10 Doctrine of Frustration

Law of Contract KDU‐OBU

Doctrine of Frustration This topic covers contracts where the subject matter or circumstances surrounding the contract has made it impossible for parties to perform their obligations under the contract. However the courts are reluctant to find frustration under common law in some circumstances. You would need to explore the nature and application of frustration. In addition you have to attain understanding of the methods the courts use to ascertain whether there is frustration. Finally consider the what happens in self induced frustration. Also determine how the courts assess damages in the event of frustration under common law and Law Reform (Frustrated Contracts) Act 1943.

Doctrine Of Frustration – Caselist

1. Appleby v Myers (1867) LR 2 CP 651 2. Blackburn Bobbin Co Ltd v Allen (T.W) & Sons Ltd [1918] 2 KB 467 3. Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221 4. Davis Contractors Ltd v Fareham UDC [1956] AC 696 5. Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd ( The Sea Angel) [2007] 2 Lloyd’s Rep 517 6. Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd [1942] 2 All ER 122 7. Gamerco SA v ICM/ Fair Warning (Agency) Ltd [1995] 1 WLR 1226 8. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407 9. Herne Bay Steamship Co v Hutton [1903] 2 KB 683 10. J. Lauritzen A.S. v Wijsmuller B.V. (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 11. Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 12. Krell v Henry [1903] 2 KB 740 13. Larringa & Co Ltd v Societe Franco-Americanae des Phosphates de Medulla, Paris (1923) 39 TLR 316 ( *case not available on Westlaw) 14. Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 15. Marshall v Harland & Wolff Ltd [1972] 2 All ER 715 16. National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 17. Ogilvy & Mather Ltd v Silverado Blue Ltd [2007] EWHC 875 18. Paradine v Jane (1646) 82 ER 897 19. Tatem v Gamboa [1939] 1 KB 132 20. Taylor v Caldwell [1861-73] All ER Rep 24 21. Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

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Doctrine Of Frustration – Caselist

1. Appleby v Myers (1867) LR 2 CP 651 2. Blackburn Bobbin Co Ltd v Allen (T.W) & Sons Ltd [1918] 2 KB 467 3. Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221 4. Davis Contractors Ltd v Fareham UDC [1956] AC 696 5. Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd ( The Sea Angel) [2007] 2 Lloyd’s Rep 517 6. Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd [1942] 2 All ER 122 7. Gamerco SA v ICM/ Fair Warning (Agency) Ltd [1995] 1 WLR 1226 8. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407 9. Herne Bay Steamship Co v Hutton [1903] 2 KB 683 10. J. Lauritzen A.S. v Wijsmuller B.V. (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 11. Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 12. Krell v Henry [1903] 2 KB 740 13. Larringa & Co Ltd v Societe Franco-Americanae des Phosphates de Medulla, Paris (1923) 39 TLR 316 ( *case not available on Westlaw) 14. Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 15. Marshall v Harland & Wolff Ltd [1972] 2 All ER 715 16. National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 17. Ogilvy & Mather Ltd v Silverado Blue Ltd [2007] EWHC 875 18. Paradine v Jane (1646) 82 ER 897 19. Tatem v Gamboa [1939] 1 KB 132 20. Taylor v Caldwell [1861-73] All ER Rep 24 21. Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

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Doctrine of…

Contractual frustration

Introduction In this chapter we will cover: 1. What What is frustration? 2. Was there radical change in obligation? 3. Se Self lf induced induced frustration 4. Effec Effects ts of frustration of frustration 5. Co Comm mmon on law 6. Law Law Reform (Frustrated Contracts) Act 1843

prepared by Sri Bala Murugan

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Introduction •

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Key consideration: the approach the law takes when matters change after contract has been concluded Where the change is drastic – drastic – the doctrine of frustration of frustration may invoked I.e the contract should be brought to an end because of the of the circumstances

Introduction •

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The Doctrine should not be invoked lightly it has the effect of killing of killing the contract and discharge parties from their obligations see J. Lauritzen Lauritzen A.S. v Wijsmuller B.V. (The Super Servant Two) [1990] 1 Lloyd’s Rep 1

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Introduction Commentary on the development of rustrat rustrat on o n see paras . – . , pg O’Sullivan & Hilliard

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See the following cases for an idea of the of the judicial attitude at the time: –

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Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407

The current test for frustration •

Davis Contractors Ltd v Fareham UDC [1956] – rustr rustrat at on occurs w en: –

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Without fault of either of either party Contractual obligation performed

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incapable of being of being

Circumstances in which performance is called for render it radically a thing Different from that which was undertaken originally (significant change in obligation)

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The current test for frustration •

Additional requirement to Davis case: –

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e con rac oes no ea proper y or a a w happens in the event of frustration For if the contract does deal with such matters then one would be precluded from claiming frustration

Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 Great Peace case

The test for frustration The test has 3 elements: . a ca c ange n o gat on – contract must not distribute the risk of the event occurring and 2. the occurrence must be the fault of either party 3. Does the contract provide for what happens in view of the frustrating event? If ‘yes’ then there is no room for the doctrine vice versa •


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The current test for frustration See the following cases for illustration: •

EWHC 875 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 Great Peace Case What could you observe about the judicial attitudes in these cases? See commentary by O’Sullivan & Hilliard, para 17.7 17.8, pg 354 355 •

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Was there radical change in the obligation? 1. Non occurrence of event 2. Destruction of contractual subject matter 3. Increased Expense 4. Forced alteration in the manner of performance 5. Illegality 6. The outbreak of war 8. De ay or temporary nterrupt on 9. Contracts for personal services 10. The relevance of foreseeability


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Non occurrence of event •

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Most challenging of other grounds under rustrat on Analysis of two classic cases required to provide foundation to this area The cases: –

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re v enry Herne Bay Steamship Co v Hutton [1903] 2 KB 683

Non occurrence of event Krell v Henry Facts: •

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Contract (20/6/1902) defendant agreed to hire claimant a flat in Pall Mall for 26 27 June Coronation process was to take place on those dates and pass along the flat (good view) Contract – Defendant only to use during day not ng t Deposit was paid King became ill procession did not take place Def refused to pay outstanding ‐

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Non occurrence of event Court of Appeal: •

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Held that the procession taking place along the flat was the foundation of the contract The contract was frustrated and the def did

Non occurrence of event Reasoning (Vaughan Williams LJ): •

The room was let for a specific purpose

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This was the foundation of the contract

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The purpose had not taken place (not by ’ The contract was frustrated

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Non occurrence of event Reasoning (Vaughan Williams LJ): s ngu s e rom a ypo e ca scenar o – cabman If a passenger engaged a cab to go to Epsom on Derby Day at a price, the contract would not be frustrated just the race got cancelled for some •

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The cab had no special qualification that made him unique for the purpose which can be distinguished from Krell’s case

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Non occurrence of event Problem with Krell’s case – difficult to st ngu s n pract ce. ee: Herne Bay Stemship

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Larringa & Co Ltd v Societe Franco Americanae des Phosphates de Medulla, Paris

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Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

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Non occurrence of the Event Analysis of Krell case: •

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e reason or w c enters n to t e contract is not the business of B Hence if A makes a bad bargain, A should bear the risk – need a very good reason to shift risk Even if A makes a wrong assumption of fact existing under the contract, and B knows this, it is not enough to discharge oneself from the contract

Non occurrence of the Event Analysis of Krell Case so what else is needed? ‐

Krell enters into contract with hotel


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What’s His Purpose? To see the coronation procession


Wh ick this Hotel? They advertised that they were letting rooms specifically for the coronation – selling the view •

Only rented the rooms for the day during the procession – purpose was very specific known to both parties


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Non –Occurrence of the Event Analysis of Krell Case so what else is needed? ‐

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re not re t e room or or nary use. This was the distinguishing factor between the bad bargain in the cab scenario and Krell’s case Hence the decision in Krell was sound on ana ys s For full analysis of Krell and Henry see paras 17.11 – 17.19, pgs 355 to 358, O’Sullivan & Hilliard

Non Occurrence of the Event •

Second case to analyse the case of Herne Bay

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Facts: –

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C and D contracted the use of the C’s steamship for a tour of the naval fleet on 28 June 1902 The tour was arranged for naval review of the fleet e a pa a epos o or are The review was cancelled On June 25 the review was officially cancelled

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Non Occurrence of the Event •

Facts (cont): –

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This was not made known to the C and contract was repudiated on 29 June On 28 June since the C had not heard from the D’s they used the steamship and made a profit Now the C’s are claiming the amount due to them from the D’s minus the profits made

Non Occurrence of the Event Court of Appeal (same composition as Krell case : •

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Hiring of the ship was the defendant’s venture Risk of things not going as planned is the D’s risk alone on rac no rus ra e an was a e o claim the amount owing minus profit

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Non Occurrence of the Event Analysis: •

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The happening of naval review was not the foundation of the contract as contemplated by both parties Meaning that the C offered services specifically for naval review and this was accepted by the D’s who had the same purpose in mind See commentary by O’Sullivan & Hilliard at paras 17.20 17.22, pgs 358 to 359 ‐

Non Occurrence of the Event Key points to note here: n or er or contract to e rustrate un er this head, must look at the assumptions of both parties Was the contract made on the assumption of both parties that was the same thing? Not enough that one party’s motives are disappointed or that the other knows of the motives – these are irrelevant facts •

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Destruction of the subject matter of the contract •

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Extreme scenario – the subject matter of the contract as een rustrate See case of Taylor v Caldwell [1861 73] All ER Rep 24 ‐

Destruction of the matter of the contract Taylor v Caldwell •

Facts: –

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D agreed to hire out premises to the claimant for staging a performance Premises burnt down the next day before performance could take place Claimant argued that the D was in breach of contract

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Destruction of the matter of the contract Taylor v Caldwell •

Held (per Blackburn J): –

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Parties contracted on the basis that the venue existed Since the venue did not exist now, the contract was frustrated

See a similar case where the C agreed to erect machinery on D premises but the premises and machinery was destroyed – contract frustrated (Appleby v Myers (1867) LR 2 CP 651)

Increased expense •

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Just because a contract becomes more – Davis Contractors Ltd v Fareham UDC –

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Davis agreed to build 78 houses for £94,000 Work was to be completed in 8 months Work actually took 22 months and additional cost o , Davis claimed that the contract should be discharged and paid a reasonable sum for the work that was done

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Increased expense •

Held: –

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T e acts t at per ormance a ecome more onerous is not sufficient reason to frustrate contract Similar reasoning use as Krell case and Hutton case, in that the assumptions of one party is not the business of the other

will never frustrate the contract – see Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

Forced Alteration of Manner of Performance •

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If the event merely prevents a party per orm ng t e contract as e wante to – frustration It is his business how he performs the contract See the case of Blackburn Bobbin Co Ltd v .

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Forced Alteration of Manner of Performance Blackburn Bobbin case – Facts •

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Seller agreed to supply Finnish timber to the purchaser Outbreak of war cut off the supply form Finland urc aser c a me

reac o con rac

Seller defended and raised frustration

Forced Alteration of Manner of Performance Blackburn Bobbin case – Decision •

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Contract not frustrated Why? Source of supply important to seller not to the purchaser i.e. as long as he got his Finnish timber he was happy ee

e v ew o

c or

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Illegality •

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Contract may be frustrated if it becomes illegal to erform However illegality must have serious enough impact on the contract Starting point: Parties normally assume that majority of the contract can be performed i.e. legal performance is in the assumption of the – See Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221

The outbreak of war •

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Outbreak of War does affect performance of Whether it will frustrate the contract – depends on the impact on the contract If it just affects the way in which contract is to be performed then there is NO frustration See the case of Tsakiroglou & Co case Also see the the Commentary by O’Sullivan & Hilliard, paras 17.29 17.30, pg 361 362 ‐


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Delay or Temporary Interruption Whether this frustrates a contract depends on the len th of the dela and the len th of the contract Problem for contracting parties – difficult to have foresight how long interruption and delay will last Parties need to know when to walk away from the contract y on on rac s: e e ay mus e so abnormal in its cause and effect or expected duration, so that it falls outside what the parties could reasonably contemplate at the time of contracting

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Delay or Temporary Interruption See the case of Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd ( The Sea Angel) [2007] 2 Lloyd’s Rep 517


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Delay or Temporary Interruption The Sea Angel – Facts •

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Oil tanker sank near ort of Karachi Pakistan Caused major pollution D contracted to salvage vessel and chartered The Sea Angel from C Charter for 20 days – 20 Aug to 9 Sept Pakistan port authority did not give clearance for D to D had to take legal proceedings in Pakistan and got the ship redelivered C claimed hire charges in the amount of 1.3m fomr Sept to Jan for which the ship was used

Delay or Temporary Interruption The Sea Angel – Decision •

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D argued that contract was frustrated when port authority did not give clearance CA held that the contract was not frustrated The delay was relevant but did not interupt e ear o con rac ua a ven ure

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D must pay hire until redelivery

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Risk of the interrupting event is on D


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Contract for personal services •

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Contracts for personal services such as emp oyment can e rustrate E.g. death, illness and incapacity Relevant point – both parties assume that one would be occasionally ill or incapacitated u ere s a so assump on a cer a n par s of the contract can be performed

Contract for personal services •

Matters that the courts look into: –

How long is the person unable to perform

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How long was the contract for

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The terms of the contract

[1972] 2 All ER 715


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The relevance of foreseeability The facts that parties have foreseen the event,

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Easiest way to prove is to look at the terms of the contract If contract does not provide even though it was foreseen then the courts will decide that t was t e us ness o one party… You know how the courts approach this issue – NO Frustration

The relevance of foreseeability •

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Some exceptional cases – Tatem v Gamboa Contract can be frustrated even if the parties contracted under the assumption of frustrating event Reason: both parties contracted on the basis that Hence if both parties contract on the basis that the event will not occur then contract can be frustrated even if event was forseeable

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The relevance of foreseeability •

The issue for courts to consider: –

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Whether one party or the other has assumed the risk of the event Treitel: Foreseeablity will support the inference of risk assumption only where the supervening event is one which any person or ordinary intelligence wou regar as e y to occur

The approach was approved by the Sea Angel case

Self Induced Frustration •

Point to note, if the party seeking to rely on rustrat on cause t e rustrat on cause or relief is less strong ‐

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See the Lord Bingham’s view in the Super Servant Two [1990] 1 Lloyd’s Rep 1 –

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– to the act or election of the party seeking to rely on it The frustrating event must be an outside event

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Self Induced Frustration See Gryf Lowczowski v Hinchingbrooke

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Employment contract NHS Trust claimed that there was frustration because G L (a surgeon) did not undergo a re skilling placement and unable to find one ‐

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obtaining the placement Hence NHS Trust was not allowed to claim contract frustrated

Self Induced Frustration Interesting cases in this area are: Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]AC 524 AND The Super Servant Two Case


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Self Induced Frustration Maritime National Fish case –FACTs: MNF chartered a trawlers from OT and fitted with •

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Usage of an otter trawl required license MNF operated 5 – 3 of its own, 1 from OT and another one from another company MNF obtained 3 licenses and used all three for their own MNF claimed that the contract with OT was frustrated because they could not get license to use OT’s trawler

Self Induced Frustration Maritime National Fishing – HELD: •

PC held that the contract was not frustrated because the inability to use OT’s trawler was due to MNF not nominating OT’s trawler to use the license ’

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choose not to •


They brought about their own frustration

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Self Induced Frustration The Super Servant Two– FACTS: a ure o e con rac – were o ranspor ’s drilling rig on one of 2 barges – Super Servant 1 & 2 D’s entered into similar contract with another party to use the Super Servant 1 •

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C’s could be performed C’s asked that Super Servant 1 be used – D’s refused

Self Induced Frustration The Super Servant Two case – FACTS (cont): •

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C’s claimed for breach of contract D’s claimed force majeure clause in the contract (circumstance outside the control of the parties) n

e a erna ve, ’s a so c a me

rus ra on

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Self Induced Frustration The Super Servant Two – HELD: e t at t e contract wou not e frustrated The D’s could have still performed the contract without the Super Servant Two But they chose not to So it was the D’s choice not to use the Super Servant One that made them unable to perform the contract •

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Self Induced Frustration See Commentary by O’Sullivan & Hilliard at pg , . – . Take note of the case of Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 – this is a case t at ea s w t tort w ere t as een state that negligence is sufficient to prevent frustration


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What are the effects of Frustration? Common law •

Frustration has 4 main effects 1. Contract brought to an end immediately 2. Parties were released from the obligations that would have fallen due after the occurrence of the frustrating event 3. Parties were not released from obligations that should have been performed before the frustrating even occurred 4. Only can recover the value of benefit transferred if the other party had performed none of his obligations, that is, if there was a total failure of basis

What are the effects of Frustration? •

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With regards point 1 – Self explanatory regar s po n – rom e po n o frustration the obligations are discharged i.e. not requirement that it be performed With regards point 3 – Anything to be performed or benefit before frustrating event should be With regards point 4 – see the case of Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd [1942] 2 All ER 122

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What are the effects of Frustration? Fibrosa Spolka case – FACTS: •

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Polish company paid £1000 under a contract for the supply of machinery The respondent did considerable work under the contract on rac rus ra e w en ermany occup e Poland

What are the effects of Frustration? Fibrosa Spolka case – FACTS: ’ to delivery the goods This was not done Hence there was total failure of consideration And the money paid could be recovered i.e. mone aid for obli ation not erformed can be recovered For analysis of the common law position see O’Sullivan & Hilliard pgs 367 368, para 17.45 •

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Law Reform (Frustrated Contracts) Act 1943 •

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S 1(1): The Act applies to contracts that have ecome mposs e to per orm or ot erw se frustrated S 2(3): If the contract makes provision for what should happen in light of frustrating event – Act will not o erate

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S 1(2) – deals with obligation to pay money

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S 1(3) – deals with other obligations


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S 1(3) – for full citation see para 17.47, pg 368, u van ar Deals with situation where either you have paid money or owe money to the other party If paid money before the frustrating event the allowance for expense that the other party has made


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Key issue: how much the other party should get Onus of proof is on the recipient to demonstrate that he should be allowed to recover or retain some of the money because of the expenses that he has inccurred.

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figure See the case of Gamerco SA v ICM/ Fair Warning (Agency) Ltd [1995] 1 WLR 1226

Law Reform (Frustrated Contracts) Act 1943 Gamerco case FACTS: , a concert promoter contracte w t rst and second defendants affiliated with Guns & Roses in Madrid The government declared the venue unsafe – thereby frustrating the contracts C sued for $412,500 that it had paid the second D who had spent $50,000 in relation to performing their side of the contract ‐

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Law Reform (Frustrated Contracts) Act 1943 Gamerco – HELD: •

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The full $412,500 can be claimed Garland J stated that the courts had broad discretion to do what was just in the circumstances n e ac s was us or e c a man o claim all of the money paid


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If other obligations have been performed , need to rely on s 1(3) See O’Sullivan & Hilliard, pg 369 para 17.50 for citation The conditions of subsections (a) and (b) s ou cons ere – mportant at t s stage to read sec 1(3) in totality before commencing further

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Law Reform (Frustrated Contracts) Act 1943 First issue of sec 1(3) How do you value the benefit that has been conferred? Goods – No problem Services – Big Problem! See Goff J, BP Exploration Co (Libya) Ltd v Hunt [1979] 1 WLR 783 – determine value of the end product of the services, not the services themselves – Result not the process What if there is no end product for the service? – Goff J – then value placed on the services themselves Value to the other party is what counts! subjective ‐

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Law Reform (Frustrated Contracts) Act 1943 Problem: where do the factors of limb (a) and (b) fit

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Factors require that you have to take into account the effect of the frustrating event on the benefit conferred Also account the expenses of the other party

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amount not the value of the benefit This would have made sense in applying sec 1(3)

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Law Reform (Frustrated Contracts) Act 1943 Problem: where do the factors of limb (a) and (b) fit in? Goff J complicated the matter in Hunt by holding the opposite That (a) and (b) are taken in to account to determine the value conferred Means we evaluate the benefit not at the time e ene was rece ve u a er e rus ra ng event See the difference in the approaches at para 17.52 and 17.53 at pg 370 – 371, O’Sullivan & Hilliard •

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Law Reform (Frustrated Contracts) Act 1943 Second Issue: interpretation allows greater ex e or t e court •

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Goff J stated that Hunt case should be the guiding principle Prevent unjust enrichment of the D at the C’s See the view of O’Sullivan & Hilliard, paras 17.54 – 17.56, pgs 371 372 ‐


34

YOL.

TKINITY TEEM, XX YICT.

51

t h e r i g h t w h i c h ha b e e n i n v a d e d h e r e is r i g h t to an i n t e r e s t n l a n d , an t h a t d a m a g e in r e s p e c t of w h i c h plaintiff claims c o m p e n s a t i o n is not too r e m o t e , but is d i r e c t l y co n s e q u e n t u p o n the loss f th plaintiff's property iu the l i g h t . No difficulty could RAILWAY h a v e a r i s e n h e r e bu t f r th u m p i r e h a v i n g in s e r te d impertinent a v e r m e n t in his a w a r d . T h a t s a l e a b l e v a l u e of the p r e m i s e s no b e e n d i m i n i s h e d is not the o n l y and c e r t a i n l y not a conclusive test. A man is not to be d r i v e n to sell his p r o p e r t y . m a y c h o os e to c o n t i n u e his b u s i n e s s . e n t e r t a i n no d o u b t w h a t e v e r as to th conclusion we o u g h t to c o m e to Judgment for the plaintiff.

Attorneys for plaintiff: Brake & Son. Attorney for defendants: J. Freeland.

[IN THE EXCHEQUER CHAMBER.] APPLBBY AK Contractj Construction of

21

ANOTHEK V. MYERS.

Complete Performance prevented by a Misfortune beyond

the Control of either Party.

Where A. contracts to do work and supply materials upon the premises of B. for a specific sum, to he paid on completion of the whole, A. is not entitled to recover anything until the whole work is completed, unless it he shewn that the performance of his contract was prevented by the default of B. The plaintiffs contracted to erect certain machinery on the defendant's premises at specific prices for particular portions, and to keep it in repair for two years,—the price to be paid]upon the completion of the whole. After some portions f the work had been finished, and others were in the course of completion, the premises with all the machinery and materials thereon were destroyed by an accidental fire:— Held,—reversing the judgment f the Court of Common Pleas,—that both parties were excused from the further performance f the contract; but that the plaintiffs were not entitled to sue in respect of those portions of the work which had bee completed, whether the materials used had become the property of the defendant or not.

from a judgment of the Court of Common Pleas, in favour of the plaintiffs upon a special case, the report of which will be found ante, vol. i. p. 615. APPEAL

Hannen (Lwmley Smith with him),

r the defendant.

t is

65 2

CO RT OF 7

MM N PLEA S.

[L.

gen eral rale th at, when a person has un de rtaken to do certain work to be paid on com pletion, he is not entitled to pay ent or a p ortion, unless h e is pre ven ted om complet ng^ the ork by the w rongful act of his em ployer. Th e autho rity or this is Gutter Powell. 1) Th e judgm ent of the Common Pleas, now appe aled om, akes an exception in th e case of work done upon property of the employer, the completion of which work is prevented, not by any default on the part of the contractor, but in consequence of the accidental destruction of the premises upon w hich the work was being e; and this upon the ground that the re is, in such a case, an imp lied contract th at the premises shall be kep t in a state in which the work can be performed on it. B. In C hitty on ontracts, 7th ed. p. 514, it is sai tha t a wo rk an is entitled to b e paid for the work th at he has done, though it be destroyed by an accidental fire before the whole is completed, unless by the uniform custom of the particular trade payment is not to be made until the work is completed.] In th e pre sen t case the exception arises from th e express term f the con tract, instead f rom the custom of the trad e. Adlard Booth (2) is strongly in the defendant's favour. [ B L A C K B U R N , J. In th at case the plaintiff did receive pay ent for the books which he had actually delivered, though the reporter did not so understand it, and has made it appear to be otherwise in the side-note.] Th e Eo an, Sco ch, and Am erican aws are all opposed to the principle upon which the jud gm en t f the Co urt below is based : see Story on Bailm en ts, s. 426 Bromley Smith (3), in which all the authorities upon the subject are referred to; Wilson Enott (4); 1 Bell's Commentaries, 6th ed. s. 8, p. 147 ; Pothier's ontrat de Louage , cha p. ii. s. 433. See also, or th e En glish law, Addison on C ontracts, 4th ed. 450 ; and, or the Fre nc h law, the Code Civil, articles 1788—1790. [MARTIN,

[BLACKBURN,

J.

he gen eral rule of aw, as I hav e al ays Smith's L. 0. 1. (1 (2) 7 C. & P. 108. (3) 5 Alabama Eop. (N.S.) 143. (4) 3 Humph. Rep. 473.

YOL. II.]

TSINITY TEEM,

XX YIOT.

653

understood it, is, es pe rit dom ino su ; an d it ay dep end, the refore, upon hether th e prop erty in any of the aterials supplied APPLEBY by the plaintiffs had passed to the defendant.] MYEBS at m axim f law is in th e defend ant's favour. he pla ntiff lose their work, and the defendant his property. . If a ma n agrees to deliver a cha ttel, and it is [BKAMWELL, bu rn t before delivery, is he excused Williams If the prop erty had passed before delivery, he would Lloyd (1), here th e defendant agreed to deliver a h orse up on request, and the horse died before request made, and he was held excused. he broad principle is, th at here the com pletion of th work s prevented by the act of God, neither pa rty has a rem edy a g a i n s t t h e o t h e r : Bayne Walker. (2 Soil, or the plaintiffs. t was assumed by the ourt be ow, th at the prop erty in the work which had been done passed to th e defendan t ; and as to some of it, at any rate, tha t clearly was the case. Th ere is no doubt as to the gene ral principle, tha t p aym ent cannot be clai ed un til com pletion f th e contract. Bu t the law ha s, or gen eral convenience, engrafted upon th t rule certain exceptions and the question is, whether the present case does not form one of them . t is adm itted th at if the full perfor ance of the work had been preven ted by the act of the defendant, the law would imply contract to pay on a quantum meruit, instead of leaving the plaintiffs to an action for the breach of contract in not permitting the plaintiffs to complete the work: Planche v. Colburn. 3) Th e true princip le is, th at where work is done or m aterials supplied on the land of another, if the completion of the contract is prevented by vis major, the law implies a contract on the part of the person for whom and on whose land the work has been done, and whose prope rty the m aterials have become, to pay for o uch of the work and m aterials as have been done and sup plied. Th at proposition i supp orted by the authority of he D igest, and also by tha t several eminent foreign jurists, and amongst them of Duranton, Troplong, Pothier, and D om at. In igest, ib. 19, tit. ii. Lo cati Con ducti, . 36, e A versione, the rule is laid dow n: " Opus quod aversione locatum est donee adprobetur, conductoris periculum est. (1) Sir

J o n e s , 179.

(2) 3 Dow , 233. (3) 8 Bing.

65 4

COUET OF 7

Stats

Q u o d v e r o i t a c o n d u c t u m s i t,

MMON PLEA S. t in ped es

[L.

en sura sve prasstetur,

eatenus conductoris jDer ulo est, qu atenu s adm ensum non si t; et in utraq ue causa nocitururn locatori, si per eum steterit, quom imi opus adprobetur vel adm etiatur. Si tam en vi ajore opus prius interciderit quam adprob aretur, locatoris periculo es t; nisi si aliud actuin sit." [BLACKBURN, J. Suppose a riotous mob entered the defendant' premises and broke the machinery before the work was completed, according to the principle you co ntend for the plaintiffs would be excused from repairing and completing the work.] The argum ent ust go tha t length. either party being in fault, th e question is, hich is to be the sufferer. he w ork being out of the control of the ork en, and the custom er being the dominus of the property, the maxim Ees perit domino suo applies. [ B L A C K B U R N , J. . 37 is ore consonant ith good sen se: " Si prius quam locatori opus probaretur, vi aliqua consumptum est, detrimen tum ad locatorem ita pe rtinet si tale opus fuit u t probari debe ret." ere, no part f th e work as, according to the terms of the contract, to be paid for until the whole was completed.] " Agreements bind not only as to what is expressed therein, but further as rega rds all the consequences w hich equ ity, usage, or law attribute to an obligation by its nature:" Code Civil, art. 1135. And that general principle is not confined to the French law. xtraordina ry and unlooked-for events are never in ter s provided or. Th e achinery, thoug h not com pleted, would enhance the arketable value of the defendant's p rem ises. In the same title of the igest, . 59, the ol owing case is p t: " arcius domum faciendam a Flacco c on du xe rat: deind e operis p arte e ec a terrse otu concussum e rat ajdificium. assurius Sabinus, si vi na tura li, veluti terras motu, hoc accident, Flacci esse periculum." [BLACKBURN, J. If the co ntract were to pay or the building on completion it would be like Sinclair Boivles. (1 S H E E , J. The note to the last passage you cite throws you back upon . 36.] Th at is a note by an unknown comm entator. In D om at's Lois iviles, liv. tit . iv . s. viii. art. 8, it is sa id : " Si on a donn quelque. matiere a un ouvrier pour faire un ouvrage a un certain prix de 9

4 M. & K. 1.

YOL. II.]

TKIMTY TEEM,

X VICT.

l'ouv rage entier, l'entrep ren eu r 'au ra satisfait a son eng age ent et n'en sera decharge qu'apre3 que tout l'ouvrage etant verifid, il se trouve ra tel qu 'il doive etre recu. t si c'est un trava il qui soit de plusieurs pieces, ou a la esure, et a un certain prix pour ch aque piece ou chaque esure, l'entrepreneur sera decharge a proportion de ce qu i sera com pte ou me ur " et trouve bien fait. t il portera au co ntra ire la perte de on ouvrage, et les domm ages et inteiets du m aitre, s'il y en a, po ur ce q ui se trouv erait n'etre pas de la qu alite dont il dev ait etre. Que si dans l un e t dans l'autre cas de ces deux marches la chose perit par un cas fortuit avant que l'ou vrag e soit ve' e', le m aitre en po rtera la pe rte, e t de vra le prix de l'ouvrage, surtout s'il etait en demeure de le verifier, si ce n'est qu'il parut que l'ouvrage ne fut pas tel qu'il dut etre recu." J. ha t assumes the work to be com pleted.] rticle 9 say s: " Si un arch itecte aya nt e ntrepris de faire un aison ou a utre edifice, e t qu 'aya nt acheve la construction, ou seulement une partie, elle vienne a perir par un debordement, par un tremblement de terre, ou autre cas fortuit, toute la perte sera pour le m aitre, et il n e laissera pas de devoir, et les m ateriaux fournis par l'entrepreneur, et ce qui se trouvera du de la faeon de l'edifice; car la deliverance lui etait faite de tou t ce qui eta it bati sur son fonds. ais si le batim en t pe rit par le defaut de l'ouvrag l'architecte perdra son travail avec ce qui sera peri des materiaux, et il sera de plus tenu du dommage que le maitre en pourra souffrir " uran ton, Cours de roit Franga is. vol. ix. tit . 8, on trat de Lo uage , s. 250, ed. 1833, is to th e sam e ef ec . Speaking of L . 36 of th e igest, h e sa ys : " ais le jurisconsulte, en etta nt les risques a la charge du conducteur tan t que l'ouvrage convenu per aversionem n'a pas ete approuve par le locateur, ou que l'ouvrage convenu au pied ou a la mesure n 'a pas ete esure, n'entend parler que des risques ordinaires., et non des cas fortuits extrao rdin aires; car il ajoute de suite : ' Si tam en vi ajore opus prius interciderit quam adprobaretur, locatoris periculo est; nisi si aliud actum : non enim am plius praestari locatori oporteat, quam. quod sua cura atque opera consequ utus esset.' Le-jurisconsulte Jav olenu s it e'galement, dans la loi suivan te, qu e si l'ouvrage v ient perir par quelque accident de force majeure, avant d'avoir ete \[LUSH,

655

6

COUET OF CO MM ON PLEAS.

[L

E.

7

prouve par celui qu i l'a donne a faire, la pe rte en est supported pa API-MBY dern ier; si toutefois l'ouv rage etait tel qu 'il diit ete re cu : ' Si • priusquarn locatori opus prob aretur, vi aliqua consum ptum est detrimentum ad locatorem ita pertinet, si tale opus fuit ut probari deberet.' t il est bien clair que c'est m&ne qu an t au prix de la ain d'ceuvre, que la pe rte est a la charge de celui qui a donne l'ouv rage a. faire, puisque ce ne pe ut etre q ue sous ce rap po rt qu 'il y a lieu a la question de savoir si l'ouvrage a ete fait comme il dev ait l'etre." Th e same distinction is laid down in Pothier's Contrat de Louage, c. [3 ss. 435, 436. In a case decided in the French Cour de Cassation, reported in Dalloz's Jurisprudence General for 1861, p. 105, it is laid down th at " a pe rte par force ajeure, de constructions en cours d'execution, est pou r le compte du proprietaire du sol dans lequel ces constructions sont incorporees, quoique l'entrepreneur en ait fourni les mate'riaux et que la p erte soit survenue avan t la reception des travau x, ou une raise en dem eure de les verifier." he case of Bromley Bmith (1 is certainly opposed to this view. Bu t th at case is mainly founde on a passage in Story on Bailments, s. 426, where the Digest, . ib. 19, tit. ,1 . 59, and also B ell's Co entaries, vol. i. p. 146, 5th ed., are no t referred to. B. In the notes to Cu tter v. Powe ll (2), it is said that the ere fact f th e pa rt performance having been benef cial is not suff cient to render the party benef ted liab le; bu t th at the re ust be circum stances to raise an i plied prom ise to pay for th work done.] he C ourt l o construe th e con tract as to carry out, if possible, the intention of the pa rties: and it is evident th at both parties here contem plated the premises con tinuing to exist in a Beynolds ( 3 ) ; Clay condition to receive the work: Withers no the r class of cases, of hich B u g g Yates. (4) Minett (5) is a leading one, shews th at here goods w hich have been bou ght are destroyed before delivery, the vendor is excused from delivering them , and is yet en titled to the price, f th e p roperty had [MARTIN,

(1) (2) (3) (4) (5)

5 Alabama Rep. (N.S.) 143. 2 Smith's L . C. 1. 2 B. & d. 882. 1 H . & . 7 3 ; 2 5 . J . ( E x . ) 2 37 . 11 ast, 210.

VOL. .]

• TRINITY TEEM , XXX VICT.

passe d to th e ven dee prio r to th ei r de stru ction .

"

657

his is also laid

down by Pothier, as quoted in Blackburn on the Contract of Sale,

172.

APPIEBY V. "•

J. Th at was pu t by Pothier on the ground th at the price is no t p aid for the delivery, bu t or th e v esting f t goods.] Menetone Athawes (1) is a direct authority in the plaintiffs' favour. he ther the con tract be or an entire sum or not, f i t is to do a certain work it is an entire contract, and no pay ent is due until the whole is finished: and such was the fact in that case. Th e auth ority cited from Po thier's C ontrat de Lou age, c. 3, is also in th e plaintiffs' favour. here is no thing th er to shew that the work was to be done on the premises of the employer. [BLACKBURN, J., referred to Boberts Haveloeh. (2) ] Taylor CaldweU (3), Blackburn, J., delivering the judgent of the C ourt, enu nciates the principle by w hich this case is to be governed. " Th ere seems," he says, " no doubt tha t, here the re is a positive contract to do a thing no t in itself unla ful the contractor ust perform it or pay damages for not doing it, althou gh in consequence of unforeseen accidents th e performance of his contract has become unexpectedly burdensome, or even impossible. Th e aw is o laid down in R oll. br. vol. i. . 450, ondition (G , and in the no te to Walton Waterhouse (4), and' s recognised as the general rule by all the judges in the uch Wright. (5) Bu t this rule is only applidiscussed case of Hall cable when the contract is positive and absolute, and not subject to any condition either express or implied : and there are authorities which, as we think , establish the principle tha t here, om the nature of the contract, it appears that the parties must from the beginning have know n th at it could not be fu ed unless when the time for the fulfilment of the contract arrived some particular thing continued to exist, so that, when entering into the con tract, they m ust have contem plated such continuing existence [BLACKBTJBN,

B u rr . 1 5 9 2 . Ad. 04. 826,

. S a u n d . 42 1 a , (5) E. B.

E . 7 46 ,

32 L . J h e

(Q,B.) 1 6 4 .

MYERS.

658

CO RT OF 7

MM N PLEA S.

[L.

as th e found ation of w hat was to be ; th ere , in the absence of y express or imp lied w arranty th at th e th ing shall exist, th contract is not to be construed as a positive contract, but as subject to an implied condition th at th e parties sh all be excused in case, before breach, perfor ance beco es impossible f om th e perishing of the thing without default of the contractor." Sannen, in reply. If the parties have thou gh t fit to contract th at the work shall be p aid or when com pleted, hy should the ourt imply an y other contract ? In th e absence of any illegality, th e C ourt ust give e ect to the contract as they find it. Th opinions of foreign jurists, however valuable to aid in the elucidation of a doubtful principle, cannot affect the decision here. [ L U S H , J. Th e ourt below does no t profess to found its judg ent upon the Civil aw, bu t it assumes th at the re is an implied, arranty tha t the premises shall remain in a state to receive the ork. If th at be so, th e plaintiffs shou ld hav e recovered th e who le sum.] The case does not shew th at the prope rty in the achinery which was fixed passed to th e defendant. The statem ent th at they were fixed to t he prem ises m ust be read ith reference to th subject atter. These would be trade fixtures. Besides, the plaintiffs might have removed one piece of machinery and substituted another. Cur. adv. vult. Jun e 21 . The judg ent of the Co urt (Martin, B., Blackburn, J., Bramwell, B., Shee and Lush, JJ.), was delivered by J. This case was partly argu ed before us at th l a s t s i t t i n g s : a n d t h e a r g u m e n t w a s r es u m e d a n d c o m p l et ed a t the present sittings. aving had the advantage f hearing the very able argum ents f . o l l a n d M r . a n n e n , an d h a v i n g d u r in g t h e i n t e rv a l h a d the opp ortunity of considering th e judg en t f th e ourt below, there is no reason that we should further delay expressing the opinion at which we have all arrived, which is, th at th e judgm ent of the Court below is wrong, and ought to be reversed. BLACKBTJKN,

Th e whole question depends upon the tru e construction f th contract between the parties. e agree ith the Co urt be ow in

YOL. .]

TRINITY TEEM, XXX VICT.

th in kin g th t it sufficient y ap pea rs th t th e ork hich the plaintiffs agreed to perform could not be performed unless th defendant's premises continued in a fit state to enable the plaintiffs to pe form the work on th em ; and we agree ith them in thinking tha t, f by any default on th e p art of th e defendant, his pre ises were rendered unfit to receive the work, the plaintiffs would have had the option to sue th e defendant or th is default, or to trea the contract as rescinded, and sue on a quantum eruit. Bu t we do not agree with them in thin king th at there w as an absolute promise or warranty by the defendant that the premises should at all events continue so fit. e think tha t w here, as in the presen case, th e prem ises are destroyed w ithou t fault on either side, it i a isfortune equ ally affect ng both ar tie s; excusing both om further performance of th e contract, bu t giving a cause f action to neither. Th en it was argued before us, tha t, inasmuch as this was a contract f th t na ture which ould in pleading be described as con tract for work, labou r, and m aterials, and no t as one of bargain and sale, the labour and materials necessarily became the property of the defendan t as soon as they were orked into his p rem ises and beca e part of them , and therefore w ere at his risk. thin k tha t, as to a g reat p art at least of the work done in this case, the materials had not become the property of the defendant; for, we thin k th at th e plaintiffs, w ho were to complete the whole or fixed sum, and keep it in repair or wo years, would have had perfect right, f the y thou gh t th t a p ortion of the engine which they had pu t u p was too slight, to change it and sub stitute a nother in their opinion better calculated to keep in good repair during the tw o years, and tha t without consulting or asking the leave the defendant. Bu t, even on the supposition th at th e m aterial had become un alterably fixed to the defendant s premises, we do not thin k that, und er such a con tract as this, the plaintiffs could recover any thing unless the whole work was completed. It is quite true that materials worked by one into the property of ano ther beco e pa rt of th at prop erty. Th is is equally true, hether it be fixed or ovable pro perty. Bricks bu ilt into a al beco e p art f the ho use ; threa d stitched into a coat which i und er repair, or planks and nails and pitch worked into a ship

659 APPLEBY MYERS

660

CO RT OF 7

APPLEBY

•

MM N PLEA S.

[L.

un de r repair, becom e pa rt of the coat or th e ship ; and therefo re, generally, and in the absence f som ething to shew a contrary intention , th e bricklayer, or tailor, or shipw right, is to be paid for the work and aterials he has done and provided, althoug h the whole work s not complete. t is not aterial hether in such a case th e non-com pletion is because th e shipwright did no t choose to go on with the work, as was the case in Roberts Have looh (1) or because in consequence of a fire he could not go on with it, as Menetone Atliawes. 2) But, thoug h this is the prima fac contract between those who enter into co ntracts for doing work and supp lying materials, the re is no thing to ren der it either illegal or absurd in the workman to agree to complete the whole, and be paid when the whole is com plete, and no t till th : and we think th at th e plaintiffs in the pres ent case had entere d into such a contract. ad the acciden tal fire left the defen dan t' prem ises untou che d, and only injured a p ar t f the work wh ich the plaint ffs ha d already done, we apprehe nd th at it is clear the plaintiffs under such a contract as the present must have done th t ar t over ag ain, in order to fu fil the ir co ntrac t to com plete th e whole and " ut it to work or the sums above nam ed respectively." As it is, they are, according to th e principle laid down in Taylor Caldwell (3), excused from com pleting th e work ; b ut they are not therefore entitled to any compensation for what they have done, but which has, without any fault of the defendant, perishe d. he case is in principle like th t of a shipowner wh has been excused om th e performan ce f his con tract to carr goods to the ir destination, because his ship ha s been disabled by one of the excepted perils, but who is not therefore entitled to any payment on account of the part-performance of the voyage, unless there is som ething to ustify the conclusion tha t there has been fresh contract to pay freight pro rata. On the argument, much reference was made to the Civil law. The opinions of the great lawyers collected in the Digest afford us very gre at assistance in trac ing out a ny question of doubtful p r i n c i p l e ; b u t t h e y d o n o t b i n d u : an d we t h i n k t h a t , o n t h e principles of English law laid down in Cutter Powell (4), Jesse (1) 3 B. & Ad. 404. (2) 3 Burr. 1592.

(3) 3 B. & S. 826; 2 . J. Q.B.) 64 (4) 6 T. B. 0 ; 2 Smith's L. C. 1.

VOL. H.]

TEINITY EEM, XXX TICT.

66

Boy (1), Munroe v. Butt (2), Sinclair v. Bowles (3), and other cases, the plaintiffs, having contracted to do an entire work for a specific sum, can recover nothing unless the work be done, or it can be shewn that it was the defendant's fault that the work was incomplete, or that there is something to justify the conclusion that th parties have entered into a fresh contract.

We think, therefore, as already said, that the judgment should be reversed. Judgment reversed.

Attorney for plaintiffs: J. 8. Salaman. Attorneys for defendant: Lewis, Munns, Nunn, & Longden.

[IN THE EXCHEQUER CHAMBER.] v.

Jme

AND OTHEBS.

Bill of Lading, how long in Force Goods landed at a Sufferance Wharf with " Stop " for Freight What a sufficient Possession to maintain Trover.

A bill of lading remains in force until there has been a complete delivery of the goods thereunder to a person having a right to receive them. A. was indorsee of a bill of lading for cotton, drawn in a set of three, making the cotton deliverable in London on payment of freight. The cotton had been recently landed under an entry made by A., and carried to a sufferance wharf in the port f London, where it remained with a stop thereon for freight. On the 4th of March, 1865, A. obtained from the plaintiff an advance of 2500Z. on the deposit of two copies f the bill of lading; A. fraudulently retaining the third copy, which the plaintiff supposed to be in the hands of the captain. n the 6th an 7th of March (the stop for freight being then removed), A., who had in February instructed the defendants, cotton-brokers, to take samples of the cotton and to offer it for sale, obtained from them advances to the amount of 2000?. on the deposit of the third copy of the bill of lading; and on the 11th, being then informed of the prior advance by the plaintiff, they sent such third copy of the bill of lading to the wharfinger, and procured the cotton to be transferred into their names, and afterwards sold it and received the proceeds :— Held, the judgment of the Court of Common Pleas,—that the bill of lading, when deposited with th plaintiff, retained its full force and effect, and consequently that there was a valid pledge f the cotton to the plaintiff before th advances made to A. by the defendants.

from a decision of the Court of Common Pleas upon a ' rule to set aside a verdict for the plaintiff and enter a verdict or the defendants, reported ante, p. 38. APPEAL

(1)1C.M.&E.316.

(2) 8 E. & B.

8.

(3)9B.&C.92.

o.

2 K. B . no t

costs an d

fails.

KING'S BENCH DIVISION. ex penses

467

un de r th e Act , an d th e po in t ther efor e

I n th e resu lt th er e will be ju dg me nt for th e plaintiffs for 551.

1918 GEAYS

URBAN

•

COUNCIL

•!•!•

«.

Judgment for the plaintiffs.

GBAYS CHEMICAL

Solicitors for plaintiffs : Kingsford, Asplin, Grays.

Dorman

& Co., for Hatten

&

WOEKS.

Solicitors for defendants : Kirhy, Millett & Ayscough. J. F. C.

[IN THE COUKT OF APPEAL.]

0

A#

B L A C K B U E N B O B B I N C O MP A NY , L I M I T E D v. T. W. AL LE N

iM8

& SONS, LIMITED.

J**> 19,20.

[1917

B.

722.]

Contract —Sale of Goods — Impossibility of Performance due to Outbreak of War — Discharge.

By a contract made in the early part of 1914 the defendants, who were tim ber mer ch ant s at H ull , sold t o th e plaintiffs 70 stand ard s of Finl and b irch tim ber t o be delivered to th e plaintiffs free on rail at Hull, deliveries to commence in June or July, 1914, and to con tinue during the season which would terminate in November, 1914. The contract contained no war or force majeure or suspension provisions. Before th e outbr eak of war in Aug ust , 1914, the practice was to load timber into vessels at Finnish ports for direct sea carriage to England, but this practice was not known to the plaintiffs, nor did they know, as the fact was, that timber merchants in England do no t keep Fin lan d tim be r in stock. Up to th e out break of the war the defendants had not delivered any of the timber, and after that date, owing to the disorganization of transport caused by the war, it became impossible for the defendants to obtain any Finland timber for delivery to the plaintiffs. In an action by the plaintiffs claiming damages from the defen da nt s for failure to deliver the timber , th e defend ants conten ded th at the contract had been dissolved by the outbreak of war:— Held, that the contract had not been dissolved, and that the defen dants were liable in damages for the non-delivery of the timber. Decision of McCardie J. [1918] 1 K. B. 540 affirmed. A P P E A L from a decision of McCardie J., reported [1918] 1 K. B. 540,

where the facts, which are summarized in the head-note, are

fully stated.

468

KING'S BENCH DIVISION.

[1918]

C A. 1918

McCardie J. gave judgment for the plaintiffs, holding (1.) that the contract had not been dissolved, and that th e defendants were

BLACKBURN

liable in damages for the non-delivery of the timber ; and (2.) that

OO'MPAKY

* tract was not one for the supply of materials " for any building or work " within s. 1, sub-s. 1, of the Courts (Emergency Powers)

*• X •

W

ne con

. ALLEN

& SONS.

Act,

1917.

The defendants appealed from the decision on the first point. MacKinnon

K.C.and Jowitt for the defendants.

