an arbitration clause in a contract where the clause is framed in wide and general terms such as this, and I trust that the decision of the House in this appeal may be useful for this purpose and will remove any misunderstanding which may have grown up out of certain phrases in some of the previous decisions to which I have referred. At the risk of some repetition, I would summarize what I conceive to be the correct view on the matter as follows. An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. But, in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen "in respect of," or "with regard to," or "under" the contract, and an arbitration clause which uses these, or similar, expressions should be construed accordingly. By the law of England (though not, as I understand, by the law of Scotland), such

(1) [1926] A. C. 497.

an arbitration clause would also confer authority to assess damages for breach, even though it does not confer on the arbitral body express power to do so.

I do not agree that an arbitration clause expressed in such terms as above ceases to have any possible application merely because the contract has "come to an end," as, for example, by frustration. In such cases it is the performance of the contract that has come to an end. The doctrine of discharge from liability by frustration has often been explained as flowing from the inference of an implied term, and in giving my opinion on the occasion of the recent decision of this House in Joseph Constantine Steamship Line, Ld. v. Imperial Smelting Corporation, Ld. (1), I expressed the view that the most satisfactory basis upon which the doctrine can be put is "that it depends on an implied term in the contract of the parties." If, therefore, when parties have entered into a contract, circumstances arise before the performance of the contract is completed which, in the view of one party, bring the contract to an end by frustration, and, therefore, discharge both parties from further performance, but the other party does not agree, this is a difference about the applicability of the implied term and is just as much within the arbitration clause as if it were a difference about an express term of the contract. There is a previous decision of this House which establishes this precise proposition. I refer to Scott & Sons, Ld. v. Del Sel (2), where sellers of jute contended that a contract to export from Calcutta 2800 bales to Buenos Ayres was brought to an end, after a portion had been dispatched, by a government prohibition of further export, notwithstanding that the contract contained an express term exempting the sellers from liability for late delivery due to unforeseen circumstances. The arbitration clause ran: "Any dispute that may arise under this contract to be settled by arbitration." The sellers argued that the dispute as to frustration was not a dispute under the contract, but a dispute as to the existence of the contract. This contention was unanimously rejected. Lord Dunedin reasons thus(3): "They (the sellers) can only succeed .... if they bring themselves within one of two categories. Either they must show that there was an express term of the contract which had that effect," i.e., of bringing the contract to an end, "or they must show that there

(1) Ante, p. 154, 163.

(2) 1923 S. C. (H. L.) 37.

(3) Ibid. 41.

was an implied term in the contract which had the same effect. That an implied term in a contract may have that effect is quite clearly shown by what was decided in this House in the case of Tamplin Steamship Co. (1) and in the case of the Metropolitan Water Board v. Dick Kerr & Co., Ld. (2). It seems to me, therefore, that they are in this dilemma, that in either view they have got to have recourse to the contract, and, if they have got to have recourse to the contract, it seems to me that the dispute is a dispute under the contract."

I can see no reason why an arbitration clause framed on the above lines should not equally apply if the supervening event which is alleged by one side to have effected discharge by frustration occurs after the contract has been entered into but before the time has come for anything to be done under the contract. Lord Dunedin's reasoning applies equally to both cases. It is, in my opinion, fallacious to say that because the contract has "come to an end" before performance begins, the situation, so far as the arbitration clause is concerned, is the same as though the contract had never been made. In such cases, a binding contract was entered into, with a valid submission to arbitration contained in its arbitration clause, and, unless the language of the arbitration clause is such as to exclude its application until performance has begun, there seems no reason why the arbitrator's jurisdiction should not cover the one case as much as the other.

In this summary it is not necessary to deal with the situation which arises when a contract stipulates that the arbitration must take place before an action can be brought (as in Scott v. Avery (3)), or with the difficult question whether an arbitration clause covers a dispute as to the ambit of the submission (see Lord Parker's observations in the Produce Brokers Co., Ld. v. Olympia Oil and Cake Co., Ld. (4). Two further observations must be made in conclusion. The first is that, notwithstanding the general validity of the above observations, the governing consideration in every case must be the precise terms of the language in which the arbitration clause is framed. Its terms may, of course, be such as will either expressly or by implication reduce what would otherwise be the full ambit of the clause, or again, will extend it yet further. Secondly, what I have endeavoured to formulate

(1) [1916] 2 A. C. 397.

(2) [1918] A. C. 119.

(3) [1855] 5 H. L. C. 811.

(4) [1916] 1 A. C. 314, 327.

in this summary is concerned solely with the question whether or not an arbitration clause applies. It has nothing to do with the further and quite distinct question whether, where an action is started in the English courts about a dispute which is within the scope of an arbitration clause, the action should be stayed at its inception under s. 4 of the Arbitration Act, 1889. The principles which should govern the exercise of judicial discretion on this matter have often been laid down and are well understood, and the extent to which appellate authority may interfere was last stated in this House in the case of Charles Osenton & Co. v. Johnston (1). I think the Court of Appeal was right in reversing Cassel J.'s decision on this head. Even if the learned judge were right in regarding the issue as one in which nothing but a question of law is involved, that circumstance would not necessarily and in all cases make it right to refuse a stay: Lord Parker's observation in Bristol Corporation v. John Aird & Co. (2) refers to a question of construction. Moreover, in the present case questions of fact may well have to be determined and the dispute as a whole is of a class which is constantly dealt with by an arbitrator. There is no sufficient reason why the matter should not be referred, and therefore, by the express language of s. 4, there must be a stay. In my opinion, this appeal fails on all points, and I move that it be dismissed with costs.

LORD MACMILLAN . My Lords, I am desired by my noble and learned friend, Lord Russell of Killowen, to say that he has had an opportunity of seeing in print the opinion which I am about to deliver, and that he agrees with it on all points.

I agree with the view which I believe is shared by all your Lordships that this appeal should be dismissed. On its own facts the case presents no great difficulty, but, as I understand that leave to appeal was granted in this instance on the representation that the case raised general questions affecting the efficacy of arbitration clauses on which some doubt had arisen and as your Lordships have heard full arguments on these questions, I shall express as briefly as I can the conclusions which I have reached.

The law permits the parties to a contract to include in it as one of its terms an agreement to refer to arbitration disputes which may arise in connection with it, and the courts of England enforce such a reference by staying legal proceedings

(1) Ante, p. 130, 138, 139.

(2) [1913] A. C. 241, 261.

in respect of any matter agreed to be referred "if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission": Arbitration Act, 1889, s. 4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen. The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration.

Arbitration clauses in contracts vary widely in their language for there is no limitation on the liberty of contracting parties to define as they please the matters which they desire to submit to arbitration. Sometimes the reference is confined to practical questions arising in the course of the execution of the contract; sometimes the most ample language is used so as to embrace any question which may arise between the parties in any way relating to the contract. Consequently, many of the reported cases are concerned with the interpretation of the scope of the terms of reference, for an arbitrator has jurisdiction only to determine such matters as, on a sound interpretation of the terms of reference, the parties have agreed to refer to him. In the ordinary case the ascertainment of the nature of the dispute and the interpretation of the terms of reference are matters of no special difficulty. Of recent years, however, certain views have been advanced and have received considerable judicial encouragement which have tended to introduce an unfortunate element of perplexity as affecting the application and efficacy of arbitration clauses in cases in which the contract is said to have been repudiated. Dicta of high authority have caused doubts which subsequent explanations cannot be said to have successfully removed. The arguments at the bar in the present case have illustrated the persistence of this uncertainty.

I may clear the ground by disposing of one or two simple cases. If it appears that the dispute is whether there has

ever been a binding contract between the parties, such a dispute cannot be covered by an arbitration clause in the challenged contract. If there has never been a contract at all, there has never been as part of it an agreement to arbitrate. The greater includes the less. Further, a claim to set aside a contract on such grounds as fraud, duress or essential error cannot be the subject-matter of a reference under an arbitration clause in the contract sought to be set aside. Again, an admittedly binding contract containing a general arbitration clause may stipulate that in certain events the contract shall come to an end. If a question arises whether the contract has for any such reason come to an end I can see no reason why the arbitrator should not decide that question. It is clear, too, that the parties to a contract may agree to bring it to an end to all intents and purposes and to treat it as if it had never existed. In such a case, if there be an arbitration clause in the contract, it perishes with the contract. If the parties substitute a new contract for the contract which they have abrogated the arbitration clause in the abrogated contract cannot be invoked for the determination of questions under the new agreement. All this is more or less elementary.

