Charles Stanley & Co Ltd v Adams

A contract may give one party power to determine matters affecting the parties’ rights, including the allocation of a loss, without offending public policy. Such a clause does not oust the court’s jurisdiction. The court may intervene where the decision-maker has failed to comply with the express contractual terms or with an implied obligation to act reasonably and in good faith. A contractual procedure accepted by the parties, which provides guidance and procedural safeguards and is intended to resolve disputes quickly and cheaply, is not invalid merely because one party participates in determining its own liability.

The claimant stockbroking company sought payment from the defendant, a self-employed investment manager, under a contractual scheme allocating losses arising in connection with clients managed by him. The claimant had paid compensation following a client complaint and, after applying the contractual determination and appeals procedure, sought to recover the defendant’s assessed share.

The defendant accepted the contractual terms and compliance with the procedure, but disputed the assessment. The central issue became whether the provisions were unenforceable because the claimant’s committees were effectively judges in their own cause or because the procedure ousted the jurisdiction of the court.

1. The contractual provisions did not create liability for breach of the defendant’s duty of skill and care. They established a separate contractual mechanism under which a broker could bear or share a loss incurred by the claimant in connection with a client, with the resulting determination becoming a debt.
2. The authorities established no intrinsic bar to a contract conferring on one party power to determine a matter affecting the parties’ rights. The court’s jurisdiction is not ousted. It may intervene where the decision-maker fails to comply with an express contractual term or breaches an implied obligation to act reasonably and in good faith.
3. The scheme was intended to provide a quick and inexpensive method of allocating losses. It contained guidance on allocation and procedural safeguards, including an opportunity for the broker to make representations, attend, call witnesses and appeal to a full rehearing. The fact that the claimant’s committees participated in determining the allocation did not, without more, make the provisions contrary to public policy.
4. The contractual powers were therefore enforceable. Judgment was entered for the claimant for £100,000, less £6,775.40 in commission withheld from the defendant and accepted to be due to him.