C. Atkinson K.C. and du Pjircq, for the plaintiffs, were not called upon. [As the Court held on the facts that the decisions relied upon by

the defendants were inapplicable and therefore that it was unneces sary to discuss them, the argument is not set out.] L.J. This is an appeal from a decision of McCardie J. , and the point raised is whether an implication is to be read into the contract the performance of which has been interfered with or prevented by mat ters arising out of the war. The contract, which contained no exceptions, was for the sale by the defendants to the plaintiffs of 70 standards of Finland birch timber at the price of 10Z. 15s. per standard free on rail at Hull. Before the war it was the regular practice to load the timber on vessels at ports in Finland for direct sea carriage to English ports, and not to send it by rail across Scandinavia and ship it from a Scandinavian port to England. When war broke out the Germans declared timber to be contraband, but, even before that declaration, sailings from Finnish ports had entirely ceased, and therefore the ordinary and normal method of supplying Finland timber came to an end. I will assume th at it was not possible, at first at any rate, to get Finland birch timber to England at all, although it is true that in 1916 a certain amount was sent across Scandinavia and shipped from ports there. In August, 1914, and the following months some correspondence took place between the plaintiffs and t he defendants as to th e timber, the former asking for supplies, and the defendants tak ing up the position th at all pre-war cont racts had been cancelled by the war. PICKFORD

The defendants contend that the contract was at an end because

2 K. B.


469

it was in the contemplation of both parties th at the defendants

c. A.

should be able to. supply the timber according to the ordinary

19I8

method of supplying it in the trade, and that when that became BLACKBURK BOBBIN impossible both parties were discharged from their obligations. We have had a most interesting discussion of the numerous cases where v. T

W

ALL FN

this doctrine has been dealt with, and it is from no disrespect to ' & "sons. Mr. MacKinnon's argument that I refrain from going through pick j~7 LiI them, but I refrain from doing so because I accept the principle for which those cases were cited. The principle was thu s stated by Lord Haldane in Tamplin Steamship Co. v. Anglo-Mexican Petroleum Products Co. (1 ): " The occurrence itself," i.e. the occurrence preventing th e performance of the contract, " may yet be of a character and extent so sweeping that the foundation of what the parties are deemed to have had in contemplation has disappeared, and the contract itself has vanished with th at foundation." It was also stated thus by Lord Shaw in Horlock v. Beal (2): " The under lying ratio is the failure of something which was at the basis of the contract in the mind and intention of the contracting par ties." In my opinion McCardie J. was right in saying that the principle of these cases did not apply to discharge the defendants in this case. He has found that the plaintiffs were unaware at the time of the contract of the circumstance that the timber from Finland was shipped direct from a Finnish port to Hull, and that they did not know whether the transport was or was not partly by rail across Scandinavia, nor did they know that timber merchants in this country did not hold stocks of Finnish birch. I accept the finding that in fact the method of dispatching this timber was not known to the plaintiffs. But there remains the question, Must they be deemed to have contracted on the basis of the continuance of that method although the y did not in fact know of it ? I see no reason for saying so. Why should a purchaser of goods, not specific goods, be deemed to concern himself with the way in which the seller is going to fulfil his contract by providing th e goods he has agreed to sell ? The sellers in this case agreed to deliver the timber free on rail at Hull, and it was no concern of the buyers as to how the sellers intended to get the timber there . I can see no reason for saying— (1) [1916] 2 A. C. 397, 406. VOL.

II. 1918.

(2) [1916] 21

1

A. C. 486, 512. 2

470


[1918]

c. A.

and to free the defendants from liability this would have to be said

1918]

—that the continuance of the normal mode of shipping the timber

BLACKBUBN BOBBIN

fr°m Finland was a matter which both parties contemplated as necessaryJ for the fulfilment of the contract. To dissolve the con-

v. g0NS<

tract the matter relied on must be something which both parties had in their minds when they entered into the contract, such for instance

COMPANY

" &

picktolLj.

as

ne

* existence of the music-hall in Taylor v. Caldwell (1), or the continuance of the vessel in readiness to perform the contract, as

in Jackson v. Union Marine Insurance Co. (2) Here there is nothing to show tha t the plaintiffs contemplated, and there is no reason why they should be deemed to have contemplated, that the sellers should continue to have the ordinary facilities for dispatching the timber from Finland . As I have said, tha t was a matter which to the plaintiffs was wholly immaterial. It was not a matter forming the basis of the contract the y entered into. On the facts the nearest case to this is Ashmore v. Cox. (3) There shipment was to be made by sailer or sailers from a port or ports in the Philippine Islands between May 1 and July 3 1, 1898. The Spanish-American war prevented the shipment by sailer between the dates mentioned. Lord Russell of Killowen C.J. held that no implied condition was to be imported that it was possible to. ship by sailer between those dates. I think th at case was rightly decided, and this is an a fortiori case. For the reasons I have given the defendants have failed on t he facts to make out their case th at the contract was dissolved. The appeal will be dismissed. L.J. I agree. I rest my decision upon the facts of this particular case. No doubt the defendants when the y entered into this contract intended to perform it by shipment in the ordinary way, that is, direct from some Finnish port to a port in England, but so far' as the plaintiffs are concerned, they knew nothing as to how the timber was brought to this country, whether brought wholly by sea or par tly by land and partl y by sea. In those circumstances, whether one applies the test laid down by Lord Haldane in the BANKES

(1) (1863) 3 B . & S . 826. (2) (1873) L. R. 8 C. P. 572 ;

(1874) L. R. 10 C. P . 125. (3) [1899] 1 Q. B. 436.

2 K. B .

KING' S BENCH DIVISION.

Tamplin Case (1), or that laid down by Lord Shaw in Beal (2), or whether it is said that performance became as that expression is found in the judgment of Hannen v. Be Crespigny (3), or whether the matter is treated

471

c A. Horlock v. impossible 1918 J. in Baity BLACKBURN as one to ( ^) 0BB PJ which the principle of an implied condition as explained by «• Lindley L.J. in Turner v. Goldsmith (4) applies—whichever of ' &SONS. these is the correct method—or whether all these tests are Bankes hJ applied, the result is the same, because the facts are not such as to bring the defendants within the principle of any of the cases relied upon on their behalf. In my view the judgment of McCardie J. was right.

L.J. I am of the same opinion. I also thi nk th at this case is to be decided on its own facts. In order to succeed the defendants must prove, to use the words of Lord Shaw in Horlock v. Beal (2), a " failure of something which was at the basis of the con tra ct in the mind and intention of the contracting part ies." In the present case what is alleged to have failed is th e normal mode of transporb of the subject matter of the contract from Finland to this country. It was not proved th at the continuance of th at normal mode of tra nsport was at the basis of the contract in th e mind and intention of the contracting partie s. The contract was merely for the sale and delivery of a certain quantity of Finland birch squares free on rail at Hull. The judge has found as a fact, and I see no reason for upsetting that finding, that the -plaintiffs were unaware, at the time of the contract, of the circumstance that the timber from Finland was shipped direct from a Finnish port to Hull. They did not know whether the transport was or was not partly by rail across Scandinavia, nor did they know that timber merchants in this country did not hold stocks of Finnish birch. I t seems to me therefore, that the normal mode of transport was not in fact in the mind and intention of the plaintiffs, and I see no reason for holding th at th at normal mode must be deemed to have been in their mind and intention. I do not deal, in detail with t he argu ment of Mr. MacKinnon or with the elaborate review of the cases by McCardie J., because in the view I take it is unnecessary to do WARRINGTON

(1) [1916] 2 A. C. 397, 406. (2) [1916] 1 A. C. 486, 512.

(3) (1869) L. R. 4 Q. B. 180. (4) [1891] 1 Q. B. 544. 2 12 2

472

KING'S BENCH DIVISION. C. A.

so.

1918

McCardie J. should be affirmed.

[1918]

For th e reason I have given I agree th at the judgment of

BLACKBUKN B

Appeal dismissed.

C MÂNY V.

T

V

'& So^sI,EN

Solicitors for plaintiffs: Gibson & Weldon, for H. Blackpool. Solicitors for defendants : Trinder, Capron & Co.

Warden,

J.S.H.

C. A.

[IN THE COUKT OP APPEAL.]

1918

o J ine 25 26

'

'

In re AGRICULTURAL HOLDINGS ACT.

' In re ARBITRATION BETWEEN LANCASTEE AND MACNAMARA. — Lease of Premises Agricultural "Holding "— Landlord and Tenant comprising Inn and Pastoral Land —" Parcel of land . . . . either wholly agricultural or wholly pastoral, or in part agricultural and as to the residue pastoral "— Expiration of Tenancy—Compensation for Improvements— Agricultural Holdings Act, 1908 (8 Edw. 7, c. 28), s. 48. Where under a single agreement of tenancy at an entire rent a farm is let together with an inn upon which a business entirely separate from the farm is carried on, the subject of the letting is not a " holding " within the meaning of s. 48 of the Agricultural Holdings Act, 1908, in respect of which the tenant is entitled, on the expiration of his tenancy, to claim compensation for improvements under the Act. from a decision of the judge of the Burnley County Court upon a special case stated by the arbitrator in an arbitration under the Agricultural Holdings Act, 1908. APPEAL

The special case stated that in 1896 Valentine Lancaster became tenant of the Ram Inn, Cliviger (a fully licensed public-house), together with the outbuildings belonging thereto, and also a cottage and certain shippons, stables and b arns, and certain fields of meadow and pasture land, the whole comprising an area of 86 acres. The whole of the above premises and land were let on an undivided tenancy at an annual rent of 17 11. There was no written agreement setting forth the terms of the tenancy. The respective rateable

A. C.

AND

PRIVY

221

COUNCIL.

Their Lordships will therefore humbly advise His Majesty j.c. that this appeal be allowed and that the case be remitted t o 1945 the District Court of Nablus with the directions which their SHAFIQA Lordships have indicated. The costs of the appeal to His BINT JAMAL Majesty in Council must be paid by the respondents. The EDDIN costs of the proceedings in Palestine will follow the event. DASUKI Solicitors for appellant: Lake & Son. Solicitors for respondents : T. L. Wilson

[HOUSE

SADR EDDIN ET-TIBI.

&

Co.

O F LORDS.]

H. L.

1944

CRICKLEWOOD PROPERTY AND\ APPELLANTS INVESTMENT TRUST, LIMITED . /

Nov.

AN D

LEIGHTON'S LIMITED

INVESTMENT

21, 23. 1945

TRUST,"!

J

RESPONDENTS.

Landlord and tenant — Building lease Inability —Frustration—War — carry on building operations— Liability to pay ground rent.

to

By a buil ding lease da te d May 12, 1936, certain land, forming part of a building estate, was demised to lessees for a term of ninety-nine years, to be used b y them as sites on which they covenanted to erect a number of shops within a tim e limit. So far as concerned each of the sites here in question, the rent reserved was a peppercorn till the expiration of one yea r from notification by the lessors that erection of a shop thereon might proceed, under the terms of a town planning scheme then in force, and ther eafte r 35/. yearly. Notification having been given in respect of t h e sites, t h e lessors claimed payment of the ground rents. The lessees repudiated liability on the ground that the obligation to pay rent had been excused or discharged by frustration, since the war-time restrictions placed by the Government on building had made it impossible to erect the shops : — Held, unanimously, that even if the doctrine of frustration could apply to a lease, the circumstances did not justify such application ; the lease had not been determined b y frustration, and the liability for rent continued. Per VISCOUNT SIMON L.C. and LORD WRIGHT :

The

doctrine

of frustration may in certain circumstances apply to a lease. VISCOUNT SIMON L . C , LORD RUSSELL OF KILLOWEN, LORD WRIGHT, LORD PORTER and LORD GODDARD. Present':

(E.)*

Jan. 25.

222

HOUSE OF LORDS

H. L. (E.) 1945 CRICKLEWOOD

PROPERTY AND INVEST MENT TRUST, LD.

v. LEIGHTON'S INVEST MENT TRUST, LD.

Per

LORD RUS SELL OF KILL OWEN and

[1945] LORD GODDARD :

The

doctrin e of frustration can never apply t o pu t an end to a lease. Matthey v. Curling [1922] 2 A. C. 180 discussed. Decision of the Court of Appeal (sub nom. Leighton's Investment Trust, Ld. v. Cricklewood Property and Investment Trust, Ld.) [1943] K. B. 493, affirmed.

from the Court of Appeal. The facts, stated by VISCOUNT SIMON L.C. and LORD WRIGHT, were as follows : By a lease dated May 12, 1936, the predeces sors in title of the respondents demised certain land at Potters Bar to the appellant company for a term of ninety-nine years from March 25, 1936, and the other two appellants joined in the lease as guarantors for the payment of the rent and performance of the covenants. The lessors were developing a building estate for residential purposes and the lease in question was a building lease under which the appellants were to build a number of shops to form what is commonly called a shopping centre for the residents on the estate. The subject of the demise was two parcels of land adjoining the residential area, one coloured red and the other blue on the plan attached to the lease. A question had previously arisen between the lessors and the local authority under a town planning scheme for the area and there had been an appeal to the Minister. This appeal was compromised on terms which were scheduled to the lease and which in effect provided that not more than twenty-four shops in all should be built on' these two parcels of land ; that eight might be built at once, and, in addition, that not less than four shops to each two hundred houses occupied should be permitted to be built in the future till the total of twenty-four was reached. The rent reserved by cl. 1 was the aggregate of the following rents, (a) as to each of the ten shop sites on the red land a peppercorn for the first year and thereafter a yearly rent of 35^. for each site, and (b) as to each of the fourteen shop sites on the blue land a peppercorn till the expiration of one year from notification by the landlords that erection of a shop thereon might proceed and thereafter a yearly rent of 35^. for each site in respect of which such notification had been given. This notification t ha t building might proceed was rendered necessary because of the compromise referred to above. Clause 2 of the lease contained covenants by the appellant company to pay the rent and outgoings and to build twenty-four shops on the demised land, ten on the red and fourteen on the blue. The first eight APPEAL

A. C.

AND PRIVY COUNCIL.

were to be built on the red land not later than March 25,1937; the remainder were to be built within one year from the notification by the landlords that building might proceed, but in certain circumstances, which need not be set out in detail, an " abeyance period," as it was called, might arise which would have the effect of postponing the obligation to build beyond the year. It was, however, expressly provided that nothing in the clause which provided for this abeyance period should " in any way affect the rent or rents payable in " respect of the demised property or any part thereof or the " time or manner of such payment." The lease, by cl. 3, gave the appellant company the option to purchase the free hold of the demised property, both the red and blue sites. (This option was exercised as regarded the red sites and accordingly no question arose in connexion with them or with the shops built on them.) By cl. 4, a right of re-entry for non-payment of rent or breach of covenant was reserved, but it was provided by cl. 5, that after any of the shops had been assigned or underlet this right should only be exercisable upon the particular shop in respect of which the breach had occurred, the intention being that each should be held separately and independently of the others. There was also a provision in cl. 6 of the lease enabling the appellant company, at the expiration of seven years from the date of the agreement, to give notice to determine the lease as to any of the sites in respect of which notice that building might proceed had not been given. As regarded the blue land, no shops had been erected when notice that building might proceed was given as to two sites on September 24, 1937. Further notices were given on May 30, 1938, and August 25, 1939, in each case as to four sites. No building was begun on any of these ten sites. On May 17, 1938, the original lessors conveyed the land subject to and with the benefit of the lease to the respondents, and as the appellant company paid no rent after the outbreak of war, the respondents issued a writ dated April 8, 1942, against the appellant company as tenants and against the other two appellants as guarantors, claiming arrears of rent since September, 1939, this being the only claim in the action. The shop sites in respect of which rent was claimed were six in the earlier period till September 30, 1940, and ten in the later period till March 25, 1942, all of them forming part of the fourteen sites included in the land marked blue on the plan. If the appellants were liable for any rent, there was no dispute

223 H. L. (E.) 1945 CRICKLKWOOD PROPERTY AN D INVEST MENT TRUST, LD.


-HOUSE OF LORDS

224 H. L. (E.) 1945 CRICKLEWOOD

PROPERTY AN D INVEST MENT TRUST, LD.


[1945 J

that the amount due in the action was 419J. 14s. 3d. The writ was specially endorsed under Or. 14, and the respondents applied for summary judgment. The appellants filed an affidavit by way of defence, para. 6 of which was in the following terms : " N o obligation on the part of the [appellant] ' company to erect shops upon any of these fourteen sites ' arose until after the outbreak of the present war. By ' reason of the outbreak of the war the demand for these shops ' ceased, finance for their erection became unobtainable, and ' the restrictions placed by the Government upon building ' and materials therefor made it impossible to erect shops ' upon any of these sites or to continue the development of ' t h e same." The appellants in para. 7 of their affidavit went on to submit that in consequence of the facts so alleged the agreements as to the fourteen sites were frustrated and the appellants were under no liability thereunder. On this affidavit the master gave leave to defend and on appeal to the judge in chambers the respondents declared that they did not dispute the allegations in para. 6. Thereupon the judge gave the appellants liberty to defend on these allegations of fact and no others, the admission being embodied in his order. He made the usual order for trial in the short cause list; the affidavit was treated as a pleading and no further defence was ordered. Asquith J., who tried the case, rejected the appellants' defence and gave judgment for the respondents. He said that the sole issue before him was whether the doctrine of frustration applied to a building lease such as th at involved in the case. He held th at it did not, though if it did he would have held that the contract had been discharged. However, he thought, there was clear authority that the doctrine of frustration cannot be applied to a demise of real property. The Court of Appeal affirmed his judgment on the ground that the doctrine of frustration could not be applied to a lease of real estate. The appellants appealed to the House of Lords. Roland Burrows K.C. and Fortune for the appellants. On principle there is no reason why the doctrine of frustration should not apply to a building lease. In Krell v. Henry (1) and the coronation cases, there was no suggestion that the distinction between a lease and a licence was ca rdinal: see also Taylor v. Caldwell (2). In Scotland it is not impossible for a lease to come to an end by reason of circumstances which (1) [1903] 2 K. B . 74 0.

(2) (1863) 3 B . & S. 82 6, 83 2.

A. C.

AND PRIVY COUNCIL.

frustrate it: Tay Salmon Fisheries Co., Ld. v. Speedie (1). There is no authority binding on the House of Lords excluding a lease from the doctrine of frustration, though it is rare to find a set of circumstances in which it can be said that a lease has been frustrated. The consequence of frustration must be that the lease comes to an end and with it all the covenants, so that either party can rely on the frustration. Originally a lease was merely a contract between landlord and tenant. It gave no rights that could be called property rights and if the tenant were dispossessed his remedy was against his landlord only. With the Statute of Gloucester in 1278 the position began to change and in its evolution the tenant acquired property rights in that if he were dispossessed he could claim against the wrongdoer, having thus a right in rem which he could enforce on his own account without having to look to his landlord for redress. However, the position of the landlord did not change, since the chattel interest of the tenant did not affect the legal estate. That was something which must always be in existence vested in someone. A lease, on the other hand, still remained a contract and the leasehold interest could arise or cease according to the contract by which it was regulated. It has been suggested th at frustration cannot apply to a lease because a lease creates rights in property, but in Paradine v. Jane (2), the case which lies at the root of all the others on this subject, that point was not relied on as affecting the matter. There is no difficulty in applying the doctrine of frustration to cases where rights of property are involved. [They referred to London & Northern Estates Co. v. Schlesinger (3) ; Whitehall Court, Ld. v. Ettlinger (4) ; Matthey v. Curling (5); Swift v. Maclean (6); and Duke of Westminster v. Howard (7).] In the case of this lease, on the true meaning and implications of the contract in the circumstances of this case, the lease of the fourteen sites, or alternatively the obligations to build and pay rent, were dissolved or excused or suspended. This document must be construed as a whole to see what the adventure really was: .Denny Mott & Dickson, Ld. v. James B. Eraser & Co., Ld. (8). The doctrine of frustration applies to this lease because it was in effect a commercial venture. This lease has no meaning (1) 1929, S. C. 59 3. (2) (1646) Aleyn 26.

(3) [1916 ] 1 K . B . 20. (4) [1920] 1 K: B. 680.

(5) (6) (7) (8)

[1922] 2 A . C. 180, 19 9. [1942] 1 K . B. 375 . (194 1 ) 8 5 Sol. J. 106. [1944] A. C. 26 5.

225 H. L. (E.) 1945 CRICKLEWOOD PROPERTY AN D INVEST MENT TRUST, LD.


226

HOUSE OF LORDS

H. L. (E.) 1945 CRICKLEWOOD PROPERTY AN D INVEST MENT TRUST, LD.


[1945]

unless the tenant is able to build on the land. It contemplates peace conditions throughout and the interruption caused by government restrictions on building and materials strikes at the root of the contract. Field K.C. and Douglas Lowe for the respondents. The doctrine of frustration cannot apply to this lease on its express terms. It is clear from cl. 2 th at the rent was to be payable whether or not the shops were erected. Further, in cl. 6, the parties have provided the particular circumstances in which the lease could be terminated by notice. On the wider point, the doctrine of frustration cannot apply to a demise of land. The Law of Property Act, 1925, makes it clear, by s. 1, sub-s. 1, th at a lease is not a mere contract; it amounts to an estate : see also s. 205, sub-s. 1 (xxvii.) and Halsbury's Statutes of England, vol. 15, p. 177. The true principles applicable are to be found in the speech of Lord Atkinson in Matthey v. Curling (1) and in the judgments of Lord Reading C.J., in Whitehall Court, Ld. v. Ettlinger (2), and of Lush J. in London & Northern Estates Co. v. Schlesinger (3). In Krell v. Henry .(4) and the coronation cases there was no question of a lease. In Taylor v. Caldwell (5) it was expressly stated that there was no demise. The Landlord and Tenant (War Damage) Act, 1939, was deliberately passed to deal with the case of houses in which no one could live but for which the tenants were liable to pay rent. Roland Burrows K.C. in reply. Both parties were vitally interested in the joint adventure of building a residential estate. The respondents were interested, not only in the rent but also in proper development. At the time of the lease the only difficulties existing were those under the town planning scheme. It was assumed that a state of peace would continue and the parties did not contemplate the situation which would arise if war broke out. The war changed the whole position : see McNair on Legal Effects of War (2nd ed.), p. 156. The circumstances in the present case were similar to those in Metropolitan Water Board v. Dick Kerr & Co., Ld. (6). It appears from the argument in Krell v. Henry (7) that the (1) (2) (3) (4)

[1922 ] [1920] [1916 ] [1903 ]

2 1 1 2

A. K. K. K.

C. B. B. B.

180, 23 7. 680, 687 . 20, 24. 740.

(5) 3 B . & S. 826, 83 2. (6) [191 8] A. C. 119. (7) [1903] 2 K. B . 740 , 744, 745 .

A. C.

AND

PRIVY

question of a letting was considered. In Taylor v. Caldwell (1) Blackburn J. said that nothing depended on whether or not it was a case of a letting, and since that was a considered judgment it should be taken as it stands. [He also referred to Perfect Homes, Ld. v. M. Howard (Mitcham), Ld. (2) in the Court of Appeal.] THE HOUSE

took time for consideration.

Jan. 25, 1945. VISCOUNT SIMON L.C. My Lords, before this House, and apparently in both courts below, the appellants did not attempt to rely on the fact that the demand for shops had ceased, or on their inability to procure finance, as estab lishing a defence. They relied entirely on the impossibility of building created by the restrictions imposed on work of this character and on the acquisition of materials. Though these restrictions were not particularized it must be taken that they were imposed by valid orders or prohibitions under the Defence Regulations, and while it would have been more satisfactory if the documents relied on had been set out or referred to, the case has proceeded (as must this appeal) on the footing that the performance of the covenant to build was impossible, and continues to be so while the orders or prohibitions are in force. Asquith J., who tried the case, held on the authorities that th e doctrine of frustration did not apply to a lease at all, and that for this purpose there was no distinction between a building lease and any other lease, though he said that had the doctrine applied he would have decided that the contract had been discharged. The Court of Appeal, in a judgment delivered by MacKinnon L.J., said (3) that the doctrine had never been applied to a demise of real property and that there was clear authority that it cannot be. " It is impossible for the " defendants to rely on the doctrine of frustration to relieve " them from their obligations as tenants under a demise of " land for ninety-nine years." Against that judgment the tenants appeal to this House. Two questions are raised by the appeal: first, can the doctrine of frustration apply to determine a lease ? and, secondly, even if it can, are the circumstances in the present case such as to produce the result that the lease has been determined by frustration ? If, my Lords, we all agree (as I understand we do) that the answer to (1) 3 B . & S . 826 , 832 . (2) (Unrep.) Sept. 16, 1942.

227

COUNCIL.

(3) [1943] K. B. 4 9 3 . 496.

H. L. (E.)

1945 CRICKLEWOOD PROPERTY AN D INVEST MENT TRUST, L D .

v. LEIGHTON'S INVEST MENT TRUST, L D .

HOUSE OF LORDS

22 8 H . L. (E.) 1945 CRICKLEWOOD

PROPERTY AND INVEST MENT TRUST, L D .


Viscount Simon L.C.

[1945]

the second question is in the negative, it is not essential in the present case to reach a conclusion on the first question (as to which I gather that our opinions are divided). Nevertheless, I propose to express my opinion with regard to both questions, since th e more general issue has been much discussed and was pronounced on in the courts below, where it was regarded as concluded by authority, including the authority of this House, in Matthey v. Curling (1). The broad issue must first be considered as though it were res integra : then I propose to consider the effect of previous decisions. Frustration may be defined as the premature determination of an agreement between parties, lawfully entered into and in course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of th e agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement. If, there fore, the intervening circumstance is one which the law would not regard as so fundamental as to destroy the basis of the agreement, there is no frustration. Equally, if the terms of the agreement show that the parties contemplated the possibility of such an intervening circumstance arising, frustration does not occur. Neither, of course, does it arise where one of the parties has deliberately brought about the supervening event by his own choice. (See the cases collected in Joseph Constantine Steamship Line, Ld. v. Imperial Smelting Corpora tion, Ld. (2).) But where it does arise, frustration operates to bring the agreement to an end as regards both parties forthwith and quite apart from their volition. Is there any good reason why this conception of frustration should not ever apply to a lease of land and result in its premature determination ? I do not feel able to assert any a priori or absolute impossibility, though the instances in which th e doctrine might apply to such a lease are undoubtedly very rare. A lease of land creates in the* lessee an estate, which is a chattel interest. (Law of Property Act, 1925, s. 1, sub-s. 1 (&).) Such an estate, by the nature of the case, lasts at most^for the term stipulated and may come to an end sooner. In normal circumstances, the estate continues to exist for the period of the agreed term—in th e present instance, for ninety-nine years from March 25, 1936—but it is liable to (1) [1922] 2 A . C. 18 0.

(2) [1942] A. C. 1 54, 160 .

A. C.

AND PRIVY COUNCIL.

229

be determined by the landlord's re-entry for non-payment of H. L. (E.) rent or for breach of covenant. This is expressly provided for 1945 by cl. 4 of the present lease. The question therefore is whether, ICKLEin addition to pre-determination under such express provisions, C RWOOD it is possible that a lease for years should pre-determine from P R O P E R T Y AN D a supervening cause which amounts to frustration. If so, the INVEST MENT term ends, no further rent is payable, and the lessor recovers TRUST, L D . the property with all permanent structures erected upon it, v. at once. It is said that this cannot be so, because a lease is L E I G H T O N ' S more than a contract and amounts to an estate : but this INVEST MENT reasoning seems to me to be dangerously near to arguing in T R U S T , L D . a circle ; if we assume that frustration can only arise in cases Viscount Simon L.C. where there is a contract and nothing else, the conclusion of course follows that frustration cannot arise in the case of a lease. Where the lease is a simple lease for years at a rent, and the tenant, on condition that the rent is paid, is free during the term to use the land as he likes, it is very difficult to imagine an event which could prematurely determine th e lease by frustration—though I am not prepared to deny the possibility, if, for example, some vast convulsion of nature swallowed up the property altogether, or buried it in the depths of the sea. The lease, it is true, is of the'' site,'' bu t it seems to be not inconceivable that, within the meaning of the document the " site " might cease to exist. If, however, the lease is expressed to be for the purpose of building, or the like, and if the lessee is bound to the lessor to use the land for such purpose with th e result that at the end of the term the lessor would acquire the benefit of this development, I find it less difficult to imagine how frustration might arise. Suppose, for example, that legislation were subsequently passed which permanently prohibited private building in the area or dedicated it as an open space for ever, why should this not bring to an end the currency of a building lease, the object of which is to provide for the erection on the area, for the com bined advantage of the lessee and lessor, of buildings which it would now be unlawful to construct ? It is no answer to say that it may be presumed that the legislature would make express provision, by compensation clauses or otherwise, to deal with such a case : we are entitled to test the applicability of the doctrine by assuming supervening illegality, without any qualification. Neither, I think, is the theoretic possibility of frustration got rid of by stressing the complications that might in some cases arise between the parties if the relation of

HOUSE OF LORDS

230 H. L. (E.)

1945 CRICKLE-

WOOD PROPERTY AN D INVEST MENT TRUST, L D . v.

LEIGHTON'S INVEST MENT TRUST, L D .

Viscount Simon L.C.

[1945]

lessor and lessee is prematurely terminated for all purposes by such a cause. In the case of pure contract also, the situation resulting from frustration has raised questions of difficulty which, after forty years of doubt, were only settled by the decision of this House in Fibrosa Spolka Akcyjna v. Fairbaim Lawson Combe Barbour, Ld. (i); and even then it was con sidered just and necessary to modify the common law consequences by a subsequent Act of Parliament, the Law Reform (Frustrated Contracts) Act, 1943 (6 & 7 Geo. 6, c. 40.) I now turn to the cases. A careful examination of the decided cases to which the Court of Appeal refers satisfies me that it is erroneous to suppose that there is authority binding on this House to the effect that a lease cannot in any circum stances be ended by frustration. In Matthey v. Curling (2), the House did not say so : the decision there was that requisi tioning by the Government was no answer to a claim on the covenant for rent, any more than ouster by a trespasser would be : the remedy of the tenant was against the Government for compensation. Equally, destruction by fire, after the Government had requisitioned the place, left the tenant still liable on his covenant to deliver up in proper condition, for the tenant could have covered the risk by insurance. Thus, on the true construction of the document, the two covenants still bound the tenant. It seems clear that, if the actual decision in Matthey v. Curling (2) is as above set out, the Court of Appeal was mistaken in treating it as " clear " authority " that the doctrine of frustration " cannot " be applied to a demise of real property. It is noteworthy that when Matthey v. Curling (3) was before the Court of Appeal, Atkin L.J., in his dissenting judgment, observed : " it does " not appear to me conclusive against the application to a " lease of the doctrine of frustration that the lease, in addition " to containing contractual terms, grants a term of years. " Seeing that the instrument as a rule expressly provides for " the lease being determined, at the option of the lessor, upon " the happening of certain specified events, I see no logical " absurdity in implying a term that it shall be determined " absolutely on the happening of other events—namely, those " which in an ordinary contract work a frustration." This passage exactly expresses my view. I may further point out that in Taylor v. Caldwell (4), when the question was raised (1) [1943] A. C. 32 . (2) [1922] 2 A. C. 180 .

(3) [1922] 2 A. C. 199 , 20 0. (4) (1863) 3 B . & S. 826.

A. C.

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PRIVY

COUNCIL.

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wh et he r the hall which was bu rn t down was demised to the H. L. (E.) defend ant or not , Bla ckb urn J . said (1) : " Not hin g however, " in our opinion, depe nds on th is ." The impression, which ICKLEI venture to think is erroneous, that this House in Matthey v. C RWOOD Curling (2) actually decided that frustration cannot arise in the PROPERTY IN^STcase of a lease, is encouraged by the headnote to that case in MENT the Law Reports, which states that that decision affirmed TRU Whitehall Court, Ld. v. Ettlinger (3). It is true that " ' Lr>Lord Atkinson in Matthey v. Curling (4) expressed the view LEIGHTON'S] that the Whitehall Court case (3) was rig htl y decided, but non e M^N?" of th e oth er Lords either said or implied this. Moreover, in TRUST, LD. the Whitehall Court case (3) Lord Reading C.J.'s primary Viscount Simon LC decision was that the mere fact that the tenant was personally prev en te d from residing in th e leased flat did no t affect th e existence of the chattel property vested in him under the lease. It is tr ue t ha t Lor d Rea din g gave a further reason for his decision, which was based on the adoption of a sentence in Lush J.'s judgment in London & Northern Estates Co. v. Schlesinger (5), but in this last quoted case also the actual decision of the Divisional Court was that a tenancy was not extinguished because the tenant for the time being was not allowed by law to inhabit the flat which had been leased to him . This was th e groun d of decision on which bo th memb ers of th e Divisional Co ur t—Av or y an d Lush J J. —co nc ur re d, and though Lush J. added that a tenancy agreement was more than a contract and that the chattel interest created by the lease continued to be vested in the tenant, he did not in fact, I think, advance the abstract proposition that a lease can never be determ ined by events equivalent to frustration. At any rat e, this House is not obliged to accept such a proposition, and, as I have indicated, I th in k it goes too far. The occasions, however, on which frustration terminates a lease must be exceedingly rare. So much for th e abs tra ct and theoretical question. Bu t ther e remains the practica l issue whether wha t is proved to have happened in the present case could be enough to constitute frust ratio n of such a lease. I do not agree with Asqui th J. t h a t th e orders requiring a suspension of buildin g are sufficient to strike at the root of the arr ang eme nt. The lease at the tim e had more than ninety years to run, and though we do not know (1) (1863) 3 B . & S. 83 2. (2) [1922] 2 A . C. 180 . (3) [1920] 1 K. B. 680.

(4) [19 22] 2 A. C. 180, 237. (5) [191 6] 1 K . B. 20, 24.

232

HOUSE OF LORDS

H. L. (E.) 1945 CRICKLEWOOD PROPERTY AN D INVEST MENT TRUST, LD.

v. [LEIGHTON'S INVEST MENT TRUST, LD.

Viscount Simon L.C.

[1945]

how long the present war, and the emergency regulations which have been made necessary by it, are going to last, the length of the interruption so caused is presumably a small fraction of the whole term. Frustration, where it exists, does not work suspension but brings the whole arrangement to an inevitable end forthwith. Here, the lease itself contemplates th at rent may be payable although no building is going on, and I cannot regard the interruption which has arisen as such as to destroy the identity of the arrangement or make it unreasonable to carry out the lease according to its terms as soon as the inter ruption in building is over : this is the nature of the test for frustration suggested in the well-known case of Metropolitan Water Board v. Dick Kerr & Co., Ld. (1). I therefore conclude, on the facts, that the liability for rent under the covenant continued uninterrupted, and I move your Lordships to dismiss the appeal with costs. (read by LORD PORTER). My Lords, I share the opinion, which all your Lordships entertain, that no question as to what is called frustration can arise on the facts of the present case. Unfortunately we have no pleadings and little evidence, owing to what seems to me a regrettable attempt to take a short cut in an important case. We must therefore assume it to be true (owing to an admission made by the respondents in Judge's Chambers) that no obligation on the part of the appellant company to erect shops on any of the fourteen blue sites arose until after the outbreak of the war, and that government restrictions on buildings and building materials made it impossible to erect shops on any of those sites. It seems, however, equally true, th at if it had chosen so to do, it had ample time before September 3, 1939, to erect shops on six of the sites. But apart from this last-mentioned fact, all that has happened is that for a portion of a span of ninety-nine years the erection of shops on the sites has been postponed, with the result that for a time the appellant company will be liable to pay a rent of 35?. per annum in respect of each site, although no shop has been erected thereon. But th at is to carry out the very provisions of the lease which is said to be frustrated. The rent there under is payable in respect of sites, not in respect of shops; and cl. 2, after fixing times within which the tenant has to erect shops, provides in terms that nothing in the clause should in LORD

RUSSELL OF KILLOWEN

(1) [1918] A. C. 119.

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233

any way affect the rent or rents payable in respect of the demised property or any part thereof or the time or manner of such payment. It seems to me clear that the intention of the parties was that rent would be payable even though the sites were vacant, and that the landlord was not to be driven to sue for damages for breach of covenant to erect shops. To such an action the war-time restrictions might well afford a defence, but that is a consequence very different and far removed from frustration. Therefore, even on the assumption that the doctrine of frustration can be applied to a lease, this appeal must fail. On the broader question I confess that I am unable to grasp how the doctrine of frustration can ever apply so as to put an end to a lease and the respective liabilities of landlord and tenant thereunder. A lease is much more than a contract. It creates and vests in the lessee an estate or interest in the land, a chattel interest, it is true, but a vested estate or interest none the less. As was said by Lush J. in London & Northern Estates Co. v. Schlesinger (1) " It is not correct to speak of this " tenancy agreement as a contract and nothing more. A term " of years was created by it and vested in the appellant, and " I can see no reason for saying that because this order dis" qualified him from personally residing in the flat, it affected " the chattel interest which was vested in him by virtue of the " agreement. In my opinion it continues vested in him still." That dictum of Lush J. was approved in Whitehall Court, Ld. v. Ettlinger (2), a case which itself was approved by Lord Atkinson in your Lordships' House without any dissent from his colleagues in the case of Matthey v. Curling (3). When a con tract is frustrated it is because what is called the " venture " or " undertaking " in which the parties have contracted to engage can no longer be carried out. The court in such circum stances declares the contract to be, or treats it as being, no longer binding on the parties. That is an end of the matter. But when a lease is in question, and has been granted by one to another, it is the lease which is the " venture " or " under" taking" upon which the parties have embarked. The contractual obligations thereunder of each party are merely obligations which are incidental to the relationship of landlord and tenant created by the demise, and which necessarily vary with the character and duration of the particular lease. It may (1) [19 16] 1 K . B . 20 , 24 . (2) [1920] 1 K . B. 68 0, 686 , 68 7. A. C. 194 5.

(3) [19 22] 2 A. C. 180, 23 7. 3

T

H. L. (E.) 1945 CRICKLEWOOD

PROPERTY AN D INVEST MENT TRUST, LD.


Lord Russell of Killowen.

HOUSE OF LORDS

234 H . L. (E.) 1945 CRICKLE-

WOOD PROPERTY AND INVEST MENT TRUST, L D ,



[1945]

well be that circumstances may arise during the currency of the term which render it difficult, or even impossible, for one party or the other to carry out some of its obligations as land lord or tenant, circumstances which might afford a defence to a claim for damages for their breach, but the lease would remain. The estate in the land would still be vested in the tenant. I know of no power in the court to declare a lease to be at an end except upon findings that some event has occurred on the happening of which the lease terminates by reason of some express provision contained in the document. In such a case the term ends not because the court exercises a power to terminate it, but because in the events which have happened the lease operated only as a demise for the shorter period. Nor do I know of any power in the court to order a tenant (who, be it observed, might have sublet part by way of mortgage or otherwise) to surrender his term to the landlord. The lease must of necessity continue. Some of the obligations thereunder may from time to time, from various circumstances, become difficult or impossible of performance by one or other of the parties ; but , in my opinion, it cannot have applied to it the doctrine of frustration. The rent will continue to be payable in accordance with the terms of the document. Since preparing my opinion in this case I have had an opportunity of perusing a print of the remarks which my noble and learned friend Lord Wright proposes to address to your Lordships and of considering the numerous references therein to a series of authorities cited by him. I wish to guard against it being said that your Lordships are in agreement with all my noble friend's statements. For myself I disagree with many of them : in particular I disagree with the view in rela tion to a lease of land, which is expressed in the following terms : "If the contract is avoided or dissolved, as it may be " by either party, under trie express terms of the lease, the " estate in land falls with it." If by these words my noble friend only wishes to record the proposition that the exercise of a power to determine a lease will put an end to the lessee's estate in th e land, well and good ; but if he means that the estate in land necessarily comes to an end with cesser of contractual liability, I disagree. A lease may come to an end, and with it the estate in the land and all contractual liability by virtue of some provision in the lease, or by reason of some defect in the title of the person who purported to grant it. But, in my opinion, the cesser or suspension of some contractual liability

A. C.

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235

under the lease will not destroy the estate in land which is vested in the lessee, unless the lease provides that in that event the term of years shall cease. Further I disagree with the view that there is anything in Lord Buckmaster's judgment in the case of Matthey v. Curling (1) or in the cases of Brewster v. Kitchell (2) or Baily v. de Crespigny (3) inconsistent with the view that the doctrine of frustration cannot apply to a lease of land, or favouring the view th at it may so apply. I concur in the motion proposed. My Lords, while I agree that the appeal must fail and the decisions of the courts below must be upheld, I prefer to base my conclusion on the ground that whether the doctrine of frustration can apply or not to a demise of land, no circumstances are shown in the present case which would excuse the appellants from their covenant to pay rent for the ten shop sites, which are the sites in respect of which rent is claimed. I think the case is concluded by the principles laid down by this House in Matthey v. Curling (1) in the opinion delivered by Lord Buckmaster, concurred in by Lords Sumner, Wrenbury and Carson. Lord Atkinson gave a separate opinion agreeing in the result. In that case demised premises had been lawfully requisitioned by the military authorities who continued in occupation during the remainder of the term. A month before the term ended the house was destroyed by fire. The claims in the action which the lessor brought against the lessee included (1.) rent for the last quarter; (2.) damages for breach of covenants including the covenant to repair and deliver up in repair. The defence as to the former was that the lessees had been evicted by a title or authority which they could not withstand. Lord Buckmaster said that there was not an eviction by title paramount or eviction by the lessor himself, but a mere eviction. He concluded that (4) the question was " how far the lessor has " been deprived of the benefit of his covenant, and an act ," lawfully or unlawfully done, for which he is in no way " responsible, cannot, in my opinion, have that effect, unless " the covenant can be construed as excluding the event." Further, as to the repairing covenant, he held that the lessees were liable though the military had been in occupation when LORD WRIGHT.

(1) [1922] 2 A. C. 180. (2) (1698) 1 Salk. 198.

(3) (1869) L. R. 4 Q. B. 180. (4) [1922] 2 A. C. 227.

U

H. L. (E.) 1945 CRIOKLEWOOD PROPERTY AN D INVEST MENT TRUST, LD.


HOUSE OF LORDS

236 H . L. (E.) 1945 CRICKLE-

WOOD PROPERTY AND INVEST

MENT TRUST, L D .


Lprd Wright.

[1945]

the house was burnt and continued in occupation until some time after the term ceased by effluxion of time. Lord Buckmaster was also of opinion (1) that there was no impossibility of performance, though enjoyment of the premises had been interfered with by legal powers ; he added " that a terminable " occupation by military authorities during an uncertain " time for which, compensation may prove to be recoverable " constitutes no answer to the obligations of this repairing " covenant." It is clear that the agreed facts which the appellants rely on as relieving them from their obligation to pay rent under the covenant are not nearly so strong in their favour as those discussed by Lord Buckmaster. The appellants were not ejected in any shape or form from the demised premises. Neither the lessor nor anyone claiming under him interfered with the enjoyment of the land. All that happened was that for an uncertain term of the period, obviously likely to be short compared with the ninety-nine years of the lease, they could not proceed with their building scheme. The period of interruption is not stated, but it seems to be accepted that it is limited to the duration of the present emergency. The covenants to pay rent are absolute in terms and are expressly made independent of the progress of the building operations. It seems to me impossible to hold that these covenants are discharged by the facts alleged by the appellants in their affidavit. Even if the doctrine of frustra tion can be invoked in the case of a lease the interruption of the building operations cannot be regarded as likely to be so long in its duration as to destroy the basis or foundation of the lease and to lead the court to declare that it is dissolved on the principles applied by the court in order to determine if a contract is frustrated. Thus in Metropolitan Water Board, v. Dick Kerr & Co., Ld. (2), the test applied was whether the interruption was so long as to destroy th e identity of the work and service when resumed with the work and service when interrupted, as Lord Dunedin put it (3), or in Lord Blackburn's words in Dahl v. Nelson (4), quoted by Lord Atkinson (5), whether the interruption was " so great and long as to make it " unreasonable to require the parties to go on." But a lease is more than a contract. It creates an estate in land (Law of Property Act, 1925, s. 1, sub-s. 1 (b).) The estate so created is (1) [1922] 2 A. C. 230. (2) [1918] A. C. 119. (3) I b i d . 130.

(4) (1881) 6 A pp . Cas. 38, 53(5) [1918] A. C. 119, 131.

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237

limited and determined by the contractual terms of the lease H. L. (E.) and is governed by the agreement between the lessor and 1945 lessee. It may be th at in earlier days the element of covenant CRICKLEbulked sometimes more largely in the eyes of the law than the WOOD P R OPERTY question of tenure. In Paradine v. Jane (1), the judges do not AN D mention the element of tenure. The claim was in debt. The INVEST MENT court states the absolute character of the contract in language TRUST, LD. which, has often been quoted (2) : " When the party b y his v. " own contract creates a duty or charge upon himself, he is L E I G H T O N ' S " bound," they said, " to make it good, if he may, notwith- INVEST MENT T R U ST, LD. " standing any accident by inevitable necessity, because he " might have provided against it by his contract." Lord Lord Wright. Atkinson in his opinion in Matthey's case (3) quotes these expressions as a general statement of contract law, but so unqualified a statement would not be consistent with the modern law relative to the discharge of contractual obligations by impossibility of performance, as explained by this House in Joseph Constantine Steamship Line, Ld. v. Imperial Smelting Corporation, Ld. (4) and other well-known authorities. Indeed, in Constantine's case (5), Lord Porter expressly enters a caveat against treating what he correctly calls the dicta which I have just quoted as universally applicable. I need not in detail refer to the mass of modern authority which would refute such a wide statement of the law. I may, however, refer to Lord Sumner's pithy description of the doctrine of frustration as " a device, by which the rules as to absolute contracts are " reconciled with a special exception which justice demands " : Hirji Mulji v. Cheong Yue Steamship Co., Ld. (6). But the doctrine of frustration can only be held to be applicable after a careful consideration of the particular case, and in particular after scrutinizing the nature of the contract and the particular circumstances of the case. The nature of a lease not only involves a tenure as well as a contract, but has become the subject of precise rules which must be taken to be settled law of at least general application and to be understood by those who enter into transactions of lease. Hence I think the care fully guarded way in which Lord Buckmaster deals with the question before him in Matthey's case (7). He is careful to express no opinion as to the decision in Whitehall Court, Ld. v. (1) (2) (3) (4)

(1646) Al ey n 26 . Ibid. 27. [1922 ] 2 A. C. 180, 23 3. [194 2] A . C. 154.

(5) Ibid. 203. (6) [1926] A. C. 497, 510. (7) [1922] 2 A. C. 180.

238

HOUSE OF LORDS

H. L. (E.) 1945 CRICKLEWOOD PROPERTY AND INVEST MENT TRUST, LD.


Lord Wright.

[1945]

Ettlinger (1), which Lord Atkinson (2) says expressly " was " rightly decided." The majority of the House said nothing about the case, and I think the statement in the head-note that Whitehall Court, Ld. v. Ettlinger (1) was affirmed is not accurate if intended to apply to the judgment of the House. In Whitehall Court, Ld. v. Ettlinger (1) Lord Reading C.J. held indeed (3) that the requisition of the flats by the military authorities did not establish a case of eviction by title para mount and held (4) that there was " no reason why the chattel " interest which was vested in the tenant by virtue of the two " leases was affected merely because he was personally " prevented from residing in the flats." In so deciding he seems to me to follow the same lines of reasoning as Lord Buckmaster did in Matthey's case (5). Lord Reading also did perhaps recognize the distinction between an ordinary contract and a lease. But I cannot find that his language justified the head-note to the effect that the doctrine of the termination of a contract by the frustration of the adventure did not apply to the creation of an estate by demise. He was, I think, careful to limit his observations to the facts of the case before him. And in London & Northern Estates Co. v. Schlesinger (6), the lessee had become by the outbreak of war an alien -enemy and prohibited from residing in the area in which the flat was situated. It was not difficult to hold th at the prohibition did not put an end to the tenancy or discharge the obligation to pay rent, though the tenant's personal enjoyment of the premises was prohibited. On that ground the court held that performance of the contract was not rendered impossible. The tenant could, so it was held, sublet or assign the lease. That was enough to decide the case. Lush J., however, added (7) that nothing had happened in that case to affect the chattel interest vested by virtue of the agreement. He said, truly enough, that the tenancy agreement was not only a contract and nothing more, but a contract which created a term of years. It is clear that this is an element to be taken into account in considering whether events which have occurred, such as a requisition for a time or a destruction of the demised dwelling house by fire or the like have put an end to the tenancy or the tenant's obligations under the tenancy. It may be broadly said that as a general rule this (1) (2) (3) (4)

[1920] 1 K. B . 680. [19 22] 2 A. C. 180, 23 7. [1920] 1 K. B. 680, 686. Ibid. 687.

(5) [192 2] 2 A. C. 180. (6) [1916] 1 K. B . 20. (7) Ibid. 24.

A» L/*

AND PRIVY COUNCIL.

result does hot follow casualties of that character, even though the tenant is deprived of the advantages at least for a time which the parties to the lease contemplated he would normally enjoy. I t ha s been held over an d over again t ha t a te mp or ar y interruption of the tenant's use and occupation does not affect the covenants or the cha tte l interest . The rule ma y be different, it seems, in Scotl and : see Tay Salmon Fisheries Co., Ld. v. Speedie (1) and Mackeson v. Boyd (2). Bu t th e Scotch authorities afford no analogy applicable to English law, because they proceed, it seems, on a different view of the cont ract an d of th e legal backgro und. In Engla nd, since Paradine v. Jane (3) an d earlier, the law ha s been t h at in general the tenant's covenant to pay rent or repair or deliver up in repair are not affected by casualties which interfere with his enjoy ment of th e demised lan d. The lessor as a general rule gives no wa rr an ty in these respects in favour of th e te na nt . The tenant must perform his covenants even though the demised house is destroyed by fire (Monk v. Cooper (4)), quite irrespective of what covenants as to repairs there may be (Lofft v. Dennis (5)), or whe ther t he loss of enjo yment is due to the landlord's failure to fulfil his obligation to repair (Hart v. Rogers (6)). In th at latt er case th e te na nt would have his cross-claim agai nst th e lan dlo rd for dama ges. On th e same principle it has been held that a covenant in a mining lease to raise and pay for a certain amount of coal is not affected if it turns out that the mine was so exhausted that there were not coals left in it (Bute v. Thompson (7)). These an d ma ny similar authorities show that by English law the lessee's covenants are generally absolute. The enjoyment an d the covena nt do not generally mar ch together. I thi nk Lord Buc kma ste r's judgmen t proceeds on this basis. He does not put it on the circumstances that the lease also creates an esta te in land. Bu t tho ugh th e lessee's covena nts are generally absolute, there are qualifications which the law implies in relief of the lessee, even in th e absence of expr ess te rm s. In other words, covenants in the lease may be suspended or terminated by operation of law and the court will decree accordingly. Thu s the cove nant to pa y ren t ma y be susp end ed: for instance, if the lessor himself evicts the tenant, as Lord (1) (2) (3) (4)

1929 S. C. 593. 1942 S. C. 56. Aleyn 26. (1727) 2 Stra. 763.

(5) (1859) 1 E. & E. 474. (6) [1916] 1 K. B 646. (7) (1844) 13 M. &W.487.