I now come to the type of case which has given rise to controversy. Such cases arise in this way. One of the parties to a contract evinces by his conduct or openly declares his intention not to fulfil his obligations under the contract. He is then commonly said to have "repudiated" the contract, an ambiguous phrase which has, I think, been the source of much misunderstanding. A good illustration of so-called repudiation by conduct is afforded by Forslind v. Bechely-Crundall (1), and of so-called declared repudiation by Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (2). Where there has been such repudiation by one party of his contract obligations the other party may either acquiesce and betake himself to a claim of damages for breach or may contest the repudiation, but if his protests are unavailing, as he cannot in general enforce specific implement, his only remedy in the end is also a claim of damages for breach. If there is a clause in the contract referring to arbitration all disputes under or arising out of or relating to the contract, what is the effect of the repudiation on its efficacy? According to one view, the repudiation excludes the operation of the arbitration clause, or at least precludes its enforcement

(1) 1922 S. C. (H. L.) 173.

(2) 1909 S. C. (H. L.) 53.

at the instance of the party who has repudiated. Thus, in the Johannesburg case(1), Lord Loreburn L.C. said(2): "If the course [? cause] of action which is established be that there has been repudiation or a breaking of contract in the sense that the contract has been frustrated by the breach, then it would not be within the arbitration clauses in either of these contracts." Another way of approaching the question appears in the speech of Lord Shaw in the same case where he said(3): "As these averments stand, this contract was wholly repudiated. It does not appear to me to be sound law to permit a person to repudiate a contract and thereupon specifically to found upon a term in that contract which he has thus repudiated." To the same effect Lord Haldane L.C. in Jureidini v. National British and Irish Millers Insurance Co., Ld., said(4): "Speaking for myself, when there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up that repudiation can be entitled to insist on a subordinate term of the contract still being enforced." These dicta, in view of their high authority, are entitled to the most careful consideration, but with all respect I do not think they constitute pronouncements in law by this House such as to be binding on your Lordships. To take first Lord Loreburn's dictum, I confess that I find it obscure, without expressing myself so bluntly as Lord Sumner, who in a subsequent case prefaced his comment on the dictum with the words: "Whatever exactly this sentence means" - Hirji Mulji v. Cheong Yue Steamship Co., Ld. (5). It certainly does not say that repudiation destroys the contract and with it the arbitration clause which it contains. As Lord Dunedin, then Lord President, said in this same Johannesburg case(6), in the Court of Session, after pointing out that the defenders there "threw up the whole contract" and the pursuers replied "We see you cannot go on, you have so utterly broken the contract that we hold it at an end and we will claim damages for breach," at once added: "That does not mean that the contract is gone for ever; on the contrary the contract remains and is only the measure of liability for damages." The decision of the Court of Session was recalled by this House, but on special grounds not affecting the passage I have quoted from Lord Dunedin's judgment.

(1) 1909 S. C. (H. L.) 53.

(2) Ibid. 54.

(3) Ibid. 56.

(4) [1915] A. C. 499, 505.

(5) [1926] A. C. 497, 511.

(6) 1909 S. C. 860, 878.

Repudiation, then, in the sense of a refusal by one of the parties to a contract to perform his obligations thereunder, does not of itself abrogate the contract. The contract is not rescinded. It obviously cannot be rescinded by the action of one of the parties alone. But, even if the so-called repudiation is acquiesced in or accepted by the other party, that does not end the contract. The wronged party has still his right of action for damages under the contract which has been broken, and the contract provides the measure of those damages. It is inaccurate to speak in such cases of repudiation of the contract. The contract stands, but one of the parties has declined to fulfil his part of it. There has been what is called a total breach or a breach going to the root of the contract and this relieves the other party of any further obligation to perform what he for his part has undertaken. Now, in this state of matters, why should it be said that the arbitration clause, if the contract contains one, is no longer operative or effective? A partial breach leaves the arbitration clause effective. Why should a total breach abrogate it? The repudiation being not of the contract but of obligations undertaken by one of the parties, why should it imply a repudiation of the arbitration clause so that it can no longer be invoked for the settlement of disputes arising in consequence of the repudiation? I do not think that this is the result of what is termed repudiation. Suppose the injured party prefers to have his claim of damages for the other party's total breach assessed by arbitration, can he not invoke and enforce the arbitration clause for that purpose? Can he be effectually met by a plea on the part of the wrongdoer that the wrongdoer has repudiated the contract and with it the arbitration clause which is consequently no longer operative? I do not think that this result follows even if the injured party acquiesces in the total breach - accepts the repudiation, as it is put - and contents himself with his claim of damages. I think he is entitled to insist on having his damages assessed by arbitration notwithstanding the other party's repudiation.

I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both

parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. And there is this very material difference, that whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts. The appropriate remedy for breach of the agreement to arbitrate is not damages, but its enforcement. Moreover, there is the further significant difference that the courts in England have a discretionary power of dispensation as regards arbitration clauses which they do not possess as regards the other clauses of contracts.

I am, accordingly, of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.

There still remains the difficulty raised by the dicta of Lord Shaw and Lord Haldane which I have quoted. It is said to be wrong to allow a party to a contract who has refused to perform his obligations under it at the same time to insist on the observance of a clause of arbitration embodied in the contract. The doctrine of approbate and reprobate is said to forbid this. I appreciate the apparent dilemma, but with the greatest respect I venture to think it is based on a misapprehension. The key is to be found in the distinction which I have endeavoured to draw between the arbitration clause in a contract and the executive obligations undertaken by each party to the other. I can see nothing shocking or repugnant to law in one business man saying to another that he regrets he finds himself unable to go on with his deliveries under a contract between them and at the same time asking the other to join with him in a reference under an

arbitration clause in their contract to ascertain what compensation is to be paid for his default. The parties have both agreed that all questions between them shall be settled by their own tribunal. The question of the consequences which are to follow from a breach, including a total breach, of the obligations undertaken by one of the parties is just such a question as both parties have agreed should go to arbitration. It is not a case of one party refusing to perform the obligations he has undertaken in favour of the other and at the same time insisting that obligations in favour of himself shall continue to be performed. The arbitration clause, as I have said, is not a stipulation in favour of either party. I am, accordingly, of opinion that the doctrine of approbate and reprobate does not apply to prevent a party to a contract who has declined to proceed further with the performance of his obligations to the other party from invoking an arbitration clause in the contract for the purpose of settling all questions to which his declinature has given rise. In all this I have assumed that the arbitration clause in its terms is wide enough to cover the dispute.

It remains to mention the special case of a contract which has been frustrated, in the technical sense which that word has now acquired. In the Hirji Mulji case(1) it was held in the Privy Council that, where a contract had been frustrated before performance had begun in consequence of a government requisition, the contract had terminated as to all matters and disputes which had not already arisen and the arbitration clause had ceased to be operative. I do not propose to express any opinion as to the effect of frustration in the technical sense on arbitration clauses, as the matter has not been fully argued, but I should not like to be taken as accepting without further consideration some at least of the views expressed by Lord Sumner on behalf of the Board in the case just quoted.

In what I have said I have purposely not entered on any detailed examination of the reported cases, preferring to express the result of my study of them in my own words. I am not conscious of having gone counter to any decision of this House, though I have found it necessary respectfully to differ from views incidentally expressed in some of the cases. Applying to the present appeal the principles I have endeavoured to formulate I have no doubt

(1) [1926] A. C. 497.

that the dispute between the appellants and the respondents, the nature of which has been fully set out by my noble and learned friend on the woolsack, is one which falls within the arbitration clause in the contract between them and that nothing has occurred to deprive that clause of its binding efficacy. I am also satisfied that in the circumstances the Court of Appeal were justified in overruling the discretion exercised by the learned judge of first instance in declining to grant a stay. I have only to add that having had the advantage of reading in print the speech of my noble and learned friend the Lord Chancellor, I desire to express my agreement with the general conclusions which he has reached.

LORD WRIGHT . My Lords, the contention on behalf of the appellants was that the respondents by their conduct and by their letters had evinced an intention not to perform the agreement any more and had thereby repudiated it, and that the appellants had evinced acceptance of that repudiation by the issue of the writ, and that, accordingly, the principle enunciated in this House by Lord Shaw in Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld., applied. He said(1): "It does not appear to me to be sound law to permit a person to repudiate a contract and thereupon specifically to found upon a term in that contract which he has thus repudiated." In the same case Lord Loreburn L.C. is reported to have said(2): "If the course [query, cause] of action which is established be that there has been repudiation or a breaking of the contract in the sense that the contract has been frustrated by the breach, then it would not be within the arbitration clauses." Other general observations to the same effect were quoted from the authorities. If a party repudiates the contract as a whole, he cannot, it is said, rely on some particular stipulation, such as an arbitration clause. So much doubt has been thrown on these general observations by decisions to which I shall refer later that they cannot now be regarded as authoritative expressions of the law.

It is clear that, as the arbitration clause is a matter of agreement, the first thing is to ascertain according to ordinary principles of construction what the parties have actually agreed, but under s. 4 of the Arbitration Act, 1889, the court is given a discretionary power to stay an action brought in

(1) 1909 S. C. (H. L.) 53, 56.

(2) Ibid. 54.

breach of an arbitration clause. Such a clause therefore, though absolute in terms, is qualified in the sense that it is subject to this overriding discretion of the court, and a general distinction may be noted. The contract, either instead of, or along with, a clause submitting differences and disputes to arbitration, may provide that there is to be no right of action save on the award of an arbitrator. The parties in such a case make arbitration followed by an award a condition to any legal right of recovery on the contract. This is a condition of the contract to which the court must give effect unless the condition has been "waived," that is, unless the party seeking to set it up has somehow disentitled himself to do so. The distinction between a mere submission and such a clause is clearly stated by Warrington L.J. in Woodall v. Pearl Assurance Co., Ld. (1). A submission may, however, take many different forms. It may be a special agreement to arbitrate on a particular dispute which has already arisen on some matter, such as contract, tort, trust or family arrangement. Thus, to take a single instance, in Joseph Constantine Steamship Line, Ld. v. Imperial Smelting Corporation, Ld. (2), recently decided by this House, there was a specific submission of the difference whether the charterparty in question had been frustrated, the charterers claiming damages because the vessel had not been tendered to load her cargo, the shipowners defending the claim on the ground of frustration. That illustrates clearly one aspect of an arbitration agreement, namely, that it is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, though the agreement to do so is itself subject to the discretion of the court. All this may be said of every agreement to arbitrate, even though not a separate bargain, but one incorporated in the general contract. It may also be noted that the agreement to arbitrate depends on there being a dispute or difference in respect of the substantive stipulation. It appertains to the stage of pleadings or allegations. It is in regard to these that it has to be decided whether the submission applies or should receive effect. It is interlocutory. Again, the illustration I have given shows that there may be an agreement to arbitrate on a question on a contract which has on one view ceased to exist, at least as to future performance, though whether it has ceased to exist or not is disputed, or, if that is not disputed, the question

(1) [1919] 1 K. B. 593, 607.

(2) Ante, p. 154.

of damages remains in dispute. It must depend on the construction of the collateral agreement contained in the arbitration clause, whether that agreement survives and can be insisted on for the settlement of these disputes. It may also be essential to distinguish between the ordinary submission of disputes and the stipulation that an award is a necessary condition of any right of action. Again the discretionary power of the court to stay under s. 4 of the Act, which only arises if the dispute falls within the clause must be kept distinct from the question of the scope and effect of the clause, which depend on its language.

The word "repudiation" has also led to difficulties because it is an ambiguous word constantly used without precise definition in contract law. I do not attempt an exhaustive list of the senses in which the word has been used, but I may give some instances. Repudiation of a contract is sometimes used as meaning that the defendant denies that there ever was a contract in the sense of an actual consensus ad idem. If that is the case, a submission of disputes under the contract never comes into operative existence any more than the contract to which it was to be ancillary. Short of this, one party, though not denying that there was the appearance of assent, might claim that the consent was vitiated by fraud or duress or mistake or illegality, and in that sense it is often said that he repudiates the contract. There, again, it would be a question of construction whether the collateral arbitration clause could be treated as severable and could be invoked for settling such a dispute. There is, however, a form of repudiation where the party who repudiates does not deny that a contract was intended between the parties, but claims that it is not binding because of the failure of some condition or the infringement of some duty fundamental to the enforceability of the contract, it being expressly provided by the contract that the failure of condition or the breach of duty should invalidate the contract. A dispute on such an issue would generally be within an ordinary submission of disputes under or arising out of the contract or similar words, though the award in a certain event might have the effect of declaring that the contract had ceased to be, or even had never become, binding. Another case to which the word repudiation is applied is when the party, though not disputing the contract, declares unequivocally that he will not perform it and, admitting the breach, leaves the other party to claim damages.

There may then be a dispute under the contract, not indeed as to liability but as to damages. Such a dispute would normally fall within the ordinary submission, which should receive effect unless the court exercises its discretion to refuse to stay under s. 4. Except as influencing the exercise of that discretion, I cannot see how defiance or truculence of the party can affect the matter. He is simply breaking his contract. But perhaps the commonest application of the word "repudiation" is to what is often called the anticipatory breach of a contract where the party by words or conduct evinces an intention no longer to be bound and the other party accepts the repudiation and rescinds the contract. In such a case, if the repudiation is wrongful and the rescission is rightful, the contract is ended by the rescission but only as far as concerns future performance. It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation. That is only a particular form of contract-breaking and would generally under an ordinary arbitration clause involve a dispute under the contract like any other breach of contract. There is no difference, for instance, for this purpose between a refusal to take further instalments under a contract for the sale of goods by instalments and a refusal to take the entire contract quantity where the tender is to be a single delivery. I need scarcely add that one party to a contract cannot put an end to it. To produce that effect there must be rescission. An anticipatory breach does not necessarily involve an actual intention to break the contract. Intention is to be judged by the party's conduct. The difference between repudiating a contract and repudiating liability under it must not be overlooked. It is thus necessary in every case in which the word repudiation is used to be clear in what sense it is being used. The next step is to examine the arbitration clause. If the case falls within the arbitration clause, there has still to be considered whether the court should refuse to stay under s. 4.

In the present appeal I think the Court of Appeal were right in holding that the disputes were disputes within the clause, and that there were no sufficient reasons to apply s. 4. This latter is a distinct question which I shall discuss later. I have assumed for purposes of this case, what I very much doubt, that the allegation in the writ showed a prima facie case of anticipatory breach and rescission. This assumption enables the appellants to raise their main contention, which I

take to be that the repudiation and rescission had put an end to the contract and the arbitration clause with it. In my opinion, if I may apply the words of Lord Finlay in a similar case, this contention "is unreasonable in itself and there is no authority to support it." The case to which I refer is Sanderson & Son v. Armour & Co., Ld. (1), where buyers brought an action in the Scottish courts for damages under a contract for the sale of goods by instalments, alleging that the first instalment was so bad that they were entitled to refuse to accept other instalments without first being given an opportunity to examine them. When the sellers refused this opportunity, the buyers claimed to rescind and brought an action for damages, whereupon the sellers invoked the arbitration clauses in the contracts under which disputes arising out of or on the contracts were submitted to arbitration. It was held by this House, affirming the courts below, that the dispute was covered by the submission. In answer to objections based on the observations which I have quoted from the Johannesburg case(2) Lord Finlay observed: "The proposition that the mere allegation by one party of repudiation of the contract by the other deprives the latter of the right to take advantage of an arbitration clause is unreasonable in itself, and there was no authority to support it." Lord Dunedin and Lord Shaw agreed that the submission must receive effect. Their Lordships found difficulty in explaining the observations in the Johannesburg case(2). That action was brought in the Scottish courts. It involved claims on complicated constructional contracts which included arbitration clauses. Some of the contracts were to be construed according to English law, which differs from Scots law in that the English Act gives a discretion to the court whether or not to stay the action, whereas under the Scottish Act the submission is mandatory so that the court has no discretion but must refer. The appeal was eventually decided by this House by referring back the matter to the Scottish court to exercise its discretion under s. 4 of the English Act. From this point of view the dicta which I quoted were not material to the decision. Lord Loreburn's observation which I have quoted is certainly somewhat cryptical, and in Hirji Mulji's case(3), Lord Sumner, observing that it did not help the appellants, added: "whatever exactly this sentence means."

(1) 1922 S. C. (H. L.) 117, 121.

(2) 1909 S. C. (H. L.) 53, 54, 56.

(3) [1926] A. C. 497, 511.