PROPERTY AND INVEST MENT TRUST, LD.

v

LKIGHTON'S INVEST MENT TRUST, LD. Lord Wright

HOUSE OF LORDS

240 H. L. (E.) 1945 CRICKLEWOOD PROPERTY AN D INVEST MENT TRUST, LD.


Lord Wright.

[1945]

Buckmaster observed in Matthey's case (i), or if there is eviction by title paramount, a term to be narrowly construed, as Lord Buckmaster points out. The law has also implied a term that a lease may be forfeited if the lessee by matter of record or the like disclaims the lessor's title. Such a case was discussed in Doe d. Graves and Downe v. Wells and Trow bridge (2). These results all flow from the general nature of the contract as understood in English law and its application to particular conditions of fact. I do not find that they depend on the circumstance that the lease involves a tenure and creates an estate in land. If the contract is avoided or dis solved, as it may be by either party, under the express terms of the lease, the estate in land falls with it. I do not see why this may not be also true if the lease were dissolved by opera tion of law. Lord Buckmaster does not mention this aspect, though Whitehall Court, Ld. v. Ettlinger (3) was cited in argu ment (4) and is referred to by Lord Atkinson in his opinion (5). Lord Buckmaster deals particularly (6) with Baily v. de Cres-pigny (7). In tha t case a lessee claimed damages from his lessor for breach of his covenant not to permit building on a paddock facing the demised premises. The paddock was compulsorily taken by a railway company, which erected buildings on it, including a urinal, thus impairing the amenities of the dwelling. It was held by a strong Court of Queen's Bench that the lessee could not recover. Hannen J., who delivered the judgment of the court held (8) that the lessor was " discharged on the principle expressed in the maxim ' lex " ' non cogit ad impossibilia '." The court said (9) that if the position had been reversed and it was the lessee who had covenanted and was being sued for breach of covenant, he would equally have been discharged from the covenant by the change of law, on the principle laid down in Brewster v. Kitchell (10). This comes very near to the idea of frustration at least if the performance of the covenant is fundamental to the lease and so do the words of Hannen J. (8) which Lord Buckmaster quotes (11) with approval, though he seems to put the decision on the narrower ground that the word (1) (2) (3) (4) (5) (6)

[192 2] 2 A. C. 180, 22 7. (1839) 10 A. & E . 42 7. [1920] 1 K. B . 68 0. [192 2] 2 A. C. 180, 222 . Ibid. 237. , Ibid. 227.

(7) (8) (9) (10) (11)

L . R. 4 Q. B . 18 0. Ibid. 185. Ibid. 188. 1 Salk. 198. [1922 ] 2 A. C. 180, 22 8.

A . C.

AND PRIVY COUNCIL.

" assigns " as used in the covenant was to be construed in a special and limited sense which did not include compulsory acquisition by a railway company. But I cannot trace in Lord Buckmaster's judgment any suggestion that as a universal rule the doctrine of frustration or some analogous principle could not be applied to a lease, which was enunciated to be the rule by the Court of Appeal. It is true that there is no reported case in which the rule has been applied and that it could be applied only in rare and exceptional cases. But the doctrine of frustration is modern and flexible and is not subject to being constricted by an arbitrary formula. I am not therefore prepared to state as a universal principle that it can in no circumstances be applied to a lease. Let me suggest a single instance, which might some day prove to be of not merely theoretical interest. Let me put the case of a building lease for a term of ninety-nine years, and let it be supposed that a public body acting under statutory authority, soon after the lease was executed prohibited building on that site for an indefinite time, the end of which, if it ever came, could not be foreseen. In effect that would be a prohibition total for all practical purposes both in extent and time, which would override and control both lessor and lessee. Would in that event the lessee continue bound to pay under the lease the yearly rent for ninety-nine years, or would the relationship of landlord and tenant be dissolved by operation of law in respect of that site ? As a matter of general principle I would say that th e lease was avoided and the term came to an end. But I abstain from further discussion of the point. I agree with the opinion which my noble and learned friend the Lord Chancellor has just delivered. I would dismiss the appeal.

My Lords, th e appellants relied upon the facts which have been stated by your Lordships in order to establish their contention that the agreement between the parties in relation to the fourteen sites had been frustrated and th e tenancy had been determined so far as those sites were concerned. Both courts below rejected their contention broadly on the ground that the doctrine of frustration does not apply to a lease. Indeed Asquith J. indicated that if it did apply he would have found frustration in the present case. It is natural therefore that in their case as presented to your Lordships the appellants should state that the question raised by th e appeal is whether the doctrine of frustration applies LORD PORTER.


PROPERTY AN D INVEST MENT TRUST, L D .


Lord Wright.

242

HOUSE OF LORDS

[1945]

to a lease. That question no doubt is an interesting and difficult one, but it does not necessarily arise in the case now 1945 before the House. A narrower question may well be all CRICKLEth at your Lordships have to determine, viz. :—whether the WOOD PROPERTY rent claimed to be due under the lease of May 12, 1936, is AND owed by the appellants to the respondents. To defeat this INVEST MENT claim the only answer presented to your Lordships was that TRUST, LD. the lease or the agreements contained in it had been frustrated. v. LETGHTON'S The exact question for your Lordships therefore is not does INVEST the doctrine of frustration apply to leases generally, but in MENT TRUST, LD. the circumstances has this lease been frustrated ? It was conceded on behalf of the appellants that the cases in Lord Porter. which a lease can be frustrated are rare and exceptional. A lease is more than a contract. It has long been recognized as creating an estate in land and by statute is enacted to do so : see Law of Property Act, 1925, ss. 1, sub-s. 1 and 205, sub-s. 1 (xxvii.). Moreover the rent is payable for the site and issues out of the land. In these circumstances it obviously is not easy to visualize conditions in which the doctrine of frustration would apply. The land in some form is there and the payment of rent is not prohibited. Some terms of the tenancy may be impossible of performance at least for the time being but the tenancy itself is not thereby necessarily deter mined. Its basis still exists. Building may not be feasible, yet I do not think the tenancy has come to an end for that reason. But exceptional circumstances might conceivably arise which could be plausibly put forward as a cause of frustration and until it is necessary to pronounce definitely one way or the other I prefer to reserve the point. What v I think is clear and I believe all your Lordships agree is that the lease now in question has not been frustrated by the inability of the tenants in the circumstances now existing to use the land for the purpose which both parties contemplated, viz. :—the building of shops. The lease is a long one and the interruption comparatively short. Moreover the obligation to pay rent is not dependent upon the appellant's ability to erect or upon the actual erection of shops. It is payable from a date to be ascertained from the landlords' notice that erection may proceed. If frustration can apply the fact that there are in the contract provisions dealing with the circum stances said to cause frustration is not necessarily fatal to the application of the doctrine. That circumstance is only one element to be considered. In the present case there is, it is H . L. (E.)

A . C.

AN D P R I V Y C O U N C I L .

true, a clause temporarily excusing for a time the obligation to build, but it is noteworthy that this abeyance clause, as it is called, though it excuses immediate building does not do away with the obligation to pay rent during the period of abeyance. In such circumstances I can see no reason for invoking the doctrine of frustration. The basis of the contract is not gone and if the theory of an implied term be relied on, I cannot think that a lessor, however reasonable, must be considered to have contracted on the basis that the tenancy would come to an end in case the building of shops became impossible for a number of years. I agree with the opinion of the Lord Chancellor and, agreeing with it, am of opinion that the appeal should be dismissed. (read by LORD PORTER). My Lords, Asquith J., who tried this case, decided in favour of the respondents on the ground that the doctrine of law usually called frustration does not apply to a lease, and that this was as true of a building lease as of any other. But earlier in his judgment he said that had the doctrine applied he would have decided that the contract, by which he must have meant the lease, had been discharged. The Court of Appeal agreed with him that the doctrine did not apply to a lease, but, as I read their judgment, they also held that in any case it could not be said that this particular lease was discharged, thereby differing from the learned judge. I agree with the Court of Appeal on both points. We are obliged, as were both courts below, to deal with the case simply on the admission, embodied in the order made by the Judge in Chambers, that the restrictions placed by the Government upon building and materials made it impossible to erect shops on any of the sites not already built on or to continue their development. No reliance was placed on the other admissions contained in the order. Obviously the restrictions referred to are those imposed by orders made under the Defence Regulations which have effect only for the period of the present emergency, though how long that will continue no one can say. On th at one fact it is impossible to say, supposing the doctrine to be applicable to a lease, th at one for ninety-nine years had been frustrated. Even if the restrictions remain in force for. ten years that is a very small part of the life of this lease. Moreover the rent is reserved in respect of sites, not shops, and begins twelve months after notice is given that building may proceed on any site, although by reason of what the lease calls an abeyance LORD

GODDARD

243 H. L. (E.)

1945 CRICKLEWOOD PROPERTY AND INVEST MENT TRUST, LD.

v. LEIGHTON'S INVEST MENT TRUST, LD

244

HOUSE OF LORDS

H. L. (E.) 1945 CRICKLEWOOD PROPERTY AND INVEST MENT TRUST, LD.

v. LEIGHTON'S INVEST MENT TRUST, LD. Lord Goddard.

[1945]

period the tenant may not be obliged to build within that period and may not do so. This abeyance period might quite con ceivably last for a considerable time, if there were no demand for shops, but the rent would none the less be payable. If however the tenants came under an obligation to build, but were prevented from so doing by the orders, they would furnish them with a good defence, were they sued for breach of their covenant to build, but not to a claim for rent under this lease. But I think it right to say that I agree also with the Court of Appeal on the wider question. There is no doubt I think that the opinion prevails generally in the profession that the doctrine in question does not apply to a lease, and if there is any doubt on the subject I venture to think that it is desirable in the interests of lessors, lessees, and their advisers th at it should be resolved. I agree with the opinion of my noble and learned friend Lord Russell of Killowen, which I have had the advantage of reading, but as the matter is of obvious importance and interest I will shortly state my own reasons. The reason why the doctrine does not apply was first stated by Lush J. during the last war in London & Northern Estates Co. v. Schlesinger (1), and was that the lease creates a term of years which is vested in the tenant. I cannot but think that this principle was accepted by this House in Matthey v. Curling (2). In th at case a house let on lease had been requisitioned by the War Office who remained in possession till the end of the term. Among other arguments it was contended that performance by the lessee of his covenants was thereby rendered impossible and was excused, it being an implied condition that the lessee should be allowed to continue in possession and enjoyment of the premises. Dealing with this contention Lord Buckmaster said (3) : " There is " no question here of performance having become impossible " owing to its prohibition by statute, for no law has prohibited " performance though enjoyment of the premises has been " interfered with by legal powers." Lord Sumner and Lord Carson agreed with his opinion, and none of them ex pressed any dissent from Lord Atkinson who expressly approved the decision in Whitehall Court, Ld. v. Ettlinger (4), which in turn had approved the opinion of Lush J. It is now sought to apply this doctrine of frustration to a lease because circumstances have arisen, and restrictions have been imposed, which while not divesting the tenant of his interest do prevent (1) [1916] 1 K. B . 20, 24 . (2) [19 22] 2 A. C. 180 .

(3) [1922 ] 2 A. C. 180, 230 . (4) [1920] 1 K. B. 680.

A . C.

AND PRIVY COUNCIL.

245

him from putting the land to the use intended both by him and the landlord. Now whatever be the true ground on which the doctrine is based it is certain that it applies only where the foundation of the contract is destroyed so that performance or further performance is no longer possible. In the case of a lease the foundation of the agreement in my opinion is that the landlord parts with his interest in the demised property for a term of years, which thereupon becomes vested in the tenant, in return for a rent. So long as the interest remains in the tenant there is no frustration though particular use may be prevented. There can also be no doubt that if there be frustration the contract is destroyed so that both parties are released from its bonds. If then this doctrine applies to a lease some strange and unjust results would follow, though to use the well-known words of Lord Sumner the doctrine is " a device by " which the rules as to absolute contracts are reconciled with " a special exception which justice demands " (Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1).) In the present case if some shops had been built on the blue land and the lease were held to be frustrated the landlords could presumably repossess themselves of the land with the buildings on it for which they would have to pay nothing. If the lease were npw to be regarded as at an end the tenants would have no title, however willing they might be to continue to pay rent and resume building when the orders ceased to have effect. And what would then be the position of those to whom the shops had been sub-let or of mortgagees from whom finance for the building had been obtained ? It is no doubt easy to envisage a hard case ; building lessees may find soon after a lease has been granted that a statute is passed prohibiting building on the land in perpetuity, and if the legislature should not see fit to provide for compensation or to make provision for what is to happen to leases in such cases hardship would result, but no greater than if they had purchased the fee simple of a building estate which subsequent legislation prevented them from developing. In either case it is not the estate in the land which is affected, but the use to which it can be put. In my opinion the Court of Appeal was right on both grounds and I would dismiss the appeal Appeal dismissed.

Solicitors for appellants : Langford, Borrowdale & Thain. Solicitors for respondents : Leslie Freeman & Co. (1) [1926] A. C. 497. 510A . C. 194 5.

3

X

H . L. (E.) 1945 CRICKLEWOOD PROPERTY AND INVEST MENT TRUST, L D .


Lord Goddard.

Page1

Davis Contractors v Fareham Urban DC House of Lords 19 April 1956

Case Analysis Where Reported

[1956] A.C. 696; [1956] 3 W.L.R. 37; [1956] 2 All E.R. 145; 54 L.G.R. 289; (1956) 100 S.J. 378

Case Digest

Subject: Construction Law Keywords: Building and engineering contracts; Contract terms; Delay; Frustration Summary: Building contract; delay Abstract: Per Lord Reid: "It appears to me that frustration depends, at least in most cases, not on adding any implied term but on the true construction of the terms which are in the contract, read in the light of the nature of the contract and of the relevant surrounding circumstances when the contract was made. . . . On this view, there is no need to consider what the parties thought, or how they or reasonable men in their shoes would have dealt with the new situation if they had foreseen it. The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end." Per Lord Radcliffe: ". . . frustration occurs whenever the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do." In 1946 the plaintiffs agreed to build 78 houses for the defendants. The contract price was GBP 85,836. The work was to be completed within eight months. Before the contract was signed the plaintiffs had written to the defendants: "Our tender is subject to adequate supplies of material and labour being available as and when required to carry out the work within the time specified." Owing to bad weather, but more particularly to an unforeseen shortage of available labour, due to an unexpected lag in the demobilisation of troops after the war, the work took 22 months to complete. The contractors received the contract price, but they claimed that by reason of the delay they were entitled to treat the contract as void and to be paid on a quantum meruit. Lord Goddard C.J. held that on the wording of the contract the contractors were entitled to throw over the contract and sue on a quantum meruit basis. The Court of Appeal had remitted the case to the arbitrator for further findings. The appeal was heard after the arbitrator had made a supplemental award, when it was allowed on the grounds that (1) the condition in the letter meant that, if adequate supplies of material and labour should not be available when wanted, the contractors would be excused from completing the work within eight months but would be given a reasonable time; that the condition affected the time, but not the price; and that, so interpreted, the condition had been fully honoured; and that (2) when an owner employed a builder to do work for a fixed sum, his whole object was to secure himself against the unexpected difficulties which so often arose; and that the court could seriously damage the sanctity of contracts if it allowed a builder to charge more simply because, without anyone's fault, the work took him

Page2

much longer than he thought. Held, on appeal to the House of Lords, (1) the letter merely formed part of the negotiations which led up to the contract and its terms were not incorporated into that contract; (2) in a contract of this kind the contractor undertook to do the work for a definite sum, and he took the risk of the cost being greater or less than he expected; if delay occurred through no one's fault, that might be in the contemplation of the contract and there might be provision for extra time being given; to that extent the other party took the risk of delay; but he did not take the risk of the cost being increased by such delay; it might be that delay could be of a character so different from anything contemplated that the contract would be at an end, but in this case the most that could be said was that the delay was greater in degree than was to be expected; it was not caused by any new and unforeseeable factor or event; the job proved to be more onerous but it never became a job of a different kind from that contemplated in the contract; therefore the appeal must be dismissed. FA Tamplin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd [1916] 2 A.C. 397 HL applied; Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] A.C. 265 HL applied; Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435 HL applied; and British Movietonews v London and District Cinemas [1952] A.C. 166 HL applied; Bush v Whitehaven Trustees (1888) 52 J.P. 392 criticised.

Judge: Viscount Simonds; Lord Morton of Henryton; Lord Reid; Lord Radcliffe; Lord Somervell of Harrow

Appellate History

Court of Appeal Davis Contractors v Fareham Urban DC [1955] 1 Q.B. 302; [1955] 2 W.L.R. 388; [1955] 1 All E.R. 275; (1955) 99 S.J. 109

Affirmed by House of Lords Davis Contractors v Fareham Urban DC [1956] A.C. 696; [1956] 3 W.L.R. 37; [1956] 2 All E.R. 145; 54 L.G.R. 289; (1956) 100 S.J. 378

Significant Cases Cited

Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435; (HL) British Movietonews v London and District Cinemas [1952] A.C. 166; [1951] 2 All E.R. 617; [1951] 2 T.L.R. 571; (1951) 95 S.J. 499; (HL) Bush v Whitehaven Trustees (1888) 52 J.P. 392 Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] A.C. 265; 1944 S.C. (H.L.) 35; 1945 S.L.T. 2; (HL) FA Tamplin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd [1916] 2 A.C. 397; (HL)

Cases Citing This Case

Applied by Albert D Gaon & Co v Societe Interprofessionelle des Oleagineux Fluides Alimentaires

Page3

[1959] 3 W.L.R. 622; [1959] 2 All E.R. 693; [1959] 2 Lloyd's Rep. 30; (1959) 103 S.J. 601; (QBD (Comm)) Amalgamated Investment & Property Co v John Walker & Sons [1977] 1 W.L.R. 164; [1976] 3 All E.R. 509; (1976) 32 P. & C.R. 278; (1976) 239 E.G. 277; (1976) 120 S.J. 252; (CA (Civ Div)) Charon (Finchley) v Singer Sewing Machine Co 207 E.G. 140; (1968) 112 S.J. 536 Codelfa Construction Property Ltd v State Rail Authority of New South Wales 149 C.L.R. 337; (HC (Aus)) Dixon v Osborne (1983) 133 N.L.J. 1016; (DC) Edwinton Commercial Corp v Tsavliris Russ (Worldwide Towage & Salvage) Ltd [2004] EWHC 387; (QBD (Comm)) GF Sharp & Co Ltd v McMillan [1998] I.R.L.R. 632; (EAT) Hare v Murphy Bros [1974] 3 All E.R. 940; [1974] I.C.R. 603; [1974] I.R.L.R. 342; 18 K.I.R. 31; (1975) 10 I.T.R. 1; (1974) 118 S.J. 596; (CA (Civ Div)) Industrial Overload v McWatters (1972) 24 D.L.R. (3d) 231; (QB (Sask)) Marshall v Harland & Wolff Ltd [1972] 1 W.L.R. 899; [1972] 2 All E.R. 715; [1972] 1 R.L.R. 90; [1972] I.C.R. 101; [1972] I.R.L.R. 90; (1972) 7 I.T.R. 150; (1972) 116 S.J. 484; (NIRC) National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675; [1981] 2 W.L.R. 45; [1981] 1 All E.R. 161; (1982) 43 P. & C.R. 72; (1981) 125 S.J. 46; Times, December 17, 1980; (HL) Notcutt v Universal Equipment Co (London) [1986] 1 W.L.R. 641; [1986] 3 All E.R. 582; [1986] I.C.R. 414; [1986] I.R.L.R. 218; (1986) 83 L.S.G. 1314; (1986) 136 N.L.J. 393; (1986) 130 S.J. 392; (CA (Civ Div)) Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia) [1964] 2 Q.B. 226; [1964] 2 W.L.R. 114; [1964] 1 All E.R. 161; [1963] 2 Lloyd's Rep. 381; (1963) 107 S.J. 931; (CA) Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No.2) [1982] A.C. 724; [1981] 3 W.L.R. 292; [1981] 2 All E.R. 1030; [1981] 2 Lloyd's Rep. 239; [1981] Com. L.R. 197; (1981) 125 S.J. 542; (HL) Trade and Transport Inc v Iino Kaiun Kaisha Ltd (The Angelia) [1973] 1 W.L.R. 210; [1973] 2 All E.R. 144; [1972] 2 Lloyd's Rep. 154; (1972) 117 S.J. 123; (QBD) Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1960] 2 Q.B. 318; [1960] 2 W.L.R. 869; [1960] 2 All E.R. 160; [1960] 1 Lloyd's Rep. 349; (1960) 104 S.J. 426; (CA) Witwicki, Re (1979) 101 D.L.R. (3d) 430; (CA (Man))

Followed by

Page4

Hebden v Forsey & Son [1973] I.C.R. 607; [1973] I.R.L.R. 344; 15 K.I.R. 161; [1973] I.T.R. 656; (NIRC)

Considered by CTI Group Inc v Transclear SA (The Mary Nour) [2008] EWCA Civ 856; [2008] Bus. L.R. 1729; [2009] 2 All E.R. (Comm) 25; [2008] 2 Lloyd's Rep. 526; [2008] 2 C.L.C. 112; (CA (Civ Div)) Chaucer Estates v Fairclough Homes [1991] E.G. 65 (C.S.); (CA (Civ Div)) First National Securities v Onwuegbuzie [1976] C.L.Y. 133; (CC (Lambeth)) Francis v Cowcliffe Ltd (1977) 33 P. & C.R. 368; 239 E.G. 977; (Ch D) Gryf-Lowczowski v Hinchingbrooke Healthcare NHS Trust [2005] EWHC 2407; [2006] I.C.R. 425; [2006] I.R.L.R. 100; [2006] Lloyd's Rep. Med. 199; (2006) 87 B.M.L.R. 46; (QBD) Home Office v Dorset Yacht Co Ltd [1970] A.C. 1004; [1970] 2 W.L.R. 1140; [1970] 2 All E.R. 294; [1970] 1 Lloyd's Rep. 453; (1970) 114 S.J. 375; (HL) J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd's Rep. 1; Times, October 17, 1989; Independent, October 30, 1989; Financial Times, October 24, 1989; (CA (Civ Div)) Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No.2) [1980] Q.B. 547; [1980] 3 W.L.R. 326; [1980] 3 All E.R. 117; [1980] 2 Lloyd's Rep. 339; [1980] E.C.C. 467; (CA (Civ Div)) Virdi v Law Society [2010] EWCA Civ 100; (CA (Civ Div)) Williams v Watson Luxury Coaches [1990] I.C.R. 536; [1990] I.R.L.R. 164; (EAT) Wong Lai Ying v Chinachem Investment Co Ltd 13 B.L.R. 81; (PC (HK))

Journal Articles

Contract (November) Breach of contract; Burden of proof; Frustration; Loss of goods; Loss of profits; Measure of damages. I.H.L. 2008, 165(Nov), 48-50 Duty of care and personal responsibility: occupiers, owners, organisers and individuals Duty of care; Duty to warn; Falls from height; Foreseeability; Occupiers' liability; Paralysis; Proximity; Reasonableness; Supervision. J.P.I. Law 2008, 3, 187-195 Insolvency and the survival of contracts Anticipatory breach; Contracts; Corporate insolvency; Insolvency proceedings; Termination. J.B.L. 2005, Jul, 494-521 A new way of terminating leases? Conditions; Frustration; Housing benefit; Implied terms; Mutual mistake; Residential tenancies; Termination.

Page5

Conv. 2008, 1, 70-80

Mistake, frustration and implied conditions in leases Conditions; Frustration; Implied terms; Leases; Mutual mistake; Termination. L. & T. Review 2007, 11(5), 158-161 © 2010 Sweet & Maxwell

Page1

Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) Sea Angel, The Court of Appeal (Civil Division) 12 June 2007


[2007] EWCA Civ 547; [2007] 2 All E.R. (Comm) 634; [2007] 2 Lloyd's Rep. 517; [2007] 1 C.L.C. 876; Official Transcript

Case Digest

Subject: Shipping Other related subjects: Contracts Keywords: Delay; Detention; Frustration; Oil pollution; Port authorities; Risk allocation; Salvage; Time charterparties Summary: Time charterparties; Detention; Vessel sub-contracted to salvors; Foreseeability of risk Abstract: The appellant charterers (T) appealed against a decision ([2006] EWHC 1713 (Comm), [2007] 1 All E.R. (Comm) 407) that a delay of more than three months towards the end of a 20-day time charter, caused by the unlawful detention of the vessel by port authorities, in a salvage context, had not frustrated the charter. T had chartered the vessel from the respondent shipowners (E) to assist in the salvage operations in relation to a tanker which had grounded in or near the approaches to the port of Karachi laden with light crude oil. The casualty amounted to a major pollution incident. T entered into a Lloyd's standard form of salvage agreement with the tanker owner on the LOF 2000 form and engaged a number of sub-contracted craft, including E's vessel whose task was to act as a shuttle tanker, lightening the tanker and carrying oil to a storage tanker. The charter was for up to 20 days. After the vessel had trans-shipped its last shuttle cargo T gave notice of redelivery but the vessel was unable to leave Karachi for over three months because the port authorities refused to issue the necessary "no demand certificate" and instead made a demand based in the main on charges due against the tanker. T attempted for some weeks to negotiate the release of the vessel but it was only released after the Pakistani court had ordered its release and a settlement had been agreed involving payment and undertakings by the tanker owner's P & I club. T submitted that by the time it had become necessary to take proceedings in Pakistan in order to secure the release of the vessel, the delay already experienced together with future delay reasonably to be expected meant that the charter had been frustrated. E submitted that detention of salvor's equipment, whether owned or contracted in, was a known risk which had been assumed by T under the charter and that the delay and prospective delay were not sufficient to justify frustration. Appeal dismissed. The test of comparing the probable length of the delay with the unexpired duration of the charter was not the decisive test, Countess of Warwick Steamship Co v Le Nickel SA [1918] 1 K.B. 372 CA, Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435 HL and WJ Tatem Ltd v Gamboa [1939] 1 K.B. 132 KBD considered. The requisition, seizure or trapping of a vessel in the course of a major conflict were quite unlike the instant case, since it was not possible to negotiate or litigate one's way out of such consequences

Page2

of war. Delay was an important consideration but only the starting point. The right approach was to consider all the factors. In the instant case the purpose of the charter had been performed and the effect of detention was purely a question of the financial consequences. That was not like the situation where the supervening event either postponed or interrupted the adventure itself. In general terms the contractual risk of such delay caused by detention of government authorities was firmly on T. The risk of detention by the littoral authorities arising out of a salvage situation where there was a concern about pollution was in general terms foreseeable. That general risk was foreseeable by the salvage industry and was provided for by the terms of the special compensation protection and indemnity clause which was incorporated in the charter and had been invoked by T. The particular risk which occurred was within the provisions of that clause. It was common ground that there was no frustration until the strategy of commercial negotiation had failed, so that the instant case was one of "wait and see" and not one in which the charter was frustrated then and there by the supervening event. The judge had asked himself the right question and had been entitled to find that the delay was not frustrating.

Judge: Rix, L.J.; Wall, L.J.; Hooper, L.J. Counsel: For the appellants: Nicholas Hamblen QC, Timothy Hill. For the respondents: Elizabeth Blackburn QC, Mark Jones Solicitor: For the appellants: Eversheds (Newcastle upon Tyne). For the respondents: Duval Vassiliades

Appellate History

Queen's Bench Division (Commercial Court) Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2006] EWHC 1713 (Comm); [2007] 1 All E.R. (Comm) 407; [2007] 1 Lloyd's Rep. 335; [2006] 2 C.L.C. 600; Official Transcript

Affirmed by Court of Appeal (Civil Division) Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] EWCA Civ 547; [2007] 2 All E.R. (Comm) 634; [2007] 2 Lloyd's Rep. 517; [2007] 1 C.L.C. 876; Official Transcript


Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435; (HL) Countess of Warwick Steamship Co v Le Nickel SA [1918] 1 K.B. 372; (CA) WJ Tatem Ltd v Gamboa [1939] 1 K.B. 132; (1938) 61 Ll. L. Rep. 149; (KBD)

Legislation cited

International Convention on Civil Liability for Oil Pollution International Convention on Civil Liability for Oil Pollution Damage Lloyd's Standard Form of Salvage Agreement London Salvage Convention art.13 London Salvage Convention art.14

Page3

Main Agreement Merchant Shipping Act 1995 (c.21) s.224(1)

Journal Articles

English shipping law Shipping law. L.M.C.L.Q. 2008, 3(Aug) Supp (International Maritime and Commercial Law Yearbook 2008), 62-97 Time charterparty - salvage context - LOF 2000 and SCOPIC unlawful detention by port authority - frustration of time charter - relevant criteria Delay; Detention; Frustration; Salvage; Ships; Time charterparties. J.I.M.L. 2007, 13(6), 388-391 Until the crack of doom? The Sea Angel and frustration Frustration; Late delivery; Port state control; Time charterparties. S. & T.I. 2007, 6(4), 24-27 Charterparty - frustration - oil tanker grounding near port of Karachi Delay; Detention; Frustration; Salvage; Ships; Time charterparties. L.M.L.N. 2007, 721, 1-2 Time charterparties: time charter - shuttle tanker engaged by salvors - unlawful detention by port authority - frustration of the charter Delay; Detention; Port state control; Salvage; Ships. J.I.M.L. 2007, 13(2), 83 SCOPIC agreement and time charter hire payable for detained vessel Delay; Detention; Frustration; Salvage; Standard forms of contract; Time charterparties. J.I.M.L. 2008, 14(1), 5-6 Time charter - shuttle tanker chartered by salvors - unlawful detention by port authority - frustration of the charter Delay; Detention; Frustration; Salvage; Ships; Time charterparties. J.I.M.L. 2007, 13(4), 226-227 Timing is the key Delay; Detention; Frustration; Ships; Time charterparties. M.R.I. 2007, 21(7), 12-13 © 2010 Sweet & Maxwell

[1943]

HOUSE OF LORDS

32

H. L. (Sc.) case not only does the statute ordain the degree of care required, 1942 POTTS OR RIDDELL

v. REID

Lord Porter.

but it also, in my opinion, points out the dividing line between criminal and civil negligence, and, while it frees the employer from the former on proof that he has fulfilled certain require ments, it leaves the latter untouched. For the reasons I have given, I think the appeal should be allowed, and that the appellant should be awarded the damages suggested by the Lord President, which both parties are now prepared to accept as binding on them. Appeal allowed. Solicitors for appellant : W. H. Thompson, for Baillie & Gifford, W.S., Edinburgh, and Wilson, Chalmers & Hendry, Glasgow. Solicitors for respondent : W. C. Crocker, for D. G. M'Gregor, W.S., Edinburgh, and Digby Brown & Co., Glasgow. F. H. C.

[HOUSE OF LORDS.]

H. L. (E.)« FIBROSA SPOLKA AKCYJNA

APPELLANTS;

1942

Apr~Z, i7 , FAIRBAIRN LAWSON 20, 21 , 23 , BOUR, LIMITED 24;

COMBE

BAR-

RESPONDENTS.

June 15.

Contract — Frustration — Payment on account of purchase price — Recovery—Failure of consideration. By a contract in writing dated July 12, 1939, the respondents, an English company, agreed to sell and the appellants, a Polish company, agreed to purchase machinery for 4800/. of which one-third was to be paid with the order. Delivery was to be three to four months from settlement of final details and the goods were to be packed and delivered c.i.f. Gdynia, Poland. The sale was made subject to certain conditions and cl. 7 was as follows : "Shou ld dispatch be hindered or delayed . . . . by any "cause whatsoever beyond our reasonable control, including " . . . .wa r . . . . a reasonable extension of time shall be granted. " Only 1000/. out of the sum of i6oo2. to be paid with the order was in fact paid. On September 1, 1939, war broke ou t between Germany and Poland and on September 3 Great Britain declared *

Present:

KILLOWEN, LORD

VISCOUNT SIMON L.C., LORD

PORTER.

MACMILLAN,

LORD ATKIN, LORD RUSSELL OF

LORD

WRIGHT,

LORD

ROCHE

an d

A. C.

AND PRIVY COUNCIL.

33

war on Germ any . On and after Septe mber 23, Gdyn ia was occupied by th e Germans : — Held, (1.) that, cl. 7 being limited in its ambit to a delay in respect of which " a reaso nable extensio n of time " migh t be granted, did not prevent frustration of the contract by reason of the war on the ground that it made express provision for that contin gency, since th is wa r involved prolonged and indefinite inter rupt ion of pro mpt cont ractu al performance ; and (2.) th at , there having been a total failure of consideration and the payment of the 1000/. being, under the terms of the contract, a conditional payment on account of the purchase price and not an absolute, final, or " ou t and out " pa ym ent , the app ella nts could recover that sum from the respondents. Where a contract on its true construction stipulates that a particular result shall follow, if frustration should afterwards occur, that stipulation governs the matter, and the rule that freight paid in advance is not to be returned if completion of the voyage is frustrated should be regarded as a stipulation introduced into such con trac ts by custom . But , in the absence of a te rm of the contract dealing with the matter, there is no principle that where a contract has been frustrated by such a supervening event as releases from further performance " the loss lies where it falls " in the sense that sums paid or rights accrued before that event are not to be surr ende red. The claim of a pa rt y who has paid m oney under a contract, to recover it on the ground that the consideration for which he paid it has wholly failed is not based on any provision in the contract, but arises because in the circumstances the law gives a remedy in quasi-contract to the party who has not got wh at he barga ined for. Altho ugh, in th e formati on of a contr act , a promise to do a thing may be the consideration, in dealing with the law of failure of consideration and the right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but its performance. Chandler v. Webster [1904] 1 K. B. 493, overruled. Decision of the Court of Appeal (sub noni. Fibrosa Sociite Anonyme v. Fairbairn Lawson Combe Barbour, Ld.) [1942] 1 K. B. 12, reversed.

from the Court of Appeal. The facts as stated by VISCOUNT SIMON L.C. were as follows : The respondents were a limited company carrying on at Leeds the business of manufacturing textile machinery, and by a contract in writing dated July 12, 1939, the respondents agreed to supply the appellants, a Polish company, of Vilna, with certain flax-hackling machines as therein specified and des cribed, at a lump-sum price of 4800/. The machines were of a special kind. The place of erection of the machinery was not mentioned in the contract, but it was agreed that it was the intention of the parties that it was to be erected at Vilna. By APPEAL

A. C. 1943-

3

L>

H. L. (E.) 1942 FIBROSA SPOLKA AKCYJNA 1).

FAIRBAIRN LAWSON COMBE BARBOUR, LD .

34

HOUSE OF LORDS

[1943]

H. L. (E.) the terms of the contract, delivery was to be in three to four 1942 FIBROSA SPOLKA AKCYJNA

v. F FAIRBAIR AIRBAIRN N LAWSON COMBE BARBOUR, LD.

months mont hs from from the settlement of final final details. The machines were to be packed and delivered by the respondents c.i.f. Gdynia, the services of a skilled monteur to superintend erection were to be provided by the respondents and included in the price, and payment was to be made by cheque on London, London , one-third one-t hird of of the price (16 (1600 00/. /.)) with the th e order and the th e balance balan ce (320 (3200/ 0/.) .) against shipping shippi ng documents docu ments.. By cl. 7 of the conditions conditions of sale sale attached attach ed to the cont co ntra ract ct:: " Should Should "dis "d ispa patc tch h be hindered or or delayed by your instructions, instruct ions, or "lack of instructions, or by any cause whatsoever beyond our "reasonable control including strikes, lock-outs, war, fire, "accidents "accidents . . . . a rea reaso sona nabl blee exte extens nsio ion n of of time time shall shall be "gra "g rant nted ed.. . . ." By cl. 10 provisions were were made for for dispatch and possible storage pending dispatch. On July 18, 1939, the appellants paid to the respondents 1000/. on account of of the th e initial init ial paymen pay mentt of 1600?. due under the th e contract. cont ract. On September 1, 1, 1939 1939,, Germany invaded Poland and on September 3 Great Britain Brit ain declared war on Germany. On September 7, the appellants' agents in England wrote to the th e respondents respondent s : " Ow Owing ing to the t he outbrea out break k of of hostilities, it is "now quite evident that the delivery of the hackling machines " on order for for Poland cannot take tak e place. Under the circum" stances stance s we shall be obliged if you will kindly arrange arran ge to "ret "r etur urn n our initial payment of 1000 1000/. /. at your .early .ea rly "convenien "conv enience." ce." To this request, the th e respondents replied on the next day refusing to return the sum and stating that "considerable work has been done upon these machines " and we cannot consent consent to the retur r eturn n of this t his payment. payment . "After "Afte r the th e war the th e matt ma tter er can be reconsidered." There was further correspondence between the parties or their agents which failed to produce agreement, and on May 1, 1940, the appellants issued a writ and by their statement of claim alleged that the respondents had broken the contract by refusing to deliver the machines, while the appellants "are " and have at all material times been ready and willing to take "delivery of the said machinery and to pay for the same." The prayer of the claim was (a) for damages for breach of contract, (b) for specific performance or, alternatively, return of the 1000/. with interest, and (c) for further or other relief. The substantial defence of the respondents was that the contract cont ract had been frustrated by the German occupation of Gdynia in September, 1939, and that in these circumstances

A. C.

AND PRIVY COUNCIL.

35

the appellants had no right to the return of the iooo/. H. L. (E.) Tucker J. dismissed the action on March 7, 1941, and the 1942 Court of Appeal Appe al affirm affirmed ed his decision on May 15, 1941. The FIBROSA SPOLKA appellants appealed to the House of Lords. AKCYJNA t> .

Linton Thorp K.C. and Sebag Shaw for the appellants. The appellant company, which has its head and seat at Vilna in Poland is seeking to recover a sum paid in advance in respect of machinery to be manufactured by the respondents and delivered at Gdynia, which was occupied by hostile forces before the date of delivery. [VISCOUNT SIMON L.C.: L.C .: If the appellant company, as 'things now stand, ha s its head and seat at a t Vilna, must it i t not no t be regarded as an alien enemy enemy ? An alien enemy cannot sue in the King's courts without the licence of the Crown, and, though when this action was tried and when it was heard in the Court of Appeal, Vilna was not occupied by the Germans, it is now effectively so occupied (1). It seems to me, therefore, that the appellant needs a licence from the Crown, in accordance with the decision in Porter v. Freudenberg (1). (1).]] We have hav e not asked for for any an y licence. [VISCOUNT SIMON L.C. L.C. : I should suppose suppose th at the th e Board of of Trade would be willing to give you any necessary licence. We will proceed with the hearing of the appeal on that assumption, but we shall expect, before your argument is concluded, concluded, to hear that th at you have put yourse yourself lf in order.] order.] The proper application will be made to the Board of Trade (2). The bargain between the parties under cl. 7 of the conditions of sale was that, if war broke out and dispatch was thereby hindered, a reasonable time should be allowed to enable arrangements arrang ements for for storage to be made under cl. 10. 10. The appellants were entitled to take delivery at Leeds and in failing to deliver the goods the respondents broke the contract. On the outbreak of war the contract was merely suspended and while it was so suspended it was repudiated by the respondents. There was no commercial venture between the parties which could be frustrated within the meaning of the authorities (1) Vilna is situated in that part of eastern Poland occupied by the Russian forces after they invaded the country on Septem ber 16, 16, 1939. In October, Octobe r, 1939, it was absorbed into Lithuania, which was itself absorbed into Russ ia in August , 1940 1940.. After

the German invasion of Russia in June, 1941, it was occupied by the German forces. (1) [1915] 1 K. B. 857. (2) A licence from the Board of Trade was obtained and produced on April 17, 1942. 4

D

FAIRBAIRN LAWSON COMBE BARBOUR, LD.

36

HOUSE

H. L. (E.) 1942 FIBROS FIBROSA A SPOLKA AKCYJNA

!» . F FAIRBAIR AIRBAIRN N LAWSON COMBE BARBOUR, LD.

OF

LORDS

[1943]

dealing with frustration, but, even if there were, performance was not impossible having regard to the terms of the contract. The doctrine of frustration frustr ation rests rest s on an implied term, ter m, bu t a term cannot be implied to contradict an express term, and here the outbreak of war was expressly provided for by cl. 7. In any case, if the court has power to imply a term in the contract, it must imply a reasonable term and not a term such as no commercial commercial man would would think thi nk of of entering into. int o. A term which allowed the respondents to retain the money in the circumstances of this case would not be reasonable, since, as regards the goods, goods, they the y have sustained no loss. Such a conception is is known to the law of Scot Sc otla land nd:: see see Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., (1). Even Eve n if the contract has been frustrated, there has Ld. (1). been a total failure of consideration and the appellants are entitled to the return retur n of of the money. money. Their right to recove recoverr it it arises, not ex contractu, but by operation of law since the law gives a remedy in quasi-contract to a party who has not got what he bargained for. for. The rule in Chandler v. Webster (2) that on the determination of a contract by impossibility of performance the loss lies where it falls cannot apply in respect of moneys paid in advance so as to deprive the payer of the right to recover it as money received to his use where the con sideration for which the money was paid has wholly failed. The doctrine of failure of consideration is not limited to cases where where the contract con tract is rescinded rescinded ab initio. Taylor v. Caldwell (3) (3) did not go as far as it was pushed in Chandler v. Webster (2). [They referred to Williams v. Lloyd (4) ; Rtigg v. Minett (5) ; Civil Service Co-operative Society, Ld. v. General Steam Naviga tion Co. (6) ; French Marine v. Compagnie Napolitaine d'Eclairage et de Chauffage par le Gaz (7) ; Sinclair v. Brougham (8) ; Lee v. Griffin (9) ; Rowland v. Divall (io) ; Devaux v. Conolly (11) ; Partne Par tnersh rship ip Act, 1890 1890,, s. 40 ; Lindley on Partnership, 10th ed., pp. 684-690, and Sale of Goods Act, 1893, s. 5, sub-s. 1, and s. 27.] Valentine Holmes and an d G. 0. Slade for the respondents. The rule in Chandler v. Webster (2) is right and is good law. (1) (2) (3) (4) (5) (6)

[1924] [1904] (1863) (1628) (1809) [1903]

A. C. 226, 245, 246. 1 K. B. 493. 3 B . & S. 8 26. W. Jo. 179. 11 East, 210. 2 K. B. 756.

(7) (8) (9) (10) (11)

[1921] [1914] (1861) [1923] (1849)

2 A. C. 494. A. C. 398. 1 B. & S. 272. 2 K. B. 500, 502. 8 C..B. 640.

A. C.

AND

PRIVY

COUNCIL.

'37

Even if originally it could not be supported it is now too firmly H. L. (E.) established to be disturbed. disturbe d. In any an y event, it is not so mani 1942 festly wrong as to justify the House of Lords in overruling it FIBROSA after it has h as been affir affirmed med and followed followed in so many man y cases during durin g SPOLKA nearly forty years and applied and acted on by the whole AKCYJNA v. commercial community, especially during the last two years, FAIRBAIRN in working working out the rights ri ghts of of partie par tiess to contrac co ntracts. ts. It co con LAWSON COMBE stitutes a simple rule against which the parties can provide by BARBOUR, LD. express terms ter ms if they th ey so desire. It is the th e best rule from from the t he point of view of justice which it was possible for the judges, as distinct disti nct from from the th e legislature, to devise. devise. The rule is in effect th at the loss lies lies where where it falls falls and it i t has gre g reafa afad d vantages in that (i.) it is easily understood by the commercial com munity mun ity,, (2.) (2.) it is easily applied applie d by them t hem,, and (3.) (3.) it does rough justice between the parties in cases where some degree of hardship is inevitable. Lumsden v. Barton & Co. (1); Blakeley v. Mutter & Co. (2) ; Clark v. Lindsay (3) ; Griffith v. Brymer (4) ; Krell v. Henry (5); and Civil Service Co-operative Society, Ld. v. General Steam Navigation Navi gation Co. ( 6 ) —" the coronation "cases "ca ses "—wer "—weree all instances of the th e application appl ication of the th e rule before the decision in Chandler v. Webster (7) in which the Court of Appeal followed Taylor v. Caldwell (8). There is no case case in the past century where the rule has not been applied : see Anglo-Egyptian Navigation Co. v. Rennie (9) and Rtisskoe Obschestvo d'lia Izgstovlenia Snariadov I'voennick Pripassov v. John Stirk & Sons, Ld. (10) (10).. It was accepted by the House of Lords in French Marine v. Compagnie Napolitaine d'Eclairage et de Chauffage par le Gaz (11) : see also the Seventh Interim Report Repo rt of of the th e Law Revision Revision Committee Committee on the rule. There is no distinction between the present case and that of advance freight freight which is never returnable returna ble.. This is an instance of of a fina finall payment paymen t which which cannot be recove rec overed: red: see see Chandler v. Webster (12) per Mathew L.J. and Anglo-Egyptian Navigation do ctrinee of of frustrati frust ration on rests rest s on a Co. v. Rennie (9). The doctrin condition to be implied in the contract under consideration. If the implied condition in the present contract had been express its effect would have been that the respondents agreed (1) (2) (3) (4) (5) (6)

(1902) [1903] (1903) (J903) [1903] [1903]

19 T. L. R. 53. 2 K. B. 760 n. 88 L. T. 198. 19 T. L. R. 434. 2 K. B. 740. 2 K. B. 756.

(7) (8) (9) (10) (n) (12)

[1904] 1 K. B. 4933 B. & S. 826. (1875) L. R. 10 C. P. 271. (1922) 10 LI. L. Rep. 214. [1921] 2 A. C. 494, 523[1904] 1 K. B. 493, 502.

38

HOUSE

OF

LORDS

[1943]

H. L. (E.) th at , on the appe llan ts pay ing the m i6oo i6oo£ £ ., they would proceed w 1942 ith making the machinery to their specification, would deliver at FIBROSA ^ Gdynia, and would provide the services of a skilled SPOLKA workman, subject to the condition that, if Gdynia became AKCYJNA e n e m y ter rit ory , bo th par tie s would be excused furthe r The resp ondent s did not und er tak e such such an FAIRBAIRN performance. ÔMBB1 obligation to deliver that, if complete performance became BARBOUR, impossible, they would repay the money notwithstandLp " ing th e expenses incur red in pa r t performance . The da te of the contract was July, 1939, and the court can take judicial notice of the state of international affairs then. The machine s to be manu fac tur ed were of of a n unu sua l The respondents were taking the payment to type. provide against any possible possible contingency. In mak ing th e con tra ct th e par ties mus t hav e envisaged the possibility of its pr em at ur e det erm inat ion by frus trati on. So far as the actu al manuf actur e of th e machines was concerned ther th eree could be no que stion sti on of of impo ssib ility of perform per form ance . The contract has been partly performed, and so there can be no claim for the return of the money on the ground th a t th e cons ider ation atio n has ha s wholly failed. failed. The consid considera era tion for the payment made was the respondents' promise to deliver the goods c.i.f. Gdynia. The respondents, by merely bindi ng themselves by a con tra ctu al obligation, suffered a detriment and that was sufficient consideration: see Currie v. Misa (1) and Anson on the Law of Contract, 18th ed., pp . 88 et seq. The mom ent th e con tra ct was ent ere d int o the consideration star ted . On an y view, th e consideration has only partly failed and so the money is irrecoverabl e. Fu rt he r, there was no fault on on th e pa rt of of the respondents, and, therefore, even if the consideration had wholly failed, there could be no claim for the return of this paym ent . [They referred referred to Stubbs v. Holywell Railway Co. (2); Appleby v . Myers (3) ; Byrne v. Schiller (4) ; Whincup v . Hughes (5) ; Johnson v. Goslett (6) ; Lloyd Royal Beige Sociite Anonyme v. Sthathatos (7) ; Hirji Mulji v. Cheong Yue Steamship Co., Ld. (8) ; W. J. Tatem, Ld. v. Gamboa (9) ; Joseph Constantine Steamship Line^Ld. v. Imperial Smelting (1) (2) (3) (4) 5)

(1875) (1867) (1867) (1871) (1871)

L. L. L. L. L.

R. R. R. R. R,

10 E x . 1532 E x . 31 1 . 2 C. P . 6 5 1 . 6 E x . 3196 C. P. 78, 8 5 .

(6) (7) (8) (8) (9) (9)

(1857) (1917) [1926 ] [193 9]

3 C. B . (N. S.) 56 9. 33 T. L. R. 390 . A. C. 49 7. 1 K. B . 13 2.

A . C.