Lord Shaw's observations are explained by Lord Dunedin in Sanderson's case(1) as to be taken secundum subjectam materiam. The distinction was taken that in the Johannesburg case(2) the repudiation was admitted, but this does not appear a sound distinction. On the whole, I think it is impossible to find any clear guidance as to principle or practice from the Johannesburg case(2) except that it affords an instance of the court's discretion under s. 4 of the English Arbitration Act. Sanderson's case(1) was expressly approved and applied by the Privy Council in Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co., Ld. (3). Under a contract for the sale of goods the buyers rejected a tender of the whole contract quantity. It was not a sale by instalments. There was an arbitration under the general submission contained in the contract. In proceedings to set aside the arbitrator's award, it was contended that it was for the court to inquire whether there was a repudiation and consequent termination of the contract. If there was, it was said, the arbitration clause did not apply. Lord Dunedin, in delivering the judgment of their Lordships, said(3): "It is, therefore, for the arbitrator and not for the court to decide what is the effect of a rejection based on an award as to quality. In truth this point is decided in terms by the recent case of Sanderson & Son v. Armour & Co. (1). It was a Scotch case, but in no way depended upon any peculiarity of the law of Scotland." Champsey Bhara's case(3) was not indeed one of anticipatory breach, but it was a rejection of the whole delivery of goods under the contract, and in that sense might, if wrongful, be treated as an entire repudiation. In Hirji Mulji's case(4) Lord Sumner approved of Champsey Bhara's case(3) as an authority along with Sanderson's case(1) for the proposition that an arbitrator has jurisdiction to adjudicate on breaches of a contract partly or wholly performed and still in existence for the purpose of awarding damages for such breaches already committed, even though it is determined as regards future performance by repudiation on one side and acceptance by the other. Having regard both to principle and authority, I read this proposition as including damages for anticipatory breach, where rescission follows.

These authorities, in my opinion, cover specifically the

(1) 1922 S. C. (H. L.) 117, 127.

(2) 1909 S. C. (H. L.) 53, 54, 56.

(3) [1923] A. C. 480, 489.

(4) [1926] A. C. 497, 503.

present case. It is true that the breach is only complete and enforceable at the moment of rescission so that breach and termination of the contract are simultaneous. So, indeed, they are in the case of a single entire breach like the rejection in Champsey Bhara's case(1). Lord Sumner's distinction, implied in the words "still in existence," was applied by him in Hirji Mulji's case(2) where he refused to hold that a submission of disputes "under" the contract covered a dispute whether there was frustration of the contract, on the ground that when the dispute arose the contract had ceased to exist and so had the arbitration clause along with it. This decision, though the case was one of frustration of contract, was relied on before your Lordships in argument as casting doubt on the general principle which I have been stating. The question in Hirji Mulji's case(2) arose on a charterparty of a vessel which had been made subject to a requisition so prolonged (as it was eventually held by the Privy Council) that it defeated the adventure and abrogated the effect of a delay clause. When after two years the vessel was released, the shipowners required the charterers to complete the contract, but the charterers refused. The shipowners claimed damages. The charterers refused to pay. An arbitration was held under the submission, and the arbitrator awarded damages to the shipowner for breach of the contract, holding that there had been no frustration. An action was brought to enforce the award, and it succeeded until it came to the Privy Council where it was held that the action should be dismissed on the ground that the arbitrator had no jurisdiction because when, in 1919, the dispute arose the charter was already frustrated so that there could be no dispute under the contract which had ceased to exist. Frustration operates, said Lord Sumner in delivering the judgment of the Board(3), automatically. It strikes once and strikes no more. The contract then ceases to exist for all purposes, save the enforcement of claims vested before that date, of which there were none in the case before the Board. I confess I feel some difficulty in reconciling this decision with views expressed by this House in Scott & Sons, Ld. v. Del Sel (4), where a claim for damages was defended on the ground that performance had been prevented by a government prohibition. This defence was relied on either

(1) [1923] A. C. 480, 489.

(2) [1926] A. C. 497.

(3) [1926] A. C. 497, 509.

(4) 1923 S. C. (H. L.) 37.

on the basis of an express condition of the contract or on the ground of delay frustrating the contract. The question was whether the arbitration clause was still operative. Lord Dunedin was of opinion(1) that in either event there was a dispute under the contract within the submission. Frustration depended, in his opinion, on an implied term of the contract. This is the explanation of the doctrine generally accepted by the English authorities, though for reasons which I have explained elsewhere, I prefer and substantially accept the explanation given by Lord Sumner in Hirji Mulji's case(2). But whichever explanation is accepted, the result ought, in my opinion, to be the same in regard to the present question. However automatic and immediate the frustration, or at whatever time it is operative, its effect must depend on the meaning of the contract and its operation in the events that occurred. Lord Buckmaster took the same view as Lord Dunedin, but Lord Cave and Lord Shaw decided the question simply on the express terms of the contract, and thought that questions of frustration and of implied terms were irrelevant.

As at present advised I find it difficult to distinguish a dispute where there is a claim for damages and the defence set up is that the contract is frustrated from any other defence, or to understand why such a dispute should be outside a submission of disputes under the contract. It is, no doubt, less difficult to treat these questions as falling within a submission of disputes arising out of or in relation to a contract, but I do not think such differences in words should be decisive. It is certainly desirable, if possible, to have broad and simple rules in these matters. Frustration, if it occurs, no doubt, puts an end to the contract for the future as much as does rescission after repudiation or any other whole breach, though in that case there is a claim for damages for the breach while in respect of frustration there is no claim for damages. The dispute in all such cases where frustration is alleged is whether there has been frustration at all, and such a dispute would seem logically to arise "under the contract" and to fall within the submission just as much as if the words had been "arising out of it." But the question is still open for decision in this House, and does not arise in this case, and I merely refer to it to say that, however answered, it would not help the appellants.

(1) 1923 S. C. (H. L.) 37.

(2) [1926] A. C. 497.

Nor are the appellants helped by the rule that, generally speaking, a dispute whether the contract ever existed, as contrasted with the question whether it has been ended, is not within the usual form of submission of differences arising out of the contract or the like, because, if there was never a contract at all, there could never be disputes arising out of it. Ex nihilo nil fit. It is all a question of the scope of the submission. Hence, if the question is whether the alleged contract was void for illegality, or, being voidable, was avoided because induced by fraud or misrepresentation, or on the ground of mistake, it depends on the terms of the submission whether the dispute falls within the arbitrator's jurisdiction. This for example was applied by the Court of Appeal in Toller v. Law Accident Insurance Co. (1), but the position may be different where the contract contains a clause that in certain events it is not to be enforceable. This distinction is illustrated by Woodall v. Pearl Assurance Co., Ld. (2), an action on a policy which made an award a condition precedent to recovery. The policy contained a provision that any misstatement or suppression in the proposal and declaration on which the policy was based should render it null and void. It was held that a claim by the company that the policy was null and void under that provision was within the submission, and that the company were not repudiating the contract as a whole, but denying liability under it in reliance on its express terms. A similar conclusion was reached in Stebbing v. Liverpool and London and Globe Insurance Co., Ld. (3), in which Lord Reading C.J. said: "In truth the company is relying upon a term of the policy which prevents the claimant recovering . ... If they succeed in escaping liability that is by reason of one of the clauses in the policy." These decisions were approved by Lord Sumner in Macaura v. Northern Assurance Co., Ld. (4), where he said: "The defendants do not repudiate the policy or dispute its validity as a contract; on the contrary they rely on it and say that according to its terms, express and implied, they are relieved from liability." I may observe the word "implied" is significant. The arbitrator is not limited to the mere words of the contract. On the same principle a submission of disputes arising out of the contract includes disputes as to the existence or nonexistence of a custom as being "relevant to the true meaning

(1) [1936] 2 All E. R. 952.

(2) [1919] 1 K. B. 593.

(3) [1917] 2 K. B. 433, 436.

(4) [1925] A. C. 619, 631.

and effect of the contract": Lord Parker in the Produce Brokers' case(1). In Macaura v. Northern Assurance Co., Ld. (2), it was contended that the defendant insurance company, by pleading that the plaintiffs had no insurable interest, had done the same thing as if they had pleaded the Gaming Act, and had on that ground claimed that there was no contract for arbitration or anything else. Lord Sumner pointed out the fallacy of that contention. A gaming contract is illegal and a nullity. Absence of reasonable interest would be a ground for refusing to pay the loss under a contract otherwise valid. Two recent cases in the Court of Appeal illustrate the principle laid down in Woodall v. Pearl Assurance Co., Ld. (3), that a denial of liability based on the express terms of the contract is in general different in its effect on the ordinary arbitration clause from a denial that there was ever a contract at all. These cases are Golding v. London and Edinburgh Insurance Co., Ld. (4), and Stevens & Sons v. Timber and General Mutual Accident Insurance Association, Ld. (5). In the latter case, it was observed by Romer L.J. that an arbitrator could not arbitrate on the rightfulness of a repudiation because if he held that the repudiation was not justified, but the rescission was justified, he would be awarding that the contract was gone and making an award against the existence of his own jurisdiction. I should prefer to put it that the existence of his jurisdiction in this, as in other cases, is to be determined by the words of the submission. I see no objection to a submission of the question whether there ever was a contract at all, or whether if there was, it had been avoided or ended. Parties may submit to arbitration any or almost any question. But in general the submission is limited to questions arising on or under or out of a contract which would, prima facie, include questions whether it has been ended, and if so, whether damages are recoverable, and if recoverable what is the amount.

I must, however, refer to the curious case of Jureidini (6), in which Lord Haldane made an observation much relied on by the appellants. That case had two features which require to be noted. One was that there was no submission except of differences as to the amount of loss. The other was that the award of the arbitrator of the amount of the loss or damage, if disputed, was to be a condition precedent to any right of

(1) [1916] 1 A. C. 314, 328.

(2) [1925] A. C. 619, 631.

(3) [1919] 1 K. B. 593.

(4) (1932) 43 Ll. L. Rep. 487.

(5) (1933) 102 L. J. (K. B.) 337, 344, 345.

(6) [1915] A. C. 499.

action upon the contract. The contract was a fire policy. The assured claimed a loss by fire under it. The company resisted the claim on the ground that under the express terms of the policy all claim was to be forfeited if it was fraudulent or if the loss was due to the assured's wilful act or was with his connivance, and the company relied on both these grounds of forfeiture. The case went to trial before a judge and jury and judgment was given in favour of the assured for a sum of damages. The judgment was set aside by the Court of Appeal, which held that under the rule in Scott v. Avery (1), the courts could not enforce any obligation to pay unless the condition precedent of an arbitrator's award determining the amount had been fulfilled. It is clear that the difficulty in the plaintiff's way in the Court of Appeal arose from the condition precedent. It is also clear that the House of Lords, in reversing the decision of the Court of Appeal and restoring the judgment of the trial court, must have held that the condition precedent was for some reason not binding on the assured. It is unfortunate that the exact grounds on which the House so held are not definitely expressed, but I think that the ratio decidendi was that the company, by claiming that all benefit under the policy had been forfeited, had, in Lord Dunedin's words(2), "necessarily cut out the effect of clause 17 as creating a condition precedent against all forms of action." Lord Atkinson and Lord Parmoor seem also to say that the condition precedent clause had no application because no difference had arisen (or, apparently, in the circumstances could arise) as to matters that could come within that clause. Lord Dunedin suggests that the company might have met the difficulty by having the issue of liability decided by a jury and requiring the amount of damage to be ascertained by an arbitrator. The observation of Lord Haldane which the appellants relied on was his statement(3) that "when there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up that repudiation can be entitled to insist on a subordinate term of the contract still being enforced." It may be observed that this observation was solely that of Lord Haldane and was not concurred in by his colleagues and was not necessary to the ratio decidendi adopted by them. It may be simply another way of stating that the company by their conduct

(1) 5 H. L. C. 811.

(2) [1915] A. C. 499, 507.

(3) Ibid. 505.

had waived the condition and disentitled them to rely on its non-fulfilment. If it means that the company, by making allegations which, if established, relieved them from liability under the terms of the policy, repudiated the contract, I do not think that it can be regarded as good law, nor is it consistent with the later authorities which I have cited. Lord Sumner in Macaura v. Northern Assurance Co., Ld. (1), states the effect of the decision in Jureidini v. National British and Irish Millers Insurance Co., Ld. (2), to be "that the defendants could not both repudiate the contract in toto and require the performance of a part of it which only became performable when liability was admitted or established." I have italicized these last words because I think they distinguish Jureidini's case(2) from cases like Woodall v. Pearl Assurance Co., Ld. (3), which Lord Sumner approved. In Hirji Mulji v. Cheong Yue Steamship Co., Ld. (4), he repeated much the same idea, adding "it is a case of approbation and reprobation." Perhaps what Lord Sumner means is that the company had somehow prevented the possibility of an arbitrator awarding damages if liability were established. It is familiar law that a party who has prevented fulfilment of a condition precedent cannot set up the fact of its non-fulfilment. It is, however, enough here to say that, on any view, Jureidini's case(2) does not, in my opinion, help the appellants.

The authorities, I think, sufficiently dispose of an argument based on the maxim that a party cannot both approbate and reprobate a contract, at least in reference to an ordinary submission as contrasted with a clause making an award a condition precedent, so that it is not merely collateral or procedural, but essential to the obligations of the contract. Like all maxims of the law, that maxim, though it has a proper but very limited application, is too vague and general to be applied without careful limitation, otherwise it is apt to be misleading, as many cases have shown. Recently, in Lissenden v. C. A. V. Bosch, Ld. (5), this House indicated what are the true metes and bounds of the maxim. Its most correct application is in relation to the equitable doctrine of election, but it is also used as meaning that a party cannot take the benefits of a contract without conforming to its onerous conditions. This, however, cannot truly be said of

(1) [1925] A. C. 619, 631.

(2) [1915] A. C. 499, 597.

(3) [1919] 1 K. B. 593.

(4) [1926] A. C. 497, 512.

(5) [1940] A. C. 412.

a man who, being sued for repudiation or breach of a contract, disputes the liability and claims the benefit of an arbitration clause to decide whether or not he is liable. He is in truth not reprobating the contract but approbating it. He is using it as a shield against the claim. This, I think, is abundantly clear from what I have already said and need not repeat, and from the authorities which I have cited. The maxim is also sometimes invoked to indicate conduct which disentitles a party to rely on conditions precedent, but the ordinary arbitration clause is not a condition of the contract.

But where it is used in reference to arbitration, the maxim has been relied on as a matter, not of law, but of discretion. This I think is the only correct use in this context. Section 4 of the Arbitration Act, 1889, makes the power of the court to stay an action under the arbitration clause a matter of discretion and not ex debito justitiae. Though the dispute is clearly within the arbitration clause, the court "may" still refuse to stay if, on the whole, that appears to be the better course. But the court must be satisfied on good grounds that it ought not to stay. The onus of thus satisfying the court is on the person opposing the stay, because in a sense he is seeking to get out of his contract to refer, though in truth an arbitration clause is not of strict obligation, because it is, under s. 4, always subject to the discretion of the court. In the present case the judge (agreeing with the master) has exercised his discretion against the application of the arbitration clause. The Court of Appeal reversed the decision of the judge. The judge's discretion is indeed primary, but it is subject to appeal. The duty of appellate courts on an appeal against the exercise of a discretion has been examined by this House in Evans v. Bartlam (1) and in Charles Osenton & Co. v. Johnston (2). It is enough here to say that the appellate court will only set aside the discretionary order if satisfied that it is clearly wrong. It will make every reasonable presumption in favour of upholding the judge. It has been argued here that the order of Cassels J. was right, or at least was not so clearly wrong as to justify its being reversed. The judge in this case, like the master, has carefully set out his reasons in writing. His view in effect is that the broad issue is a question of law, apparently not so much on the construction of the contract as on that of the correspondence, whether in law or in fact or in both there has been a repudiation.

(1) [1937] A. C. 473.

(2) Ante, p. 130.

In my opinion, these reasons are not sufficient to justify staying the action. The judge seems to rely on the language which he quotes from Lord Parker in Bristol Corporation v. John Aird, Ld. (1) to the effect that "Everybody knows that with regard to the construction of an agreement it is absolutely useless to stay the action, because it will only come back to the court on a case stated." Any expression of opinion falling from that great judge must receive the most careful consideration, but it would not be safe to tear it from its context and give it a general application. I need not quote authorities for what has been said so often, that under a general submission the arbitrator is appointed to decide issues both of fact and of law. In the background, indeed, is the court's jurisdiction to set aside an award if it is bad in law on its face, and the opinion of the court on issues of law may be invoked by means of cases stated under the Acts of 1889 and 1934, but, if the submission is general, it will require some substantial reason to induce the court to deny its due effect to the agreement of the parties to submit the whole dispute, whether it includes both fact and law or is limited to either fact or law. In the present case I can find no sufficient reason. The dispute is of the most ordinary character. The correspondence pursues a course similar to that in hosts of other commercial disputes. I think that the judge has acted on an erroneous conception of the true rule in cases of this nature and that his order should be set aside.