AND PRIVY

39

COUNCIL.

Corporation, Ld. (i) ; Rugg v. Minett (2) ; Wilson v. Church (3); H. L. (E.) National Bolivian Navigation Co. v. Wilson (4) ; Ockenden 1942 v. Henley (5) and Smith's Leading Cases, 13th ed., vol. ii., FIBROSA pp. 1 et seq.] The provisions of cl. 7 of the conditions SPOLKA of sale do not cover the matter since it dealt only with delays AKCYJNA V. in respect of which a reasonable extension of time might be FAIRBAIRN granted. The war in which Great Britain was engaged must LAWSON COMBE on the contrary be assumed to be of indefinite duration : BARBOUR, LD. Geipel v. Smith (6), Bank Line, Ld. v. Arthur Capel & Co. (7). Even though the parties have provided for the case of limited interruption, that does not prevent frustration of the contract in these circumstances : Jackson v. Union Marine Insurance Co., Ld. (8). Thorp K.C. in reply. In Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (9) ; Chandler v. Webster (10) was treated as being open to further consideration. The House of Lords has before now overruled a long standing line of authorities : Bourne v. Keane (11).

The House took time for consideration. 1942. June 15. VISCOUNT SIMON L.C. My Lords, this is the appeal of a Polish company who were plaintiffs in the action against the decision of the Court of Appeal composed of MacKinnon and Luxmoore L.JJ. and Stable J. , affirming the judgment of Tucker J. at the trial in favour of the respond ents. After the Court of Appeal's judgment and before the appeal came to be argued at your Lordships' bar, the town of Vilna, where the appellants had carried on its business, and indeed the whole of Poland, under the laws of which state the appellants were incorporated, were occupied by our enemy, Germany. The question might, therefore, arise whether the appellants should now be debarred from prosecuting its appeal: see the judgment of the Court of Appeal delivered by Lord Reading C.J. in Porter v. Freudenberg (12), and Rodriguez v. Speyer Bros. (13). To obviate any difficulty on this head, the appellants, at the suggestion of the House, applied to the (1) [1942] A. C. 154. (2) 11 E a s t , 210. (3) (1879) 13 Ch. D. 1. (4) (1880) 5 A pp . Cas. 176. (5) (1858) E . B . & E . 485 . (6) ( i 8 7 2 ) L . R . 7 Q . B . 4 0 4 , 4 i 4 . (7) [1919] A. C. 43 5.

(8) (9) (10) (11) (12) (13)

(1873) [1924] [1904] [1919] [1915] [1919]

L. R. 8 C. P. 572. A. C. 226. 1 K. B . 493 . A. C. 81 5. 1 K. B . 857, 868, 884. A. C. 59.

40

HOUSE OF LORDS

[1943]

H. L. (E.) Board of Trade, and the department gave to the appellants' solicitors a licence to proceed with the appeal, notwithstanding I942 *â* ^ e ' r c u e n ts might be in the position of an alien enemy. FIBROSA SPOLKA The House was content to let the case proceed on this basis. AKCYJNA j t f s n o t ( therefore, necessary to consider, in dealing with the FAIRBAIRN present appeal, whether the recent decision of the Court of Appeal in In re an Arbitration between N. V. Gebr. van Udens QWBE BARBOUR, Scheepvaart en Agentuur Maatschappij v. Sovfracht (i), P ' should be approved. If, as the result of the decision of the viscounty Simon House, any payment becomes due to the appellants, and if they were in the position of alien enemies within the meaning of the Trading with the Enemy Act, 1939, the payment would be regulated by that Act. Before passing to the main question involved in the appeal, I must mention another contention of the appellants which was based on cl. 7 of the conditions of sale attached to the contract. This clause contained the provision that " should "dispatch be hindered or delayed by . . . . any cause beyond "our reasonable control including . . . . war . . . . a reason a b l e extension of time shall be granted." The appellants argued that there could be no frustration by reason of the war which broke out during the currency of the contract because this contingency was expressly provided for in cl. 7, and, therefore, there was no room for an implied term such as has often been regarded as a suitable way in which to express and apply the doctrine of frustration. I entirely agree with the Court of Appeal that in the circumstances of the present case this is a bad point. The ambit of the express condition is limited to delay in respect of which " a reasonable "extension of time " might be granted. That might mean a minor delay as distinguished from a prolonged and indefinite interruption of prompt contractual performance which the present war manifestly and inevitably brings about. A similar argument was unsuccessfully urged in Bank Line, Ld. v. Arthur Capel & Co. (2) and in other cases, a recent instance of which is W. J. Tatem, Ld. v. Gamboa (3). The principle is that where supervening events, not due to the default of either party, render the performance of a contract indefinitely impossible, and there is no undertaking to be bound in any event, frustration ensues, even though the parties may have expressly provided for the case of a limited interruption. (1) [1942] 1 K . B . 22 2. (2) [1919] A. C. 43 5.

(3) [1939] 1 K. B. 132.

A. C.

AND

PRIVY

COUNCIL.

41

As MacKinnon L.J. points out (i), the unsoundness of the H. L. (E.) contrary view is implicit in Jackson v. Union Marine Insurance I942 FIB^SA Co., Ld. (2), for the charterparty in that case contained an SPOLKA exception of perils of the sea (3), bu t none the less the contract was held to have been terminated and the adventure to have AK CJJNA been frustrated by the long delay due to the stranding of the FAIRBAIRN ^ ^ ^ ship. The situation arising from the outbreak of the present war, so fai as this country, Germany and Poland are concerned, BARBOUR, Lp " makes applicable Lush J.'s well-known observation in Geipel v. Smith (4) : " A state of war" (in that case the Franco- viscount amon — German war of 1870) "must be presumed to be likely to " continue so long and so to disturb the commerce of merchants " as to defeat and destroy the object of a commercial adventure "like this." There is a further reason for saying that this subsidiary contention of the appellants must fail, namely, that, while this country is at war with Germany and Germany is occupying Gdynia, a British subject such as the respondents could not lawfully make arrangements to deliver c.i.f. Gdynia, and, therefore, the contract could not be further performed because of supervening illegality. A provision providing for a reasonable extension of time if dispatch is delayed by war cannot have any application when the circumstances of the war make dispatch illegal: Ertel Bieber & Co. v. Rio Tinto Co., Ld. (5).

Mr. Linton Thorp, in conducting the argument for the appellants before us, admitted that, if the point with which I have already dealt was decided against him, the only other issue to be determined was whether, when this contract became frustrated, the appellants could, in the circumstances of the present case, claim back from the respondents the 1000Z. which they had paid when placing the order. As to this, MacKinnon L.J., in delivering the judgment of the Court of Appeal, said (6) : "Tucker J. held that having regard to "the principle laid down in Chandler v. Webster (7) and other "like cases, this claim must fail. We think he was right, and, "further, that that principle must equally bind this court to "reject the claim. Whether the principle can be overruled is "a matter that can only concern the House of Lords." This alleged principle is to the effect that where a contract has (1) (2) (3) (4)

[1942] 1 K . B . i 2 , 26. (1874) L . R . 10 C. P . 12 5. L . R . 8 C. P . 572 , 584 . L - R - 7 Q- B . 404, 4 1 4 .

(5) [1918] A. C. 260 . (6) [1942] 1 K . B . 12, 27 . (7) [1904] 1 K. B. 493.

42

HOUSE OF LORDS

[1943]

H. L. (E.) been frustrated by such a supervening event as releases from i 94 2 further performance, " the loss lies where it falls," with the result that sums paid or rights accrued before that event are FIBROSA SPOLKA not to be surrendered, but all obligations falling due for AKCYJNA performance after th at event are discharged. This proposition, v. FAIRBAIRN whether right or wrong, first appears, not in Chandler v. I.AWSON Webster (i) but in Blakeley v. Midler & Co. (2), decided in COMBE BARBOUR, January, 1903, by a Divisional Court, which was also a case L-D. arising out of the abandonment of the coronation procession viscounty Simon owing to King Edward VII. 's sudden illness. In that case, Channell J. said (3) : " If the money was payable on some 'day subsequent to the abandonment of the procession, I do 'not think it could have been sued for. If, however, it was 'payable prior to the abandonment of the procession, the 'position would be the same as if it had been actually paid 'and could not be recovered back, and could be sued for '. . . . It is impossible to import a condition into a contract 'which the parties could have imported and have not done 'so. All that can be said is that, when the procession was 'abandoned, the contract was off, not that anything done 'under the contract was void. The loss must remain where 'it was at the time of the abandonment. It is like the case 'of a charterparty where the freight is payable in advance, ' and the voyage is not completed, and the freight, therefore, 'not earned. Where the non-completion arose through 'impossibility of performance, the freight could not be 'recovered back." In Civil Service Co-operative Society, Ld. v. General Steam Navigation Co. (4), which was decided in the Court of Appeal in October, 1903, Lord Halsbury L.C. expressed entire concurrence with this passage in the judgment of Channell J. Lord Alverstone C.J., who was a party to both these decisions, took the same view. If we are to approach this problem anew, it must be premised that the first matter to be considered is always the terms of the particular contract. If, for example, the contract is "divisible" in the sense that a sum is to be paid over in respect of completion of a defined portion of the work, it may well be that the sum is not returnable if completion of the whole work is frustrated. If the contract itself on its true construction stipulates for a particular result which is to follow in regard to money already paid, should frustration (1) [1904] 1 K. B. 493. (2) [1903] 2 K. B. 76cm.

(3) I b i d . 762*1. (4) [1903] 2 K. B. 756.

A. C.

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43

afterwards occur, this governs .the matter. • The ancient and H. L. (E.) firmly established rule that freight paid in advance is not Ig42 returned if the completion of the voyage is frustrated : Byrne F l ^ s v v. Schiller (1) ; should, I think, be regarded as a stipulation SPOLKA introduced into such contracts by custom, and not as the. A K C J J N A result of applying some abstract principle. And so, a fortiori, if FAIRBAIRN 1 there is a stipulation that the prepayment is " out and out." c^£ f To take an example, not from commerce, but from sport, the BARBOUR, LD cricket spectator who pays for admission to see a match ' cannot recover the entrance money on the ground that rain viscount simon has prevented play if, expressly or by proper implication, the — bargain with him is th at no money will be returned. Inasmuch as the effect of frustration may be explained as arising from an implied term : see Joseph Constantine Steamship Line, Ld. v. Imperial Smelting Corporation, Ld. (2) ; it is tempting to speculate whether a further term'could be implied as to what was to happen, in the event of frustration, to money already paid, but, if the parties were assumed to have discussed the point when entering into the contract, they could not be supposed to have agreed on a simple formula which would be fair in all circumstances, and all that could be said is that, in the absence of such agreement, the law must decide. The question now to be determined is whether, in the absence of a term in the contract dealing with the matter, the rule which is commonly called the rule in Chandler v. Webster (3) should be affirmed. This supposed rule has been constantly applied in a great variety of cases which have since arisen—and necessarily so, because the rule had been laid down in plain terms by the Court of Appeal in England in 1904, and the present appeal provides the first occasion on which it can be effectively challenged. A very different rule prevails in Scotland, as was made plain by the decision of this House in Cantiare San Rocco S. A. v. Clyde Shipbuilding and Engineering Co., Ld. (4). In that case the Earl of Birkenhead (5) was careful to reserve the question whether Chandler v. Webster (3) and the other English cases on the point were rightly decided, saying: " The "question is as to the law of Scotland, and I desire to say "nothing which may in any way fetter opinion if those "authorities hereafter come to be reviewed by this House, (1) L. R. 6 Ex. 319. (2) [1942] A. C. 154, 163. (3) [1904] 1 K. B. 493.

(4) [1924] A. C. 226. (5) Ibid. 233.

44

HOUSE OF LORDS

[1943]

H. L. (E.)

"for none of th em is bin din g upo n you r Lo rd sh ip s. " Similarly in the same case, Viscount Finla y (i) obs erved ig42 wou ^hat **• l d be out of place on t ha t occasion to ente r in to FIBROSA SPOLKA the question dealt with in Chandler v. Webster (2), adding: KCYJNA « j ^ e principle of English law was re- state d with great clearness FAIRBAJRN "by Lord Parmoor in the case of French Marine v. Compagnie CoIreE* " Napolitaine a" Eclair age et de Chauffage par le Gaz (3). This BARBOUR, "statement forms no part of the judgment of the House of jD ' "L or ds in th at case, but there is no doubt th at the principle viscount simon " h a s been repeatedly acted on in the Court of Appeal." Lord Dun edin in the Cantiare San Rocco case (4) referred to the different angle of approach from which an English or a Scottish judge would look at the question, and thought that the cause was to be found in the reluctance of the English law to order the repa ym ent of money once paid. Bu t he added : " I do not enlarge on th e topic , for I am no t at all "concerned to criticize English law . . . . For the purpose "of this case, it is sufficient to say, as I unhesitatingly do, " t h a t Chandler v. Webster (2), if it had been tried in Scotland, "w oul d have been decided the other wa y. " Lord Duned in's restraint was not imitated by Lord Shaw, whose pronounce ment included a vigorous denunciation (5) of the proposition that the loss lies where it falls as amounting to a maxim which "works well enough among tricksters, gamblers and thieves." The learned Lord asserted that this was part of the law of England (presumably meaning that it had been so laid down by the English Court of Appeal), but patriotically rejoiced that it had never been part of the law of Scotland. Mr. Valentine Holmes, in his able argument for the respondents, asked us to consider whether this House would be justified in disturbing a view of the law which has prevailed for near ly forty yea rs, which has been so freq uently affirmed, which has been constantly applied in working out the rights of the parties to commercial contracts, and which, moreover, at any rate furnishes a simple rule against the effect of which the parties to a contract can, if they so desire, expressly pro vid e. These are weigh ty considerations", bu t I do not think they ought to prevail in the circumstances of this case over our primary duty of doing our utmost to secure that the law on this important matter is correctly expounded and applied. If th e view which has hit her to prevailed in thi s (1) [1924] A. C. 226 , 24 1. (2) [1904] 1 K. B. 493(3) [1921] 2 A. C. 494, 523.

(4) [1924] A. C. 226 , 24 8. (5) I bi d . 259.

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matter is found to be based on a misapprehension of legal H. L. (E.) principles, it is of great importance that these principles I942 should be correctly defined, for, if not, there is a danger that Fi^SA the error may spread in other directions, and a portion of our SPOLKA law be erected on a false foundation. Moreover, though the A K C J* N A so-called rule in Chandler v. Webster (i) is nearly forty years FAIRBAIRN old, it has not escaped much unfavourable criticism. My noble c ^ ^ f and learned friend Lord Atkin when sitting in the Court of BARBOUR, Lp Appeal as Atkin L.J., in Russkoe Obschestvo d'lia Izgstovlenia " Snariadov I'voennick Pripassov v. John Stirk & Sons, Ld. (2), viscount^simon doubted whether any two business people in the world would — ever make a contract which embodied such .a doctrine as Chandler v. Webster (1) laid down, and in the present case the Court of Appeal, while bound by previous authority, hinted a hope that this House might be able to substitute a "more civilized rule " (3). I think, therefore, that we ought to regard ourselves as at liberty to examine the challenged proposition freely, and to lay down what we regard as the true doctrine in English law without being hampered by a course of practice based on previous decisions in the Court of Appeal. The locus classicus for the view which has hitherto prevailed is to be found in the judgment of Collins M.R. in Chandler v. Webster (1). It was not a considered judgment, but it is hardly necessary to say that I approach this pronouncement of the then Master of the Rolls with all the respect due to so distinguished a common lawyer. When his judgment is studied, however, one cannot but be impressed by the circum stance that he regarded the proposition that money in such cases could not be recovered back as flowing from the decision in Taylor v. Caldwell (4). Taylor v. Caldwell (4), however, was not a case in which any question arose whether money could be recovered back, for there had been no payment in advance, and there is nothing in the judgment of Blackburn J., which, at any rate in terms, affirms the general proposition that " the loss lies where it falls." The application by Collins M.R. of Taylor v. Caldwell (4) to the actual problem with which he had to deal in Chandler v. Webster (5) deserves close examination. He said : " The plaintiff contends that "he is entitled to recover the money which he has paid "on the ground that there has been a total failure of (1) [1904] 1 K . B . 49 3. (2) 10 LI. L. R e p . 214 . (3) [1942] 1 K. B. 12, 28.

(4) 3 B . & S. 826. (5) [1904] 1 K. B . 493, 499.

46

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H. L. (E.)

[1943]

"co nsi der ati on. He says th a t th e condition on which he p ai d "the money was that the procession should take place, and ig42 FIBROSA "that, as it did not take place, there has been a total failure SPOLKA "of consideratio n. Th at conten tion does no dou bt raise a KCYJNA " q U e s t i o n 0 f s o m e difficulty, an d one which has per ple xed FAIRBAIRN " t h e cour ts to a considerable ext en t in several cases. The I S I "principle on which it has been dealt with is that which COM BE BARBOUR, "was applied in Taylor v. Caldwell (i) —nam ely , th at where, Lp ' "f rom causes outside th e volition of the par tie s, some thing viscountysunou "which was th e basis of, or essential to th e fulfilment of, the L.C "contract has become impossible, so that, from the time when "the fact of that impossibility has been ascertained, the "contract can no further be performed by either party, it "remains a perfectly good contract up to that point, and "everything previously done in pursuance of it must be "treated as rightly done, but the parties are both discharged "f rom f urther performa nce of it. If th e effect were th a t t he "contract were wiped out altogether, no doubt the result " would be tha t m oney paid und er it would hav e to be r epa id " a s on a failure of cons ider ation. Bu t th at is not th e effect " of the doctri ne ; it only releases the pa rti es from furt her "pe rfo rm anc e of the con tra ct. Therefore the doctri ne of " failure of consideration does not apply." It appears to me that the reasoning in this crucial passage is. open to two criticisms : (a) The claim of a pa rt y, who ha s paid money under a contract, to get the money back, on the ground that the consideration for which he paid it has totally failed, is not based on any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy in quasi-contract to the party who has not got th a t for which he bar gain ed. It is a claim to recover money to which the defendant has no further right because in the circumstances that have happened the money must be rega rded as received to th e plaintiff's use. It is tr ue t ha t the effect of frustration is that, while the contract can no further be performed, " it remain s a perfectly good cont rac t u p t o "that point, and everything previously done in pursuance of it "must be treated as rightly done," but it by no means follows th at the situatio n existing at the mom ent of frustra tion is one which leaves the party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of money paid on the ground of total (i) 3 B. & S. 826.

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failure of consideration is not to vary the terms of the contract H. L. (E.) in any way. The claim arises not because the right to be ig^2 repaid is one of the stipulated conditions of the contract, but Fl B ^, SA because, in the circumstances that have happened, the law SPOLKA gives the remedy. It is the failure to distinguish between (i.) A K C J ^ N A the action of assumpsit for money had and received in a case FAIRBAIRN where the consideration has wholly failed, and (2.) an action ^ ^ j f on the contract itself, which explains the mistake which I BARBOUR, 0 think has been made in applying English law to this subject' matter. Thus, in Blakeley v. Mutter & Co. (1), Lord Alver- viscomusimcm stone C.J. said, " I agree that Taylor v. Caldwell (2) applies, "but the consequence of that decision is that neither party "here could have sued on the contract in respect of anything "which was to be done under it after the procession had been "abandoned." That is true enough, but it does not follow that because the plaintiff cannot sue " on the contract " he cannot sue dehors the contract for the recovery of a payment in respect of which consideration has failed. In the same case, Wills J. (1) relied on Appleby v. Myers (3), where a contract was made for the erection by A. of machinery on the premises of B., to be paid for on completion. There was no pre payment and in the course of the work the premises were destroyed by fire. It was held that both parties were excused from further performance, and that no liability accrued on either side, but the liability referred to was liability under the contract, and the learned judge seems to have thought that no action to recover money in such circumstances as the present could be conceived of unless there was a term of the contract, express or implied, which so provided. Once it is realized that the action to recover money for a consideration that has wholly failed rests, not on a contractual bargain between the parties, but, as Lord Sumner said in Sinclair v. Brougham (4), "upon a notional or imputed promise to repay," or (if it is prefeired to omit reference to a fictitious promise) upon an obligation to repay arising from the circumstances, the difficulty in the way of holding tha t a prepayment made under a contract which has been frustrated can be recovered back appears to me to disappear, (b) There is, no doubt, a distinction between cases in which a contract is " wiped out "altogether," e.g., because it is void as being illegal from the start or as being due to fraud which the innocent party has (1) [1903] 2 K. B. 760W, 76m . (2) 3 B. & S. 826.

(3) L. R. 2 C. P. 651. (4) [1914] A. C. 398, 452.

48

HOUSE OF LORDS

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H. L. (E.) elected t o tr ea t as avoiding th e c ont rac t, an d cases in which i942 inte rveni ng impossibility " only releases the p arti es from "f ar th er performance of the co nt ra ct ." Bu t does th e disFIBROSA tinction between these two classes of case justify the deduction SPOLKA AKCYJNA o f C o l l i n s M ; R t h a t « t h e doctrine of failure of consideration FAIRBAIRN "does not apply" where the contract remains a perfectly c^ j^ f good cont ract up to th e dat e of frustrati on ? This conclusion BARBOUR, seems to be derived from the view that, if the contract remains D ' good an d valid up to the mome nt of frustratio n, money which viscomusimon has already been paid under it cannot be regarded as having been pa id for a cons ider atio n which ha s wholly failed. Th e party that has paid the money has had the advantage, what ever it ma y be worth, of the promise of th e oth er pa rt y. Th at is tr ue , bu t it is necessary to draw a disti ncti on. In En glis h law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an a c t —I am excluding con trac ts und er se al —an d th us, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, bu t the performance of th e promise. The money was paid to secure performance and, if performance fails the ind uce men t which bro ug ht abou t the pa ym en t is not fulfilled. If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the prom ise was given bu t could no t be fulfilled : see th e note s in Bullen and Leake's Precedents of Pleading, 9th ed., p. 263. In this connexion the decision in Rugg v. Minett (1) is instr uctiv e. There th e plaintiff had bought at auction a nu mb er of cask s of oil. Th e co nt en ts of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff un ti l thi s ha d been done. The plaintiff pa id in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while th e oth ers ha d no t. The plaintiff's ac tion was to recover the money he had paid as money received by the (1) 11 Ea st , 210.

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defendants to the use of the plaintiffs. The Court of King's H. L. (E.) Bench ruled that this cause of action succeeded in respect of I942 the casks which at the time of the fire had not been filled up F l B ^ S A to the prescribed quantity. A simple illustration of the same SPOLKA AKC f NA result is an agreement to buy a horse, the price to be paid down, J -> but the horse not to be delivered and the property not to pass FAIRBAIRN until the horse had been shod. If the horse dies before the ^ ^ ^ shoeing, the price can unquestionably be recovered as for a BARBOUR, Lr> total failure of consideration, notwithstanding that the promise " to deliver was given. This is the case of a contract de certo viscount Simon corpore where the certum corpus perishes after the contract is made, but, as Vaughan Williams L.J.'s judgment in Krell v. Henry (i) explained, the same doctrine applies " to cases where " the event which renders the contract incapable of performance "is the cessation or non-existence of an express condition or "s ta te of things, going to the root of the contract, and essential "to its performance." I can see no valid reason why the right to recover prepaid money should not equally arise on frustration arising from supervening circumstances as it arises on frustration from destruction of a particular subject-matter. The conclusion is that the rule in Chandler v. Webster (2) is wrong, and that the appellants can recover their 1000Z. While this result obviates the harshness with which the previous view in some instances treated the party who had made a prepayment, it cannot be regarded as dealing fairly between the parties in all cases, and must sometimes have the result of leaving the recipient who has to return the money at a grave disadvantage. He may have incurred expenses in connexion with the partial carrying out of the contract which are equivalent, or more than equivalent, to the money which he prudently stipulated should be prepaid, but which he now has to return for reasons which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands. These results follow from the fact tha t the English common law does not undertake to apportion a prepaid sum in such circumstances—contrast the provision, now contained in s. 40 of the Partnership Act, 1890, for apportioning a premium if a partnership is prematurely dissolved. It must be for the legislature to decide whether provision should be made for an equitable apportionment of prepaid moneys which have to be returned by the recipient in view of the (1) [1903] 2 K. B . 740 , 74 8. A. C. 194 3-

(2) [1904] 1 K. B. 493. 3

E

50

HOUSE

O F LORDS

[1943]

H. L. (E.) frustration of the contract in respect of which, they were paid. I move that the appeal be allowed, and that judgment be 1942 entered for the appellants. FIBROSA SPOLKA AKCYJNA

v. FAIRBAIRN LAWSON COMBE BARBOUR, LD.

My Lords, for the reasons given by the Lord Chancellor I agree that the appellant fails on all his points except that arising out of the frustration of the contract. I have no doubt that the contract in this case came to an end before the time for complete performance had arrived by reason of the arising of a state of war which caused an indefinite delay not contemplated by the parties, and eventually the legal impossibility of delivering the goods at a port occupied by the enemy. In other words, to use a short phrase of frequent occurrence since the beginning of the last war, the commercial adventure was frustrated. The legal effects of " frustration " are not in dispute. They were not determined for the first time either by the cases which arose on the post ponement of the coronation of Edward VII., or by reason of the last war. It is very necessary to remember that, as pointed out by Vaughan Williams L.J. in Krell v. Henry (1), the principle of law is the same whether the performance of the contract becomes impossible by the cessation of existence of a thing which is the subject of the contract (an obligation de certo corpore) or by the cessation or non-existence of an express condition or state of things going to the root of the contract and essential to its performance, and it is well settled that when a contract which is still executory on one or both sides is subject to frustration the law is that when the event happens the parties are excused from further performance, but have to give effect to rights under the contract already accrued before the happening of the event. A. sells a horse to B. for 50/., delivery to be made in a month, the price to be paid forthwith, but the property not to pass till delivery, and B. to pay A. each week an agreed sum for keep of the horse during the month. The horse dies in a fortnight. A. is excused from delivery and B. from taking delivery. B. is bound to pay the sum due for the fortnight during which the horse was kept. But what is the position as to the 50L, the price paid in advance ? This is in simple terms the problem in the present case. The answer that I venture to think would occur to most people, whether laymen or lawyers, would be that the buyer ought to get his money back, having had nothing for LORD ATKIN.

(1) [1903] 2 K. B. 740, 748.

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it, and the lawyer would support the claim by saying that it H. L. (E.) is money had and received to the use of the buyer, being money 1942 paid on a consideration which has wholly failed. FIBROSA But that is not the answer which was given in similar SPOLKA circumstances in the coronation cases, and it is those decisions AKCYJNA v. th at come up for review in the present case. The question FAIRBAIRN arose in the neatest form in Chandler v. Webster (i), where LAWSON COMBE the leading judgment was given in the Court of Appeal by BARBOUR, LD. Collins M.R., a master of the common law, whose opinion the profession have always rightly held in the greatest respect. Lord Atkin. In th at case the plaintiff had hired a room to view the corona tion procession on Thursday, June 26, 1902. On June 10 he wrote to the defendant: " I beg to confirm my purchase "of the first floor room of the Electric Lighting Board at "7, Pall Mall to view the procession on Thursday, June 26, "for the sum of 141/. 15s., which amount is now due. I "shall be obliged if you will take the room on sale, and I "authorize you to sell separate seats in the room, for which " I will erect a stand." It became the subject of controversy whether, in view of certain other terms arranged between the parties, the whole sum became due before the procession became impossible, but the courts decided, as was clearly the case, that it did so become due. It may be noted t ha t the defendant had nothing to do under the contract but allow the plaintiff the use of the room. On June 19 the plaintiff paid the defendant 100I. on account of the price of the room, but had not paid the balance at the time the procession was abandoned. The plaintiff claimed the return of the 100/. on a total failure of consideration, the defendant counterclaimed for the balance of 41/. 15s. Collins M.R. (2) dealing with the contention that there had been a total failure of consideration, after stating that it raised a question of some difficulty, stated that the principle on which it has been dealt with is that which was applied in Taylor v. Caldwell (3), namely, that where the contract has become impossible in the circumstances there stated "it remains a perfectly "good contract up to that point, and everything previously "done in pursuance of it must be treated as rightly done, but "the parties are both discharged from further performance of "it." So far the statement is unassailable. But the Master of the Rolls proceeded: "If the effect were that the contract (1) [1904] i K. B. 493. (2) Ibid. 499.

(3) 3 B . & S . 82 6. E2

52

HOUSE

H. L. (E.) 1942 FIBROSA SPOLKA AKCYJNA v.

FAIRBAIRH LAWSON COMBE BARBOUR, LD.

Lord Atkin.

OF L O R D S

[1943]

outt altogether, no doubt the th e result would be that "were wiped ou "money paid under it would have to be repaid as on a failure Bu t that is not the effect of the doctrine : "of consideration. But th e parties from further performance of the "it only releases the "contract. Therefore" (the italics are mine) "the doctrine nott apply." I t seems plain "of failure of consideration does no th e claim for for that th e Master of the Rolls is not repelling the th e doctrine as money had and received on the ground that the to impossibility of performance itself, as part of its content, th e claim. Taylor v. Caldwell (i), the principle of excludes the ha d nothing to do with money which he is expressly applying, had an d received. The claim was for damages in costs of had and th e defendants advertisements, etc., for concerts for which the had agreed to let their hall at the Surrey Gardens, a contract th e hall was which it was impossible to perform because the th e contract. The Master of the destroyed by fire after the th e common law rule as to money had ha d Rolls there is applying the ha d and received to a case of a contract where all that had happened was that in law both parties were released from further performance, and in those circumstances he seems to say : " The doctrine of failure of consideration only applies th e contract is wiped out altogether. In this case "where the not . The parties are only discharged from " i t is not. from further th e claim for for money had and "performance. Therefore, the "received must fail." th e difficulty which this decision causes me is My Lords, the to understand how this great lawyer came to the conclusion that th e claim for money paid on a consideration which th e contract was wholly failed could only be made where the for some construction wiped out altogether, and I have sought for of his words which stopped short of that absolute statement, for the proposition. but bu t I can find none. I know of no authority for It is true th at where where a party is in a position t o rescind a contract he may be able to sue for money which he has paid under the contract now rescinded, bu t there are numerous cases ha s been no question of rescission where such an where there has ha s lain. I may refer t o Giles v. Edward (2) where action has a contract to deliver wood was prevented by the defendant preventing performance by not loading all the wood ; Rugg v. th e buyer had ha d paid part of the purchase Minett (3), where the th e property in price on a sale of turpentine in casks, where the (1 ) 3 B . & S. 82 6. (2) (1797) 7 T e r m Rep . 181.

(3) (3) 11 E a s t , 210.

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some casks had passed while in seller's warehouse, but in some H . L. (E.) had not, and the purchaser was entitled to recover as money 1942 had and received the proportion properly attributable to the FIBROS FIBROSA A casks in which the prop p ropert erty y had ha d not passed ; Nockels v. SPOLKA Crosby ( i ) ; Wilson v. Church (2); National Bolivian Navigation AKCYJNA V. (4) ; and Ashpitel v. FFAIRBAIR Co. v. Wilson (3) ; Johnson v. Goslett (4) AIRBAIRN N LAWSON Sercombe (5), in all of which the plaintiff had put up money COMBE for an adventure which was eventually abandoned by the BARBOUR, LD. promoters ; Devaux v. Conolly (6), where there had been an over-paym over -payment ent in respect of of goods goods delivered. In none of these Lord Atkin. cases cases was it suggested suggested th at the th e contrac con tractt was " wiped wiped out "alt "a ltog oget ethe her. r."" Indeed, in other case casess where where it is suggested suggested that the contract was " rescinded," all that is meant is that the party was entitled to treat himself as no longer bound to perform perform and to recover what he himsel himselff has paid. With Wit h great respect, therefore, to the judgment in Chandler v. Webster (7), I do not agree with that part of it which refused to give effect to the plaintiff's claim for return of the sum which he had paid on the ground of total failure of consideration. Some discussion arose as to the precise meaning of this term. It was pointed out that the consideration for the part payment by the appellants was the promise by the respondents to deliver the goods c.i.f. at Gdyn Gd ynia ia;; and the promi promise se was was always effec effectiv tivee unti un till further furt her performance was excused. I personally perso nally agree with that statement of what the consideration was, and I do not thi t hink nk it necessary to use the th e word " consideration " in two senses. senses. I understand under stand by b y the phrase that th at the promise promise to deliver goods totally failed because no goods were or could be delivered, and that therefore a cause of action accrued to the appellants. appel lants. I should should add that th at,, if if it was wrong in Chandler v. Webster (7) to refuse the plaintiff relief on his claim, it was also wrong to give the defendant judgment on his counterclaim. counterclaim. I t is true tru e that th at th e right to receiv receivee the balance had accrued before frustration, but if the money had been paid it could have been recovered back as the Tool. could, and the principles relating to circuity of action would affo afford rd a defenc defencee to the th e counterclaim counte rclaim.. Lord Dunedin quotes quot es with approval in the law of Scotland the brocard " frustra "petis quod mox es restiturus," French Marine v. Compagnie (1) (2) (3) (4)

(1825) 3 B. & C. 814. 13 Ch. D. 1. 5 App. Cas. 176. 3 C. B. (N. S.) 5 6 9 .

(5) (1850) 5 Ex. 147. (6) 8 C. B. 640. (7) [1904] 1 K. B. 493.

54

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v. FAIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Atkin.

[1943]

an d Napolitaine d'Eclairageet de Chauffage par le Gaz (1), and th e English law in this respect. I t the expression aptly fits the th e House of was urged before us that in the case last cited the Lords held that Chandler v. Webster (2) was rightly decided, and that this House is consequently bound to follow it. I cannot agree. The French Marine case (3) was a case of a time charter under which hire was paid monthly in advance, and the ship was only redelivered after part of the month h ad expired. Lord Sumner (4) draws attention to the fact that there was no total failure of consideration, but a partial failure only, for which in law no pro rata repayment could be claimed. I t th e present question did not arise, is obvious, therefore, that the and an d in Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (5), a case which turned on the Scots th e question of the English law, all their Lordships treated the law as open in this House. In the case last mentioned it was decided that according to Scots law restitution could be made of sums paid in advance where where the th e contract was frustrated, th e English and an d Scots law and it is satisfactory to find that the th e now agree on this point. It is unnecessary to discuss the th e Scots law does not in fact interesting suggestion that the th e claimant to recover necessarily the th e whole amount entitle the paid, b u t only so much as can be shown to be an unjust th e latter enrichment of the defender—in defender—in other words, that th at the may claim an adjustment in respect of the th e amount by which he outt of of pocket for expenses t he contract. is ou expenses incurred incu rred in respect respect of the There was no decision on this point in the case, though this th e interlocutor of Lord Hunter, th e Lord House affirmed the ha d given permission to the defenders to amend Ordinary, who had for expenses, their pleas in order, as it appears, to counterclaim for a proceeding which in any event I do not understand. I t may be that th at such such an adjustment adjustm ent was possibl possiblee under unde r Roman law, but there seems no direct authority for it in Scots law, and there is a dictum of great weight against it in the judgment of Lord President Inglis in William Watson & Co. v. Shankland (6). That the th e result of the law may cause hardship when a an d contract is automatically stayed during performance and any further right to performance is denied to each party is ma y have almost completed incontrovertible. One party may expensive work. He can get no compensation. The other (1) [1921] 2 A. C. 494, 511. (2) [1904] 1 K. B . 493 . (3) [1921] 2 A. C. 494.

(4) Ibid. 517. (5) [1924] A. C. 226. (6) (T871) 10 M. 142, 152 .

A. C.

AND PRIVY COUNCIL. COUNCIL.

party may have paid the whole price, and if he has received but a slender part of the consideration he can get no com pensation. At present it is plain tha t if if no money has been been paid on the contract there is no legal principle by which loss can be made good. good. What Wha t is being now decided decided is is th at the application of an old-established principle of the common law does enable a man who has paid money and received nothing for for it to recover recover the money so expended. At any rate, it can be said it leaves the man who has received the money and given nothing for it in no worse position than if he had received none. Many commercial contracts provide for various risks. I t is always possible possible to provide for for the th e risk of frustration, frustration , but what provision provision the t he parties p arties may agree agree will will probably probab ly take some some time to negotiate. Meanwh Meanwhil ile, e, by the th e application of a general doctrine which is independent of the special contract and only comes into play when further per formance of the latter is precluded, the man who pays money in advance on a contract contrac t which which is is frustrated and receives receives nothing for for his payment payme nt is entitled entitle d to recover recover it back. I think, therefore, that the appeal should be allowed. (read by LORD MACMILLAN). My Lords, that which has been described during the argument of this case, and at other times, as " the rule in Chandler v. Webster " (1) should, I think, rather be called the rule (to put " Webster " it shortly) th at in cases of frustration frustr ation loss loss lies where it falls, or (at greater length) tha t hatt where where a contract is discha discharged rged by reason of supervening impossibility of performance payments previously made and legal rights previously accrued according to the terms of the contract will not be disturbed, but the partie par tiess will will be excused from from liability liabi lity further to perform the th e contract cont ract.. I say this because, as I read the judgment of the Master of the Rolls in Chandler v. Webster (1), he does not purport to be framing any new rule, or laying down any new law. He thought though t tha t hatt the t he case case which which he was deciding deciding was one which, on its facts, was governed by a rule already estab lished by the authorit autho rities ies.. In Scotland the consequence consequence of frustrat frus tration ion is not th a t loss lies where it falls. falls. The Scots law derives from from the th e Roman Ro man law a different different view, founded on the doctrine of restitutio, which has no place in English law, and which it is not open to us to import into the law of England. We must examine the rule as it exists in the law of of England, Englan d, and LORD RUSSELL OF KILLOWEN

(1) [1904] 1 K. B. 493.

55 H . L. (E.) 1942 FIBROSA SPOLKA AKCYJNA


Lord Atkin.

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[1943]

determine whether the th e appellants are entitled to be repaid the 1000Z. If Chandler v. Webster (1) was rightly decided, they would clearly not be so entitled. th e doubt as to the correctness of It is to be observed that the the rule only arises in cases in which one of the parties to the ha s paid over to the other party the th e whole or part of contract has for what he the money payable by him as the consideration for th e other is to receive as the consideration moving from the ha s been paid the th e rule must apply, party. If no such money has for for I know no principle of English law which would enable ha s been frustrated to receive either party to a contract which has th e other compensation for any expense, or indemnity from the an y liability, already incurred in performing the th e contract. from any Nor could moneys paid before frustration be recovered if th e payment has received some part of the person making the th e other party for which the consideration moving from the th e rule would the payment was made. In such a case the still apply. But Bu t I am of opinion that this appeal should succeed because of another aspect of the matter. In the present case t h e appellants, before frustration, paid in advance a part of the th e machines. We heard an elaborate argument as to price of the th e exact consideration moving from the th e respondents what was the for payment for that part of the contract which stipulated for of part of the price in advance. I am not aware of any justification for splitting up the consideration in this way, for each separate provision of and assigning a consideration for th e contract here in question the th e con a contract. Under the th e respondents was either the th e delivery sideration moving from the th e machines at Gdynia, or the promise to deliver the th e of the machines at Gdynia. I think that the delivery was the consideration, but in whichever way the consideration is viewed, it is clear that no part of the consideration for which th e part of the price of the machines was paid ever reached the appellants. There was a total failure of the consideration for th e money was paid. In those circumstances, why which the th e appellants not be entitled to recover back the th e should the money paid, as money had and received to their use, on the ha s wholly ground that it was paid for a consideration which has failed ? I can see no reason why the ordinary law, applicable th e person in such a case, should not apply. In such a case the th e payment is entitled to recover the th e money who made the (1) [1904] 1 K. B . 493-

A.O.

AND PRIVY COUNCIL.

paid. That is a right which in no way depends upon t he continued existence of the frustrated contract. It arises from the fact that the impossibility of performance has caused a total failure of the consideration for which the money was paid. In his judgment in Chandler v. Webster (i) the Master of the Rolls states that the right to recover moneys paid for a consideration which has failed only arises where the contract is " wiped out altogether," by which expression I understand him to mean is void ab initio. This is clearly a misapprehension on the part of the learned judge. The money was recoverable under the common indebitatus count, as money received for the use of the plaintiff. The right so to recover money paid for a consideration that had failed did not depend on the contract being void ab initio. There are many such cases in the books in which the contract has not been void ab initio, but the money paid for a consideration which has failed has been held recoverable. Thus, as one example, money paid as a deposit on a contract of sale which has been defeated by the fulfilment of a condition is recoverable : Wright v. Newton (2). It was submitted by the respondents, but without argument, that money paid for a consideration which had failed was recoverable only when the failure was due to the fault of the other party to the contract, but, on the authorities, this submission is clearly ill-founded. Chandler v. Webster (1) was, accordingly, in my opinion, wrongly decided. The money paid was recoverable, as having been paid for a consideration which had failed. The rule th at on frustration the loss lies where it falls cannot apply in respect of moneys paid in advance when the consideration moving from the payee for the payment has wholly failed, so as to deprive the payer of his right to recover moneys so paid as moneys received to his use, but, as I understand the grounds on which we are prepared to allow this appeal, the rule will (unless altered by legislation) apply in all other respects. My Lords, speaking in 1923 of the so-called " coronation c ase s" Lord Shaw ventured on prophecy. " No doubt," he said, " the occasion will arise "when that chapter of the law will have to be considered in "this House," for, as the Earl of Birkenhead had pointedly observed, " none of them " [the " coronation cases "] " i s "binding upon your Lordships": Cantiare San Rocco S.A. LORD

MACMILLAN.

(1) [19 04] 1 K . B . 493 -

(2) (1835) 2 C. M. & R . 124 .

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H. L. (E.) v. Clyde Shipbuilding and Engineering Co. (i ). The mills of th e law grind slowly. Thi rty -ei ght ye ars ha ve elapsed since the Ig42 Court of Appeal pronounced judgment in Chandler v. FIBROSA Webster (2), and nineteen years have passed since Lord Shaw SPOLKA KCYJNA u s e ( j ^ e words which I have quo ted, but now at lengt h in FAIRBAIRN the present appeal the occasion foretold has arisen, and I m a v COMBS' ^ e P e r m itted to express my gratification that it has BARBOUR, been employed to clear the law of England by the unanimous D ' judg ment which th e House is to- day pronounci ng from th e Lord Macmiiian. reproach to which it was exposed so long as the law laid down in Chandler v. Webster (2) held the field. My Lord s, ever y system of law ha s ha d to face the p rob lem of defining the consequences of a contract becoming impossible of fulfilment owing to some ext ern al super venin g event for which neithe r of th e parties is responsible. Th at such a n eve ntu ali ty releases bot h parties from further performance of any of the stipulations of the contract is agreed on all hand s. Ea ch mus t fulfil his con tra ctu al obligations up t o the moment when impossibility supervenes, for the contract is not avoid ed by becom ing impossible of fulfilment, bu t th e du ty of furthe r performanc e ceases. Ha vi ng so declare d, mus t the law stop there ? W ha t if mone y has been paid, work has been done, or liabilities have been incurred by one or other or both of the parties in pursuance of or in reliance on the fulfilment of th e cont rac t which now can neve r be comp lete d ? The law ma y say th at th e event which has rendered fulfilment of the contract impossible is, so far as the parties are concerned, a mere accident, that of mere accident the law takes no cognizance and for its consequences affords no redress, and that loss or gain must lie where it happens to fall and the parties must be left where they stood when their contract was frustra ted. On th e other han d, th e law ma y endea vour to effect an equitable adjustment between the parties so as to restore each as far as may be to the position which he occupied before he entered into the contract and by a process of give and take to mitigate the consequences of the contract havin g prove d abort ive. I find this doctrine of resti tut ion stated in its broadest terms in Pufendorf's celebrated treatise on the Law of Nature and Nations, first published in 1672, as follows : " Wh en t he t hi ng a t t he t ime of maki ng th e "promise or pact appeared possible and afterwards becomes "impossib le, we mu st enquire whethe r this happe ned by (1) [192 4] A. C. 226 , 23 3, 25 7, 25 8.

(2) [190 4] 1 K. B . 493 -

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"mere (meer) chance, or by default and deceit. In the former H. L. (E.) " case the pact is disannulled, if nothing has yet been performed I942 " on either side. If anything have been already done, towards p , ^ S A "it by one of the parties, the other shall give it back, or pay SPOLKA "to the value of it ; if neither of these can be done he is to use A K C * J N A "his best endeavours, that the man be not a loser by him. For FAIRBAIRN "in contracts, the first regard is had to the thing expressly ^COM° ^ " mentioned in the agreement; when this cannot be obtained, it BARBOUR, D "is sufficient to give an equivalent; but whatever happens, all " "imaginable care is to be used, that the other party suffer no LQ^ Maamiian. "prejudice." (Bk. II I. , ch. 7, s. 3. English Translation, Oxford, 1703, p. 225.) It is obvious that neither of these attempted solutions of the difficulty can be productive of complete justice. To leave matters as they stood when the contract became impossible of fulfilment may result in great gain to one of the parties and great loss to the other and to a grave infringement of the maxim nemo debet locupletari aliena jactura. It is no consolation to the individual sufferer to be told that on the whole such a rule works less injustice than any other. It is, in truth, a confession of impotence in the face of a problem deemed to be inextricable. On the other hand, to attempt to restore matters in their entirety is to attempt the impossible. The hands of the clock cannot be turned back. Things cannot be as if they had not been. At best some sort of equitable accommodation can be achieved which must inevitably fall short of complete justice. The process is sought to be rationalized on a theory of quasicontract. The parties have made no provision in their contract for the event which has frustrated it, so the law implies for them what it assumes they would have agreed on if they had had the unforeseen contingency in contemplation when they entered into their contract. On another view, restitution is regarded as a separate principle of the law independent of contract. Presented with this choice of methods of dealing with the situation, the law of England has adopted as its general principle the first of the two alternatives, namely, th at each party shall be left as he stood, despairing of the practicability of conjecturing and enforcing what the parties might be assumed to have agreed on if they had contemplated and provided for the unforeseen contingency. The law of Scotland, on the other hand, following in this respect the Roman law, has accepted the principle of restitution, though how far it has

6o

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H. L. (E.) gone in doin g so an d wi th wha t qualifications i t would be out of pla ce for me to discuss here. It ma y suffice to refer I942 e FIBROSA *° ^ speeches of Lord Dunedin and Lord Shaw in the Canliare SanRocco case (i). But the law of England has characteristically SPOLKA KCYJNA m itigated the rigour of its doctrine in one instance, namely, FAIRBAIRN where in pursuance of a contract money has been paid by one P a r ty t° t n e other for a consideration which has completely COMBS' BARBOUR, failed. The rig ht of a plaintiff to recover, un de r th e common P " ind ebi ta tus coun t for mone y received, an y sum which he ha s Lord Macmiiian. p a i d f or a consideration which has wholly failed has long been fully recognized in th e common law of En gl a n d: see Bullen and Leake's Precedents of Pleading, 3rd ed., 1868, pp. 44 et seq. My noble and learned friends whose opinions I have had the privilege of reading in advance have by ample citations fully vouched the law on the subject and the task is more fittingly discharged by them than by me. How, then, if such be the law of England did Chandler v. Webster (2) come to be decided as it was, for there never was a clearer case of money paid for a consideration which had enti rely failed ? The exp lana tio n is to be found in the pa ssage in th e judg ment of Collins M.R. (3), where he said tha t th e doctrine of failure of consideration applies only where a contract is " wiped out a lt og et h er " or, as R ome r L. J. pu t it (4) " rescinded ab initio," and does not apply where the parties are merely released from furthe r performance. I can only say, with all respect, that this is a complete misapprehension. There is no authority for such a distinction and there is ample au th or it y to prove th at it does not exist. It has no basis in principle or prece dent. So Chandler v. Webster (4) and its congeners must be consigned to the limbo of cases dis app rov ed an d overruled. The y will be unw ept save by thos e to whom for so ma ny yea rs th ey hav e furnished a fruitful an d enlivening top ic of discussion in lecture rooms and periodicals. Your Lordships being of one mind that the so-called rule in Chandler v. Webster (4) is uns oun d, th e w ay lies clear for th e decision of th e presen t case. The app ell ant s mad e a pa ym en t to the respondents on account of the price of certain plant which the respondents were to manufacture and deliver to th em . Owing to circumstanc es arising out of the prese nt hostilities the contract has become impossible of fulfil men t according to its term s. Neithe r pa rt y is to bl ame. (1) [19 24] A. C. 22 6. (2) [1904] 1 K. B. 49 3.