Finally, I agree with the general conclusions on the matter summarized by the Lord Chancellor in the closing paragraphs of his opinion. I concur in the motion proposed.

LORD PORTER . My Lords, the substantial reason why your Lordships gave leave to appeal in this case was to invite a discussion of the somewhat difficult question whether an arbitration clause in a contract continues to be effective though the contract itself has been broken in a matter going to its root or has otherwise been terminated. The appellants were not, however, confined to an argument on this point and rightly invited your Lordships to consider other aspects of the matter. The propositions which they put forward were two in number: (1.) that the learned judge had the whole matter before him and, in deciding as he did, exercised his discretion in favour of the appellants, and that, in so doing,

(1) [1913] A. C. 241, 261.

he had followed no wrong principle and his discretion should therefore not be interfered with; (2.) that the contract had been repudiated in fact by the respondents owing to their refusal and continued failure to perform it, and also by their claim to accept the action brought by the appellants as a repudiation, and that, consequently, (a) the whole contract was at an end and with it the arbitration clause, or, at any rate, (b) the respondents who had repudiated it could not after such repudiation rely on the clause which formed one of its terms. Both are difficult problems, but I have come to the conclusion that the appellants are wrong.

Of the two the first was the more strongly pressed. The principle on which your Lordships' House will and a Court of Appeal should act in an appeal from the exercise of a judge's discretion is well known and has lately been restated in Charles Osenton & Co. v. Johnston (1), per Viscount Simon L.C.: "Appellate authorities ought not to reverse the order merely because they would themselves have exercised the original discretion, had it attached to them in a different way. But if the appellate tribunal reaches the clear conclusion that there has been a wrongful exercise of discretion in that no weight, or no sufficient weight, has been given to relevant considerations such as those urged before us by the appellant, then the reversal of the order on appeal may be justified." In the present case we have the advantage, not only of the learned judge's decision, but also of the reasons on which it is founded. He states them as follows: "The broad issue here is a question of law. In the circumstances it would be more suitable for the case to start in the law courts than before an arbitrator. While the agreement itself offers no difficulty of construction, the correspondence which has passed between the parties may." This is, I think, a misapprehension. The broad question is not one of law, but one of law and fact combined and of law dependent on the view of the facts taken by the tribunal which is to determine the issue. Indeed, a little later in his judgment the learned judge himself seems to recognize that the issue to be determined is not law alone. He says: "The court will be able to decide much better than an arbitrator whether in law or in fact or in both there has been a repudiation, whether in law or in fact they were entitled to take up the attitude which they did take up as revealed by the correspondence, whether

(1) Ante, p. 130, 138, 139.

there has been a breach of agreement by either the plaintiffs or the defendants which would entitle either the plaintiffs or the defendants to damages, and various other matters which, when the pleadings come to be drawn, will undoubtedly be raised." It is unnecessary to determine whether the learned judge is right in believing that such matters are better left to the decision of a court than that of an arbitrator. I can imagine it being contended, rightly or wrongly, that one versed in business disputes would be at least as good a tribunal as a lawyer, but that is not the question. The parties have chosen to refer their differences to arbitration, and to arbitration they should go in the ordinary course unless there is some good reason to the contrary, as, e.g., where there is nothing but law to be decided, as was the case in Rowe Bros. & Co., Ld. v. Crossley Bros., Ld. (1). In these circumstances it seems to me that there is no sufficient ground in law for refusing to stay the action, and in so deciding your Lordships would not simply be substituting the discretion of the House for that of the judge, but would be following the principles which should guide the action of tribunals in determining whether a case should be referred to arbitration or not.

If, then, there is no sufficient reason why the court should have exercised its discretion in staying the action, the appellant is thrown back on his contention that the contract between the parties has come to an end, and with it the arbitration clause which forms part of the contract. The argument is of wide application and has given rise to a mass of litigation in which it is not always easy to see the exact grounds on which a particular decision was based. Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (2); Jureidini v. National British and Irish Millers Insurance Co., Ld. (3), and Hirji Mulji v. Cheong Yue Steamship Co., Ld. (4), on the one side, and Sanderson & Son v. Armour & Co., Ld. (5); Scott & Sons, Ld. v. Del Sel (6), and Macaura v. Northern Assurance Co., Ld. (7), on the other, to quote only some of the cases which have reached your Lordships' House or the Privy Council, have been thought difficult of reconciliation one with another. I propose to consider the principles

(1) (1912) 108 L. T. 11.

(2) 1909 S. C. (H. L.) 53.

(3) [1915] A. C. 499.

(4) [1926] A. C. 497.

(5) 1922 S. C. (H. L.) 117.

(6) 1923 S. C. (H. L.) 37.

(7) [1925] A. C. 619.

and results of those cases later. Meanwhile, I think it essential to remember that the question whether a given dispute comes within the provisions of an arbitration clause or not primarily depends on the terms of the clause itself. If two parties purport to enter into a contract and a dispute arises whether they have done so or not, or whether the alleged contract is binding on them, I see no reason why they should not submit that dispute to arbitration. Equally I see no reason why, if at the time when they purport to make the contract they foresee the possibility of such a dispute arising, they should not provide in the contract itself for the submission to arbitration of a dispute whether the contract ever bound them or continues to do so. They might, for instance, stipulate that, if a dispute should arise whether there had been such fraud, misrepresentation or concealment in the negotiations between them as to make an apparent contract voidable, that dispute should be submitted to arbitration. It may require very clear language to effect this result, and it may be true to say that such a contract is really collateral to the agreement supposed to have been made, but I do not see why it should not be done. Indeed, the possibility of providing for such an arbitration and the difficulty of giving sufficiently precise expression to bring about the required result are both visualized by Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1), when he says: "The arbitration clause is but part of the contract and, unless it is couched in such terms as will except it out of the results which follow from frustration, generally it will come to an end too." And again(2): "It is unnecessary to consider in what terms, if any, a clause might have been framed which would have saved the clause alive in the event of the frustration of the adventure and the charter."

An example of a clause held to be wide enough to include a determination of the ambit of the arbitrator's authority is to be found in Willesford v. Watson (3), where Lord Selborne L.C. said: "It struck me throughout that the endeavour of the appellants has been to require this court to do the very thing which the arbitrator ought to do - that is to say, to look into the whole matter .... and to decide whether the thing which is complained of is inside or outside of the agreement." On the other hand, in Jureidini's case(4) the matter submitted

(1) [1926] A. C. 497, 505.

(2) Ibid. 511.

(3) (1873) L. R. 8 Ch. 473, 477.

(4) [1915] A. C. 499.

was a narrow one, the quantum of damage only. "This" (the arbitration) "clause" said Lord Dunedin in Sanderson Son v. Armour & Co., Ld. (1), "may be of two characters. It may be of a limited character, generally known as executory arbitration providing for the adjustment of disputes concerned with the working out of the contract. But it may also be of a universal character, submitting all disputes which may arise either in the carrying out of the contract or in respect of breach of the contract after the actual execution has been finished."

The question of the arbitrator's jurisdiction must, therefore, ultimately depend on the wording of the arbitration clause. As a rule, however, the arbitrator cannot clothe himself with jurisdiction. As Lord Parker said in Produce Brokers Co., Ld. v. Olympic Oil and Cake Co., Ld. (2): "The arbitrator cannot make his award binding by holding contrary to the true facts that the question which he affects to determine is within the submission. ... Where, however, the submission is contained in the contract it may be a question of construction whether such expressions as 'all disputes arising under this contract' include questions as to the ambit of the submission itself. Prima facie I do not think that they would." The principle is repeated by Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (3), and need not be further illustrated, but this does not mean that in every instance in which it is claimed that the arbitrator has no jurisdiction the court will refuse to stay an action. If this were the case such a claim would always defeat an agreement to submit disputes to arbitration, at any rate until the question of jurisdiction had been decided. The court to which an application to stay is made is put in possession of the facts and arguments and must in such a case make up its mind whether the arbitrator has jurisdiction or not as best it can on the evidence before it. Indeed, the application to stay gives an opportunity for putting these and other considerations before the court that it may determine whether the action shall be stayed or not. The difficulty does not lie as a rule in deciding what tribunal is to determine the arbitrator's jurisdiction - that must generally be the function of the court, but it lies rather in finding what are the factors to be taken into consideration in deciding whether the arbitral contract remains in force or not.