(3) Ib id . 499(4) Ibi d. 50 1.

A. C.

AND PRIVY COUNCIL.

In return for their money th e appellants have received nothing whatever from the respondents by way of ful filment of any part of the contract. It is thus a typical case of a total failure of consideration. The money paid must be repaid. I am, accordingly, in favour of allowing the appeal.

My Lords, the claim in the action was to recover a prepayment of iooo/. made on account of the price under a contract which had been frustrated. The claim was for money paid for a consideration which had failed. It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tor t, and are now recognized to fall within a third category of the common law which has been called quasi-contract or restitution. The root idea was stated by three Lords of Appeal, Lord Shaw, Lord Sumner and Lord Carson, in R. E. Jones, Ld. v. Waring & Gillow, Ld. (i), which dealt with a particular species of the category, namely, money paid under a mistake of fact. Lord Sumner referring to Kelly v. Solari (2), where money had been paid by an insurance company under the mistaken impression that it was due to an executrix under a policy which had in fact been cancelled, said: "There was no real intention on "the company's part to enrich her." Payment under a mistake of fact is only one head of this category of the law. Another class is where, as in this case, there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such circumstances no intention to enrich the payee. This is the class of claims for the recovery of money paid for a consideration which has failed. Such causes of action have long been familiar and were assumed to be common-place by Holt C.J. in Holmes v. Hall (3) in 1704. Holt C.J. was there concerned only about the proper form of action and took the cause of the action as beyond question. He said: " If A "give money to B to pay to C upon C's giving writings, etc., LORD WRIGHT.

(1) [1926] A. C. 670 , 696 . (2) (1841) 9 M. & W. 54.

(3) (1704) Holt 3 6.


v. FAIRBAIR N LAWSON COMBE BARBOUR LD.

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v. l'AIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Wright.

[1943]

"and C will not do it, indebit will lie for A against B for so "much money received to his use. And many such actions "have been maintained for earnests in bargains, when the "bargainor would not perform, and for premiums for insurance, "when the ship, etc., did not go the voyage." The Chief Justice is there using earnest as meaning a prepayment on account of the price, not in the modern sense of an irrevocable payment to bind the bargain, and he is recognizing that the indebitatus assumpsit had by that time been accepted as the appropriate form of action in place of the procedure which had been used in earlier times to enforce these claims such as debt, account or case. By 1760 actions for money had and received had increased in number and variety. Lord Mansfield C. J., in a familiar passage in Moses v. Macferlan (1), sought to rationalize the action for money had and received, and illustrated it by some typical instances. " I t lies," he said, "for money paid by mistake ; "or upon a consideration which happens to fail; or for money "got through imposition (express, or implied;) or extortion; " or oppression ; or an undue advantage taken of the plaintiff's "situation, contrary to laws made for the protection of persons "under those circumstances. In one word, the gist of this " kind of action is, that the defendant, upon the circumstances "of the case, is obliged by the ties of natural justice and equity "to refund the money." Lord Mansfield prefaced this pro nouncement by observations (2) which are to be noted. "If "the defendant be under an obligation from the ties of natural "justice, to refund; the law implies a debt and gives this action "[sc. indebitatus assumpsit] founded in the equity of the "plaintiff's case, as it were, upon a contract (' quasi ex con" ' tractu ' as the Roman law expresses it) ." Lord Mansfield does not say that the law implies a promise. The law implies a debt or obligation which is a different thing. In fact, he denies that there is a con tr act; the obligation is as efficacious as if it were upon a contract. The obligation is a creation of the law, just as much as an obligation in tort. The obligation belongs to a third class, distinct from either contract or tort, though it resembles contract rather than tort. This statement of Lord Mansfield has been the basis 6f the modern law of quasi-contract, notwithstanding the criticisms which have been launched against it. Like all large generalizations, it has needed and received qualifications in practice. There is, for (1) (1760) 2 Bu rr . 1005, 1012.

(2) 2 Bu rr . 1005, 1008.

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instance, the qualification that an action for money had and H. L. (E.) received does not lie for money paid under an erroneous 1942 judgment or for moneys paid under an illegal or excessive FIBROSA distress. The law has provided other remedies as being more SPOLKA convenient. The standard of what is against conscience in this AKCYJNA v. context has become more or less canalized or defined, but in FAIRBAIRN substance the juristic concept remains as Lord Mansfield LAWSON COMBE left it . BARBOUR, LD. The gist of the action is a debt or obligation implied, or, more accurately, imposed, by law in much the same way as the law Lord Wright. enforces as a debt the obligation to pay a statutory or custom ary impost. This is important because some confusion seems to have arisen though perhaps only in recent times when th e true nature of the forms of action have become obscured by want of user. If I may borrow from another context the elegant phrase of Viscount Simon L.C. in United Australia, Ld. v. Barclays Bank, Ld. (1), there has sometimes been, as it seems to me, "a misreading of technical rules, "now happily swept away." The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and the assumpsit. The former was the basis of the claim and was the real cause of action. The latter was merely fictitious and could not be traversed, but was necessary to enable the con venient and liberal form of action to be used in such cases. This fictitious assumpsit or promise was wiped out by the Common Law Procedure Act, 1852. As Bullen and Leake (Precedents of Pleading, 3rd ed., p. 36) points out, this Act, by s. 3, provided that th e plaintiff was no longer required to specify the particular form of action in which he sued, and by s. 49 that (inter alia) the statement of promises in indebitatus counts which there was no need to prove were to be omitted ; "the action of indebitatus assumpsit," th e authors add, "i s " [that is by 1868] virtually become obsolete." Lord Atkin in the United Australia case (2), after instancing th e case of the blackmailer, says : "The man has my money which I have not " delivered to him with any real intention of passing to him the "property. I sue him because he has the actual property "taken." He ad ds: "These fantastic resemblances of con" tracts invented in order to meet requirements of the law as to "forms of action which have now disappeared should not in "these days be allowed to affect actual rights." Yet the ghosts of the forms of action have been allowed at times to (1) [1941] A. C. 1, 2 1 .

(2) [1941] A . C. 1, 29 .

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Lord Wright

[1943]

intrude in the ways of the living and impede vital functions of the law. Thus in Sinclair v. Brougham (1), Lord Sumner stated that "all these causes of action [sc. for money had and "received] are common species of the genus assumpsit. All "now rest, and long have rested, upon a notional or imputed "promise to repay." This observation, which was not necessary for the decision of the case, obviously does not mean tha t there is an actual promise of the party. The phrase "notional or implied promise " is only a way of des cribing a debt or obligation arising by construction of law. The claim for money had and received always rested on a debt or obligation which the law implied or more accurately imposed, whether the procedure actually in vogue at any time was debt or account or case or indebitatus assumpsit. Even the fictitious assumpsit disappeared after the Act of 1852. I prefer Lord Sumner's explanation of the cause of action in Jones's case (2). This agrees with the words of Lord Atkin which I have just quoted, yet serious legal writers have seemed to say that these words of the great judge in Sinclair v. Brougham (1) closed the door to any theory of unjust enrich ment in English law. I do not understand why or how. It would indeed be a reductio ad absurdum of the doctrine of precedents. In fact, the common law still employs the action for money had and received as a practical and useful, if not complete or ideally perfect, instrument to prevent unjust enrichment, aided by the various methods of technical equity which are also available, as they were found to be in Sinclair v. Brougham (1). Must, then, the court stay its hand in what would otherwise appear to be an ordinary case for the repayment of money paid in advance on account of the purchase price under a contract for the sale of goods merely because the contract has become impossible of performance and the consideration has failed for th at reason ? The defendant has the plaintiff's money. There was no intention to enrich him in the events which happened. No doubt, when money is paid under a contract it can only be claimed back as for failure of consideration where the contract is terminated as to the future. Characteristic instances are where it is dissolved by frustration or impossibility or by the contract becoming abortive for any reason not involving fault on the part of the plaintiff where the consideration, if entire, has entirely (1) [1914] A. C. 39 8, 45 2.

(2) [1926] A. C. 670 , 69 6.

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failed, or where, if it is severable, it has entirely failed as to the severable residue, as in Rugg v. Minett (1). The claim for repayment is not based on the contract which is dissolved on the frustration but on the fact that the defendant has received the money and has on the events which have super vened no right to keep it. The same event which auto matically renders performance of the consideration for the payment impossible, not only terminates the contract as to the future, but terminates the right of the payee to retain the money which he has received only on the terms of the contract performance. In Hirji Mulji. v. Cheong Yue Steamship Co., Ld. (2), Lord Sumner who has done so much in his judgments to elucidate the meaning and effect of frustration, contrasts rescission of a contract by one party on the ground of breach by the other party, which depends on election by the former, with frustration, which operates automatically apart from either party's election. He finds, however, a similarity in the respect that rights and wrongs which have come already into existence remain, though the contract is ended as regards obligations de fu tu re But the contract is in neither case wiped out, or avoided ab initio. The right in such a case to claim repayment of money paid in advance must in principle, in my judgment, attach at the moment of dissolution. The payment was originally conditional. The condition of re taining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simul taneously fail. It is not like a claim for damages for breach of the contract which would generally differ in measure and amount, nor is it a claim under the contract. It is in theory and is expressed to be a claim to recover money, received to the use of the plaintiff. This, I think, was the view of Lord Haldane L.C. speaking for the Judicial Committee in Royal Bank of Canada v. Reg. (3). He said : " It is a well-established "principle of the English common law that when money " has been received by one person which in justice and equity "belongs to another, under circumstances which render the "receipt of it a receipt by the defendant to the use of the "plaintiff, the latter may recover as for money had and "received to his use." The principle extends to cases where the money has been paid for a consideration which has failed. It applies, as was pointed out by Brett L.J. in- Wilson v. (1) 11 East, 210.

(3) [1913] A. C. 283, 296. J

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H. L. (E.) Church (i), when money has been paid to borrowers in con, I942 sideration of the undertaking of a scheme to be carried into en ec ° t subsequently to the payment and which has become FIBROSA SPOLKA abor tive . The lender has in thi s case a righ t to claim th e AKCYJNA r e t u r n 0 f t}j e m o n e y j n the hands of the borrowers as being Thi s languag e of Br et t L.J . was used in FAIRBAIRN held t o his use. connexion wi th the failure of a scheme for the deve lopm ent ^COMBT BARBOUR, of a concession in Bolivia which the Bolivian government revoked , thu s rend ering the fulfilment of the scheme impossible. Lord Wright. The House of Lords affirmed the judgment of a strong Court of Appeal, and held that the borrowers were entitled to repayment of their loan on the ground that the consideration for th e loan ha d failed : National Bolivian Navigation Co. v. Wilson, in par tic ula r per Lord Cairns L.C. (2). Some yea rs earlier a decision, not dissimilar in principle, was reached in 1850, in Ashpitel v. Set-combe (3). The plaintiff ha d paid a deposit on this application for shares in a projected railway company, but the scheme had to be abandoned for want of sufficient subscriptions. The appe al was hea rd before Pa tt es on, Coleridge, Maule, Cresswell, Wightman, Erie and Williams JJ., all masters of th e comm on law. The plaintiff 's claim for re tu rn of th e deposit was upheld. Pa tt es on J., deli vering th e jud gme nt of th e cour t, said (4) : "T hi s was an ac tion "for money had and received, brought by the plaintiff, an "allottee of shares in a proposed railway company, which "had been abandoned before the commencement of the "action, without any fraud or misconduct, against the "defendant, one of the managing committee, to recover back " t h e plaintiff's deposit Ther e seems to be no dou bt t h a t "the plaintiff having paid his money for shares in a concern "which never came into existence, or a scheme which was "abandoned before it was carried into execution, has paid it "on a consideration which has failed, and may recover it "b ac k as money had and received to his use ." It was further held that the defendant could not deduct money which the directors had expended towards carrying out the scheme, unless it could be shown that the plaintiff had consented to or acquiesced in th e applicatio n of his mone y. The bo oks contain other cases of a similar character, such as Johnson v. Goslett (5). These cases were merel y special inst ances "(1) 13 Ch. D. 1, 49. (2) 5 Ap p. Cas. 176, 185. (3) 5 Ex. 147.

Ex

(4) 5 - 161, 162. (5) 3 C. B. (N. S.) 569.

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where performance having become impossible, the payers were H. L. (E.) held entitled to recover what they had paid, the contract I942 having come to an end between the time when the money was F ] ^ s v paid and the date at which the contract was to be performed. SPOLKA AKC NA ^ Similar claims have been made for recovery of deposits paid. Such a claim has succeeded even under a contract by deed FAIRBAIRN L £ £ f£ £ for the purchase of an estate. Thus, in Greville v. Da Costa (1), the vendor was disabled from selling by an order of the Lord BARBOUR, Lp Chancellor. Lord Kenyon C.J. said that he held the purchase money against conscience, and, therefore, might be compelled Lord wnght. to repay it by an action for money had and received. It is clear that the failure of consideration need not be attributable to breach of contract or misconduct on the part of the defendant, as the cases I have cited and many others show. Impossibility of performance or frustration is only a particular type of circumstance in which a party who is disabled from performing bis contract is entitled to say that the contract is terminated as to the future, and in which repayment of money paid on account of performance may be demanded. These principles, however, only apply where the payment is not of such a character that by the express or implied terms of the contract it is irrecoverable even though the consideration fails. The contract may exclude the repayment. An illustration of this is afforded by advance freight which by English law is not recoverable if the delivery of the goods is prevented by the act of God, perils of the seas or other excepted cause which excludes an action of damages. In Allison v. Bristol Marine Insurance Co. (2), Lord Selborne stated it to be "the "peculiar rule of English mercantile law, that an advance on "account of freight to be earned . . . . is, in the absence of any "stipulation to the contrary, an irrevocable payment at the "risk of the shipper of the goods." So, indeed, the law had been laid down by Saunders C.J. in Anon. (Case 271) (3) in 1682 and has remained ever since. I may also refer to Byrne v. Schiller (4). The irrecoverable nature of the payment is there determined by custom or law, unless the contract provides for the contrary. In other cases likewise a particular contract may effectively make a prepayment irrecoverable. In the present case the payment is not made irrecoverable by any custom or rule of law, or by any express or implied terms of the contract. It was paid on account of the price. It was not (1) (1797) Pe ake Add. Cas. 113. (2) (1875) 1 Ap p. Cas. 209, 253.

(3) (1683) 2 Shower 283. (4) L. R. 6 Ex . 319. 3

F*

68

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H. L. (E.) 1942 < '■ 1 '

FIBROSA SPOLKA AKCYJNA


Lord Wright.

[1943]

paid out-and-out for the signing of the contract. When the sellers were disabled to perform the contract by the shipment to Gdynia becoming illegal, the ordinary rules of law and the authorities to which I have referred show that the sum of 1000/. paid in advance of the price was recoverable by the appellants in the present action. The court below have held themselves bound to reach the contrary decision only on the authority of certain cases, generally known as the "coronation cases," in particular Blakeley v. Mutter & Co. (1), reported in a note to Civil Service Co-operative Society, Ld. v. General Steam Navigation Co. (2), and Chandler v. Webster (3). These cases dealt with agreements for the hiring of rooms from which to view the procession on the coronation of King Edward VII. It had been held in Krell v. Henry (4), that the mere use of the rooms on the appointed day was only part of the consideration for the agreed payment, and that an essential part of the consideration was the opportunity of viewing the procession. That was the object or basis of the contract in contemplation of both parties. When the procession could not take place, the contract, it was held, became abortive or was frustrated. There was no decision in that case on whether money paid in advance was recoverable. In Blakeley v. Mutter & Co. (1) the prepayment had fallen due before the frustration supervened. A Divisional Court held that the hirer, who had paid in advance, could not recover back the money. They did not discuss the principles or authorities to which I have referred on the right to recover money paid for a consideration which has failed. I take the ratio decidendi from the judgment of Channell J., because in the next case of that type, the Civil Service Co-operative Society case (2), Lord Halsbury L.C., sitting in the Court of Appeal, quoted a long passage from it and added that he concurred with every word of it. The reasoning of Channell J., as I understand his judgment, was that the loss must remain where it was at the time of the abandon ment, because it was impossible to import into a contract a condition which the parties might have imported but had not, and that under Taylor v. Caldwell (5) and Appleby v. Myers (6) (cases of impossibility), all that was said was that the parties were excused from further, performance, not that anything (1) [1903] 2 K. B. 760M. (2) [1903] 2 K. B. 756. (3) [1904] 1 K. B. 493.

(4) [>903] 2 K. B. 740. (5) 3 B. & S. 826. (6) L. R. 2 C. P. 651.

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tha t was done under the contract was void. In the former H. L. (E.) case, the claim was for damages, in the latter it was on a 1942 quantum meruit for partial performance of an entire con F I B R O S A sideration. Each claim failed. Neither was a claim for money SPOLKA had and received. Channell J. instanced the case of advance AKCYJNA v. freight under the charterparty. I have already explained FAIRBAIR N th at rule, which in Lord Selborne's view is peculiar. I have LAWSON COMBE also explained my view that the right to repayment of advance BARBOUR, LD. payments as money had and received to the plaintiff's use is not a claim under the contract or for further performance Lord Wright. of the contract or for damages, but a claim outside the con tract. The ground of the claim is th at the contract has been dissolved as to future performance and hence that the con sideration has failed. The Court of Appeal, however, dismissed the claim for the money, following Blakeley v. Mutter & Co. (1). When shortly afterwards the same question on similar facts again came before a differently constituted Court of Appeal, in Chandler v. Webster (2), Collins M.R. discussed the matter more elaborately, but he still ignored the principles and authorities on the action for money had and received to which I have referred, though the claim was to recover as on a total failure of consideration. He indeed discussed the case from that point of view. The hirer was claiming to recover what he had paid in advance and was resisting a counterclaim for the balance which was by the contract payable before the date when the procession became impossible. He ought, in my opinion, to have succeeded on both issues, but by the judgment of the Court of Appeal he failed on both. The reasoning of the Master of the Rolls may, I think, fairly be summarized to be that impossibility through the fault of neither party leaves the parties where they were but relieves them from further performance, and that it is only if the contract is wiped out altogether that money paid under it would have to be repaid as on a failure of consideration, but that the only effect of impossibility is to release the parties from further performance. The rule, he said, is arbitrary, but it is really impossible to work or adjust with any exactitude wha't the rights of the parties in the event should be. I hesitate to criticize the ruling of so great a lawyer as the Master of the Rolls, but I cannot concur in these propositions. I need scarcely repeat my reasons for doing so, which are apparent from what I have already said. The claim for money had (1) [19 03] 2 K . B . 760W,

(2) [19 04] 1 K, B . 49 3, 49 9.

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70 H. I.. (E.) 1942 FIBROSA SPOLKA AKCYJNA v. FAIRBAIRN LAWSON COMBE BARBOUR, LD.

Lord Wright.

[1943]

and received is not, in my opinion, a claim for further per formance of the contract. It is a claim outside the contract. If the parties are left where they are, one feature of the position is that the one who has received the prepayment is left in possession of a sum of money which belongs to the other. The frustration does not change the property in the money, nor is the contract wiped out altogether, but only the future performance. I may add that the difficulty emphasized by the Master of the Rolls that such a claim involves con structing a hypothetical contract by supposing what terms the parties would have arrived at if they contemplated the future impossibility does not arise, but I do not think that this way of envisaging the matter accords with the true position. In my opinion, the contract is automatically terminated as to the future because at that date its further performance becomes impossible in fact in circumstances which involve no liability for damages for the failure on either party. When the court holds a contract to be thus terminated, it is simply giving appropriate effect to the circumstances of the case, including the actual contract and its meaning applied to the event. It is this view which is involved in Lord Sumner's phrase in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1). " I t " [sc. the doctrine of frustration] "is really a device, by which the rules as to "absolute contracts are reconciled with a special .-exception "which justice demands." He combined with this a reference to what has been generally accepted by English law, that the rule is explained in theory as a condition or term of the contract implied by the law ab initio. No one who reads the reported cases can ignore how inveterate is this theory or explanation in English law. I do not see any objection to this mode of expression so long as it is understood that what is implied is what the court thinks the parties ought to have agreed on the basis of what is fair and reasonable, not what as individuals they would or might have agreed. "It is," said Lord Sumner (1), "irrespective of the individuals con cerned, their temperaments and failings, their interest and "circumstances." The court is thus taken to assume the role of the reasonable man, and decides what the reasonable man would regard as just on the facts of the case. The hypothetical "reasonable man" is personified by the court itself. It is the court which decides. The position is thus somewhat like the position in the cases in which the court (1) [1926] A. C. 49 7, 510 .

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imports a term in a contract on the basis of what is reasonable. H. L. (E.) As frustration is automatic, so equally the claim for money 1942 had and received here follows automatically. FIBROSA Chandler v. Webster (i) has bound subsequent Courts of SPOLKA Appeal. Mr. Holmes has contended that it was accepted by AKCYJNA V. this House as good law in the French Marine case (2), and FAIRBAIRN was not open to review by your Lordships. The most obvious LAWSON COMBE and shortest answer to that argument is that in Cantiare San BARBOUR, LD. Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (3), Lord Birkenhead observed of Chandler v. Webster (1) that none Lord Wright. of the relevant authorities on the law of England on this question was binding on the House. Lord Atkinson agreed and Lord Shaw indicated that the question of English law was open in this House. The French Marine case (2) related to freight under a voyage charter payable on a time basis, and the decision may, therefore, have been affected by the English rule as to advance freight, because it was a claim for repay ment of time freight paid in advance for days subsequent to the requisition of the ship which rendered her further use by the charterers impossible. Their Lordships were divided in opinion, and it is not clear that there was any real agreement among the majority as to the ratio decidendi. I think the essential ground taken was that the contract provided for certain events in which freight was to cease, but not for the particular event in which the contract terminated, but it was also treated as a case of a partial failure of consideration. The decision reached in Chandler v. Webster (1) is criticized by Williston on Contracts : s. 1954, p. 5477 : see, too, s. 1974, p. 5544, and has not been followed in most of the States of America. Nor is it adopted in the Restatement of the Law of Contract by the American Law Institute, s. 468, pp. 884, et seq. Indeed, the law of the United States seems to go beyond the mere remedy of claims for money had and received and allow the recovery of the value of the benefit of any part performance rendered while performance was possible. Such and similar claims should be recognized in any complete system of law, but it is not clear how far they have been admitted in English law. The Scots law upheld in the Cantiare case (3) may seem to be generally like the English law and to be limited to recovery of money payments. The opinion which I have been stating perhaps brings the two laws into substantial accord, though (1) [1904] 1 K. B . 493 (2) [1921] 2 A. C. 494-

(3) [1924] A. C. 226 , 23 3.

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72

[19 43 ]

H. L. (E.) in the passage quoted by Lord Birkenhead in the Cantiare 1942 FIBROSA SPOLKA AKCYJNA


Lord Wright.

case (1) from Lord President Inglis's judgment in William Watson & Co. v. Shankland (2), that judge seems to accept th at the payer who had paid in advance should give credit to the extent th at he is lucratus by any part performance. I do not wish to discuss how far, if at all, this is open in English law. That was a case of advance freight, which Scots law treats as a prepayment on account, but I think it is clear both in English and Scots law that the failure of consideration which justifies repayment is a failure in the contract performance. What is meant is not consideration in the sense in which the word is used when it is said that in executory contracts the promise of one party is consideration for the promise of the other. No doubt, in some cases the recipient of the payment may be exposed to hardship if he has to return the money though before the frustration he has incurred the bulk of the expense and is then left with things on his hands which become valueless to him when the contract fails, so that he gets nothing and has to return the prepayment. These and many other difficulties show that the English rule of recovering payment the consideration for which has failed works a rough justice. It was adopted in more primitive times and was based on the simple theory that a man who has paid in advance for some. thing which he has never got ought to have his money back. It is further imperfect because it depends on an entire con sideration and a total failure. Courts of equity have evolved a fairer method of apportioning an entire consideration in cases where a premium has been paid for a partnership which has been ended before its time : Partnership Act, s. 40 ; con trary to the common law rule laid down in Whincup v. Hughes (3). Some day the legislature may intervene to remedy these defects. I ought to notice, in order to reject, an argument of Mr. Holmes that the House should not reverse or depart from a doctrine which has stood since 1904 and has been followed in several cases by the Court of Appeal and acted upon on practical affairs. The doctrine, however, has been severely criticized by writers both in this country and elsewhere and has been treated as open to review by this House as recently as 1923 in the Cantiare case (1). If the doctrine is, as I think it clearly is, wrong and unjust, it is the duty of this House, (1) [1924] A. C. 226. (2) 10 M. 142, 152.

(3) L. R. 6 C. P. 78.

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exercising its function of finally declaring the law, to reverse it, unless there are very special circumstances such as were recently considered in Admiralty Commissioners v. Valverda (Owners) (i) . On the other hand, in Lissenden v. C. A. V. Bosch, Ld. (2), the House has recently overruled a decision which had been acted on in frequent practice for 27 years. I may in conclusion add a reference to a very learned article by Professor Buckland, in Harvard Law Review, vol. xlvi., p. 1281. He concludes by observing that, whatever the merits or demerits of Chandler v. Webster (3) and other cases which he considers in that article, the Roman law cannot be made responsible for the rules laid down in them. In my judgment the appeal should be allowed.

My Lords, I also am of opinion that this appeal should be allowed and that judgment should be entered for the appellants for the amount of their claim in the action. I have no doubt that this case is one of frustration of the contract and falls within the doctrine applicable to such cases. An alternative case made by the appellants that the contract was merely suspended and while suspended was repudiated by the respondents is, I think, without foundation. The claim of the appellants, therefore, must be and is a claim to recover the ioooJ. in dispute as money had and received to their use as paid on a consideration which has wholly failed. The courts below have held themselves bound by authority to decide against this claim. The principal authority for the supposed binding rule of law is Chandler v. Webster (3) which, it is contended, lays down the rule that on the occurrence of an event which frustrates the performance of the contract the loss lies where it falls and that money paid by one party to the contract to the other party is to be retained by the party in whose hands it is. Taken in their broad and natural sense, the much criticized sentences in the judgment of Collins M.R. in Chandler v. Webster (4) ending " therefore the doctrine "of failure of consideration does not apply " certainly support a conclusion in favour of the rule contended for. Taken in that sense the proposition is, in my judgment, erroneous in law and unsupported by any authority binding on this House. It is, however, not unimportant to observe the context in which the criticized sentences occur. The learned Master of LORD ROCHE.

(1) [1938] A. C. 173 . (2) [1940] A. C. 412.

(3) [1904] 1 K. B. 493(4) Ibid. 499.

73 H. L. (E.) 1942 FIBROSA SPOLKA AKCYJNA


74

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[1943]

H. L. (E.) the Rolls was contrasting the case of contracts avoided ab i 942 initio where the courts of England have power to decree restitution and the case of contracts frustrated but nevertheless FIBROSA SPOLKA subsisting up to the moment of frustration. In the latter case AKCYJNA it iSj j t h i n k j t r u e t h a t t h e l a w o { E n g l a n d ) differing in this FAIRBAIRN respect from the civil law and the law of Scotland, does not LAWSON provide for the exercise of any power by the courts to decree COMBE BARBOUR, restitution or repetition on similar or analogous lines to those LD. exercised where contracts are avoided ab initio : see Cantiare Lord Roche. San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., .Ld. (i). It is to be observed that, while the law of England was not directly in question in that case, Lord Birkenhead stated in express terms that the " coronation cases" were open to review in this House and were not binding on your Lordships. The question, therefore, is whether, although the courts of England have not, as was rightly held in Chandlerv. Webster (2), a power to decree restitution in the sense above discussed, the matter is concluded against the appellants. The case made by the appellants is that no such doctrine of restitution is necessary to entitle them to succeed in this action. They contend that they are entitled to be repaid their money because of the operation of ordinary and accepted rules of law applicable on a total failure of consideration. In my opinion, that contention is right. The true rule, I think, is that in cases of frustration the loss does lie where it falls, but that this means where it falls having regard to the terms of the contract between the parties. If under a contract payments have been made which have been variously described as absolute or final or out-and-out payments, then they are not recoverable by the party who made them. Payments of freight in advance are payments of this nature. Whatever the origin of the rule as to advance freight, under decisions now centuries old and long acted on in commerce the rule itself that such payments of freight are final and irrecoverable payments is beyond question. In French Marine v. Compagnie Napolitaine (3) the majority judgments in this House applied the same rule to a payment of hire under a time charterparty by reason of the terms of the charterparty itself: see per Lord Dunedin (4) and per Lord Sumner (5). It is, I think, (1) [1924] A. C. 226. (2) [1904] 1 K. B . 49 3. (3) [1921] 2 A. C. 494, 513, 519.

(4) Ibid. 5 1 3 . (5) I b i d . 519.

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not unimportant to observe that in Chandler v. Webster (i) H. L. (E.) Mathew L.J. based his judgment on this ground of finality 1942 in the payment, and I am disposed to think that the Master FIBROSA of the Rolls (2) is presenting a similar view of the facts and I SPOLKA am the more disposed so to think because he, for one of the AKCYJNA v. judges concerned, was a supreme master of the common law, FAIRBAIRN and unlikely on another view of the facts to have expressed LAWSON COMBE himself as he did. Similar views on the facts are expressed BARBOUR, LD. in others of the " coronation cases " by some of the judges : see Civil Service Co-operative Society, Ld. v. General Steam Lord Rocie. Navigation Co.,Ld. (3), where th e payments in question were said to be comparable to payments of freight in advance. It is, in my judgment, unnecessary and unfruitful to consider whether, on this ground, those cases were or were not rightly decided on the facts and documents in question, but if the payments under discussion were properly to be regarded as final or out-and-out payments, then in my judgment the conclusion properly followed that they were not recoverable. It is not possible to say of such payments tha t the consideration for their payment has wholly failed. The converse case remains to be considered. It is, I think, a well settled rule of English law that, subject always to special provisions in a contract, payments on account of a purchase price are recoverable if the consideration for which that price is being paid wholly fails : see Ockenden v. Henly (4). Looking at the terms of the contract in the case now under consideration, I cannot doubt that the sum sued for was of this provisional nature. It was a part of a lump sum price, and when it was paid it was no more than a payment on account of the price. Its payment had advantages for the respondents in affording some security that th e appellants would implement their contract and take up the documents and pay the balance of the price, and it may be that it had other advantages in providing finance for the manufacture of the machines. But if no machines or documents of title were delivered to the appellants, as was the actual case, then, in my opinion, the consideration for the price, including th e payment on account, wholly failed and the payment so made is recoverable. It was contended by the respondents' counsel that unless there is to be found some default on the part of the recipient of such a payment as is now in question the (1) [1904] i K . B . 493 , 502. (2) Ibid. 4 9 7 .

(3) [1903] 2 K. B . 756, 762, 764 . (4) E. B. & E. 485, 492.

76

HOUSE OF LORDS


v. FAIRBAIRN LAWSON COMBE BARBOUR, LD. i-ord Roche.

[1943]

consideration cannot be said to have wholly failed merely because the frustration of the contract produced a result which, had it been due to some default, would have amounted to a failure of consideration. I find no authority to support this contention, which seems appropriate to an action for damages, but foreign to the action for money had and received. In Rugg v. Minett (1), the court seems to have proceeded on a principle contrary to that contended for when it allowed under this money count payments on account for unappro priated goods destroyed by accidental fire (2). There is no suggestion in the report of that case of any default on the part of the sellers. For these reasons I am of opinion that the appellants are entitled to succeed. My Lords, I only desire to add that I am conscious that a conclusion relegating parties in cases of frustration to their contracts may not work out a completely just solution in the pecuniary sense. It happens that in this case it will do so, for the appellants, who did not get the goods or the documents, will get their money back, and the respondents have had the machines, which, so far as completed, were said by the respondents themselves to be realizable without loss. In other cases it might turn out otherwise, and the application of the rules of the civil law or of Scots law might work greater justice, but I do not understand that even those rules would cover the whole ground so as to effect an ideally just distribution of the burden of loss due to the frustration of contracts. But at least, or so it seems to me, the rule now to be laid down by this House is not only more agreeable to the law of England, but is more consistent with justice than the rule on which the courts below felt impelled to base their decision. At all events, parties to contracts will know that as the law stands the contract between them is the matter of crucial or final importance, and that if, as may very well be the case in time of war or impending war, frustration of their contracts is to be apprehended, they may make what contracts they think fit to provide in that event for the adjustment of the position between them.

My Lords, the task imposed on your Lord ships is said to be a reconsideration of what has been described as the rule in Chandler v. Webster (3). That rule has been LORD PORTER.

(1) 11 E a s t , 210. (2) Ibid. 219.

(3) [1904] 1 K. B . 49 3.

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variously stated by saying that in a case where a contract is H. L. (E.) frustrated (i.) the loss lies where it falls, and (2.) one who has 1942 paid money in advance under a contract which provides for FIBROSA the making of such payment cannot recover that money if SPOLKA the contract is afterwards frustrated. Whether either or AKCYJNA v. FAIRBAIRN both principles are to be found in Chandler v. Webster (1) need not be determined for the moment. The vital question LAWSON COMBE is whether they are in fact accurate statements of the law. BARBOUR, LD. The question has given rise to much controversy, and it has been contended, on the one hand, that in case of total failure Lord Porter. of consideration the sum paid should be recoverable on the ordinary principles applicable in English law, and, on the other, that the law is not so wanting in ingenuity as to be unable to apply the principles which are said to find favour in the Scottish courts and are discussed in Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (2), a decision which is alleged to determine that on some principle of restitu tion the payer can get back at least an equitable proportion of the sum which he has paid, though exactly what proportion and on what principle does not, I think, appear. It may perhaps be advisable to dispose of the second contention at once. I can find no warranty for its application in English law. Under that system money had and received to the plaintiff's use can undoubtedly be recovered in cases where the consideration has wholly failed, but unless the contract is divisible into separate parts it is the whole money, not part of it, which can be recovered. If a divisible part of the contract has wholly failed and part of the consideration can be attributed.to that part, that portion of the money so paid can be recovered, but unless this be so there is no room for restitution under, a claim in indebitatus assumpsit. A partial failure of consideration gives rise to no claim for recovery of part of what has been paid. Indeed, the contrary has not been contended. What has been said is that the doc trine of frustration depends on the implication of an implied term. Reasonable persons, it is said, would not have had in mind the event which befell, but if they had they would have unhesitatingly said : " In that event all further obligation of "performance on either side is at an end." So far and no further it is acknowledged the law of this country has gone, but, it is urged, a system of jurisprudence which is astute enough to devise such a term is capable of adding to it the (1) [1904] 1 K. B . 49 3.

(2) [1924 ] A. C. 226 .

y8

HOUSE OF LORDS

H . L. (E.) 1942 FIBROSA SPOLKA AKCYJNA v.

FAIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Porter.

[1943]

proviso that in such a case some equitable proportion of any sum paid in advance shall be recoverable when the contract becomes impossible of performance. It might be desirable that the law should make some such provision. Indeed the Law Revision Committee has so recommended, but without an Act of Parliament it is difficult to determine what sum shall be recoverable and on what principles. This difficulty is envisaged by Collins M.R. in Chandler v. Webster .{1) and is apparent from a perusal of the report of the committee, but, however desirable the result, I can see no way by which in accordance with English authority or principle a right to recover some equitable sum can be implied. The only other suggestion made to your Lordships on behalf of the appellants, and indeed, as I think, the only argument open to them, is that the money which they have paid is recoverable as on a consideration which has wholly failed. With that aspect I proceed to deal, merely prefacing my remarks by observing that, whether one adopts the principle that money so paid is recoverable or irrecoverable, one may be found to have treated one side or the other with considerable harshness. A contractor stipulates for payment in advance of the whole price of an article which he is to supply and has done nothing when the contract is frustrated. If he keeps the whole, perhaps if he keeps any part, of the money paid in advance, the buyer is hardly treated. On the other hand, he may liave done the whole of the work on an article useless to anyone except the purchaser, but not delivered it, and if the buyer can recover his advance the whole loss will fall on the seller, and in that case the seller is as hardly treated as the buyer would be in the other. Moreover, the closely analogous case of a supplier who has obtained no advance but though he has done all the work has not delivered the goods and therefore is not able to demand payment, is left unredressed in England, as indeed it is in Scotland. It is possible to say that the seller in such a case who has been prudent enough to stipulate for a payment in advance should reap the advantage of his foresight, but to do so is to speculate as to the object for which the advance was obtained, not to ascertain what his legal remedies are upon the facts as known. In these circumstances I see nothing for it but to neglect considerations of hardship in individual cases and to consider only abstract principles of law. The doctrine that money payable in advance, under a (1) [1904] 1 K. B. 4 93, 500 .

A.C.

AND PRIVY COUNCIL.

79

contract which is afterwards frustrated, is irrecoverable is not of H. L. (E.) old standing. It began, I think, with the so-called coronation 1942 cases. It is true that in Appleby v. Myers (i) Blackburn J. says FIBROSA of the destruction of the premises : " It is a misfortune equally SPOLKA "affecting both parties ; excusing both from further perform- AKCYJNA v. "ance of the contract but giving a cause of action to neither," FAIRBAIR N but this was said in a case where no question of money paid in LAWSON COMBE advance arose and has reference only to the facts of that case. BARBOUR, LD. Of the other cases quoted to us which were decided about the same period, Stubbs v. Holywell Ry. Co. (2), Whincup v. Lord Porter. Hughes (3) and Anglo-Egyptian Navigation Co. v. Rennie (4) are, I think, cases where the consideration was partly performed. In the last-mentioned case, Denman J., in delivering the judgment of the court, was careful to point out that the con tract was "substantially a contract for work and lab our " : and much work and labour had undoubtedly taken place before further performance of the contract became impossible. It is true, however, that advance freight by long custom cannot be recovered though the goods shipped are never delivered. Byrne v. Schiller (5) and Allison v. Bristol Marine Insurance Co., Ld. (6) so declare. The decision was reached with regret. In the former case Cockburn C.J. says (7) he thinks the rule " founded "o n an erroneous principle and anything but satisfactory," and Montague Smith J. (8) regards it as the result of an implied term. In the latter Lord Hatherley says (9) : "We have to "remember that from a very early period, as long ago, it was "said during the argument, as the time of Charles II.—at all "events for a very long time—it has been settled in our mari"time law that prepaid freight cannot be recovered back," and all their Lordships seem to have been influenced by th e fact th at it was the practice for the merchant to insure prepaid freight, and, indeed, of the shipowner to make an allowance for that purpose. This may be the principle applied in French Marine v. Compagnie Napolitaine (10) by the majority of the House, or it may be that the grounds of that decision are to be found in the words of Lord Sumner (n) : "Here there was no total "failure of consideration but a partial failure only, for which in (1) L . R. 2 C. P. 651, 659. (2) L. R. 2 Ex. 311.

(3) (4) (5) (6)

L. R. 6 C. P. 78. L. R. 10 C. P. 2 71, 283. L. R. 6 Ex. 319. (1875) 1 App. Cas. 209.

(7) L. R. 6 Ex. 319, 325. (8) Ibid. 327. (9) 1 App. Cas. 209, 235, 236. (10) [1921] 2 A. C. 494. (11) Ibid. 517.

8o

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Lord Porter.

OF

LORDS

[1943]

"law no pro rata repayment could be claimed." On either view it is not decisive of the present case. If I am right in supposing tha t cases of advance freight form a class by themselves and that the other cases referred to are examples of a partial failure of consideration, the doctrine that .money paid in advance in pursuance of the terms of a contract which is afterwards frustrated cannot be recovered originates, if it originates at all, with the coronation cases. They were conveniently tabulated by Mr. Holmes in the course of his argument. Clark v. Lindsay (1) and Griffith v. Brymer (2) may be disregarded, since in each case the contract was entered into under a mistake of fact as to the state of the King's health at the time when they were made, and, therefore, both were void ab initio. Blakeley v. Mutter & Co. (3) and Lumsden v. Barton & Co. (4) may, I think, be regarded as instances of contracts partially performed, though the former seems to contain language applicable to contracts wholly unperformed. Krell v. Henry (5) merely decided that money not due when the frustration took place was not in law payable, but Civil Service Co-operative Society, Ld. v. General Steam Navigation Co. (6) and Chandler v. Webster (7) are authorities for the general proposition that money paid in advance under the terms of a frustrated contract cannot be recovered. In Blakeley v. Mutter & Co. (8) Wills J. founded his decision on Appleby v. Myers (.9) and sa id: "T he argument for the plaintiffs "must be that the contract was rescinded ab initio," and Channell J. relied on the analogy of advance freight and added (10): " All that can be said is that, when the procession "was abandoned, the contract was off, not that anything done "under the contract was void. The loss must remain where it "was at the time of the abandonment." I quote from his judgment because it was adopted by Lord Halsbury L.C., sitting in the Court of Appeal, in Civil Service Co-operative Society, Ld. v. General Steam Navigation Co. (11), and is, I think, the foundation of the decision in Chandler v. Webster (7). In the latter case the leading judgment was delivered by Collins M.R. who, in relying on.Taylor v. Caldwell (12) said (1) (2) (3) (4) (5) (6)

88 L. T. 19 T. L. [1903] 2 19 T. L. [1903] 2 [1903] 2

198. R. 434. K. B. 760M. R. 53. K. B. 740. K. B. 756.

(7) (8) (9) (10) (11) (12)

[1904] 1 K. B. 493. [1903] 2 K. B. 76071, 7 6 m . L. R. 2 C. P. 651. [1903] 2 K. B. 760M, 762M. [1903] 2 K. B. 756, 764. 3 B. & S. 826.

A. C.

AND PRIVY COUNCIL.

8l

that (i) where, owing to frustration, "the contract can no H. L. (E.) "fuither be performed by either party it remains a perfectly 1942 "good contract up to that point and everything previously FIBROSA SPOLKA "done in pursuance of it must be treated as rightly done, but AKCYJNA "the parties s are both discharged from further performance v. FAIRBAIR N "of it. If the effect were that the contract were wiped out "altogether no doubt the result would be that money paid LAWSON COMBE "under it would have to be repaid as on a failure of consider- BARBOUR, LD. "ation. But th at is not the effect of the doctrine ; it only "releases the parties from further performance of the contract. Lord Porter. "Therefore the doctrine of failure of consideration does not "app ly ." To the same effect Romer L.J. said (2) : "Except "in cases where the contract can be treated as rescinded ab "initio, any payment previously made and any legal right "previously accrued according to the terms of the agreement "will not be disturbed." The doctrine as so stated appears to be confined to the termination of contracts by excusable impossibility and to enunciate a feature peculiar to such cases. I know of no authority other than the so-called coronation cases and those which have followed them in which such a doctrine is promul gated, and except the statements contained in those cases, weighty and formidable though they be, I can find no principle to support it. It is not, I think, accurate to say in general— nor did the respondents' advocates seek to support such a statement—that money had and received can only be recovered as on a consideration which failed in cases where the contract is void ab initio. The true view is, I think, expressed by Brett L.J. (as he then was) in Wilson v. Church (3), a case in which he refused to find fraud. His words are : "The principle of law "seems to me to be identical with what it would be if the money "were paid to the borrowers for a consideration which is to be "accomplished after the payment of the money, and by the "most ordinary principle of law, where money is paid for a "consideration which is to be performed after the payment, if "that consideration wholly fails, the money becomes money "in the hands of the borrowers held to the use and for the "benefit of the lenders, and must be returned." The decision in that case was affirmed in your Lordships' House under the title National Bolivian Navigation Co. v. Wilson (4), and the language of Brett L.J. was approved by Lord Haldane L.C. in (1) [1904] i K. B. 493, 499. (2) Ibid. 501! A. C. 1943.

(3) 13 Ch. D. 1, 49. (4) 5 App. Cas. 176

3

82

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H. L. (E.)

1942 FIBROSA SPOLKA AKCYJNA

v. FAIRBAIR N LAWSON COMBE BARBOUR, LD.

Lord Porter.

OF

LORDS

[1943]

Royal Bank of Canadav. Reg. (1). It may be urged th at these were cases of borrowed money and that there was fault, though not fraud, in the borrower. I do not think th at the decision turned on so narrow a ground, but in truth the principle may be illustrated by the law which is now codified in ss. 6 and 7 of the Sale of Goods Act, 1893, and was formerly illustrated by Rugg v. Minett (2). The two sections deal with two cases of impossibility arising in the cases of the sale of ascertained goods. The first section treats of a case where the goods have perished before the agreement for sale is made and is an example of a contract void ab initio. Clark v. Lindsay (3) and Griffith v. Brymer (4) are illustrations of the same doctrine translated from the sphere where the tangible subject-matter of the contract perished to that where super vening impossibility prevented the achievement of the object with which the contract was entered into. The second sec tion, on the other hand, treats of a contract validly made and continuing in existence until the goods perish. It is not void ab initio, but further performance is excused after the destruction has taken place, yet the price is returnable because the consideration for the whole or the part undelivered has wholly failed, as the section says "without fault on either side."

This is, I think, the rule generally applicable, but it is not always so. There are cases where the payer pays not for the performance of the receiver's promise but for the promise itself—not for the doing of something but for the chance tha t it may be done. This, I think, was Mathew L.J.'s view in Chandler v. Webster (5) when he says : " I think the payment " of the 100Z. by the plaintiff was intended to be a final payment "in pursuance of the contract, and I do not think such a pay"ment can be recovered back." The respondents relied on this statement and maintained that the present, like the "coronation cases," was an instance of a final payment which could not be recovered. They also contended tha t no recovery was possible except in cases where the contractor who has received the money in advance was in fault in some way. I can find no authority for the second argument, and it is, I think, contrary to the views expressed by the Court of Exchequer in Knowles v. Bovill (6). It is true th at in the majority of cases the consideration fails because one party or the other fails to (1) [1913] A. C. 283, 296. (2) 11 East, 210. (3) 88 L. T. 198.

(4) 19 T. L. R. 434(5) [1904] 1 K. B. 493, 502. (6) (1870) 22 L. T. 70.

A. C.

83

AND PRIVY COUNCIL.

carry out his contract, but it is not the breach but the failure of consideration which enables money paid in advance to be recovered. The question whether the payment of the 1000/. in advance in the present case was a " final payment " or not depends on no general principle of law but on the wording of the contract in this particular case. To my mind, clearly it was not. The contract was for the sale of machines c.i.f. Gdynia. It is true that there was an additional provision for the services of a skilled monteur, but, in my view, the contract would have been substantially fulfilled by shipping the goods to Gdynia and furnishing the requisite documents against payment of the balance of the price, though a failure to provide a monteur might have given rise to a claim for damages. The price was a lump sum price to be paid in two portions, namely, onethird with the order, balance against shipping documents, but the sum payable in advance was part of the lump sum price payable for the completed articles. The goods remained the property and at the risk of the sellers until the documents were presented and taken up. The case seems to me to come exactly within the principle of s. 7 of the Sale of Goods Act, 1893, and had they been destroyed by enemy action I cannot doubt but that the advance portion of the price would have been recoverable. That the inability of the respondents to implement their contract was due to supervening illegality and not to destruction of the subject-matter appears to me to make the appellants' claim at least no weaker. Whether it strengthens it has not been discussed and is unnecessary to determine. Having regard to these considerations, in my view, the dicta of Collins M.R. in Chandler v. Webster (1) cannot be supported, and I think the decision itself is wrong unless it can be said that in that, as in some of the other cases, there was some partial performance which I have not been able to discover in the report of the case. The error, as I see it, in the dicta which have been used is in imagining that the statement, "the loss lies where it fal ls " is conclusive of the matter. I think it is true to say that the loss-lies where it falls, but that expression only means that the rights of the parties are to be determined at the moment when impossibility of further performance supervenes. If at that moment the part y who has advanced money is by the ordinary rules of the common (1) [1904] 1 K. B. 493.

3

G2



Lord Porter.

84

[1943]

HOUSE OF LORDS



Lord Porter.

law entitled to say that the consideration has now wholly failed, he can, in my view, enforce the rights given by those rules and recover the money. The other arguments on behalf of the respondents I need not discuss. I agree with all your Lordships in thinking that they fail. If I thought that the question had been concluded by any decision * in your Lordships' House I would, of course, follow that authority, but it plainly is open to review. In support of this opinion I need only refer to the observations of Lord Birkenhead in Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (i). I would allow the appeal. Appeal allowed.

Solicitors for appellants : A. Kramer & Co. Solicitors for respondents : Maxwell, Batley & Co., for Simpson, Curtis & Co., Leeds. (i) [1924] A. C. 226, 233.

F. H. C.

[HOUSE OF LORDS.]

H. L. (E.)* SMART BROTHERS, LIMITED . . . . 1942

APPELLANTS

;

AND

July*™, 23. ROSS

RESPONDENT.