(1) 1922 S. C. (H. L.) 117, 125.

(2) [1916] 1 A. C. 314, 327.

(3) [1926] A. C. 497, 502.

Let me illustrate those difficulties by a reference to a few cases. In Sanderson & Son v. Armour & Co., Ld. (1) the headnote states, and I think states accurately, the effect of the decision in the words "Where a contract for the sale of goods contains a clause referring all disputes arising out of the contract to arbitration, the question whether one or other of the parties has by his actings repudiated the contract is a question for the arbiter." In Hirji Mulji's case(2), on the other hand, it was held that the question whether a contract had been frustrated was not a dispute "under the contract," at any rate, provided the dispute did not arise until after the contract had been frustrated, and that an arbitrator, who wrongly decided that it had not been frustrated, had no jurisdiction. It is true that in the former case the dispute was as to repudiation and in the latter as to frustration, but in each the question at issue was whether the contract, and with it the arbitration clause, was no longer binding. It is also true that in the earlier case the matter submitted was a dispute "arising out of" and in the latter a dispute "under" the contract, but both distinctions appear to have been treated as of no account in Scott & Sons, Ld. v. Del Sel (3), in which Lord Dunedin (himself a member of the Board which decided Hirji Mulji v. Cheong Yue Steamship Co., Ld. (2)) was dealing with a case where it was claimed that prohibition of export had resulted in frustration, and said "Either they" (i.e., those who claimed that the contract had been frustrated) "must show that there was an express term of the contract which had that effect" (i.e., the effect of frustration) "or they must show that there was an implied term in the contract which had the same effect. ... It seems to me therefore that they are in this dilemma - that in either view they have got to have recourse to the contract, and if they have got to have recourse to the contract it seems to me that the dispute is a dispute under the contract." It will be observed that this last case raised a question of frustration and that the word "under," not the phrase "arising out of it," required consideration. The only remaining difference which I can see is that in the Del Sel case(3) your Lordships' House held that the contract was not frustrated, whereas in Hirji Mulji's case(2) the Board held that it was, but the principle by which the arbitrator's jurisdiction is to be determined cannot be decided by asking

(1) 1922 S. C. (H. L.) 117.

(2) [1926] A. C. 497.

(3) 1923 S. C. (H. L.) 37, 41.

whether he came to a right or a wrong conclusion. Moreover, the ground on which Lord Sumner relied in the Privy Council (namely, that, as no dispute arose until after frustration had taken place, the contract with all its terms had come to an end) would, I think, apply to all cases where frustration comes in issue and the question to be decided is whether there has been frustration or not.

The divergence of view which is to be found between the decisions in the Del Sel (1) and Hirji Mulji (2) cases arose where the question at issue, was who is to decide whether there has been frustration or not, the court or the arbitrator appointed by the contract in respect of which frustration was said to have taken place, but the difficulty is not confined to frustration cases. Whatever the true ground of decision, there are expressions of opinion in Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (3), and Jureidini v. National British and Irish Millers Insurance Co., Ld. (4), which seem to indicate that, if one party to a contract repudiates it and if the other party accepts that repudiation, the contract and all its terms, including the arbitration clause, come to an end, and neither party can rely on its provisions. In the Johannesburg case(3) there were two arbitration clauses - one referring "differences arising between the parties," the other "disputes under the contracts." Lord Loreburn L.C. in that case said in his speech: "If the course (? cause) of action which is established be that there has been repudiation or a breaking of contract in the sense that the contract has been frustrated by the breach, then it would not be within the arbitration clauses in either of these contracts. If it be established merely that a particular machine, or a particular part of the contract, has not been executed as it should be, but that the fault is such in degree and character that it can be compensated by damages without frustrating the contract, then it would normally be a question of arbitration." In Jureidini v. National British and Irish Millers Insurance Co., Ld., Viscount Haldane L.C. said(4): "There has been in the proceedings throughout a repudiation on the part of the respondents of their liability based upon charges of fraud and arson, the effect of which, if they are right, is that all benefit under the policy is forfeited. But one of

(1) 1923 S. C. (H. L.) 37, 41.

(2) [1926] A. C. 497.

(3) 1909 S. C. (H. L.) 54.

(4) [1915] A. C. 499.

(5) [1915] A. C. 499, 505.

the benefits is the right to go to arbitration under this contract, .... and accordingly that is one of the things which the appellants have, according to the respondents, forfeited with every other benefit under the contract. When there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up that repudiation can be entitled to insist on a subordinate term of the contract still being enforced." He went on to point out that the learned judge who tried the action gave judgment for 3000l. for the breach alleged, and continues: "I think that was probably right, the arbitration clause having gone with the repudiation."

Before dealing with these observations it is desirable to point out that it was recognized in Sanderson & Son v. Armour & Co., Ld. (1), and not, I think, controverted in Johannesburg Municipal Council v. D. Stewart & Co. (1902), Ld. (2), or Jureidini v. National British and Irish Millers Insurance Co., Ld. (3), that repudiation by one party has no effect unless it is accepted by the other. The statement of Scrutton L.J. in Golding v. London and Edinburgh Insurance Co., Ld. (4), already quoted by the Lord Chancellor, puts the point succinctly. But what is the effect of the decisions in your Lordships' House and elsewhere in cases in which there has been repudiation and acceptance? In Stevens & Sons v. Timber and General Mutual Accident Insurance Association, Ld. (5), Lord Romer, then Romer L.J., appears to have taken the view that the result would be to put an end to all future performance under the contract, including the right or obligation of going to arbitration. He said: "The plaintiffs could upon that assumption" (i.e., on the assumption that there had been a repudiation of the contract altogether) "have elected to accept the repudiation and thereupon have sued the defendants for damages. Had they done so the arbitration clause would obviously have no operation." To the same effect Fletcher Moulton L.J. is reported to have said in William Kennedy, Ld. v. Barrow-in-Furness Corporation (6): "If the contract has by the repudiation of the defendants ceased to exist, it is clear that neither party can rely upon the arbitration clause."

(1) 1922 S. C. (H. L.) 117.

(2) 1909 S. C. (H. L.) 53.

(3) [1915] A. C. 499.

(4) 43 Ll. L. Rep. 487, 488.

(5) 102 L. J. (K. B.) 337, 342.

(6) 2 Hudson on Building Contracts, 4th ed., 411, 415.

Cases of frustration merit, I think, separate consideration. At the moment I confine myself to accepted repudiation. In this type of case the argument that accepted repudiation puts an end to all future obligations under the contract (including the obligation to submit disputes to arbitration, at any rate in the case of the injured party) receives, I think, some support from both earlier and later editions of the work of Sir William Anson on Contracts. In the 9th edition (1899) at p. 294 he says: "If one of two parties to a contract breaks the obligation which the contract imposes, a new obligation will in every case arise, a right of action conferred upon the party injured by the breach. Besides this there are circumstances under which the breach will discharge the injured party from such performance as may still be due from him. ... By discharge we must understand, not merely the right to bring an action upon the contract because the other party has not fulfilled its terms, but the right to consider oneself exonerated from any further performance under the contract - the right to treat the legal relations arising from the contract as having come to an end, and given place to a new obligation, a right of action." A similar view is expressed in the latest - the 18th edition of 1937, p. 330. The three sets of circumstances giving rise to a discharge of contract are tabulated by Anson as: (1.) renunciation by a party of his liabilities under it; (2.) impossibility created by his own act; and (3.) total or partial failure of performance. In the case of the first two, the renunciation may occur or impossibility be created either before or at the time for performance. In the case of the third, it can occur only at the time or during the course of performance. Moreover, if the third be partial, the failure must occur in a matter which goes to the root of the contract. All these acts may be compendiously described as repudiation, though that expression is more particularly used of renunciation before the time of performance has arrived.

What, then, is the effect of such repudiation if it be accepted? In such a case the injured party may sue on the contract forthwith whether the time for performance is due or not, or, if he has wholly or partially performed his obligation, he may in certain cases neglect the contract and sue upon a quantum meruit. In the former case he is still acting under the contract. He requires to refer to its terms at least to ascertain the damage, and he may require to refer to them also if the repudiation of the contract is in issue. In the latter case he

is not proceeding under it but on quasi-contract. The obligations he incurs and the sum he recovers may differ from those provided in the contract and are not dependent on its terms. Indeed, the word "repudiation," accepted or unaccepted, is an ambiguous expression. As Scott L.J. pointed out in Toller v. Law Accident Insurance Society, Ld. (1): "It may mean: repudiate the original existence of the contract. It may mean: disclose an intention to disregard it in toto and refuse to be bound by its terms altogether. Or it may mean: a mere contention that under the terms of the contract the defendant is completely free from liability by reason of some fact." Except in the first case the contract is not repudiated. Even in the second all that is repudiated is the defendant's future liability under it. Where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, e.g., where it is said that the parties never were ad idem, or where it is said that the contract is voidable ab initio (e.g., in cases of fraud, misrepresentation or mistake), and that it has been avoided, the parties are not bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of that clause are wide enough to include the question of jurisdiction. Where, however, the existence of the contract is acknowledged but one of its terms is relied on as disentitling the claimant to recover, the arbitration clause is effective. The distinction is pointed out in Woodall v. Pearl Assurance Co., Ld. (2), approved by Lord Sumner in your Lordships' House in Macaura v. Northern Assurance Co., Ld. (3). In this latter type of case it is true that the contract may be avoided even from its inception, but, as Lord Reading C.J. observed in Stebbing v. Liverpool, London and Globe Insurance Co., Ld. (4): "the phrase 'avoiding the policy' is loosely used. ... In truth the company is relying upon a term of the policy which prevents the claimant recovering. ... If they succeed in escaping liability, that is by reason of one of the clauses in the policy." Subject to the necessity for a careful scrutiny of the terms of the arbitration clause the law applicable to these two classes of cases is, I think, clear enough.

There remains the question: What result follows where the original existence and efficacy of the contract is not in

(1) [1936] 2 All E. R. 952, 958.

(2) [1919] 1 K. B. 593.

(3) [1925] A. C. 619, 631.

(4) [1917] 2 K. B. 433, 436.

dispute but one party has, or it is claimed that he has, refused to be bound by its terms and has disregarded it in toto and the other party has accepted his repudiation? In such a case the question of damage has still to be determined and the question whether there has been repudiation may be still in issue. Are these disputes under the contract - I use the word "under" advisedly since expressions such as "arising out of" or "concerning" have a wider meaning? I think they are. The contract must be adverted to in order to arrive at their solution. To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded. The injured party may, therefore, rely on the contract and apply to have the action stayed if he desires to do so. But what of the alleged wrongdoer? Can he say to the injured party: "I have not broken the contract and as you must go to its terms to find out if I have, our dispute arises under the contract"; or even: "Admittedly I have broken the contract but it is still in existence, though you are excused from further performance. Nevertheless damages have still to be ascertained and for this you must go to the contract."

In discussing this question I leave aside all reference to the discretion of the court given under the Arbitration Act to stay or not to stay, merely observing that I do not see why in making up its mind the court should not take into consideration the fact that the wrongdoer has repudiated the contract. The argument, however, against allowing at any rate an admitted wrongdoer to go to arbitration has not been based solely on discretion. Lord Shaw said in the Johannesburg case(1): "It does not appear to me to be sound law to permit a person to repudiate a contract and thereupon specifically to found upon a term in that contract which he has thus repudiated." And similarly in Stevens

(1) 1909 S. C. (H. L.) 53, 56.

v. Timber and General Mutual Accident Insurance Association, Ld. (1), Lord Romer, then Romer L.J., spoke of such an act as an attempt to approbate and reprobate. Whether the phrase "approbate and reprobate" is rightly used in this connection having regard to your Lordships' view as expressed in Lissenden v. C.A.V. Bosch, Ld. (2), I do not stay to consider. At most the party repudiating is not approbating and reprobating the contract, if that phrase be permitted, but only his future liabilities under it. The contract itself is still in existence and with it the arbitration clause. In these circumstances I do not see why even the wrongdoer should not apply to have the action stayed and succeed in his application unless the court in its discretion will not let him take advantage of a clause in a contract which he has refused to carry out. In this, I think, the right to insist on arbitration differs from the claim to require the further performance of the other terms and conditions of the contract. In respect of these latter the injured party may be excused from further performance after essential breach and acceptance of that breach as a renunciation of the contract: see General Bill Posting Co., Ld. v. Atkinson (3), a case in which a servant wrongfully dismissed was held no longer bound by a clause restricting his right to trade after the determination of his service. So far, however, as arbitration is concerned: "The injured party must abide by the arbitration clause, for it is severable and expressly inserted to deal with breaches, including such breaches by repudiation." I quote from the notes to Cutter v. Powell (4) in 2 Smith's Leading Cases, 13th ed., at p. 37. As my noble and learned friend Lord Macmillan has said, the arbitration clause is inserted as a method of settling disputes and is not imposed as a term in favour of one party or the other. The same observations as apply to accepted repudiation apply, I think, to frustration. The phrase "frustration of the contract" is as inaccurate in expression as is the phrase "rescission of the contract by repudiation." The contract is not frustrated. Its future performance, or the adventure, is frustrated. The damages are still at large and so is the question whether, having regard to the terms of the contract express or implied, there has been frustration or not. This appears to have been recognized in Scott & Sons, Ld. v. Del Sel (5), which, though a Scottish

(1) 102 L. J. (K. B.) 337, 345.

(2) [1940] A. C. 412.

(3) [1909] A. C. 118.

(4) (1795) 6 T. R. 320.

(5) 1923 S. C. (H. L.) 37.

case, was decided on the same principles as apply in English law, and is binding on your Lordships' House. So far as Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1), which is not binding, lays down a different principle, I do not think it should be followed despite the authority which it undoubtedly possesses.

My Lords, the question of the effect of frustration on the arbitration clause differs to some degree from the effect of repudiation, but in essentials I doubt if there is any distinction. In the one as in the other the question whether future performance is excused is a matter for the arbitrator, dependent, indeed, in one view on the construction of the contract and the terms to be implied in it. I do not think it is an answer to say that the dispute arises after the contract is frustrated. It may, indeed it must do so, if frustration is alleged to have taken place and its occurrence is disputed. The dispute may, but the matter in dispute does not, arise after the contract is over - it is synchronous with the moment of its alleged ending, i.e., it arises at the moment at which it is rightly or wrongly contended frustration took place.

So far as concerns the other cases quoted which seem to conflict with this view, I agree with the Lord Chancellor in thinking that the true ground of the decision in Jureidini v. National British and Irish Millers Insurance Co., Ld. (2), was the narrowness of the field of submission and the fact that no dispute had arisen on the only point submitted to arbitration. The Johannesburg case(3) is rightly, I think, to be looked on as having been referred back to the Court of Session to exercise that discretion which they would not have had if the contract had been governed by Scottish law, but which they in fact had because it was an English contract. Moreover, its provisions were complex, containing no less than three arbitration clauses. The decision is explained on both these grounds in the later case of Sanderson & Son v. Armour & Co., Ld. (4). Apart from the argument based on discretion, which I have negatived, the only contention raised in the present case is that the contract had come to an end and with it the arbitration clause, or, at any rate, that the respondents have in some way repudiated the contract and, therefore, should not be permitted to rely on the arbitration clause contained in it. There is, I think, more than one

(1) [1926] A. C. 497.

(2) [1915] A. C. 499.

(3) 1909 S. C. (H. L.) 53.

(4) 1922 S. C. (H. L.) 117.

answer to this argument. (i.) I can see no ground for asserting that the respondents ever repudiated the contract. Rightly or wrongly, they thought themselves entitled to protection against claims by third parties, and, accordingly, stated in their letter of August 24, 1939, that they could only accept further orders on the strict understanding that from the amounts due a percentage must be retained to build up a reserve. A number of other disputes arose between the parties, but the letter of August 24 contained what the appellants claimed to be a repudiation of the contract. This letter, however, cannot be read alone. Business dealings and negotiations and disputes as to the rights of the parties under the contract continued after it, and, so far from showing an intention to repudiate the contract the respondents, as late as November 7 suggest either cancelling the contract altogether or entering into negotiations with a view to drawing up another. This is, not repudiation, but suggested variation of a contract recognized to be in existence even though the respondents may wrongly interpret its terms and their rights under it. (ii.) Even if I were wrong in this view the respondents would still, for the reasons which I have endeavoured to state above, be entitled to take advantage of the arbitration clause. I would dismiss the appeal.

Solicitors for appellants: Nicholson, Graham & Jones.

Solicitors for respondents: Pennington & Son.