Emergency legislation Hire-purchase contract — —Payments in arrear — Agreement between parties to determine contract —Owners to retake goods and refund part of money paid by hirer — Bargain freely entered into— No necessity to obtain leave of court —Courts [Emergency Powers) Act, 1939 (2 & 3 Geo. 6, c. 67), s. 1, sub-s. 2 [a) (ii.)— Liabilities [War-Time Adjustment) Act, 1941 (4 &■ 5 Geo. 6, c. 24), s. 26, sub-s. 2. A contract of hire-purchase of furniture entered into in September, 1938, provided that the hirer might terminate the hiring by returning the goods at her own cost and that in case of breach of any term of the contract the owners might retake the goods. In 1941, th e hirer informed th e owners t ha t she was unable to keep up payment of the instalments and asked them whether, if they resumed possession of the furniture, they would make her an allowance of money. In J une , 1941, th e part ies agreed that the owners should retake the furniture and should return to the hirer 10/. out of the sum which she had already paid ^Present:

VISCOUNT SIMON L.C.,

LORD W R I G H T an d

LORD PORTER.

LORD ATKIN, LORD THANKERTON,

Page1

Gamerco SA v ICM/Fair Warning (Agency) Ltd Queen's Bench Division 31 March 1995


[1995] 1 W.L.R. 1226; [1995] C.L.C. 536; [1995] E.M.L.R. 263; Times, May 3, 1995

Case Digest

Subject: Contracts Keywords: Breach of contract; Frustration Summary: Frustration; rock concert; promoter's licence to use stadium revoked for safety reasons; whether advance payment could be recovered Abstract: G agreed to promote M's rock concert at a Madrid stadium. A few days before the concert date, engineers reported the need for safety investigations and the authorities banned the use of the stadium, revoking G's licence to hold the event. G had paid M money on account and both G and M had incurred expenses. G sought to recover the advance payment under the Law Reform (Frustrated Contracts) Act 1943 s.1(2) and M counterclaimed for damages for breach of contract for failure to secure the permit. Held, allowing the claim and dismissing the counterclaim, that (1) to give the contract commercial efficacy, a term was to be implied that G would use all reasonable endeavours to obtain a permit, but they were not obliged to ensure that it remained in force; (2) the contract was frustrated as M was unable to perform their obligation not because the permit was revoked, but because the use of the stadium was banned, and so G was able to recover the advance payment under the 1943 Act and (3) the proviso to s.1(2) entitled the court to deduct M's expenses, but having regard to G's loss, justice was best served by making no deduction. Judge: Garland, J. Counsel: For the plaintiff: Charles Flint. For the defendants: Timothy Sewell Solicitor: For the plaintiff: Russells. For the defendants: Williams Davies Meltzer

Legislation cited

Civil Evidence Act 1968 (c.64) Law Reform (Frustrated Contracts) Act 1943 (c.40) Sch.1 Law Reform (Frustrated Contracts) Act 1943 (c.40) s.1 Law Reform (Frustrated Contracts) Act 1943 (c.40) s.1(2) Law Reform (Frustrated Contracts) Act 1943 (c.40) s.1(5) Law Reform (Frustrated Contracts) Act 1943 (c.40) s.2 Victoria Act 1959 Victorian Act 1959

Page2

Journal Articles

Music: whether contract to put on concert frustrated by failure to obtain permit Breach of contract; Economic loss; Frustration; Restitution. Ent. L.R. 1996, 7(3), E65-66 © 2010 Sweet & Maxwell

Page1

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd Cape Providence, The Court of Appeal (Civil Division) 14 October 2002


[2002] EWCA Civ 1407; [2003] Q.B. 679; [2002] 3 W.L.R. 1617; [2002] 4 All E.R. 689; [2002] 2 All E.R. (Comm) 999; [2002] 2 Lloyd's Rep. 653; [2003] 2 C.L.C. 16; (2002) 99(43) L.S.G. 34; (2002) 152 N.L.J. 1616; [2002] N.P.C. 127; Times, October 17, 2002; Independent, October 22, 2002; Official Transcript

Case Digest

Subject: Contracts Keywords: Avoidance; Equitable principles; Mistake; Rescission; Shipping mistake; rescission; rescission; contract based on mistake mistake of fact; Summary: mistake; doctrine of common mistake in contract; irreconcilable legal precedent; jurisdiction to rescind contract

Abstract: T appealed against an order that it was liable to pay to G a sum representing representing the cancellation cancellation fee under a binding binding contract between the parties. T had been engaged to provide salvage services services to a ship which had suffered serious structural damage at sea. T had contracted with G to hire G's merchant vessel for a minimum of five days to help with crew evacuation. Both parties had believed that the two ships were in close proximity to each other but it had subsequently emerged that they were not and T had cancelled the arrangement and refused to pay anything in respect of hire charges. Upon the issue of proceedings for a sum representing the hire charges for the minimum minimum period or alternatively alternatively damages for wrongful wrongful repudiation of the contract, contract, judgment had been given for G. In its appeal, T, relying upon the test of mistake identified in Bell v Lever Brothers Ltd [1932] A.C. 161 HL reasserted that the contract had been concluded by reason of a fundamental mistake of fact which had deprived the contract contract of the consideration consideration underlying it. T maintained that the contract was either void in law or it was voidable so that T was entitled to relief in equity by way of rescission following Solle v Butcher [1950] 1 K.B. 671 CA. Held, dismissing dismissing the appeal, appeal, that precedents precedents covering the effect of mistake mistake on contract had historically historically been difficult to reconcile reconcile and the instant case provided the first opportunity opportunity to clarify clarify the relationship relationship between Bell and Solle. It was important to analyse the rights and obligations obligations created by the contract before considering considering the effect of an alleged alleged mistake. Bell indicated that equitable intervention intervention such as that demonstrated demonstrated in Cooper v Phibbs (1867) L.R. 2 H.L. 149 HL (UK-Irl) was permissible where the common law would have ruled the contract void for mistake and it was thought to be unlikely that the court in Bell had overlooked an equitable right to rescind rescind an agreement in different different circumstances. circumstances. Whereas Bell was concerned with the question whether the mistake had the effect of producing a situation where the parties were only able to provide something something essentially essentially different different from that which they had contracted to provide, Solle and the cases which followed it were more concerned concerned with circumstances circumstances where the effect of the mistake made

Page2

the contract a bad bargain for one of the parties. The two cases were irreconcilable and the only way to restore coherence to that area of the law was to declare that there was no jurisdiction to grant rescission of a contract on the ground of common mistake where the contract contract was valid and enforceable as far as the ordinary ordinary principles of contract law were concerned, concerned, Solle doubted and Bell applied. In the instant case, the contract contract between the parties parties was binding binding and upon cancellation cancellation of it, there was no injustice in the cancellation cancellation fee provided provided for in the contract contract becoming becoming payable. payable. Cooper considered. considered. Matravers, M.R.; May, L.J.; Laws, L.J. Judge: Lord Phillips of Worth Matravers,

Counsel: For G: Huw Davies. For T: John Reeder Q.C. and Rachel Toney Solicitor: For G: Stephenson Harwood. For T: Shaw & Croft

Appellate History

Queen's Bench Division (Commercial Court) Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2001) 151 N.L.J. 1696; Official Transcript

Affirmed by Court of Appeal (Civil Division) Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] Q.B. 679; [2002] 3 W.L.R. 1617; [2002] 4 All E.R. 689; [2002] 2 All E.R. (Comm) 999; [2002] 2 Lloyd's Rep. 653; [2003] 2 C.L.C. 16; (2002) 99(43) L.S.G. 34; (2002) 152 N.L.J. 1616; [2002] N.P.C. 127; Times, October 17, 2002; Independent, October 22, 2002; Official Transcript


Bell v Lever Brothers Ltd [1932] A.C. 161; (HL) Cooper v Phibbs (1867) L.R. 2 H.L. 149; (HL (UK-Irl)) Solle v Butcher [1950] 1 K.B. 671; [1949] 2 All E.R. 1107; 66 T.L.R. (Pt. 1) 448; (CA)


Applied by Brennan Brennan v Bolt Burdon [2004] EWCA Civ 1017; [2005] Q.B. 303; [2004] 3 W.L.R. 1321; [2004] C.P. Rep. 43; (2004) 101(34) L.S.G. 31; (2004) 148 S.J.L.B. S.J.L.B. 972; [2004] N.P.C. 133; Times, August 27, 2004; (CA (Civ Div)) Butters Butters v BBC Worldwide Worldwide Ltd [2009] EWHC 1954 (Ch); [2009] B.P.I.R. B.P.I.R. 1315; (Ch D) Champion Investments Ltd v Ahmed [2004] EWHC 1956; (QBD) EIC Services Ltd v Phipps [2003] EWHC 1507; [2003] 1 W.L.R. 2360; [2003] 3 All E.R. 804; [2003] B.C.C. 931; (Ch D) Shuttari Shuttari v Solicitors Solicitors Indemnity Fund Ltd [2005] EWHC 2858; (Ch D) Smithson v Hamilton [2007] EWHC 2900 (Ch); [2008] 1 W.L.R. 1453; [2008] 1 All E.R. 1216; [2008] Pens. L.R. 41; (Ch D)

Page3

Standard Standard Chartered Bank v Banque Marocaine Marocaine du Commerce Commerce Exterieur [2006] EWHC 413; (Ch D)

Considered Considered by Apvodedo Apvodedo NV v Collins [2008] EWHC 775 (Ch); (Ch D) EIC Services Ltd v Phipps [2004] EWCA Civ 1069; [2005] 1 W.L.R. 1377; [2005] 1 All E.R. 338; [2004] B.C.C. 814; [2004] 2 B.C.L.C. B.C.L.C. 589; (2004) 148 S.J.L.B. 1118; (CA (Civ Div)) Heath v Heath [2009] EWHC 1908 (Ch); [2009] Fam. Law 1044; [2009] 2 P. & C.R. DG21; (Ch D (Birmingham)) Statoil Statoil ASA v Louis Dreyfus Energy Services Services LP (The Harriette N) [2008] EWHC 2257 (Comm); [2009] 1 All E.R. (Comm) 1035; [2008] 2 Lloyd's Rep. 685; (2008) 158 N.L.J. 1377; (QBD (Comm)) Thompson Thompson v Arnold [2007] EWHC 1875 (QB); [2008] P.I.Q.R. P.I.Q.R. P1; [2008] LS Law Medical Medical 78; (2007) 104(33) L.S.G. 27; (QBD)

Legislation cited

Law Reform (Frustrated Contracts) Contracts) Act 1943 (c.40) Sale of Goods Act 1893 s.6 Supreme Supreme Court of Judicature Act 1873 Workmen's Compensation Act 1925 Workmenas Compensation Act 1925 Workmenrs Compensation Act 1925

Journal Articles

Liability for demurrage - settlement agreements based on mistake CIF contracts; Carriage by sea; Demurrage; Mistake; Settlement. S.T.L. 2008, Nov, 4-5 Contract law: equitable jurisdiction in the law of mistake - a 50 year old chimera or a valid passport to a just result? Charterparties; Common mistake; Equitable principles; Rescission; Void contracts. Cov. L.J. 2002, 7(2), 72-78 Re Hastings-Bass again - void or voidable? And further reflections Mistake; Powers of appointment; Rectification; Trustees powers and duties. P.C.B. P.C.B. 2003, 3, 173-187 Litigation & dispute resolution Compromise; Costs; Disclosure; Dispute resolution; Interest; Mediation; Mediation; Mistake of law; Part 36 offers. I.H.L. 2004, 124(Oct), 66-69 Litigation & dispute resolution (November) Addresses for service; Claim forms; Dispensing with service; Interest rates; Loans; Mistake; Rectification; Solicitors; Tomlin orders.

Page4

I.H.L. 2004, 125(Nov), 125(Nov), 65-68

Err on the right side Contract Contract for sale of land; EC law; Good faith; Mistake; Rectification. Rectification. P.L.J. P.L.J. 2005, 150, 7-10 Unilateral mistake at common law and in equity Equitable principles; Knowledge; Mistake; Singapore; Void contracts; Voidable contracts. L.M.C.L.Q. 2005, 4(Nov), 423-428 The recovery position Constructive trusts; Mistake; Restitution. T.E.L. & T.J. 2005, 71(Nov), 12-14 Graves v Graves Assured shorthold tenancies; Frustration; Housing benefit; Implied terms; Mistake. Farm Law 2007, 136, 8-10 More tenancy foul play - a cautionary tale for landlords Assignment; Fraudulent misrepresentation; Landlords rights; Possession claims; Rescission; Secure tenancies. J.H.L. 2006, 9(4), 71-73 Mistake, frustration and implied conditions in leases Conditions; Frustration; Implied terms; Leases; Mutual mistake; Termination. L. & T. Review 2007, 11(5), 158-161 Insurance (May) Business interruption policies; Directors' and officers' liability insurance; Insurance claims; Litigation funding agreements; Mutual mistake; Public policy; Settlement; Wrongful trading. I.H.L. 2007, 150(May), 84-87 Great Peace: a distant disturbance Mistake; Rescission; Singapore; Void contracts. L.Q.R. 2005, 121(Jul), 393-395 Common mistake: theoretical justification and remedial inflexibility Charterparties; Equitable remedies; Implied terms; Mistake; Rescission; Void contracts. J.B.L. J.B.L. 2004, Jan, 34-58 Controversy in common mistake Charterparties; Mistake; Rescission; Void contracts. Conv. 2003, May/Jun, May/Jun, 247-256 The Great Peace and precedent Charterparties; Equitable principles; Mistake; Rescission; Void contracts. L.Q.R. 2003, 119(Apr), 180-182 Reconsider Reconsider the contract textbooks Charterparties; Equitable principles; Mistake; Rescission; Void contracts. L.Q.R. 2003, 119(Apr), 177-180 Which mistakes can be rectified? Charterparties; Mistake; Rescission; Void contracts. P.L.B. 2003, 23(7), 49,55 Interpretation and mistake in contract law: "The fox knows

Page5

many things..." Contract terms; Intention; Interpretation; Mistake. L.M.C.L.Q. 2006, 1(Feb), 49-81 Impossible performance or excused performance? performance? Common mistake and frustration after Great Peace Shipping Contracts; Frustration; Impossibility; Mistake. K.C.L.J. K.C.L.J. 2005, 16, 69-98 An uncommon mistake? Charterparties; Equitable principles; Mistake; Rescission; Void contracts. K.C.L.J. K.C.L.J. 2004, 15, 127-132 Compromises and mistakes of law Compromise; Mistake of law. Build. Build. L.M. 2005, Mar, 11-12 Contract - common mistake - agreement to provide salvage services to vessel Charterparties; Mistake; Rescission; Void contracts. S.T.L. 2003, 3(1), 15 Salvage - contract of hire in aid of salvage - common mistake Charterparties; Implied terms; Mistake; Rescission; Void contracts. J.I.M.L. J.I.M.L. 2003, 9(1), 25-27 The Great Peace and the demise of equitable mistake Charterparties; Mistake; Rescission; Void contracts. S. & T.L.I. 2003, 3(5), 6-9 Inequitable mistake Charterparties; Equitable principles; Mistake; Rescission; Void contracts. C.L.J. 2003, 62(1), 29-32 All at sea in the waters of contract Charterparties; Equitable principles; Mistake; Rescission; Void contracts. E.G. 2003, 0316, 97-98 The law of mistake in the 21st century Charterparties; Equitable principles; Frustration; Mistake; Precedent; Rescission; Void contracts. Bus. L.R. 2003, 24(3), 59-62 "Equitable" mistake repudiated: the demise of Solle v Butcher? Charterparties; Mistake; Rescission; Void contracts. L.M.C.L.Q. 2002, 4(Nov), 449-453 Common mistake and the abolition of the equitable doctrine Charterparties; Mistake; Rescission; Void contracts. S.L. Rev. 2003, 38(Spr), 17-19 Impossibility of performance - common law - equity Charterparties; Equitable principles; Mistake; Rescission; Void contracts. C.I.L.L. 2003, Feb, 1943-1946 A matter of common mistake Implied terms; Mistake; Rescission; Void contracts. Comm. Law. 2002/03, 58, 48-49 Common mistake doctrine abolished Charterparties; Equitable principles; Mistake; Rescission.

Page6

Emp. L. & L. 2002, 7(9), 8-9

Make no mistake Charterparties; Equitable principles; Mistake; Rescission; Void contracts. E.G. 2003, 0303, 124 Common mistake Charterparties; Mistake; Rescission; Void contracts. P.L.C. 2002, 13(11), 52 Common mistake - whether equity provides relief Charterparties; Implied terms; Mistake; Rescission; Void contracts. Buyer 2002, 24(12), 1-5 Banking and insolvency law (December) Causation; Charterparties; Company name; Financial advice; Measure of damages; Mistake; Performance bonds; Professional negligence; Rescission; Void contracts. B.J.I.B. & F.L. 2002, 17(11), 458-461 Common mistake Charterparties; Equitable principles; Mistake; Rescission; Void contracts. S.J. 2002, 146(46), 1108-1110 Commercial reporter Charterparties; Mistake; Rescission; Void contracts. S.J. 2002, 146(43), 1038, Mistakes are binding after all Charterparties; Implied terms; Mistake; Rescission; Void contracts. Fairplay 2002, 346(6198), 26-27, The risk of mistake in contract Judicial decision making; Mistake; Rescission. N.L.J. 2002, 152(7054), 1654-1655, © 2010 Sweet & Maxwell

2

.

.


68

[IN THE COURT OF APPEAL .]

HEBNE BAY STEAM BOAT COMPANY Ship

0.

HUTTON.

Naval Review Contract of Hiring Specific Performance Consideration Liability of Hirer Demise of Ship.

Failure of

In consequence of the pub lic announcemen t of an intended Eo yal naval review at Spithead on June 28, 1902, an agreement in writing was entered into between the plaintiffs and the defendant that the plaintiffs' steamship Cynthia should be " at the disposal" of the defendant on Ju ne 28 to take passengers from Hern e B ay " for th e purpose viewing the naval review and for a day's cruise round the fleet; also on Ju ne 29 for similar pur pos es: price 2502. payable, 501. down, balance before ship leaves Herne Bay." On the signing of the agreement the defendant paid the 501. deposit. On J un e 25 the review was officially cancelled, whereu pon th e plaintiffs wired to th e defendant or instru ctions, statin g th at the ship was ready to start, and also requesting paym ent of the balance. Receiving no reply, the plaintiffs, on Ju ne 28 and 29, used the ship or the ir own purposes, thereby aking a profit. On Ju ne 29 the defendant repudiated th contrac t in tot o. During th e two days in question the fleet remained anchored at Spithead. In an action by the plaintiffs to recover the balance less the profits made by their use of the ship during the two days :— Held, reversing the judgment of Grantham J., that the plaintiffs were entitled to recover, because (1.) the venture was the defendant's, the risk being his alone; and (2.) the happening of the naval review was not th e sole basis of the con tract, so th at there had been no total failur of consideration, nor a total destruction of the subject-matter of the contract: Held, further, that the contract did not operate as a demise of the ship.

plaintiffs were ow ners f a stea bo at called th Cynthia, which they usually employed for the daily conveyance of passengers between Herne Bay and Gravesend and other places on the Thames. The defendant being desirous of chartering the steamboat for June 28 and 29, 1902, for the purpose of taking paying passengers to see the royal naval Eeview at Spithead—which it had been publicly announced would be held on June 28—and also for trips round the fleet, entered into negotiations for that purpose with the plaint ff company thro ug h Mr. enr y C.

*

90

Aug.

68 4


. . 3 HBBSE

Com?T •

T

[1903]

Jo ne s, a director and th e secretary f the com pany. ltiately, on ay 23, 1902, the following ag ree ent, signed by both p arties , was entered into between th e defendant a nd s Cynthia to be at Mr. Hutton's disposal at an approved pier or ber th at So utha pton on the orning Ju ne 2 8, perils of the sea, , per itting, to take out a par ty, not exceeding the number for which the vessel is licensed, to the position assigned by the Admiralty, for the purpose of viewing the naval review and for a day's cruise round the fleet; also on Sun day, Ju e 29 th, or similar purposes Owners to provide crew, coals, and all necessary assistr. ut to n to p ay all tolls, pier dues, &c. Ow ners ance. to have th e rig ht f ten persons above crew, c, on boa rd. ric e 250J. pay able , 5 . dow n, ba lanc e before sh ip leav es ern e ay ." t was also agreed tha t the plaintiffs should cater for the passengers during the two days at so much a head . Upo n th e signing f th e agreem ent t he defendant paid Jo ne s th e . deposit. Considerable correspond ence the passed between the parties as to the position to be assigned to the ship at the review, the places for taking up and landing passengers on the two days, the catering arrangements, the fares for passeng ers, and o ther tt rs : the plaintiffs, oreover, assisted th e de fendant in th e disposal f ticke ts an d in posting notices f the intended trips. Ultimately, on Ju ne 23, r. Jones wrote to the defendant requesting paymen t of th bala nc e f 200Z , and also askin g for a definite s tat em en t a to the number of people to be catered for, but received no reply. On J e 25, 1902, th e of cial ann ou nc em en t cancelling th review was published, whereupon, the ship being then af ern e B ay, Jon es wired to the defendant's address, " ha about Cynthia ? She ready to start six to-morrow. aiting ca sh ," bu t received no ans we r, and accordingly t he plaintiffs decided th at th e ship should resum e, he r ordina ry sailings between Herne Bay and places on the Thames, which she did, and the plaintiffs made profits thereby on June 28 and 29. On Ju e 29 the defendant called on Jon es and stated tha t, as the review had been cancelled, he did no t requ ire th e use of the

2

.

.


685

ship, and he therefore declined to pay th e balanc e

to hav e an yt hin g

ore to do

ith th e ag ree

2001.

r

0. A.

ent .

On the tw o days in q uestion, althoug h the review was HEBNE BAY • cancelled, the fleet rem ained anchored at Spithead. On Ju ly 7, 1902, th e plaintiffs issued t he

rit in thi s actio n

claiming the balance of 2001. under the agreeme nt. In their statement of claim they alleged that they had carried out their part of the agreement by having made all arrangements for the ship to leave Herne Bay suitably equipped, and were always ready and willing to fully perform the agreement. In his defence the defendant insisted that although the plaintiffs were not prevented by perils of the sea, or otherwise, the ship was not put a t his disposal at So utham pton, or at all on June 28 or 29, or at any other time; that, on the contrary, the plaintiffs were running her on trips in the Thames for their own purposes on each of those days, and on each day between Ju e 22 and Ju ly 2, inclusive. Th e defendant further alleged th at it was a condition f th e agreem ent, either expressed or implied, th at the n aval review should take place on Ju e 28 and that the consideration for the agreement wholly failed. The defendant counter-claimed for the return of the deposit of 50Z. In their reply and defence to the counter-claim, the plaintiffs asserted th t the y provided a crew, obtained co als, and prepared the ship for the use of the defendant, but that according to th e term s of th e agreem ent she was not to leave He rne Bay until payment of the balance of the agreed price; and th at they did not ru n th e ship un til after th e defendant h ad neglected to pay the balance. As to the counter-claim, they denied that the consideration failed, and insisted that the 501. was paid down on account of the agreed price of 2501. t app eare d th t t he plaintiffs ad e a profit f 9 . on their runn ing f the sh ip.dur ing the two days in question, so that at the trial they reduced the amount of their claim to 110Z. The action was tried on February. 10, 1903, before Grantham J., without a jury, when judgment was given for th e defend ant on th e claim , ith c osts, and for th e plaintiffs

HuTTOX.

68 6


C.A. 3

[1903]

on the counter-claim, ith costs, bu t execution was stayed to ena ble th e plaintiffs to ap pea l. The plaintiffs appealed from so much of the judgment as ref us ed th ei r claim

•

HUTTON.

he appeal was heard on Au gust 6, 1903. Montague Lush, K.C., A. S. Poyser, for the plaintiffs. t cann ot be said th at this con tract was altogethe r impossibl of performance, and therefore not binding upon either party, for one of its purposes was to cruise round the fleet, which was quite possible. Secondly, this, was simply a con tract un de which a steamer belonging to the plaintiffs was chartered to the defendant for certain purposes of his own, and at his own risk, the purposes for which she was required being no concern whatever of the plaintiffs ; and by that contract we submit he was bound. he c ontrac t really operated as a demise f t ship. Again, th e pay ent f the mon ey did no t depend upon th e h appe ning f th e contem plated event at all, or it was to be paid before th e ship left ern e ay . he defendant can no be perm itted to import into the contract a stipulation th t, he did not see all he wa nted to see, he was n ot to pay . t is well settled that, where there is a positive contract to do a thing , the c ontractor m ust perform it or pay damages, although in consequence of unforeseen accidents the performance of his contract has become unexpectedly burdensome or even impossible ; and t ha t th e c ontrac t is not subject to any cond ition either express or implied: Taylor Caldwell. ) he mo tive for the contract must not be mixed with the consideration; Wood. (2) the one has nothing to do with the other: Besant Therefore failure of the motive does not make the consideration fail. Th ere is no principle upon which th e plaintiffs should be treated as if they had never made a contract. E. W. Hansell, F. L. Firminger, for the defendant. This contract did not amount to a demise of the ship : it was a mere licence to the defendant to fill the ship with his own nominees—a licence for the occupation of a ship for a limited purpose, like a licence to occupy a seat for a certain purpose. (1) (1863) 3 B. & S. 826.

(2) (1879) 12 Ch.

. 605, 617.

2 K.

.


68

e tru e ef ect and ean ing f th e co ntra ct and the sole object 0. f it was tha t the ship should be a review-visiting ship ; bu t as the object of the contract became impossible, so that the ship HERNE BAY never did in fact exist as a review-visiting ship, the contract was co^^ Ashton. (1) really one impossible of performance: Nickoll The principle of Taylor Cdldioell (2)—that where the existence of a particular person, or thing, or state of things, can be regarded as the very foundation f the tran saction , it ma y be implied t ha t f th e foundation fails, the transa ction based on it ceases to be effectual—applies equally to t he no n-h app en ing f a particula r e vent. In sh ort, the eventual non-existence of the subject-matter of a contract excuses the parties from performance : Hobson Pattenden. (3) Union Marine L . J . I n Jackson Insurance Co. (4) the rule in Taylor Caldwell (2) was held to apply although there was no certum corpus.] The rule in Taylor Caldwell (2) is not limited to a case in which the certum corpus has been destroyed: it has been extended to a case wh ere th e certum corpus is no t capable being us ed ; and it ha s been further extended to a case in which the event specified in the contract does not happen. This contract should be regarded as having been made conditional up on t e happen ing of the par ticular eve nt, just as much as upon the continuation at a future date of a thing at presen t existing. Th e review was abandoned before the re was any breach of contract, and that excused both parties. [VATJGHAN

WILLIAMS

As to th e con tract operating as a demise f th e ship , it ha been held that a charter is not a demise : Scrutton on Charterpartie s and Bills f La din g, . 6, citing Dean Hogg (5) and Lucas Nockells. (6) This was merely a conditional licence to the defendant to pu t a certain num ber f people on board this steam er. oreover, this is not an ordinary case of hiring a ship for one person's own purposes, for the contract stipulated that ten (1) [1901] 2 K. B. 12 6,1 33 . (2) 3 B. & S. 826. Times (3), (1903) 88 L. K. 186. (4) (1874) L. R. 10 C. P. 125.

(5) (1834) 10 Bing. 345 ; 38 R. 3. (6) (1828 Bing. 729; 2 9 . 721.

88


[1903]

. . 3

nom inees of the plaintiffs should be tak en on bo ar d: so th at it was in reality a joint specu lation, and in po int f fact th HERNE BAY plaintiffs were themselves instrumental in selling tickets and STEAM BOAT issuing notices f th e intend ed tr ips . Ag ain, th e plaintiffs . have themselves virtually repudiated the con tract, for they chose to use the ship for their own purposes on the days in question. (1) VAUGHAN WILLIAMS

.J .

In my opinion this appeal

ust

be allowed. I wish first to call atte ntio n to th is, th at ha t th e plaintiffs originally claimed in this action was the sum of 2001., being the balance of the price of 2501. which was agreed to be paid. ha t actual sum , in my judgm ent, the plaintiffs are not entitled to recover: I do not think Mr. Lush could have borne in mind that that was the original claim, and, therefore, he regarded some of the observations of Grantham J., dealing with the original claim, as if they were applicable to the subsequent claim. In m y judgm ent the re w as, in this case, before t he time came for the performance of the contract, a plain repudiation by the defendant f his obligations unde r i ; and this i in fact adm itted. e refused to carry out the contrac t on his part, and the plaintiffs, acting very properly in the circumstances, employed the steamer on her usual daily services, and ade hat profit they could out f he r d uring th e two days they intended by the contract that the defendant should have the use of the vessel. nde r these circum stances th e plaintiffs claim is really for damages for the defendant's refusal to carry out the contract, and it is agreed that these damages are not ade by th e plaintiffs from 2001., bu t th t sum less th e profit having the use of the ship after the repudiation of the contract by the defendan t. The se damage s, I think , th e plaintiffs are entitled to recover. In my opinion, this con tract really placed th e vessel at the disposal of th e defendant for these particula days. he con tract, which was signed by r. Jo ne s, acting for the ow ners of th e ship, run s th : [Th e Lo rd Justic e read it, and continued:—] According to my understanding of this con(1) See Elliott

Crutchley, ante, p. 476, and Krell

Eenry, post, p. 740.

2 K.

.


68

tra ct, this ship wa s placed at the disposal f r. tto n really . for thos e two day s. r. an sell says this does no t co ns titute a demise f th e ship, and with th at I agree. t very rarely HEBNE BA th at a cha rterp arty does con tain a demise f a ship. Generally COMPANY* speaking, the ship is no t demised at all, bu t rem ains und er th e ma nagem ent and control f her owner. ut at the same time L.J. th is co ntr ac t do es, in m y opin ion, place th e ship at t e disposal of Mr. Hutton, just as a charterparty places the vessel, the subject of it, at the disposal of the charterers. ha t being so, wh at is. ther e besides in the present cas e? Only this, tha t r. Hu tton , in hiring this vessel, had two objects in view: first, of taking people to see the naval review, and, secondly, of taking them round the fleet. Those, no doubt, were the purposes of Mr. Hutton, but it does not impossible, it would be a very legitimate inference that the happening of the naval review was contemplated by both parties as the basis and foundation of this contract, so as to bring the case within the doctrine of Taylor Caldwell, (1) On th e "contrary, whe n the con tract is properly regarded, think the purpose of Mr. Hutton, whether of seeing the naval review or of going round the fleet with a party of paying guests, does not lay the foundation of the contract within the authorities. Having expressed that view, I do not know that there is any advantage to be gained by going on in any way to define what are the circumstances which might or might not constitute the happening of a particular contingency as the foundation of a con tract. I will con tent myse f w ith saying this, th at I se no thing th at akes this contrac t d r from a case wh ere, fo instan ce, a person ha s engaged a brake to take himself and party to Epsom to see the races there, but for some reason or other, such as the spread of an infectious disease, the races are postponed. In such a case it could n ot be said th at he coul be relieved f his ba rga in. So in th e pr es en t case it is suff cient to say th at the hap pen ing f the naval review was not the foundation of the contract. (1) 3 B. & S. 826.

69 0

KING'S BENCH DIVISION. C. A. 3

HEBNE BAY

I

I am

f the same opinion.

ay po int ou t th at thi s case is no t one in wh ic h th

sub ject-m atter of t he contra ct is a me re licence to th e defende

•

.

EOMEE

[1903]

a

* h i p f ° the purpose of seeing the naval review an d going ro un d th e fleet. n y opin ion, as y rd has said, it is a co ntr ac t for t he hi rin g f a ship by th e defe nda nt for a certain voyage, th ou gh h av ing , no doub t, a special object, na me ly, to see th e nav al review an d th e ee ; bu t it ap pe ars to e th at th e object was a at te r wi th wh ich th e defen dant, as hirer of the sh ip, wa s alone conc erne d, an d no t th e plaintiffs, the owners of the ship. e case can not , in my opin ion, be disting uishe d in princip le from m an y com mo n cases in wh ich , on th e hirin g of a ship yo u find th e objects f th e hi ri ng s ta te d. er y often yo u find the details of the voyage stated with particularity, and also e na tu re an d details f the cargo to be carri ed. If th voy age is int en de d to b e one of ple asu re, th e object in view may also be stated, which is a matter that concerns the passe nger s. t th is sta te me nt f th e objects f th e hire r th e ship would no t, in my opinion, justify hi m in sa ying th th e own er f t he ship ha d tho se objects ju st as m uc h in view as the hirer himself. Th e o wne r wou ld say, " I have an inte res t in th e ship as a passen ger or cargo carry ing ma ch in e, and I enter into the contract simply in that capacity; it is for the hirer to concern himself about the objects." n the pre sen t case, wi th regard to th e suggestion tha t t he re was something in the stipulation that the plaintiffs were to ha ve th e righ t on t he ir pa rt f placing ten pers ons on b oard which would change the nature of the hiring, I need only say th at the re is no thi ng in th at provision to lead th e Court to tre at th e trans actio n otherw ise th an as an ordin ary case hiring a vessel: it does not make it in any sense a joint speculation or an yth ing f th at sort. e stipula tion th at th ow ner s are " to hav e th e rig ht of ten pers ons above crew, on board " only amounts to this, that in the eye of the law the defe nda nt as the h ire r f the shi p licenses th e ow ner to send ten persons on board. The view I have expressed with regard to the general

2

.

.

KING'S BENCH DIVISION

69

effect f t he co ntra ct before us is born e out by th e following A. consid erations. he ship (as a ship) had no thin g pa rticula r to do with the review or the fleet except as a convenient HBBNB BAY carrier of passengers to see it: any other ship suitable for ••»•_ carrying passengers would have done equally, as well. Ju st as in the case f the hire f a cab or other vehicle, althoug h t he object f the hire r m igh t be stated, th at statem ent would not make the object any the less a matter for the hirer alone, and would n ot d irectly affect th e person wh o was letting o ut th vehicle for h ire. In the presen t case I ay point out th at it cannot be said that by reason of the failure to hold the naval review the re was a total failure of consideration. Th at can not be so. or is the re anyth ing like a total destruction of the subjec t-ma tter of the con tract. or can we, in y opinion, imply in this con tract any condition in favour f the defendan t which ould ' enable him to escape liability. A co ndition oug ht only to be implied in order to carry out the presum ed inten tion of the p arties, and I c annot a scertain any suc presume d intentio n h ere. t fo ows th at , in y opinion, so far as the plaintiffs are concerned, the objects of the passengers on this voyage with regard to sight-seeing do not form the subjec t-ma tter or essence f this con tract. ith regard to the one conten tion of fact on which the defendant relied, namely, th at the plaintiffs, th e ow ners of th e ship, had on their pa rt put themselves in the position of not having been able to carry out the con tract, and so repudiated it, I can only say th at the defendant has not proved his case. .J . I am f the same opinion. The plaintiffs are owners of a steam vessel for carrying passengers from Herne Bay to Gravesend and other places on the Th am es. The defendant is a gentleman who seems to have formed the idea of making a profit by the conveyance of passengers on Ju ne 28 and 29 f om Southam pton to see the naval review, and afterwards for a cruise round the fleet. From the correspondence it appears to me to be clear that this venture was tEe venture of the defendant alone, and that although the plaintiffs assisted him by selling tickets and STIKLING

69 2


[1903]

. . 3

posting notices f ha t wa s proposed to be done , yet th e risk as entirely th at f th e defe nda nt. HEBNEBAT In that state of things the defendant entered into a contract ÔOMPASY* by which the steamship belonging to the plaintiffs was to be • employed by th e defendant for the purpose f this ve ntu re, — wh ich, as I say, was his alone. he con tract was reduced Stirling

L . J .

into riting. I need no t read it a gain, bu t the ost m ateria part is that the vessel is to be " at Mr. Hutton's disposal" to take out the party f passeng ers. I agree th at this co ntract did not amount to a demise of the ship; it was, however, a contract entered into for valuable consideration as to the employment of the ship on the two days in question ; and it at least conferred this interest on the defendant, that, if the plaintiffs had attempted to violate it, that attempted violation would have been a ground for an injunction at the instance of th e plaintiffs to prev ent it. at is established by De Mattos Gibson. (1) It is said that, by reason of the reference in the contract to the " naval review," the existence f the review formed th basis of the contract, and that as the review failed to take place the parties becam e discharged from the further performance of the contract, in accordance with the doctrine of Taylor Caldwell. ) I am un able to arrive at th at conclusion. t seems to e th at the reference in th e con tract to the naval review is easily explained ; it was inserted in order to define m ore exactly the na ture f th e voyage, and I am unable to treat it as being such a reference as to constitute the naval review the foundation of the contract so as to entitle either party to the benefit of the doctrine in Taylor Caldwell. ) I come to thi s conclusion th e ore readily because the object of the voyage is not limited to the naval review, bu t also exten ds to a cruise roun d th e fleet. he fleet was the re, and passengers m ight have been found willing to go round it. t is true tha t in the event which happened the object f the voyage became limited, bu t, in y opinion, tha was the risk of the defendant whose venture the taking the passengers was. (1) (1859) 4 De G. & . 276.

(2) 3 B.

S. 826.

2 K.

.

,

KING'S

H DIVISION.

69

For these reasons I am unable to agree with the learned judge in holding that in the contemplation of the parties the taking place of the review was the basis for the performance of he contract, and I think that the defendant is not discharged from its performance. I also agree that there is no evidence that the plaintiffs (repudiated the contract before any breach by the defendant.

EBNE

—

Appeal allowed.

Solicitors : Jones & Hamp ; Biggs-Boche, Saiotjer d^Co. G. I. F. C.

THE KING v. BEEE.

May 22, 25,

Municipal Corporation Councillor Disqualification for " holding Office— Bankruptcy Remedy by Quo Warranto Municipal Corporations Act, 1882 (45 46 Viet. c. 50), ss. 12, 87—Bankruptcy Act, 1883 (46 47 Viet. c. 52), s. 32.

By s. 32 of the Bankruptcy Act, 1883, a debtor who is adjudged bankrupt is disqualified for (inter alia) being elected to or holding or exercising e ff e f councillor, a disqualification limited by s. 9 of the Bankruptc Act, 1890, to five years from the date of discharge. By s. 87 f th Municipal Corporations Act, 1882, a municipal election may be questioned by an election petition on the ground that the person whose election is -questioned was at the time of the election disqualified, and shall not be -questioned on that ground except by an election petition. A debtor was adjudicated a bankrupt in April, 1899, and in the following July obtained an order of discharge subject to suspension for two years and a half, which came into operation in January, 1902. In November, 1902, an election was held of councillors for a municipal borough, at which he was nominated and declared elected. In 1903 rule nisi was obtained for a quo warraato calling on him to shew cause why he held and exercised the office of borough councillor :— Held, that the remedy by quo warranto was taken away by s. 87 of the Municipal Corporations Act, 1882, only in those cases where the election was questioned on the ground of disqualification for election, and that bankruptcy being by s. 32 of the Bankruptcy Act, 1883, a disqualificatio not merely for election, but also for ho ld ng " the o e of councillor,
for an information in the nature of a writ of quo •warranto calling upon one George Beer to shew by what right NISI

VOL.

II . 1903.

3 A

1903

28.

Page1

J Lauritzen AS v Wijsmuller BV (The Super Servant Two) Super Servant Two, The Court of Appeal (Civil Division) 12 October 1989


[1990] 1 Lloyd's Rep. 1; Times, October 17, 1989; Independent, October 30, 1989; Financial Times, October 24, 1989

Case Digest

Subject: Shipping Keywords: Breach of contract; Force majeure; Frustration; Shipping law Summary: Carriage by sea; loss of ship; whether contract frustrated; whether self-induced; whether defendants entitled to cancel contract Abstract: A contract was not frustrated if performance of it was still possible. D agreed to transport Ps' drilling rig from Japan to Rotterdam, using a "transportation unit", which was described as Super Servant One or Super Servant Two. D could replace the unit by other means of transport, and could cancel the contract on the grounds of force majeure or any other circumstances which reasonably prevented the performance of the contract. There was also a duty of care clause in favour of P. The Super Servant Two sank before performance of the contract and D informed P that they would not carry out the transportation with Super Servant One (as it was engaged on another contract). The rig was transported under a later "without prejudice" agreement between the parties by barge and tug. P claimed damages for breach of the contract of carriage. D pleaded that the contract had been frustrated. They counterclaimed in respect of increased expenses. Hobhouse J. ruled that D were not entitled to cancel the contract on the grounds of frustration. Held, dismissing Ds' appeal, that (1) D owed no contractual duty to P in relation to events occurring before the contract of carriage began; (2) on the construction of the contract, D were not entitled to cancel the contract if the loss of the vessel was caused by the negligence of D, their servants or agents before the time for performance had arrived and (3) the contract provided for the use of another vessel, and so the sinking of the Super Servant Two did not frustrate the contract. Judge: Dillon, L.J.; Bingham, L.J.

Appellate History

Queen's Bench Division (Commercial Court) J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1989] 1 Lloyd's Rep. 148 Affirmed by Court of Appeal (Civil Division) J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd's Rep. 1; Times, October 17, 1989; Independent, October 30, 1989; Financial Times, October 24, 1989

Page2


Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435; (HL) Bremer Handels GmbH v Continental Grain Corp [1983] 1 Lloyd's Rep. 269; (CA (Civ Div)) Davis Contractors v Fareham Urban DC [1956] A.C. 696; [1956] 3 W.L.R. 37; [1956] 2 All E.R. 145; 54 L.G.R. 289; (1956) 100 S.J. 378; (HL) Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] A.C. 265; 1944 S.C. (H.L.) 35; 1945 S.L.T. 2; (HL) Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] A.C. 497; [1926] 1 W.W.R. 917; [1926] W.N. 89; (PC (HK)) Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] A.C. 524; (1935) 51 Ll. L. Rep. 299; (PC (Can)) Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 A.C. 854; [1982] 3 W.L.R. 1149; [1983] 1 All E.R. 34; [1983] 1 Lloyd's Rep. 103; [1983] Com. L.R. 20; (1982) 126 S.J. 835; (HL) Thomas Wilson Sons & Co v Owners of Cargo of the Xantho (The Xantho) (1887) L.R. 12 App.Cas. 503; (HL)


Considered by CTI Group Inc v Transclear SA (The Mary Nour) [2008] EWCA Civ 856; [2008] Bus. L.R. 1729; [2009] 2 All E.R. (Comm) 25; [2008] 2 Lloyd's Rep. 526; [2008] 2 C.L.C. 112; (CA (Civ Div))

Journal Articles

Business interruption: preparing for the unknown Companies; Contractual liability; Employers' liability; Finance; Insurance; Negligence; Occupiers' liability; Risk management; Terrorism. P.L.C. 2003, 14(7), 13-24 Business interruption: preparing for the unknown Companies; Contractual liability; Employers liabilities; Finance; Insurance; Negligence; Occupiers liability; Risk management; Terrorism. P.L.C. 2003, 14(7), 13-24 The euro, EMU and UK law Bank of England; Banking supervision; Economic and monetary union; Financial Services Authority; Financial markets; Regulatory bodies; Single currency; Tax. E.B.L. Rev. 2002, 13(5), 411-426 Shipping - carriage Force majeure; Frustration; Shipping contracts. J.I.B.L. 1990, 5(11), N256-257 Self-induced frustration, foreseeability and risk Contracts; Frustration. N.I.L.Q. 1990, 41(4), 362-369 Contracts - interpretation - force majeure clause Force majeure; Frustration; Shipping contracts.

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O.G.L.T.R. 1990, 8(6), D80-81 Carriage by sea - frustration and force majeure Force majeure; Frustration; Shipping contracts. C.L.J. 1990, 49(2), 209-211 The construction of force majeure clauses and self-induced frustration Force majeure; Frustration; Shipping contracts. L.M.C.L.Q. 1990, 2(May), 153-158 Self-induced frustration and force majeure clauses Force majeure; Frustration; Shipping contracts. Build. L.M. 1990, 7(1), 7-8 © 2010 Sweet & Maxwell

[1842]

HOUSE OF LORDS

154

[HOUSE OF LORDS.]

H. L. (E.) * JOSEPH T TXT _.

i94i Feb.

CONSTANTINE

STEAMSHIP , A y APPELLANTS ;

T

LINE, LIMITED

20, 2 i ;

j .„ „

AND

May 9.

IMPERIAL SMELTING CORPORATION, ) T TUTTun

n

\ R E S P O N D E N T S .

LIMITED

)

on ship— Ship—Charterparty —Frustration— Explosion No cause — Liability of shipowners —Onus of proof.

evidenceof

When frustration of a contract in the legal sense occurs, it automatically determines the contract itself and the promisee can only succeed in an action for damages for the subsequent non-performance of th e contract by the promisor if he proves that the determination of the contract was due to the promisor's default. Consequently, when a contract is frustrated by the supervening destruction of essential subject-matter of th e contract, the promisor who relies on the frustration is not bound to prove affirmatively that the destruction was not brought about by his neglect or default; it is for the promisee who seeks to avoid the legal result of the frustration to establish that the destruction was du e to the neglect or default of the promisor. To a claim by charterers against shipowners for damages for failure to load a cargo the shipowners pleaded that an explosion on the ship ha d frustrated the chartered voyage. Th e cause of the explosion was not ascertained : — Held, that the shipowners, having established that the explosion had frustrated the commercial object of the adventure, were not bound to prove further that the explosion was not due to their neglect or default, and the defence of frustration succeeded. Decision of th e Court of Appeal [1940] 2 K. B . 430 reversed.

from a decision of the Court of Appeal (1). By a charterparty dated August 5, 1936, the appellant steamship company chartered their steamship Kingswood to the respondent corporation to proceed to Port Pirie, South Australia, to load a cargo. On December 26, 1936, the Kingswood anchored in the roads at Port Pirie, and after certain negotiations it was agreed that the steamer should APPEAL

(1) [1940] 2 K. B. 430. * Present:

VISCOUNT SIMON L.C., VISCOUNT MAUGHAM, RUSSELL OF KILLOWEN, LORD WRIGHT an d LORD PORTER.

LORD

A. C.

AND PRIVY COUNCIL.

155

remain at the anchorage until Janua.ry 4, 1937, and should H. L. (E.) 1941 then proceed to her berth. At approximately 8.55 A.M. on January 3, while the steamer was still anchored in the JOSEPH CONroads, an explosion of great violence occurred from her STANTINE auxiliary boiler which resulted in such delay that, as was STEAMSHIP LINE, L D . admitted by the charterers, the commercial object of the v. IMPERIAL adventure was frustrated. On the ship's return to England SMELTING a Board of Trade inquiry was held under the Boiler Explosions CORPORA TION, L D . Acts, 1882 and 1890, and this was followed by arbitration consequent on a claim by the charterers against the owners for failure to load. It was agreed th at the Kingswood never became an " arrived ship." The arbitrator found as follows: "Neither those who were responsible for conducting the "Board of Trade inquiry, nor any of the witnesses who gave "evidence before me, claimed to be able to state with any "certainty the causes of the disaster, or the sequence of events "that led up to it. The explosion was one of an unprecedented "character, and no sequence of events which was other than "improbable was suggested as capable of having given rise to "it . The matter was rendered still more difficult by reason "of the fact that the donkeyman, who, on the morning in "question, was the only person to be in the stokehold during "the ninety minutes preceding the explosion, was not available "as a witness." The case set out the various contentions and hypotheses as to the cause of the explosion, and the arbitrator stated : " I am not satisfied th at the true cause of the disaster "h as as yet been suggested." Subject to the case, the arbitrator awarded that the charterers were entitled to damages. Atkinson J. held that the onus was on the charterers to prove that there had not been frustration, that they had failed to discharge that onus, and that their claim failed. The Court of Appeal held that a party, prima facie, guilty of a failure to perform his contract, cannot escape under the plea of frustration, unless he proves that the frustration occurred without his default; that the owners had failed to discharge the onus that was on them ; and that there must be judgment in accordance with the terms of the arbitrator's finding. The steamship line appealed.

HOUSE

15 6

H. L. (E.) 1941 J OSEPH

CONSTANTINE STEAMSHIP LINE, L D .

i'. IMPERIAL SMELTING CORPORA TION, L D .

OF

LORDS

[1942]

Sir Robert Aske K.C. and Patrick Devlin (for Mocatta, on war service) for the appellants. There is no case in which a defendant to an action for breach of contract who has set up frustration has failed because he did not prove affirmatively that he was not in fault. Frustration is an exception to the express terms of the contract, the position being as though there had been written into the contract the exception of total or partial destruction of the subject-matter. That principle was discussed in F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld. (1), where it was held that the interruption relied on as excusing further performance of the contract was not such as to do so. So, too, in Mertens v. Home Freeholds Co. (2), an intervention by the Minister of Munitions brought about by the act of the defendant could not be taken advantage of by him. In Court Line, Ld. v. Dant & Russell, Incorporated (3) the facts were that a steamer was discharging on the Yangste when hostilities were in progress between China and Japan. A boom had been placed across the river to prevent an attack so that the steamer was detained for three months, and it was held that, in accordance with the principles laid down in Bank Line, Ld. v. Arthur Capel & Co. (4), the contract had been frustrated and the obligations of both parties under it had come to an end. As Lord Sumner said in the Bank Line case (5), "the principle "of frustration of an adventure assumes that the frustration "arises without blame or fault on either side. Reliance cannot "be placed on a self-induced frustration." In Taylor v. Caldwell (6), A agreed with B to give him the use of a music hall on certain specified days with no express stipulation for the possible event of the destruction of the hall by fire. The hall was destroyed by fire and it was held that the parties were excused from performance of the contract. Miller K.C, Pilcher K.C. and H. G. Robertson (for Charles Stevenson, on war service) for the respondents. In Halsbury's Laws of England, 2nd ed., vol. vii., p. 208, para. 292, it is said : (1) [1916] 2 A. C. 397. (2) [1921] 2 K. B. 526. m (3) U939) 44 C ° ' Cas. 345.

(4) [1919 ] A. C. 43 5. (5) Ibid. 452. (6) (1863 ) 3 B . & S. 826.

A. C.

AND PRIVY COUNCIL.

157

" Impossibility of performance does not as a rule discharge the H. L. (E.) 1941 "liability under a contract, but in certain cases the promisor is "excused from performing his promise if it is shown that JOSEPH CON "performance is impossible without any default on his part." S T ANTINE That has been introduced into the law of contract, but it is an SLTI ENAEM, LS HDI P. v. exception available in certain cases only. A person relying on IMPERIAL frustration must establish impossibility without fault or blame SMELTING on his part : Maritime National Fish, Ld. v. Ocean Trawlers, CORPORA TION, L D . Ld. (1). In that case Lord Wright referred to what Brett J. said in Jackson v. Union Marine Insurance Co., Ld., (2), which postulated as one of the conditions of frustration that it should be without any default of either party. There was an absolute obligation on the appellants to have the ship at the port and they failed to perform it. Sir Robert Aske K.C. replied. The House took time for consideration. May 9. VISCOUNT SIMON L.C. My Lords, by a charterparty, dated August 5, 1936, the appellants, who.were the owners of a steamship called the Kingswood, chartered the ship to agents for the respondents for a voyage with a cargo of ores and concentrates from Port Pirie in South Australia to Europe. The vessel duly sailed for Port Pirie to load her cargo. On January 3, 1937, while she was anchored in the roads at Port Pirie, but before she became an " arrived ship," there was an explosion of extreme violence in the neighbour hood of her auxiliary boiler, which caused such damage to the steamer that she could not perform the charterparty, and the appellants gave notice to the respondents to that effect. The respondents claim damages from the appellants, alleging that the latter have broken the charterparty by failing to load a cargo. The appellants set up the defence that the contract was " frustrated" by the destructive consequences to the Kingswood of the explosion. 1941.

The dispute was referred to the arbitration of Mr. H. U. Willink K.C, and the learned arbitrator has made an interim (1) [1935] A. C. 524.

(2) (1873) L. R . 8 C. P . 572.

i58

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .

v. IMPERIAL SMELTING CORPORA TION, L D . Viscount Simon L.C.

OF

LORDS

[1942]

award in the form of a special case. He finds that the explosion was one " of an unprecedented character " and that-no probable sequence of events had been suggested as capable of having given rise to it. The energy released by the explosion was so great that the auxiliary boiler was projected forward through two water-tight bulkheads, finally piercing the collision bulk head at the forward end and breaking the shell plates at the starboard bow. The distance travelled by the auxiliary boiler, owing to the propulsion of the explosion, before it came to rest in the fore-peak was approximately one hundred and sixty-four feet, while the two main boilers, situated aft of the auxiliary boiler, were forced backwards by the concussion four feet and five feet six inches respectively. It is not disputed that the time needed to repair the damage and to make the Kingswood fit for her voyage was so great as to frustrate the commercial object of the adventure. The respondents, however, contend that this frustration does not suffice to excuse the appellants from having to pay damages for non-performance unless the appellants establish affirmatively that the explosion occurred without any fault on their part. The appellants, on the other hand, contend that, once the frustrating event is proved, the onus is on the respondents to establish such default on the part of the appellants as would deprive the latter of their right to rely upon it.

After examining three principal theories which were suggested in evidence as possibly accounting for the disaster, the arbitrator declares himself unable to decide whether any one of them provided the true explanation, and he goes on to say that he is not satisfied that the direct cause of the disaster has as yet been suggested at all. His conclusion is that he was not satisfied that any of the servants of the appellants were guilty of negligence. On the other hand, neither was he satisfied that negligence on the part of the servants of the appellants did not cause or contribute to the disaster. It is this nicely balanced conclusion on the facts which provides the question of law which this House has now to decide. That question is whether, when parties have contracted in such circumstances as require a term to be implied in the contract that it shall be determined,

A. C.

AND PRIVY COUNCIL.

and the mutual obligations of the parties discharged, by super vening destruction of essential subject-matter of the contract, the party alleging frustration must prove affirmatively that the destruction has not been brought about by his own neglect or default. The special case came before Atkinson J., who, in a most careful and elaborate judgment, in the course of which he examined a large number of authorities, decided that the present appellants succeeded (1). On the subject of onus of proof, Atkinson J. cited the well known passage from the judgment of Bowen L.J. in Abrath v. North Eastern Ry. Co. (2) and applied it as follows : (I have substituted " charterers " and " shipowners " throughout as the descrip tion of the parties.) " I n such a case as this, the charterers "begin by proving that the ship did not arrive within the "contract time, or at all. If the case stopped there, the "charterers win ; but the shipowners then prove an accident "which destroyed the ship as a navigable unit. The ship" owners prove an event which was the immediate, direct and "dominant cause of that destruction. If the case stopped " there, what is the position ? Who wins ? Well, I do not "think the answer is a simple one ; but in my view the onus "of ultimately satisfying the tribunal that the ship was at "fault rests on the charterers. Whether or no they have "discharged that onus, must be judged by applying the "following principles. (1.) If it appears that the accident "proved was of such a nature as to raise a presumption of " negligence, that is, to afford some evidence of negligence, the " onus is on the shipowners to destroy that presumption created "by the nature of the accident. (2.) If it appears that the " accident proved was of such a nature as to afford no evidence " of negligence, the onus is on the charterers to prove negligence "in fact. (3.) Where the onus is upon the shipowners under "the first principle that onus is discharged by proving facts " from which the inference that the accident was not caused by " negligence is as equally strong (that is, equally consistent with " the facts) as the inference that it was caused by negligence." (.1) [1940] 1 K. B. 81 2.

(2) (1883) 11 Q. B. D . 440 , 45 6.

159 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .

v. IMPERIAL SMELTING CORPORA TION, L D . Viscount Simon L.C

i6o

HOUSE

H. L. (E.) 1941 JOSEPH CON ST ANTINE STEAMSHIP LINE, L D .

v. IMPERIAL SMELTING CORPORA TION, LD.

Viscount Simon L.C.

OF

LORDS

[1948]

The charterers appealed to the Court of Appeal, which reversed Atkinson J.'s decision. Scott L.J. delivered the first judgment, with which the Master of the Rolls and Goddard L.J. agreed. Scott L.J. declared that this was a "very "simple case," and this view is no doubt the explanation of the fact that his judgment does not provide this House with the arguments or authorities which led the Court of Appeal to their conclusion. The only help your Lordships can get is the assertion by the learned Lord Justice that "a party prima "facie guilty of a failure to perform his contract cannot escape "under the plea of frustration, unless he proves that the frus"tration occurred without his default. There is no frustration "in the legal sense unless he proves affirmatively tha t the cause "was not brought into operation by his default." If this assertion is correct, it, of course, disposes of the case. The Court of Appeal refused leave to appeal, which, however, the Appeal Committee of this House thought it right to grant. The House has been assisted by a full and careful argument from counsel on each side in determining the issue. The question to be answered is not, in my view, a very simple one, and it has not as yet, so far as I can discover, been the subject of direct decision. There is no doubt, of course, that what Lord Sumner in Bank Line, Ld. v. Arthur Capel & Co. (1) called " self-induced " frustration provides no defence. Thus, in Mertens v. Home Freeholds Co. (2), Lord Sterndale observed : " I t has never been held th at a man is entitled "to take advantage of circumstances as a frustration of "the contract if he has brought those circumstances about "himself " ; and the Master of the Rolls went on to illustrate his meaning by saying th at in Taylor v. Caldwell (3) the defence of frustration would have failed "if the defendant had "burned down the music-hall himself." Similarly, in Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (4), decided by the Judicial Committee, my noble and learned friend Lord Wright, who delivered the judgment of their Lordships, laid it down that "the essence of ' frustration ' is that it should not be due (1) [1919] A. C. 435, 452. (2) [1921] 2 K. B. 526, 536.

(3) (1863) 3 B. & S. 8 26 . (4) [1935 ] A- C. 524 , 530, 53* •

A. C.

AND

PRIVY

161

COUNCIL.

"to the act or election of the party," and, after quoting Lord Sumner's dictum in the Bank Line case (i), went on to say: "Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., " Ld. (2) quotes from Lord Blackburn in Dahl v. Nelson, Donkin "& Co. (3), who refers to a 'frustration' as being a matter "' caused by something for which neither party was respon sible ' : and again he quotes Brett J.'s words, which "postulate as one of the conditions of frustration that it "should be ' without any default of either party.' It would "be easy, but it is not necessary, to multiply quotations to "the same effect." All this, however, is really beside the present point, for the question raised by the arbitrator's award is not whether the defence of frustration fails if the frustration is proved to be " self-induced " (Lord Sumner), or "d ue to the act or election "of the party" (Lord Wright), or, to use Scott L.J.'s phrase, "brought into operation by his default." The question here is where the onus of proof lies; i.e. whether, when a super vening event has been proved which would, apart from the defendant's "default " put an end to the contract, and when at the end of the case no inference of "default " exists and the evidence is equally consistent with either view, the defence fails because the defendant has not established affirmatively that the supervening event was not due to his default. I may observe, in the first place, that, if this were correct, there must be many cases in which, although in truth frustra tion is complete and unavoidable, the defendant will be held liable because of his inability to prove a negative—in some cases, indeed, a whole series of negatives. Suppose th at a vessel while on the high seas disappears completely during a storm. Can it be that the defence of frustration of the adventure depends on the owner's ability to prove that all his servants on board were navigating the ship with adequate skill and that there was no "default " which brought about the catastrophe ? Suppose that a vessel in convoy is tor pedoed by the enemy and sinks immediately with all hands. (1) [1919] A. C. 435, 452.

(3) (1881) 6 Ap p. Cas. 38, 53 .

(2) [1926] A. C. 49 7, 50 7. A . C. 1942.

M

H . L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .


l62

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D. v.

IMPERIAL SMELTING CORPORA TION, L D .

Viscount Simon L.C.

OF L O R D S

[1942J

Does the application of the doctrine require that the owners should affirmatively prove that those on board were keeping a good look-out, were obscuring lights, were steering as directed, and so forth ? There is no reported case which requires us so to hold. The doctrine on which the defence of frustration depends is nowhere so stated as to place this onus of proof on the party relying on it. From the classic judgment of Blackburn J. in Taylor v. Caldwell (1), I extract these p a s s a g e s : " . . . . where, from the ' nature of the contract, it appears that the parties must ' from the beginning have known that it could not be fulfilled ' unless when the time for the fulfilment of the contract ' arrived some particular specified thing continued to exist, ' so that, when entering into the contract, they must have ' contemplated such continuing existence as the foundation ' of what was to be done ; there, in the absence of any express ' or implied warranty that the thing shall exist, the contract ' is not to be construed as a positive contract, but as subject ' to an implied condition that the parties shall be excused in 'case, before breach, performance becomes impossible from 'the perishing of the thing without default of the contractor." Later, he says (2) : "The principle seems to us to be that, in ' contracts in which the performance depends on the con' tinued existence of a given person or thing, a condition is ' implied that the impossibility of performance arising from the ' perishing of the person or thing shall excuse the perform' ance." It is true that the earlier of these passages stated the requirement that the impossibility should have arisen "without "default of the contractor," and a similar qualification was insisted on in many other cases, e.g. by Viscount Haldane in the Bank Line case (3), where he said : "where people enter "into a contract which is dependent for the possibility of its "performance on the continued availability of the subject" matter, and that availability comes to an unforeseen end by "reason of circumstances over which its owner had no control, "the owner is not bound unless it is quite plain that he has (1) 3 B. & S. 826, 833. (2) Ibid. 839.

(3) [1919] A. C. 445.

A . C.

AND PRIVY

COUNCIL.

16 3

" contracted to be so." But this is not the same thing as saying that the defendant must disprove default. The qualification means, in my opinion, no more than that, unless default is proved or ought to be inferred, the defence is complete. Where the onus lies is still to be determined. In this connection it is well to emphasize th at when "frustra" tion " in the legal sense occurs, it does not merely provide one party with a defence in an action brought by the other. It kills the contract itself and discharges both parties automati cally. The plaintiff sues for breach at a past date and the defendant pleads that at that date no contract existed. In this situation the plaintiff could only succeed if it were shown that the determination of the contract were due to the defen dant's "default," and it would be a strange result if the party alleging this were not the party required to prove it. The doctrine of discharge from liability by frustration has been explained in various ways—sometimes by speaking of the disappearance of a foundation which the parties assumed to be at the basis of their contract, sometimes as deduced from a rule arising from impossibility of performance, and sometimes as flowing from the inference of an implied term. Whichever way it is put, the legal consequence is the same. The most satisfactory basis, I think, on which the doctrine can be put is that it depends on an implied term in the contract of the parties. This was the basis adopted in Taylor v. Caldwell (1) which is practically the first case of the modern line of authorities. It is the view taken in many later cases—nowhere more clearly than in Lord Loreburn's exposition in F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld. (2). It has the advantage of bringing out the distinction that there can be no discharge by supervening impossibility if the express terms of the contract bind the parties to performance notwithstanding that the supervening event may occur. Discharge by super vening impossibility is not a common law rule of general application, like discharge by supervening illegality ; whether the contract is terminated or not depends on its terms and the surrounding circumstances in each case. Moreover, it seems to (1) 3 B . & S. 83 9.

(2) [1916] 2 A. C. 397, 4° 3. 4° 4-

3

M 2

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


HOUSE

164 H. L. (E.) 1941 JOSEPH CONSTANTINB STEAMSHIP LINE, L D .


OF

LORDS

[1942]

me that the explanation of supervening impossibility is at once too broad and too narrow. Some kinds of impossibility may in some circumstances not discharge the contract at all. On the other hand, impossibility is too stiff a test in other cases— for example, if the coronation cases, such as Krell v. Henry (1), are to be regarded as rightly decided on their facts, the explan ation of such contracts coming to an end is not to be classed as due to impossibility, for the seats let remained available and the actions in those cases were brought for the payment or return of money. Every case in this branch of the law can be stated as turning on the question whether from the express terms of the particular contract a further term should be implied which, when its conditions are fulfilled, puts an end to the contract. If the matter is regarded in this way, the question is as to the construction of a contract taking into consideration its express and implied terms. The implied term in the present case may well be—"This contract is to cease to be binding "if the vessel is disabled by an overpowering disaster, provided "that disaster is not brought about by the default of either "party." This is very similar to an express exception of "perils of the seas," as to which it is ancient law that by an implied term of the contract the shipowner cannot rely on the exception if its operation was brought about either (a) by negligence of his servants, or (b) by his breach of the implied warranty of seaworthiness. If a ship sails and is never heard of again the shipowner can claim protection for loss of the cargo under the express exception of perils of the seas. To establish that, must he go on to prove (a) that the perils were not caused by negligence of his servants, and (b) were not caused by any unseaworthiness ? I think clearly not. He proves a prima facie case of loss by sea perils, and that he is within the exception. If the cargo owner wants to defeat that plea it is for him by rejoinder to allege and prove either negligence or unseaworthiness. The judgment of the Court of Appeal in The Glendarroch (2) is plain authority for this. The point as to onus of proof is put very clearly in the third (1) [1903] 2 K. B . 740 .

(2) [1894] P- 226.

A. C.

AND

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COUNCIL.

paragraph of Article 91 of Scrutton on Charterparties, 14th ed., p. 297. See also Carver on Carriage by Sea, 8th ed., s. 78. The decision in The Northumbria (1) involves the same con clusion. Another example, from the law of bailment, confirms this view. Assume a bailment of goods to be kept in a named warehouse with an express exception of loss by fire. Proof of destruction by fire would prima facie excuse the bailee. The bailor could counter by alleging either (a) fire caused by the negligence of the bailee or (b) goods when burnt were not stored in the agreed warehouse. But it would be for the bailor not only to allege but to prove either (a) or (&), though he might rely on facts proved or admitted by the bailee as establishing his proposition. Moreover, there is at any rate an inference leading to the same view in the well known case of Jackson v. Union Marine Insurance Co., Ld. (2). The plaintiff in that case had entered into a charterparty under which his vessel was to proceed from Liverpool to Newport and there take on board a cargo of iron rails for a voyage to San Fran cisco. The plaintiff effected an insurance on the chartered freight for the voyage with the defendants and the question was whether, owing to the vessel going aground upon the rocks in Carnarvon Bay on her way from Liverpool to load at Newport, the adventure had been frustrated so as to involve the loss of the chartered freight by perils of the sea. Bramwell B., in delivering the judgment of the majority of the Court of Exchequer Chamber (3), makes it plain that the long delay due to the stranding, and the consequent impossibility of quick repair, would only operate to bring the contract to an end if the stranding arose by no default of the ship. The condition precedent was that the vessel should arrive at Newport in a reasonable time and, says Bramwell B. (3), "the condition "precedent has not been performed, but by default of neither." What is noticeable is that, so far as appears from the report, frustration was treated as established without it being thought to be a necessary part of the plaintiff's case to disprove default, while the defendants did not choose, or were not able, to establish (1) [1906] P . 29 2. (2) (1874) L. R. 10 C. P. 125.

(3) I b i d . 142, 144.

I65

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D.

v. IMPERIAL SMELTING CORPORA TION, L D . Viscount Simon L.C

i66

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD. v. IMPERIAL SMELTING CORPORA TION, LD.

Viscount Simon L.C.

OF

[1942]

LORDS

default themselves. The report of the case in the court below (1) leads to the same inference. Brett J. (2), delivering the judg ment of the majority, uses the phrase "without any default "of either party." The facts as to the stranding are shortly given (3) and the questions left to the jury (approved in both courts) (4). But it never occurred to anyone in either court to suggest that one essential question that ought to be left to the jury was : " Have the shipowners proved that the stranding "took place without negligence or default on the part of them" selves or their servants ? " I reach the conclusion that Atkinson J. took the right view in this case, and that the Court of Appeal was mistaken in holding th at once the frustration in fact was established and any inference of default alleged to arise from the fact that the ship was under the control of the appellants' servants was negatived, it lay on the appellants to go further and satisfy the arbitrator positively that the frustration occurred without their default. For purposes of clearness and to avoid possible misunder standing hereafter, I must add (though this is not necessary for the present decision) that I do not think that the ambit of " default " as an element disabling the plea of frustration to prevail has as yet been precisely and finally determined. " Self-induced " frustration, as illustrated by the two decided cases already quoted, involves deliberate choice, and those cases amount to saying that a man cannot ask to be excused by reason of frustration if he has purposely so acted as to bring it about. "Defau lt" is a much wider term and in many commercial cases dealing with frustration is treated as equiva lent to negligence. Yet in cases of frustration of another class, arising in connection with a contract for personal per formance, it has not, I think, been laid down that, if the personal incapacity is due to want of care, the plea fails. Some day it may have to be finally determined whether a prima donna is excused by complete loss of voice from an executory contract to sing if it is proved that her condition was caused (1) L. R. 8 C. P. 57 2. (2) Ib id . 58 1.

(3) Ibi d. 572 . (4) Ibi d. 573 .

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by her carelessness in not changing her wet clothes after being out in the rain. The implied term in such a case may turn out to be that the fact of supervening physical incapacity dissolves the contract without inquiring further into its cause, provided, of course, that it has not been deliberately induced in order to get out of the engagement. I move that this appeal be allowed and that the order of Atkinson J. be restored. The appellants must have their costs here and in the Court of Appeal. My Lords, this is an appeal arising on a special case stated in an interim award to determine a question of liability for damages under a charterparty. The claimants were the charterers of the vessel Kingswood and the damages claimed were for failure by the shipowners to load a cargo at Port Pirie in New South Wales. The facts are, of course, to be found only in the special case which is sufficiently stated in the opinion of the Lord Chancellor, and it is unnecessary for me to repeat them. It will be enough for my purpose to say that the damage to the ship was due to an explosion which occurred before the vessel became an "arrived " ship, that the explosion was one of an unprecedented character, that no probable sequence of events was suggested by either side as capable of having given rise to it, and that the learned arbitrator was not satisfied that it was due to the negligence of the shipowners or their servants or that the true cause of the disaster had been suggested in the course of the arbitration. VISCOUNT MAUGHAM.

In these circumstances the single question which arises on the appeal may be stated thus : The appellants (the ship owners) contended in answer to the respondents' (the charterers') claim for damages that the destruction of the ship as a navigable unit had resulted in the frustration of the adventure. The respondents replied that the doctrine of frustration is applicable only if performance of the contract becomes impossible without the default of either party, and that the onus, therefore, lay on the appellants to establish that they and the master and crew and the other servants

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD. V.

IMPERIAL SMELTING CORPORA TION, LD.

i68

HOUSE


v. IMPERIAL SMELTING CORPORA TION, LD.

Viscount Maugham.

OF

LORDS

[1942]

of the appellants were not guilty of default causing or con tributing to the disaster. The respondents contend that the findings of the special case show that this onus has not been discharged, and accordingly that the doctrine of frustration does not apply. Atkinson J. in an elaborate judgment referring to all or nearly all the relevant cases, did not agree with this contention as regards onus, and he, therefore, decided in favour of the appellants. The Court of Appeal took the other view, and in a very terse judgment it was observed that "there is no frustration in the legal sense unless h e " (the party prima facie guilty of a failure to perform his contract) "proves affirmatively that the cause was not brought into "operation by his default." This was directly contrary to the opinion of the trial judge. The question is which of these two views is correct. The doctrine of frustration is only a special case of the discharge of contract by an impossibility of performance arising after the contract was made. The doctrine in its modern form was first stated by Blackburn J. delivering the judgment of the Queen's Bench in Taylor v. Caldwell (1). The court there was dealing with a case in which it was clear th at the parties had contracted on the basis that a certain music hall would continue to exist for the purpose of giving concerts on four specified days. It had been accidentally burnt down. It was held that such a contract must be regarded as "subject "to an implied condition tha t the parties shall be excused in "case, before breach, performance becomes impossible from "the perishing of the thing without default of the contractor." This was followed four years later by another case also arising out of a fire. Blackburn J. there amended his statement of the principle by substituting for the words "without default "of the contractor " the words "without fault on either side " : Appleby v. Myers (2). This amendment has ever since been accepted as correct. The principle, however, is not limited to cases of contracts de certo corpore. It also applies to a number of cases in which the existence or continued existence of some specific thing is (1) 3 B . & S. 82 6.

(2) (1867) L . R . 2 C. P . 6 5 1 .

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not involved, and in those cases its application is sometimes difficult: F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld. (1). The proposition stated by the Court of Appeal in a general form would appear to be applicable to all these cases. It is, however, to be noted th at it is often a mere accident, for instance the condition of the market, which decides the question which of two parties will desire to rely on the doctrine of frustration. Yet it follows th at, if the Court of Appeal is right, there are cases in which frustration would be held not to apply if the party setting up the principle was unable to discharge the onus of proof held to be on him, while a different result would follow if the other party were relying on frustration and he was able to discharge the onus. The doctrine of frustration has been considered in more than fifty reported cases, the references to which will be found in the article on Contracts (for which a very eminent author is responsible) in Halsbury's Laws of England, 2nd ed., vol. vii., p. 215 et seq., and one would have thought that there was nothing in principle left to be determined by the courts. It is a singular circumstance that there is not, so far as counsel could ascertain, a single case in which the question of onus appears to have been distinctly raised till the present case. The importance of the matter, therefore, can easily be exaggerated. However, your Lordships have now to decide the point, and it is fortunately one of considerable interest. A consideration of the reported cases, and in particular of those decided in this House, leads me to state four propositions which I think bear upon the problem :— First, whether or not the doctrine rests simply on a term or condition to be implied in the contract itself as a matter of its true construction, or whether it is otherwise to be explained (e.g., by a legal presumption) it is clear that it is based on the presumed common intention of the parties. The consequences of the application of the doctrine are the same in either case. The present question can, therefore, be tested by asking what term or condition as to onus of proof ought to be implied here in relation to the destruction of the vessel. (1) [19 16] 2 A. C. 397 . 423*



Viscount Maugham.

HOUSE OF LORDS

170 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


Viscount Maugham.

[1942]

Secondly, if the doctrine is held applicable, the legal result is that the event in question frustrated the commercial adventure and "brought the contract to an end forthwith "and automatically." Thirdly, "whatever the consequences of the frustration may "be upon the conduct of the parties, its legal effect does not "depend on their intention or their opinions or even knowledge "as to the event." Its mere occurrence is taken to show that further prosecution of the adventure under the contract is impossible. In both these propositions I am citing the words used by Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1). Fourthly, each party is left in the position he was in when the event occurred, and legal rights already accrued under the contract are unaffected. My Lords, I attach so much importance to these conclusions, and especially to the conclusion as to the automatic effect of the event which prima facie effects a frustration, that I will add a few words as to the authority which I have quoted. Hirji Mulji v. Cheong Yue Steamship Co., Ld. (1) was a decision of the Privy Council. The board consisted of Viscount Dunedin, Lord Sumner and Lord Wrenbury, and Lord Sumner delivered the judgment. The time charter in the case related to a named ship and it contained an arbitration clause. The ship was requisitioned by the government before the agreed date of delivery, and was not released till some two years later. There followed an arbitration under the clause. An award was made by which a large sum was awarded to the shipowners as damages for the refusal of the charterers to take delivery after the ship was released. An action on the award was brought by the shipowners in Hong Kong. The judge held th at the charterers had so conducted themselves as to exclude the doctrine of frustration on which the charterers relied. This was held to be an erroneous view. The charterers had contended all along that, as the result of frustration, the whole contract had come to an end, and tha t the arbitrator, therefore, had (1) [1926] A. C. 4 9 7 , 5 0 5 , 5 0 7 , 5 0 9 ,

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no jurisdiction. This contention prevailed. The elaborate judgment delivered by Lord Sumner was supported by a number of authorities dealing with the principle and the effect of frustration, and he referred, I think, to all the previous decisions of this House on the matter. I cannot bring myself to doubt that this high authority (though, it does not bind this House) is right and that the reasons given for it ought to be accepted as correct. My Lords, I think the propositions that I have derived from that case go a long way to show that the view as to onus of proof of absence of default, accepted though it was by the Court of Appeal, must be ill-founded. Frustration operates automatically—for the good or ill of both parties. It does not resemble the case of repudiation or rescission of contract. In those cases, as was pointed out by Lord Sumner (1), the party aggrieved by the conduct of the other party has an option to treat the contract as at an end and to claim damages for its total breach. It is a right given by law in vindication of a breach. Frustration, on the other hand, is "irrespective "of the individuals concerned, their temperaments and failings, "their interest and circumstances. It is really a device, by "which the rules as to absolute contracts are reconciled with " a special exception which justice demands " (1). The phrase "without fault on either side" which qualifies the doctrine of frustration is intelligible enough if it means that a party who has disabled himself from performing his promise, or who has done something to prevent t he other pa rty from performing his part of the contract, cannot set up a plea of frustration in a case in which his act or default has rendered the per formance of the contract impossible. To quote again from Lord Sumner : " I think it is now well settled tha t the principle "of frustration of an adventure assumes that the frustration " arises without blame or fault on either side. Reliance cannot "be placed on a self-induced frustration ; indeed, such conduct "might give the other party the option to treat the contract "as repudiated " : Bank Line, Ld. v. Arthur Capel & Co. (2). This passage was cited with approval by the Privy Council in (1) [1926 ] A. C. 497 , 510 .

(2) [191 9] A. C. 43 5 , 4 5 2 .

171

H. L. (E.) 1941 JOSEPH CONSTANT1NE STEAMSHIP LINE, LD. v. IMPERIAL SMELTING CORPORA TION, L D .

Viscount Maugham.

HOUSE

17 2 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD. v.

IMPERIAL SMELTING CORPORA TION, L D . Viscount Maugham.

OF LORDS

[1942]

Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (1), where the judgment of the Board was delivered by my noble friend Lord Wright. My Lords, if the principle of frustration is that the th e contract automatically comes to an end irrespective of the wishes of either party, provided only that the event is "caused by for which neither party was responsible" (see "something for Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (2)) I can see see no firm ground for the proposition that the th e party relying on frustration in an action or in arbitration proceedings must establish affirmatively that "the cause was not brought into " operation by his default." (I am quoting from the th e judgment of Scott L.J. in the present prese nt case.) case.) Such a proposition seems to me to be equivalent to laying down that the determination of the th e contract by frustration is not the t he automatic result of the th e for neither event, but is dependent on the option of the parties, for party can be compelled to call evidence to prove affirmatively th e cause was not due to his default. Such a view is that the not, in my opinion, reconcilable with the th e judgment in Hirji Mulji v. Cheong Yue Steamship Co., Ld. (3).

Other considerations seem to me to lead to the same con clusion. Frustration may occur, as I have already mentioned, in very ver y diff differ eren ent, t, circumstance circum stances. s. Firs Fi rst, t, in cases resembling the present where there has been the th e destruction of a specific thing necessary for for the th e performance of the th e contract. Secondly, where performance becomes virtually impossible owing to a change in the law. Thirdly, where circumstances arise which th e performance of the th e contract impossible in the manner make the and at the time contemplated. contemp lated. Fourth Fou rthly, ly, where performance performance becomes impossible by reason of the death or incapacity of a part pa rty y whose continued good good health healt h was essential essential to the carrying out of the contract. There may be other categories, and I have not forgotten the th e coronation and the review cases, of which Krell v. Henry (4) is the leading example, but bu t they do not come within the th e same principle of impossibility, and I do not desire to express any opinion opinion about abo ut them. the m. Taking the th e four (1) [1935] A. C. 524, 530. (2) Ibid. 5 3 1 .

(3) [1926] A. C. 497(4) [1903] 2 K. B. 740.

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173 173

groups which I have mentioned, a consideration of the many H. L. (E.) 1941 different kinds of events leading to the impossibility of performance leads, I think, t o t h e view that it would be JOSEPH CONno t absurd, to lay on the person relying on STANTINE unreasonable, if not frustration the onus of proof that he was not responsible for the STEAMSHIP LINE, L D . the e case of fire. event. In the first category we have th v. IMPERIAL Destruction of a building by fire is generally due t o someone's SMELTING fault or negligence. If the owner of a large building, in which CORPORA TION, L D . he employs many persons, sets u p the doctrine of frustration Viscount on th e ground of t h e destruction of t h e building b y fire, it Maugham. may be quite impossible for him t o prove affirmatively that no t guilty one of his employees who has left his service was not of default. If both t h e plaintiff an d th e defendant have had duties t o perform in the building under the terms of th e contract, t h e cause of t h e fire may be due t o either of them. It would not be reasonable to throw this heavy onus on the party setting up frustration, since, having regard to the fourth proposition above stated, i t may be mere accidental circumstances which cause one party rather than the other t o rely on the doctrine. If the destruction of the thing is due t o earthquake, volcanic action, flood, storm, lightning, restraint of princes, change in t h e law and so forth, it would seem to be absurd t o apply t h e suggested doctrine of onus except in very unlikely circumstances. This shows, shows, a t any rate, that the rule stated by the Court of Appeal requires some qualification. Where the contract is for personal services, the performance of which by one party depends on his health and life, no one has ever y et suggested that, if the person promising t h e personal service is alive and sets u p frustration, he must show that his ac t on his part illness was not due t o some rash act pa rt.. Nor, if the th e promisor is dead, would it, I think, be reasonable to expect his legal personal representative t o prove absence of some default leading to the disaster. My Lords, Lords , I also agree with the view expressed by Atkinson J . that the term or condition which might reasonably be implied in relation to the destruction of th e vessel in this case, or in th e plaintiff any case of true frustration, does no t throw on the or claimant the burden of proving something which it may be

HOUSE OF LORDS

174 174 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .

v. IMPERIAL SMELTING CORPORA TION, L D .

Viscount Maugham,

[1942]

impossible in practice t o prove. The term or condition is not for the benefit of one party rather than the th e other. As I have already indicated, it is usually impossible at the date of the th e contract t o know, if frustration f frustration of the adventure takes place, which which of of the th e two parties part ies will desire desire to rely on the doctrine doct rine.. see why a court should decide In these circumstances I cannot see th e parties ought to be presumed to have intended that that the the ordinary rules as to onus of proof ought not to apply. all, the th e question is essentially one of common sense as After all, related to justice. Two persons have entered into a contract which cannot be performed unless a certain subject-matter continues to exist. Ought either of the parties, after it ceases sue the th e other for for damages based on to exist, to be entitled to sue th e impossible ? The law intervenes his failure to perform the th e doctine of frustration, f frustration, and declares that the th e contract with the th e doctrine subject to the condition as to is at an end. Is the th e Court of Appeal thinks should be onus of proof which the implied ? To my mind, that is a condition which is artificial may y operate in some cases with great injustice, and which ma no t heard any an y sufficient reason for and your Lordships have not thinking that it forms, or ought to form, part of the rule. th e reasons above stated I have come to the conclusion, For the with all respect to the Court of Appeal, that their view is incorrect and ought not to prevail. Agreeing Agreeing with the th e learned trial judge, I think the th e burden of proof in any particular case depends on the cirumstances under which the th e claim arises. In general the th e rule which applies is " E i qui qui affirmat non ei qui "negat incumbit probatio." It is an ancient rule founded on considerations of good f good sense and it should not be departed from from withou wit houtt strong stro ng reasons. The position as to proof of nonf nonresponsibility for the event in such a case as the present is not very different from the th e position of a plaintiff in an action for negligence where contributory negligence on his part is alleged. In such a case the th e plaintiff must prove that there was some negligent act or omission on the part of the f the defendant which caused or materially contributed to the injury, but bu t it is for for the th e defendant to prove affirmatively, if he so contends, that there was contributory negligence on the part of the

A. C.

AND PRIVY COUNCIL.

175

person injured, though here again the onus may easily be H. L. (E.) 1941 shifted : Wakelin v. London & South Western Ry. Co. (1) ; Abrath v. North Eastern Ry. Co. (2). (2). The mere circumstances circums tances J O S E P H CONof the th e occurrence which led to the th e event even t may be suffi suffici cien entt to STANTINE supply suppl y prima pr ima facie facie evidence t ha t the th e plainti plaintiff ff is himse himself lf STEAMSHIP LINE, LD. responsible for for it, but b ut if tha th a t is not so it is for for the th e defendant v. IMPERIAL to prove that which he alleges. SMELTING My Lords, on this view of the law in relation to the onus CORPORA TION, L D . of proof proof in a case case where frustration frustr ation is prima pri ma facie facie establis es tablished, hed, Viscount since the voyage admittedly became impossible, we still have Maugham. to determine whether the facts found in the special case, in the th e absence of further evidence as to the th e cause of the th e explosion, are sufficient to lead to the conclusion that the appellants were were to blame for for the disaster. disaster . The respondents responde nts plainly were were in no way to blame. The explosion of the th e auxilia aux iliary ry boiler took place on the appellants' ship, and no doubt it might have been due to a default on the part of the master or the crew. Here a curious curious circumstance must mus t be mentioned. The appellants themselves had pleaded that the explosion arose or resulted from an act of neglect or default of the master or the servants in the navigation or management of the ship, or alternatively from a latent defect in the boiler not dis coverable by due diligence. diligence. They so pleaded in the beli belief ef that proof of either of such allegations would relieve them from liability either under Article IV. (2.) (a) or (2.) (J>) of the Schedule to the Australian Sea Carriage of Goods Act, 1924, or under art. ar t. 7 of the th e charte cha rterp rpart arty. y. This view view of the law law was, I think, thin k, ill-found ill-founded. ed. Atkinson J. J . so decided, decided, and the appellants have not contended that his decision in that respect was erroneous. But Bu t it would would seem seem clear clear th at the appellan a ppellants ts were endeavouring to establish affirmatively in the arbitration that their own servants were to blame, and it may be remarked th at no weight weight can, can, therefore, be be attach att ached ed to the fact fact that th at the donkeyman was paid off in Australia three weeks after the explosion. Your Lordships Lordshi ps have, of of course, no knowledge knowledge of the course pursued as regards calling evidence in the arbitra arb itration tion.. All All that th at is known is that th at evidenc evidencee was called, called, (1) (1) (1886) 12 A p p . Cas. 4 1 .

(2) (2) 11 Q. B . D . 440 , 45 6.

176 176

HOUSE OF LORDS



Viscount Maugham.

[1942]

and that, as the result of it, the arbitrator was not satisfied that any of the servants of the appellants were guilty of any of the negligence alleged, nor did he find that there was any late la tent nt defect defect in the t he boiler not discoverable by due diligence, diligence, or that, if there were such a defect, it caused or contributed to the explosio explosion n of of the th e boiler. boiler. I t is true tr ue tha t he also state st ated d that he was not satisfied that negligence on the part of the servants of the appellants did not cause or contribute to the disaster. That, Tha t, in my view, view, amounts amou nts to a finding finding tha t, notwithstanding the evidence, there was a possibility that there had been negligence or default on the part of the servants of the appellants. appell ants. If, however, however, I am right in the th e opinion opinion above expressed that the onus of establishing absence of default did not rest on the appellants, the mere possibility of default on their part is not sufficient to disentitle them to rely on the principle principle of of frustration. frustr ation. For these reasons I am of opinion that the appeal should be allowed and that the order of Atkinson J. should be restored with costs here and below. (read by Lord Porter). My Lords, as a general rule impossibility of performance does not release from liability the person who has promised the performance. An exception, however, exists in the th e case case of contracts the performance of which is necessarily dependent on the continued existence, or the continued existence in a sound condition, condition , of of a person or thing thi ng.. In the th e case case of such a contract, the cesser of that existence may release the promisor from liability on the ground of what has been termed frustration of the contract cont ract.. For convenience' convenience' sake I wil willl refer to this cesser of existence as the destruction of the corpus. LORD

RUSSELL

OF

KILLOWEN

The question raised on this appeal is whether, on the facts as found by the arbitrator, the doctrine of frustration applies, with the result that the appellants are released from liability under the th e charte cha rterpa rparty rty.. The answer answer seems seems to me to depend on what is the correct statement of the doctrine, i.e., on the correct statement of what the law requires to be established in order that the promisor should be relieved from liability.

A. C. The

AND PRIVY COUNCIL. re sp ond en ts

contend

that

it

177

mu st

be

affirmatively

estab lishe d, as a condit ion pre cede nt to th e appl icat ion of th e doctrine in the promisor's favour, that, in respect of the

H. L. (E.) 1941 JOSEPH

des tru cti on of th e corpu s, he is free from fault or default. In STANTINE other words, he must prove that he is not responsible for that STEAMSHIP r r .

destruction. The appellants contend th at on the destruction of the corpus, the doctrine applies in the promisor's favour unless it is established that he is responsible for the r

destruction. T.,

LINE, LD.

v. SMELTING CORPORATION, LD.

The rival contentions ma y be stat ed t h u s : n

it T-

•

MI

1

]JOT& Russell

(1.) Th e ap pe ll an ts sa y : Frustr atio n will excuse unless of Kiuowen. " i t is prove d to be self-induced." (2.) The resp onden ts s a y : "Frustration will not excuse unless it is proved not to be self" induced." My Lords, in my opinion the appellants' contention is corre ct. In coming to thi s conclusion I am influenced by thr ee considerations. Fir st, the proving of a negati ve, a tas k always difficult and often impossible, would be a most exceptional bu rd en to impose on a lit iga nt. Secondly, I know of no case of frustration in the books, in which an attempt has been made, or called for, to pro ve th e suggested neg ati ve. Thi rdl y, the statement of the doctrine in the authorities does not in any way compel us to adopt the contention of the respondents. In Taylor v. Caldwell (1) Blackburn J. states the doctrine in these word s : " The pri nciple seems to us to be t ha t , in "contracts in which the performance depends on the con"tinued existence of a given person or thing, a condition is "implied that the impossibility of performance arising from "the perishing of the person or thing shall excuse the per"f or ma nc e. " No menti on is ther e mad e of absence of fault or default . I t is tr ue t h a t in an earlier pa rt of his ju dg me nt (2) he said that such a contract was to be construed as " subject "to an implied condition that the parties shall be excused "in case, before breach, performance becomes impossible "from the perishing of the thing without default of the "contractor," but I do not read those last five words otherwise than as a proviso or exception to the doctrine, namely, that, if the destruction of the corpus has been brought about by the (1) 3 B. & S. 826, 839. (2) ibid. 833. A. C. 1942. 3 N

178

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H. L. (E.) 1941 JOSEPH CONSTANTINB STEAMSHIP LINE, LD. v. IMPERIAL SMELTING CORPORA TION, LD.


[1942]

fault or default of one of the contracting parties, that party would not be excused. In the words of Lord Sumner in the Bank Line case (1) : " Reliance cannot be placed on a self"induced frustration." The language of Blackburn J. does not, in my opinion, justify, much less compel, the view that proof of absence of fault or default is a condition precedent to the application of the doctrine. Whether the doctine is applicable in favour of a contractor who is sued on "the contract, will depend in each case on the ultimate result of the whole evidence, the position of the parties as regards burden of proof varying from time to time as indicated by Bowen L.J. in Abrath v. North Eastern Ry. Co. (2). The defendant will prove the destruction of the corpus, and (where possible) the event which brought it about. It may be that the event is of such a nature as of itself to raise a prima facie case of fault or default in the defendant. Unless he displaces that prima facie.case, he will be unable to rely on the doctrine. The frustration will stand as self-induced. On the other hand, it may be that nothing is known as to what event brought about the destruction, or the known event may be of such a nature as of itself to raise no prima facie case of fault or default in the defendant. If the matter rests there he will be excused from liability under the contract. The plaintiff, however, may by cross-examination, or in dependent evidence or both establish a case of fault or default in the defendant. If the matter rests there, the defendant will be unable to rely on the frustration which will stand as self-induced. In every case the contractor will succeed or fail in his defence of frustration according as it is not or is found as the result of the whole evidence that the frustration was self-induced. I turn now to the arbitrator's award in the present case to ascertain what has been found as the result of the whole evidence adduced by the parties. He finds that the event which brought about the destruction of the corpus, namely, the explosion, "was one of an unprecedented character, and "no sequence of events which was other than improbable, (1) [1919] A. C. 452 .

(2) 11 Q. B . D . 44 0, 45 6.

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"was suggested as capable of having given rise to it." No prima facie case of fault or default in the appellants can, in my opinion, be raised by the event which here caused the destruction of the corpus. The other material findings of the arbitrator are as follows : (i.) he does not find that the appellants' servants were guilty of negligence as alleged, but (2.) he is not satisfied that negligence on their part did not cause or contribute to the disaster. There is here no finding of fault or default in the appellants. In the circumstances, and as a result of the evidence and findings in this case, it appears to me impossible to say that the frustration (which is admitted) was self-induced. The frustration accordingly operates to relieve the appellants from liability under the charterparty. My Lords, I desire to add a word in relation to the phrase "self-induced frustration." No question arises on this appeal as to the kind or degree of fault or default on the part of the contractor which will debar him from relying on the frustra tion. The possible varieties are infinite, and can range from the criminality of the scuttler who opens the sea-cocks and sinks his ship, to the thoughtlessness of the prima-donna who sits in a draught and loses her voice. I wish to guard against the supposition that every destruction of corpus for which a contractor can be said, to some extent or in some sense, to be responsible, necessarily involves that the resultant frustration is self-induced within the meaning of the phrase. I would allow this appeal and restore the order of Atkinson J. My Lords, this appeal has to deal with an award of an arbitrator in which he states for the decision of the court the question whether on the facts as found and on the true construction of the charterparty the respondents in this appeal are entitled to damages from the appellants for non-performance of the charterparty. The dispute arose out of an explosion which occurred in the auxiliary boiler of the appellants' steamship Kingswood while she was anchored in the roads of Port Pirie. She had LORD WRIGHT.

3

N 2

H . L. (E.) 1941 JOSEPH

CONSTANTINE STEAMSHIP LINE, LD.



i8o

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE L B .

v. IMPERIAL SMELTING CORPORA TION, L D . Lord Wright.

OF

LORDS

[19481

arrived there in pursuance of a charterparty of August 5, 1936, made between appellants as owners and the respondents as charterers. Under it she was to be ready to load a full ore cargo at Port Pirie at any customary wharf or wharves as ordered for carriage to a port or ports in England or the continent. She was expected to arrive at Port Pirie about the end of December, 1936, or early January, 1937. On December 26, 1936, she anchored in the roads of Port Pirie, having sailed in ballast from Lourenco Marques. It was agreed between the parties that the Kingswood should remain at her anchorage until January 4, 1937, and then proceed to her loading berth, on arrival at which time should count. While she still lay at the anchorage and before she became an arrived ship the explosion occurred in the auxiliary boiler. It was of unprecedented character (in the words of the arbitrator) and took place within the boiler. The arbitrator found that it was due to the fact that there was a sudden opening of com munication between the water and steam space and one or both of the combustion chambers. The energy released was such that the main boilers situated aft of the auxiliary boiler were set aft by the concussion of the explosion four feet and five feet six inches respectively, at which points their movement was arrested, whereas the auxiliary boiler itself was projected forward through two watertight bulkheads, finally piercing the collision bulkhead and breaking the shell plates at the starboard bow. The damage to the steamer was so serious that the appellants gave notice that they could not perform the charterparty. The respondents then claimed damages in the arbitration. It was admitted in the arbitration that the delay caused by the damage to the steamer was such as to frustrate the commercial object of the adventure. The appellants resisted the claim on the ground that the frustration released them from liability for further performance. The respondents contested this defence on the ground that such a defence was only maintainable if the frustration took place without fault on the part of the appellants, and that it was for the appellants to show absence of fault. There had in fact been a Board of

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COUNCIL.

Trade inquiry, but the arbitrator observed that neither those who were responsible for conducting the Board of Trade inquiry nor any of the witnesses who gave evidence before him claimed to be able to state with any certainty the causes of the disaster or the sequence of events that led up to it, and that no sequence of events which was other than im probable was suggested as capable of having given rise to it. The arbitrator stated three principal theories of the disaster which had been put forward, but the most he could say was that, though each theory might be possibly correct, he was not satisfied by it. He summed up the final result in the words : " I am not satisfied that the true cause of the disaster has as "y et been suggested." Subject to the case stated, he awarded in favour of the respondents. Thus the question has come before the court whether in the case of an admitted frustration of the adventure, without default of either party being proved, the promisors, in this case the appellants, are liable in damages as for breach of the contract. Atkinson J., before whom the special case came in the King's Bench Division, decided in favour of the appellants, on the ground that no default was established, but the casualty was unexplained, and, accordingly, he set aside the arbitrator's award. His decision was overruled by the Court of Appeal and the arbitrator's award was restored. In the Court of Appeal Scott L.J., in giving the leading judgment said : " A party prima facie guilty of a failure to "perform his contract cannot escape under the plea of "frustration unless he proves that the frustration occurred "without his default. There is no frustration in the legal "sense unless he proves affirmatively that the cause was not "brought into operation by his default." The gist of the whole judgment, which is very brief, is contained in the words which I have italicised. No authority is cited. The statement of the principle by Scott L.J. is manifestly different from the statement by Blackburn J. in Taylor v. Caldwell (i): "The principle seems to us to be that in "contracts in which the performance depends on the continued (i ) 3 B. & S. 826, 839.

181 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D . v.

IMPERIAL SMELTING CORPORA TION, L D . Lord Wright.

HOUSE

182

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE LD.


Lord Wright.

OF

LORDS

[1942]

"existence of a given person or thing, a condition is implied "that the impossibility of performance arising from the " perishing of the person or thing shall excuse the performance." He justified his conclusion on the ground that by the nature of the contract it was apparent that the parties contracted on the basis of the continued existence of the music hall, that being essential to the performance, because it was in that building th at the performance was to take place. From this the condition releasing the parties was to be implied by law. Blackburn J. elsewhere in his judgment added as a sort of warning " without the fault of either part y." Clearly a party to a contract who by his fault has caused the impossibility, cannot take advantage of his own wrong. In such a case he has prevented performance in the substantial sense, as in the illustration given by Willes J. in Inchbald v. Western Neilgherry Coffee, etc., Co., Ld. (1) of " the case in "Bulstrode where the defendant contracted to deliver to the "plaintiff a horse, but poisoned him before delivery," and was held liable in damages because he had prevented the contemplated performance. But Blackburn J., though he qualified the rule he stated by excepting the fault or default of the contractor or of either party, did not add that the defendant relying on impossibility of performance must prove affirmatively that the impossibility was not due to his own default. The Court of Appeal in so stating the rule, have made a vital change in the rule. I must consider what justification there is for th at change. To do so I must briefly explain my conception of what is meant in this context by impossibility of performance, which is the phrase used by Blackburn J. In more recent days the phrase more commonly used is " frustration of the contract " or more shortly " frustration." But " frustration of the contract " is an elliptical expression. The fuller and more accurate phrase is " frustration of the adventure or of the commercial or "practical purpose of the contract." This change in language corresponds to a wider conception of impossibility, which has extended the rule beyond contracts which depend on the (1) (1864) 17 C. B . (N. S.) 73 3, 7 4 1.

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existence, at the relevant time, of a specific object, as in the H. L. (E.) instances given by Blackburn J., to cases where the essential 1941 JOSEPH object does indeed exist, but its condition has by some casualty been so changed as to be not available for the purposes of the STANTINE contract either at the contract date, or, if no date is fixed, STEAMSHIP LINE

LD.

within any time consistent with the commercial or practical v. adventure. For the purposes of the contract the object is as SMELTING CoRI> A good as lost. Another case, often described as frustration, is °R0

,

where by State interference or similar overriding intervention the performance of the contract has been interrupted for so long a time as to make it unreasonable for the parties to be required to go on with it. Yet another illustration is where the actual object still exists and is available, but the object of the contract as contemplated by both parties was its employment for a particular purpose, which has become impossible, as in the coronation cases. In these and similar cases, where there is not in the strict sense impossibility by some casual happening, there has been so vital a change in the circumstances as to defeat the contract. What Willes J. described as substantial performance is no longer possible. The common object of the parties is frustrated. The contract has perished, quoad any rights or liabilities subsequent to the change. The same is true where there has been a vital change of the law, either statutory or common law, operating on the circumstances, as, for instance, where the outbreak of war destroys a contract legally made before war, but which, when war breaks out, could not be performed without trading with the enemy. I have given this bare catalogue to illustrate the application in practice of the doctrine of frustration in order to show how wide and various is the range of circumstances to which it may extend and how manifold are the complications involved in the rule laid down by the Court of Appeal that there is an affirma tive onus of disproving fault on the party claiming to rely on frustration. • But the suggested rule seems to me to be both anomalous and unreasonable. The doctrine of frustration is intended to achieve a just and reasonable result. Blackburn J. in

TION, L D . Lord Wright.

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18 4 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


Lord Wright.

OF

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[1942]

Taylor v. Caldwell (1) starts his judgment by referring to what he regards as the general rule of English law that a party who positively contracts to do a thing must perform it or pay damages even though, by unforeseen accidents, performance has become impossible. And a dictum unnecessary to the decision of the Court of King's Bench in Paradine v. Jane (2) is often quoted: "When the party, by his own conduct, "creates a duty or charge upon himself, he is bound to make "it good, if he may, notwithstanding any accident by inevitable "necessity, because he might have provided against it by his "contrac t." I am not clear what "i f he m a y " means. It may mean " legally may," but the reference to inevitable accident seems inconsistent with reading "if he may" as reserving impossibility. But the results of holding a man to the absolute terms of a contract would often be so unjust that, from early times, as Blackburn J.'s examples in Taylor v. Caldwell (1) show, the courts set themselves to avoid these results wherever justice seemed to require it. The doctrine of frustration is thus, in Lord Sumner's words (Hirji Mulji v. Cheong Yue Steamship Co.,Ld. (3)), " a device by which the rules " as to absolute contracts are reconciled with a special exception "which justice demands." It is true that a contract, absolute in terms, may be absolute also in effect. The contractor, if he cannot perform, must pay damages. Prima facie, the actual language governs. But a contract absolute in terms, is not necessarily absolute in effect. It is in all cases a question of construction, as Lord Cranworth L.C. pointed out in Couturier v. Hastie (4), a case where under a contract for the sale of goods, the goods had perished at the date of the contract, both parties being then ignorant of the fact. Lord Cranworth said that, looking at the contract alone, what the parties contemplated, those who bought and those who sold, was that there was an existing something to be bought and sold at the time of the contract. The buyer could not be held liable for the price, or the seller for failure to deliver. The court having thus construed the contract, both parties were (1) 3 B . & S. 8 26 . (2) (1647) Aleyn, 26.

(3) [1926] A. C. 497- 5i o . (4) (.1:856) 5 H . L . Cas . 67 3, 6S 1.

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held in the event to be discharged in law. This rule admits of H. L. (E.) dear and simple statement. This is done in s. 6 of the Sale 1941 of Goods Act, 1893. Sect. 7 deals with the analogous case of JOSEPH an agreement to sell specific goods. If they perish without STANTINE any fault on the part of the seller or buyer, before the risk STEAMSHIP

J

r

J

LINE,

LD.

passes to the buyer the agreement is thereby avoided. In v. the same way, the general law as to impossibility or frustration SMELTING might be stated in positive terms. It is a question of the CORPORAconstruction of the particular contract, whether the obligation —— is absolute or whether it is qualified. ° r—-g It is thus seen that the court is not claiming to exercise a dispensing power, or to modify or alter contracts. The parties did not express the qualification because they did not think of the possibility of the occurrence, but as Lord Watson said in Dahl v. Nelson, Donkin & Co. (1): "When one or other of "these possibilities becomes a fact, the meaning of the contract "must be taken to be not what the parties did intend (for they "had neither thought nor intention regarding it) but that "which the parties, as fair and reasonable men, would "presumably have agreed upon, if having such possibility in "view they had made express provision as to their several "rights and liabilities in the event of its occurrence." In short, in ascertaining the meaning of the contract and its application to the actual occurrences, the court has to decide, not what the parties actually intended, but what as reasonable men they should have intended. The court personifies for this purpose the reasonable man. In Lord Sumner's words in Hirji's case (2): "An event occurs, not contemplated by "the parties and therefore not expressly dealt with in their "contract, which when it happens frustrates their object. "Evidently it is their common object that has to be frustrated "not merely the individual advantage which one party or "the other might have gained from the contract. If so, what "the law provides must be a common relief from this common "disappointment and an immediate termination of the "obligation as regards future performance. This is necessary, "because otherwise the parties would be bound to a contract, (1) (1881) 6 A p p . Cas . 38, 59.

(2) [1926] A. C. 497, 507.

186

[1942]

HOUSE OF LORDS

H; L. (E.) "which is one that they did not really make. If it were not 1941 "s o, a doctrine designed to avert unintended burdens would "operate to enable one party to profit by the event and to JOSEPH STANTINE "hold the other, if he so chose, to a new obligation." Lord STEAMSHIP Sumner added (1) that "rights and wrongs which have already v. "come into existence, remain, and the contract remains, too, fo r th e SMELTJNG " purpose of giving effect to them." CORPORAJ have quoted these statements of law to emphasize that the TION, LD .

01

^

r

court is exercising its powers, when it decides that a contract —!? ' is frustrated, in order to achieve a result which is just and reasonable. It would indeed be strange if it clogged its decision with the qualification which the Court of Appeal would impose, but which seems to me, as I shall seek to explain, inconvenient and unreasonable. It does not seem to be here necessary to embark on the inquiry whether the doctrine of impossibility or frustration should be explained as based on an implied term or exception or on common mistake or some other principle. Lord Haldane in Bank Line, Ld. v. Arthur Capel & Co. (2) was disposed to regard the question as one of common mistake. That may be a reasonable explanation in cases where the parties intend to contract on the basis of something which, though they do not know it, has perished by causes beyond their control. But mistake cannot, I think, be extended to cover supervening impossibility or frustration, which is a different juristic concept. The explanation which has been generally accepted in English law is that impossibility or frustration depends on the court implying a term or exception and treating that as part of the contract. I may refer as instances of this to the language of Blackburn J. in Taylor v. Caldwell (3), of Lord Loreburn in Tamplin's case (4), and of Lord Sumner in the Bank Line case (5) and in Hirji's case (6). The legislature in s. 7 of the Sale of Goods Act simply 'stated the principle as a matter positivi juris. Whatever explanation is adopted, cannot affect the decision of this, or, so far as I can see, of any case. If (1) [1926] A. C. 497 , 507 . 5i o(2) [1919] A. C. 43 5, 44 5. (3) 3 B . & S. 82 6.

(4) [1916] 2 A. C. 397, 403. (5) [1919] A. C. 435. (6) [1926] A. C. 497-

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187

AND PRIVY COUNCIL.

the question is still open in English law, I should prefer to H. L. (E.) rest th e principle simply on the true meaning of the contract 1941 as it appears to the court. The essential feature of the rule JOSEPH is that the court construes the contract, having regard both S T A ^ £ , ~ N E to its language, its nature and the circumstances, as meaning STEAMSHIP ,

.

,

,

,

,

.

.

,

.

that it depended for its operation on the existence or occurrence of a particular object or state of things, as its basis or foundation, If that is gone, the life of the contract in law goes with it, at ° least as regards future performance. The contract remains only to enforce accrued rights. The explanation that the ground of the rule is an implied term or exception may, however, seem to bring the rule into line with the general jurisdiction of the court to imply in a contract terms which the parties have not expressed. This jurisdiction has recently been discussed by this House in Luxor (Eastbourne), Ld. v. Cooper (1). The parallel is indeed not exact, because the rule as to impossibility or frustration has peculiar and distinctive features of its own. It was, however, agreed in argument that the decision of this appeal cannot depend on what is the true explanation of the rule. There is another aspect of the doctrine of frustration which I find it difficult to reconcile with the decision of the Court of Appeal. Frustration operates automatically. It does not depend on the choice or election of the parties to the contract. If the court holds th at the meaning of the contract is such that its life is dependent on the existence or continuance in existence of a thing or state of things, and then finds in fact that the frustrating circumstance has come to pass because the thing or state of things has not existed at the date of the contract or has ceased to exist at some later material date, it follows by operation of law that the contract was either void to begin with or has become avoided,, to use the language of ss. 5 and 6 of the Sale of Goods Act. This position must, accordingly, be distinguished from a somewhat analogous, but really quite different, position, which arises when a contract is terminated by the injured party, who rescinds it on the ground of a fundamental breach by the other party and who 0

(1) [1941] A. C. 108.

LINE, LD. v.

SMELTING CORPORAT IO N,

r

—-

LD.

g

i88

HOUSE

H. L. (E.) 194 1 JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


Lord Wright.

OF

LORDS

[1942]

further claims damages for the breach while treating it as no longer binding for the future. Such a procedure involves a choice or option by the party who rescinds. But in the case of frustration the contract is ended and dead, simply by the frustrating event. If the parties choose to go on with it, that is in truth entering into a new contract. This is clearly stated by Lord Sumner in the passage I have quoted from Hirji's case (1). The position of the parties ought to be determined at once, and an indefinite suspense avoided. But this result is just what the decision of the Court of Appeal would prevent, because, according to the decision, it cannot be known whether there has been frustration in a legal sense unless and until it is proved affirmatively by one party or the other that the frustration was not brought into operation by his default. Scott L.J. begins his judgment by referring to the fact that there were no exceptions in the charterparty relevant to the facts. That is true enough. The charter was wholly executory and the exceptions did not operate until the vessel was placed at the charterers' disposal which never took place. But that is not directly material on the question of frustration if the court is satisfied that the contract, though absolute in terms, is not absolute in fact. If, in virtue of the doctrine of frustration, the court holds that the contract is dissolved, the contract as to future performance is at an end and the exceptions go with it. Frustration, if it occurs, is an overriding event. Exceptions can only be relevant at an earlier stage in the controversy, because they may be inconsistent with the idea that the contract admitted of the doctrine of frustration being applied. This aspect was discussed by Lord Finlay, Lord Haldane and Lord Sumner in the Bank Line case (2). Exceptions, however, may be important at a late stage as excluding fault if the frustrating event was induced by what, apart from the exceptions, would be an actionable breach of contract. I need not further discuss th at aspect here. There are no exceptions to be considered. Scott L.J. seems, however, to be leading up to the proposition th at frustration is the only (1) [1926 ] A. C. 40 7.

(2) [191 9] A. C. 43 5.

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possible defence, an d the n excludi ng it, no t on the grou nd H. L. (E.) t h a t th e app ell ant s can not rely on the ir own fault if t h a t

1941

had been proved , b ut on the gr ound th at , tho ugh no fault

JOSEPH

was pro ved , th ey ha d not affirmatively pro ved abse nce of STANTINE fault. I th in k t h a t th e Lor d Tustice is basi ng his decision STEAMSHIP J

LINE, L D .

°

on th e view t h a t affirmative proof of absence of fault is an essential pa rt of th e case of the pa rt y relying on frustra tion, so that, if he fails to establish it, there is no case to go 0

to the jury even though in all other respects impossibility or frustration is established, as, in the present case, it is, indeed, admitted. I have tried to find authority for the rule enunciated by the Court of Appeal, but have found none either in English or American cases or in the writings of eminent legal authors. Cases in which the courts have refused to give relief on the ground of frustration because the frustration was due to the fault of the promisor or of either party, or have considered the quest ion, are ver y rare in th e English repo rts. In th e vast majority of cases, questions of responsibility do not arise. There is Lord Sumner's observation in the Bank Line case (1), where the facts did no t raise th e que sti on. " I th in k it is "now well settled that the principle of frustration of an " adve ntur e assumes th at the frustration arises with out blame " o r fault on eith er side. Reliance canno t be placed on a " self-induced fru st ra ti on ; indeed, such condu ct migh t give " t h e other pa rt y the option to treat the contract as repudi ated." In Mertens v. Home Freeholds Co. (2), a builder was sued for damages for failing to complete a building which he had agreed to erec t. He plea ded b y wa y of defence t h a t he was discharg ed from further performance by a refusal of the Minister of Munitions to give a licence to proceed under the Defence of th e Rea lm Regu lati ons existing in 1916. The defend ant ha d applied for a licence, but it was refused because he had intentionally (as it was found), in order to get out of a losing con tra ct, delaye d in th e work. It was held by th e Court of Appeal, reversing the decision of the Divisional Court, that th e defence failed. Lor d Ste rnd ale M.R., wi th ou t an y precise (1) [19 19] A. C. 45 2.

(2) [1921 ] 2 K . B . 52 6.

». SMELTING CORPORATION, L D . Lord Wright.

190

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D . V.

IMPERIAL SMELTING CORPORA TION, L D . Lord Wright.

OF L O R D S

[1942]

examination of the doctrine of frustration, proceeded on the broad common sense view that a man could not take advantage, by way of defence to an action for breach of contract, of circumstances as excusing him from further performance of the contract, if he had brought those circumstances about himself. Lord Sterndale observed that in Taylor v. Caldwell (1), if the defendant had burned down the music hall himself, he would not have been entitled to say that the subject-matter was gone and the contract frustrated. But it might be added that no one until now had gone so far as to decide or suggest that the defendant could not have relied on the destruction of the music hall unless he had affirmatively proved that he was not responsible for it and was not in fault. Lord Sterndale's conclusion followed from the facts proved, which showed actual fault on the part of the defendant. In Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (2) a similar conclusion was reached. The case was somewhat peculiar. The defendants chartered the plaintiffs' trawler, but, it was held, on the basis that it could be used for trawling with the use of otter or similar trawling gear. That could not be done without a licence. A licence was refused because th e defendants were not permitted to obtain licences for more than three trawlers, and had applied for and obtained licences for three trawlers of their own, thus making it impossible to obtain a licence for the plaintiffs' trawler. The Privy Council held that the defendants were liable. The result is shortly stated (3) : ". . . . it was the appellants' own default which "frustrated the adventure ; the appellants cannot rely on "their own default to excuse them from liability under the "contract." - That was all that was necessary for the decision of the case. No question of onus of proof was raised because all the facts were before the court. Earlier in the judgment I had said (4) that "the essence of 'frustration' "is that it should not be due to the act or election of the "party," and had gone on to observe that Lord Sumner in (1) 3 B . & S. 826. (2) [1935] A. C. 524.

(3) [1935] A- C. 53i(4) Ibid. 530.

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Hirji'scase(i)ha.dqnotedhomDahlv.Nelson,Donkin&Co.(2). H. L. (E.) Lord Blackburn's reference to frustration as a matter "caused 1941 "by something for which neither party was responsible," and JOSEPH again had quoted Brett J.'s words which postulate that one STANTINE of the conditions of frustration is that it should be "without STEAMSHIP LINE, LD.

"any default of either party. v. But for such expressions of opinion, it would be tempting SMELTING to say that the more logical view might be that there are two C° RP° RAelements to be considered: (1.) impossibility or frustration —— g under the contract and the facts, and (2.) the causation of that ° —impossibility or frustration, whether or not it is imputable to the fault of either party. The question has generally been approached from the point of view of a party relying on frustration as an excuse for failure to perform his contract, and obviously if frustration means not only that performance has become impossible but that neither party is responsible, there can be no frustration in that sense unless both con ditions are fulfilled. It is tha t definition which English law seems to have accepted, and I think the Court of Appeal must have proceeded on it. But I can conceive a case in which the injured party, instead of electing to rescind on the ground of the other party's breach and claiming damages for a repudi ation, might wish to rely on frustration as involving automati cally the destruction of the contract and at the same time claim damages for the breach of contract which has frustrated and destroyed the contract, except so far as it remains alive to enforce rights accrued under it. So far as I know, such a case has never arisen, but logically it might be open, if the, authorities have not excluded it. This way of looking at the matter might explain the reference to the fault of either party instead of the fault of the party relying upon the doctrine, though "either party " may simply mean "one party or the '' other, if either is responsible.'' This view of the matter would obviously be fatal to the conclusion of the Court of Appeal, because there would then be two separate issues to be separ ately proved by the parties who severally raised the one or the other. (1) [1926] A. C. 497.

(2) 6 Ap p. Cas. 38.

HOUSE OF LORDS

192 (H. L. E.) 1941

JOSEPH CON STANTS NE STEAMSHIP LINE, L D .


Lord Wright.

[1942]

But I do not desire to decide the question in this appeal on th at debatable or untenable ground. The appeal can, I think, be decided according to the generally accepted view that frustration involves as one of its elements absence of fault, by applying the ordinary rules as to onus of proof. If frustra tion is viewed (as I think it can be) as analogous to an excep tion, since it is generally relied on as a defence to a claim for failure to perform a contract, the same rule will properly be applied to it as to the ordinary type of exceptions. The defence may be rebutted by proof of fault, but the onus of proving fault will rest on the plaintiff. This is merely to apply the familiar rule which is applied, for instance, where a carrier by sea relies on the exception of perils of the seas. If the goods owner then desires to rebut that prima facie defence on the ground of negligence or other fault on the part of the ship owner, it rests on the goods owner to establish the negligence or fault. Thus, on the view most favourable to the conclusion of the Court of Appeal I still reject it. In addition, th e ordinary rule is that a man is not held guilty of fault unless fault is established and found by the court. This rule, which is sometimes described as the presumption of innocence, is no doubt peculiarly important in criminal cases or matters, but it is also true in civil disputes. Thus it was said in Thomas v. Thomas (1) by Wood V.-C, "possession is never considered "adverse if it can be referred to a legal title." I need not multiply citations for a principle familiar to lawyers. There, is, for example, no presumption of fraud. It must be alleged and proved. So, also, of other wrongful acts or breaches of contract. If it is necessary, in order to defend a claim, to prove that it was a case of felo de se and not merely innocent suicide while of unsound mind, the full fact must be affirma tively proved. An illustration, perhaps more germane, is afforded by the rules as to the onus of proof in cases of unsea worthiness. If at the end of the case it is not ascertainable on the evidence that th e real cause of the loss was unsea worthiness, the defence must fail. The maxim '' respice finem'' (1) (1855) 2 K. & J. 79.

A . C.

AND PRIVY COUNCIL.

193

applies, though there may be provisional presumptions, H. L. (E.) shifting the onus of proof from time to time during the progress 1941 of the case. This is well illustrated in Ajum Goolam Hossen & JOSEPH Co. v. Union Marine Insurance Co., Ld. (1), an action on a S T A ™, " N E marine insurance policy for th e loss of a ship which h a d sunk STEAMSHIP LINE, L D .

through causes not explained. The defence was th at the ship was unseaworthy. The underwriters showed facts which raised a presumption in favour of unseaworthiness, and shifted at that r

x

stage the onus of proof, but at the end the court held that the real cause of the loss was unknown, that unseaworthiness was not proved and th at the defence failed. In the same way, if negligence is alleged to override the defence of excepted perils, it must be alleged and proved affirmatively. If the matter is left in doubt when all the evidence has been heard, the party who takes on himself to affirm fault must fail. If what Scott L.J. meant was that the failure to tender the Kingswood to the charterers in time for the agreed adventure was a fundamental breach such that it could only be excused by affirmative proof of absence of fault, I cannot agree with him. It is clear that the rule which the Court of Appeal laid down would in many cases work serious injustice and nullify the bene ficial operation of the doctrine of frustration which has been somewhat empirically evolved with the object of doing what is reasonable and fair, as I have already explained. That the rule adopted by the Court of Appeal is inconvenient seems to me to be obvious. It is true that in many cases of frustration there is little or no room for human activity. As instances, I might mention earthquakes and unusual floods. In other cases there is little room for intervention by the parties, such as in case of governmental requisition or the refusal of a licence. But it cannot be that in any of these cases the party claiming th at the contract is frustrated has to prove affirmatively that he has not caused or induced the frustration. Where natural forces have operated there may still be room for inquiry, but, if a ship is lost with all hands in a cyclone, must the shipowners establish affirmatively th at the master did not receive and ignore (1) [1901] A. C. 362. A. C. 194 2.

3

O

«. SMELTING CORPORATION, L D . Lord Wright.

HOUSE

194 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .

v. IMPERIAL SMELTING CORPORA TION, LD.

Lord Wright.

OF

[1942]

LORDS

warnings of the danger area ? There may be many maritime losses in which evidence how they happened is impossible. If a ship is torpedoed with all hands, must the shipowner prove affirmatively absence of fault, such as that a light was not shown on the ship or that the ship obeyed the convoy regulations ? In any case of unexplained sinking it may be impossible to exclude the possibility of fault on the part of the owner, as in the case of Ajum Goolam (1). But, indeed, the present is a sufficiently good illustration of an unprecedented and unexplained casualty where the real cause cannot be ascertained even after prolonged and exhaustive inquiry. On the ruling of the Court of Appeal the shipowners have placed on them the unusual task of proving a negative. It is sought to say that the rule is not anomalous because of some other cases in which a party is required to prove a negative, but what are cited as parallels are so different and are so few in number as to emphasize the general rule. Thus, the law as to the liability of a bailee depends on the special obligation which the law has imposed on him from ancient times. It has recently been discussed by the Court of Appeal in Brooks Wharf v. Goodman (2). If the bailee fails duly to redeliver the goods, he must, in the absence of exceptions, show that he has taken reasonable care in keeping them. Similarly, the liability of a common carrier depends, according to the old law M on the custom of the realm, like th at of the innkeeper. Under this special rule a carrier is an insurer who is absolutely liable for the safe carriage of the goods unless he can explain the loss as due to the act of God, the King's enemies, or inherent vice. In modern times the practice of having special contracts has been superimposed on the custom of the realm. These con tracts contain exceptions. If the carrier pleads an exception, the goods owner may counter by pleading the fault of the carrier, but the onus of proving that, as also of proving an alle gation of unseaworthiness, is, as I have already explained, on the goods owner who makes it. The provisions of the Merchant Shipping Act, 1894 (particularly ss. 502 and 503), which concede to a shipowner the rights by appropriate proceedings (1) [19 01] A. C. 36 2.

(2) [19 37] 1

K

-

B

- 538-

A. C.

AND

PRIVY

COUNCIL.

195

to limit the damages, for which he is otherwise responsible H. L. (E.) under the contract, to goods owners or passengers require as a 1941 condition of this privilege that he should show that the JOSEPH casualty happened without his actual fault or privity. All STA^£ ~ME these and similar cases are obviously different and depend on STEAMSHIP „,

,

.

LINE,

LD.

special contracts or statutes. They do not give any support ». SMELTING for the rule adopted by the Court of Appeal. The Court of Appeal do not define what in this context is the CORPORAr r

TION,

meaning of "fault" or "default." In the Sale of Goods Act, 1893, the word "fault " (as used in ss. 6 and 7) is defined as meaning "wrongful act or default." That is not perhaps very helpful, but in Sailing Ship Blairmore v. Macredie (1) Lord Watson observed: "The rule of law applicable to "contracts is that neither of the parties can by his own act or "default defeat the obligations which he has undertaken to "fulfil." Willes J., in the passage already cited, gave as an instance of a party preventing performance the case of a man poisoning before delivery a horse which he had promised to deliver. Lord Sumner, in speaking of a self-induced frustration, has clearly in mind positive acts against the faith of the contract which amount to a repudiation and would justify rescission. This test would apply to Merlens v. Home Freeholds Co. (2), and to Maritime National Fish Co. Line v. Ocean Trawlers (3). On the other hand, mere negligence seems never to have been suggested as sufficient to constitute "fa ult " in this connection. In Taylor v. Caldwell (4), where the fire was described as accidental, no one suggested an inquiry whether any servant of the defendant had negligently caused the fire, and in the cases of personal incapacity defeating a contract for personal service, like Poussard v. Spiers & Pond (5), no investigation seems ever to have been suggested whether the party claiming to be excused was careful of his or her health. But even there a case of gross delinquency might perhaps be construed as amounting to a repudiation of the obligations of the contract. I do not here think it necessary (1) [1898] A. C. 593. 607. (2) [1921] 2 K. B. 526, 607. (3) [1935] A. C. 524.

(4) 3 B. & S. 826. (5) (1876) 1 Q. B. D. 410, *

O

2

LD.

—: —-*

196

HOUSE OF LORDS

H. L. (E.) 1941 JOSEPH CONSTANTtNE STEAMSHIP LINE, LD.


[1942]

to attempt the definition. This difficulty or absence of definition makes the rule enunciated by the Court of Appeal even more open to objection. In my opinion, this is a case in which it is found that there has been an unexplained casualty frustrating the contract. The real cause cannot be ascertained. No fault is shown against the appel lants. I think that they are entitled to rely on the frustration as a defence to the claim. The j udgment of the Court of Appeal should, in my opinion, be set aside, and that of Atkinson J. restored. My Lords, the material facts in the present cases can be stated very shortly. It appears that the appel lants chartered their vessel the steamship Kingswood to the respondents to carry a cargo from Port Pirie in South Australia to a British port. On January 3, 1937, a few days after her arrival off Port Pirie but before she became an arrived ship, a violent and unexplained explosion took place on board. The immediate cause was a sudden opening of communication between the water and steam spaces in the donkey boiler with the result that that boiler was blown someone hundred and sixtyfour feet forward through three bulkheads and the main boiler which faced it was set back some four or five feet. What caused the sudden opening was, however, a matter of speculation. Corrosion of the stay tubes, negligence in allowing the water in the boiler to get too low, and an initial explosion weakening the tubes were all suggested, but no satisfactory explanation was given. It was admitted, however, th at the damage caused to the steamer by the explosion was such as to frustrate the com mercial object of the adventure. In these circumstances the shipowners claimed that they were absolved from all further liability. The charterers, however, maintained tha t there had been a breach of contract for which the shipowners were liable in damages. LORD PORTER.

The dispute was referred to the arbitration of a commercial lawyer who issued an interim award in the form of a special case. His findings are set out in clauses 10,11 and 12 of the case, which are as follows: " 10. (1.) I am not satisfied that th e "condition of the tubes contributed in any way to the disaster.

A. C.

AND PRIVY COUNCIL.

197

"On the other hand, I consider this theory to be possibly H. L. (E.) "correct and accordingly am not satisfied that the corroded 1941 "condition of the tubes did not contribute to the disaster. JOSEPH CON" (2.) I am not satisfied that any of the servants of the respond STANTINE e n t s [the present appellants] were guilty of any of the STEAMSHIP LINE, LD. "negligence alleged. On the other hand, I consider the theory v. IMPERIAL "to be possibly correct, and, accordingly, I am not satisfied SMELTING "that negligence on the part of servants of the respondents CORPORA TION, LD. "d id not cause or contribute to the disaster. (3.) I consider Lord Porter. "that this theory is the least probable of the three. I cannot "however say th at it is impossible. If there was in fact "such an initial explosion it is impossible to say whether or "not the condition of the tubes contributed to the extent of the "disaster. 11. I am not satisfied that the true cause of the "disaster has as yet been suggested. 12. I am unable to find "either that there was any latent defect in the boiler not "discoverable by due diligence, or that, if there were such "defect, it caused or contributed to the disaster. No defect "was suggested except the thinness of the stay tubes, and this, "though examination was at all material times impracticable, "w as capable of being inferred, and was in fact inferred, from "the leakages which had taken place." The result of his finding is to leave it in doubt whether the shipowners were guilty of negligence or not. In this state of facts he made an award holding that the shipowners were liable to the charterers in damages, and an alternative award absolving them from liability in case the court should come to a different conclusion. The special case was set down for hearing before Atkinson J. who, after reviewing the authorities, rejected the arbitrator's conclusion and upheld the alternative award. From his decision the charterers appealed to the Court of Appeal who in a short judgment reversed the judge's decision. They thought the principle clear. In their view "A party prima "facie guilty of a failure to perform his contract cannot escape "under the plea of frustration unless he proves that the "frustration occurred without his default. There is no "frustration in the legal sense unless he proves affirmatively " that the cause was not brought into operation by his default,"

19 8

HOUSE



Lord Porter.

OF

LORDS

[1942]

Your Lordships have to determine whether this statement accurately expounds one limitation of the doctrine of frustration. Frustration is the term now in common use in cases in.which the performance of a contract becomes impossible because its subject-matter has ceased to be available for the purpose for which both parties intended it to be used. The destruction of the subject-matter concerned, as in Taylor v. Caldwell (1), and Appleby v. Myers (2), or its requisition, as in Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products, Ld. (3), and Bank Line, Ld. v. Capel & Co. (4), are examples. So, indeed, are such cases as Krell v. Henry (5), where, it is true, the subjectmatter of the hiring could have been used and paid for, but the underlying object for which one party had let and another had hired a room was that it should be used for the purpose of viewing a coronation procession, and, the procession having been abandoned, it was held that all further obligations under the contract had been determined. This extension, however, of the doctrine where the subject-matter of the contract is not itself destroyed, but the underlying purpose alone has been frustrated, is not here in question. The present is a simple case in which the subject-matter concerned has itself ceased to be available for performance of the contract and in principle closely resembles the position in Jackson v. Union Marine Insurance Co. (6) except that no question of fault there came in question. The expression "frustration" itself comes, I think, from Jackson v. Union Marine Insurance Co. (6), where Bramwell B. (7) speaks of "an illness which would put an end in a business "sense to their business engagement and would frustrate the "object of that engagement," and again of "the voyage being " frustrated." But, though the phrase may not have been used until tha t date, the principle is old. The modern doctrine may be said to begin with Taylor v. Caldwell (1), where the destruction of a music hall to be used for holding a concert (1) (2) (3) (4)

3 B . & S. 82 6. L. R . 2 C. P . 6 5 1 . 0 9 1 6 ] 2 A. C. 397. [1919] A. C. 435.

(5) [1903 ] 2 K. B . 74 0. (6) L. R . 10 C. P . 125. (7) Ib id . 145, 148.

A . C.

AND

PRI VY

COUNCIL.

was held to put an end to a contract between the parties for its use for that purpose. In that case Blackburn J. points out that, as early as the reign of Queen Elizabeth, in the case of a personal contract, death put an end to the obligations of both parties: see Hyde v. Dean of Windsor (1). No doubt, the doctrine has been extended. Bramwell B., in the words just quoted, applied it to an illness sufficiently long, and the cases cited mark a further extension to meet the exigencies of a more complicated social life. But impossibility of performance by destruction of the subject-matter of the contract, whether that subject-matter be, as it originally was, a person, or later a thing, or later still the object for which that thing was by the intention of the parties to be used, is the foundation on which the doctrine depends. The application, however, of the doctrine is limited to cases where the destruction occurs without the default of either party. This limitation is clearly expressed in the cases: see Taylor v. Caldwell (2) ; Appleby v. Myers (3) ; and Bank Line, Ld. v. Capel & Co. (4) per Lord Sumner. Indeed, there is some suggestion, the correctness of which it is not necessary to determine, that even in case of personal service the same limitation might be applicable : see per Martin B. in Hall v. Wright (5) and in the argument in Boast v. Firth (6). This limitation is admitted by both parties to exist in the present case. Their dispute is whether the defendant, to establish frustration, must prove that the subject-matter perished without his fault, or whether it is enough for him to prove that it has perished and he has not in fact been shown to be in fault. If the words "without fault on either side " be strictly interpreted it would appear that the contract is not at an end unless neither party is in default. If the contract is prima facie put an end to by impossibility of performance, without further proof, and if that result is only avoided provided fault be proved in one pa rty or the other, no difficulty arises, but if the view were to prevail that the party alleging frustration has (1) (1597) Cro . El iz . 552 , 55 3. (2) 3 B . & S. 826, 8 32 . (3) L. R. 2 C. P. 659.

(4) [1919] A. C. 435, 452. ( 5 ) (1859) E . B . & E . 765, 789 . (6) (1868) L. R . 4 C. P. 1, 5 .

199 H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


Lord Porter.

200

HOUSE

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, LD. v. IMPERIAL SMELTING CORPORA TION, LD.

Lord Porter.

OF

LORDS

[1942]

to prove that neither party is in fault he would be in consider able difficulty. Not only would he have to prove th at he was not in fault himself, but he would have to establish also that his opponent was not in fault, and, if he were unable to do so, he would have failed to prove frustration. But I do not think the expression should be so strictly inter preted. Even in Taylor v. Caldwell (1) Blackburn J. speaks of the "perishing of the thing without default of the contractor " and, quoting Pothier: "The debtor corporis certi is freed "from his obligation when the thing has perished, neither by "his act, nor his neglect, and before he is in default." In Robinson v. Davison (2) Bramwell B. says "incapacity either "of body or mind in the performer without default on his or "her part is an excuse for non-performance," and in Howell v. Coupland (3) Blackburn J. says, "Of course, if the perishing "were owing to any default of the seller, that would be quite "another thing," while Quain and Archibald JJ. (4) speak of a cause over which the defendant has no control. Similar expressions can be found in the later cases, and I think that in all of them stress is laid, not on the freedom from blame of both parties, but on the fact that a party who has been in fault cannot rely on frustration due to his own wrongful act. If the meaning be that impossibility excuses performance the change of expression is comprehensible enough. It signifies only th at the party in default cannot take advantage of his own wrong. It is a personal disqualification preventing him from taking advantage of a frustration which has automatically occurred, not a condition of its occurrence. But whether the expression "without the default of either " p a r t y " or "without the default of the party alleging frustra"tion" be used, the phrase itself contains some ambiguity. The limitation as expressed in the cases might mean either that frustration is only established provided the party relying on it prove both the destruction of the subject-matter of the contract and that he himself is not to blame, or it might mean that he succeeds provided he establishes the destruction unless (1) 3 B . & S. 833 , 8 3 5 . (2) (1871) L. R, 6 Ex, 269, 277.

(3) L. R. 9 Q. B. 462. (4) Ibid. 467.

A. 0.

AND

PRIVY

COUNCIL.

201

it be shown that he is in fault. Either interpretation is H. L. (E.) possible, whether one regards th e principle of frustration as 1941 dependent on the implication of a term in the contract or due JOSEPH CONto the destruction of its subject-matter. If a term is to be STANTINE implied, the question is what are the exact limits of the term. STEAMSHIP LINE L D . If the perishing of the substratum of the contract be relied on, IMPERIAL it has still to be determined whether it must be established that SMELTING that perishing was without fault of the parties. The words CORPORA TION, L D . alone are inconclusive and in themselves are insufficient to Lord Porter. establish the case of the appellants or the respondents. Some other reason must be found for preferring the one view to the other. v.

Each side claimed support for its argument in the fact that in no case has the present contention been put forward—the appellants saying that cases must have occurred in which the argument could have been used and the respondents that in all the decided cases the defendants were shown or admitted to be without fault. The only two instances in which the existence of fault of the party craving the assistance of the doctrine of frustration has been directly discussed have been those in which the party rebying on the doctrine deliberately brought about the state of affairs which prevented the ful filment of his con tract: see Mertens v. Home Freeholds Co. (i) and Maritime National Fish Co., Ld. v. Ocean Trawlers, Ld. (2). In the former case a builder deliberately delayed his work so as to avoid the renewal of a licence necessary for its continua tion, and in the latter the owners of certain trawlers who had let one on charter applied for the renewal of licences in respect of other vessels in preference to that so chartered. In the former Lord Sterndale M.R. said : " So far as I know it has never been "held that a man is entitled to take advantage of circumstances " as a frustration of the contract if he has brought those circum" stances about himself," and in the latter Lord Wright says : "The essence of frustration is that it should not be due to "the act or election of the part y." Then he quotes from Lord Sumner's opinion in Bank Line, Ld. v. Arthur Capel & Co. (3): (1)

[1921] 2 K. B . 526 .

2) [1935] A. C. 524.

(3) [1919] A. C. 435, 452.

HOUSE OF LORDS

20 2

[1942]

"I think it is now well settled that the principle of frustration "of an adventure assumes that the frustration arises without "blame or fault on either side. Reliance cannot be placed "on a self-induced frustration." I do not myself think that any guidance whereby the present difficulty can be resolved is to be obtained from these state ments. Indeed, they apply only to deliberate acts and say nothing of the onus of proof or of the exact limits of the term to be implied. The appellants, however, also placed reliance on the analogy of those cases of personal obligation already referred to, in which the duty to perform depended on the continued existence of one of the parties and death supervened. In such cases, they said, it never had been necessary to prove and would be impossible for executors to prove that the deceased man's death was without his fault. That this view may be open to question appears from the observations of Martin B. in Hall v. Wright (1), and, though in Williams v. Lloyd (2) the plea as reported does not include an averment that the defendant was not in fault, the often

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D . v.

IMPERIAL SMELTING CORPORA TION, L D .

Lord Porter.

happens in the early reports, is very shortly stated, and the pleadings are not set out. Moreover, in any case, it may be doubted whether in the days of Queen Elizabeth death would have been considered as the fault of a party. It would, I think, have been regarded as an act of God. Even to-day I imagine that an accidental injury to a contractor preventing performance, though resulting from his own negligence, would be regarded as an accidental consequence or one of the ordinary incidents of life rather than as caused by the default of the party. The main contention of the appellant, however, was that, in the first place, to compel a defendant to prove that he was not in fault would be to ask him to establish a negative (an onus tha t should not generally be placed on a party), and that, secondly, the ground on which a contract is held to be frustrated is the implication of a term which exempts the parties from further performance if the subject-matter of the contract perishes. This exemption, they say, is analogous to any other exception (1) E . B. & E. 765.

(2) (1628) W. Jones, 179.

A. C.

AND

PRIVY

COUNCIL.

in a charterparty and prima facie frees them from liability though they may lose this protection if proved to be in fault. Support for this argument is to be found in the judgment of the court in Jackson v. Union Marine Insurance Co., Ld. (1), where the contract evidenced by a charterparty was held to be frustrated on the ground that it was subject to an implied term by which both parties were to be excused if, by reason of an excepted peril, it became impossible for the ship to arrive at her loading berth in time to perform the contemplated voyage. The effect of this implied term was treated as analogous to that of an express exception contained in the contract between the parties. If, it was argued by the appellants in the present case, the charterparty had contained an express exception, the carrier would on general principles have escaped liability without proof of anything other than facts bringing the exception into operation. Thereupon, the goods owner, to defeat the protection thus prima facie obtained, would have had to prove fault of some kind (e.g., negligence or unsea worthiness) which, in his submission, would prevent the carrier from taking advantage of the exception. If, then, the implied term frustrating the adventure be analogous to an express term, the contract would come to an end though the shipowner relied, not on an express, but an implied, term unless the charterer proved him in fault. The respondents sought to meet this argument by the allegation that prima facie all contracts must be performed, however impossible, and for this proposition quoted the well known dicta in Paradine v. Jane (2) and in Atkinson v. Ritchie (3). I do not think this principle was universally applicable, even when these cases were decided. Moreover, neither Paradine v. Jane (2) nor Atkinson v. Ritchie (3) were cases of impossibility, and the observations in each were obiter. The true principle seems to be, not that all contracts must prima facie be performed whether performance be possible or not, but that there are some contracts absolute in their nature (1) L. R. 10 C. P. 12 5. (2) Aleyn, 26 .

(3) (1809) 10 East, 530.

203

H. L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D . v.

IMPERIAL SMELTING CORPORA TION, L D .

Lord Porter.

HOUSE OF LORDS

204

H. L. (E.) 1941

JOSEPH CONSTANTINE STEAMSHIP LINE, L D .


Lord Porter.

[1942]

where the promisor warrants the possibility of performance. These he is bound to perform in any event or to pay damages, but there are other cases where the promisor is only obliged to perform if he can. In a contract for personal performance where he dies, or in certain other cases where th e subjectmatter of the contract is destroyed, he cannot implement his promise. In such cases he is excused unless he be in fault. Of course, if he is in fault because his deliberate act has done away with the subject-matter of the contract, and, perhaps, if he has been negligent, he cannot recover. But prima facie he escapes. To make him liable his fault must be proved by the party which alleges that it destroys his excuse. It has, I think, long been recognized that a particular con tract may or may not impose an absolute undertaking on the promisor. In Taylor v. Caldwell (1) Blackburn J. says: "There seems no doubt that where there is a positive contract "to do a thing, not in itself unlawful, the contractor must "perform it or pay damages for not doing it, although, in "consequence of unforeseen accidents, the performance of his "contract has become unexpeptedly burthensome or even "impossible. . . . But this rule is only applicable when the "contract is positive and absolute, and not subject to any con"dition express or implied." So in Howell v. Coupland (2) Archibald J., arguendo, said : "No doubt, if the defendant has "made such an absolute contract he must abide by it, though "the performance has become impossible: Jones v. St. John's "College, Oxford (3). Bu t is this an absolute contract?" Bowen L.J. in Jacobs v. Credit Lyonnais (4) and Willes J. in Clifford v. Watts (5) expressed similar opinions. Where the promisor makes an absolute promise he takes the risk of his ability to fulfil his contract and must do so or pay damages. No question of frustration does or can arise. What ever occurs the promisor is bound. The very fact, however, that in certain cases impossibility of performance is an excuse shows that in those cases there is no absolute promise. It is (1) 3 B . & S. 83 3.

(4) (1884) 12 Q. B. D . 60 3.

(2) L. R. 9 Q. B. 462.

(5) (1870) L . R. 5 C. P . 58 5.

(3) ( 18 70 ) L . R . 6 Q . B . 1 15 .

A. C.

AND PRI VY COUNCI L.

205

conditional on something, i.e., the possibility of performance. H. L. (E.) If, then, in certain contracts the promisor need only fulfil his 1941 obligations if performance be possible and this be such a con JOSEPH CONtract, there seems no valid reason for imposing on him the STANTINE obligation of proving his innocence of fault. In truth, the STEAMSHIP LINE, LD. words "without default on either side " are not used for the v. IMPERIAL purpose of establishing what has to be proved by either party. SMELTING Rather they are necessarily inserted to limit the cases to which CORPORA TION, LD. the doctrine of frustration applies. If a party be in fault the doctrine is not to be invoked by him. If he is not in fault, Lord Porter. it may be. But they have no bearing on the onus of proof. They qualify the doctrine ; they do not impose on the party seeking to be excused the necessity of proving want of fault either in himself or in his opponent. I have thought it unnecessary to trouble your Lordships with a discussion of the question whether a contractor should be held liable in a case .where the impossibility on which he relies was due to his negligence only or whether some more deliberate act is required if the plea is to be defeated. In a recent text book (Salmond & Winfield on Contracts, p. 313) the principle is stated thus : " I t must be understood th at the "foregoing rules are formulated with respect to the case of "determination by frustration without any breach of the "contract on the part of eitherparty. They are not applicable "in their full extent to contracts which are put an end to by the "breach of them by one of the parties, nor, therefore, to "contracts whose frustration is caused by a breach of con" tract. If the sinking of the steamship had been due to the "wilful act or negligence of the shipowners different consider"ations would have applied. The case would then have been "governed by the rule applicable to the rescission or deter"mination of a contract in consequence of the breach thereof " and not by the rules applicable to pure frustration not due to "the wrongful act of either par ty ." This view was accepted by counsel for the appellants for the purposes of his argument. A contractor who negligently destroys the subject-matter of the contract is not free from blame and in some cases may not be within the exception "without default " as used in the

206

HOUSE OF LORDS

[1942]

H. L. (E.) cases, but I prefer to leave the question for determination until 1941 it comes directly in issue. For the reasons I have stated I would allow the appeal. JOSEPH CONSTANTINE STEAMSHIP LINE, LD.


Appeal allowed.

Solicitors for appellants : Holman, Fenwick & Willan. Solicitors for respondents : Parker, Garrett & Co.

[HOUSE OF LORDS.] H. L. (E.)*

LIVERSIDGE AN D

1941 Sept. 18, 19, 22 ;

Nov. 3.

APPELLANT;

SIR JOHN ANDERSON AND ANOTHER

. RESPONDENTS.

— Emergency legislation— Detention of person Belief of Secretary of State that person of hostile associations—Cause for belief —Powers of court — Defence {General) Regulations, 1939, reg. 18B. Where the Secretary of State, acting in good faith under reg. 18B of the Defence (General) Regulation's, 1939, makes an order in which he recites that he has reasonable cause to believe a person to be of hostile associations and that by reason thereof it is necessary to exercise control over him and directs that that person be detained, a court of law cann ot inquire whether in fact th e Secretary of State had reasonable grounds for his belief. The ma tt er is one for the executive discretion of the Secretary of State. Therefore, in an action by a person detained against the Secretary of State for damages for false imprisonment the court cannot compel the defendant to give particulars of the grounds on which he ha d rea sonab le cause to believe th e plaintiff to be a person of hostile associations or that by reason of such hostile associations it was necessary to exercise control over the plaintiff. Th e production by the Secretary of State of an order of detention, made by him and ex facie regular and duly authenticated, constitutes a defence to such an action unless the plaintiff discharges the burde n of establishing th at t he order is invalid : — So held, affirming the decision of the Court of Appeal, Lord Atkin dissenting.

from the Court of Appeal affirming an order of the King's Bench Division refusing the appellant's application for particulars of defence in an action by him against the Home Secretary for false imprisonment. The appellant, who was detained by an order made by the APPEAL

* Present:

VISCOUNT MAUGHAM, LORD ATKIN, LORD MACMILLAN,

LORD WRI GH T, and

LORD ROMER.


740

[1903]

[IN THE COUET OF APPEAL.] 15;' Aug. 11.

KEELL v. HENEY. Contract

Impossibility of Performance

Implied Condition-—NecessaryInfer-

ence Surrounding Circumstances Substance of Contract Procession Inference that Procession would pass.

Coronation

By a contract in writing of June 20,1902, the defendant agreed to hire from the plaintiff a flat in Pall Mall for June 26 and 27, on which days i had been announced tha t the coronation processions would take place and pass along Pall Mall. The contract contained no express reference to the coronation processions, or to any other purpose for which the flat was taken. A deposit was paid when the contract was entered into. As the processions did not take place on the days originally fixed, the defendant declined to pay the balance of the agreed rent :— Held (affirming the decision of Darling , from necessary inferences .drawn from surrounding circumstances, recognised by both contracting parties, that the taking place of the processions on the days originally fixed along the proclaimed route was regarded by both contracting parties as the foundation of the contract; that tho words imposing on the defendant the obligation to accept and pay for the use of the flat fo the days named, though general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards happened, and consequently that the plaintiff was not entitled to recover the balance of the rent fixed by the contract. Taylor v. Caldwell, (1863) 3 B. & S. 826, discussed and applied.

from a decision of Darling J. Th plaintiff, Paul Krell, sued the defendant, C. S. Henry, for ., being t e balance of a sum o 151., for which the defendant had agreed to hire a flat at 56A, Pall Mall on the days of June 26 and 27, for the purpose of viewing the processions to be held in connection with the coronation of His Majesty. The defendant denied his liability, and counter claimed for the return of the sum of 151., which had been paid as a deposit, on the ground that, the processions not having taken place owing to the serious illness of the King, there had been a total failure of consideration for the contract entered into by him. The facts, which were not disputed, were as follows. The plaintiff on leaving the country in March, 1902, left instruc APPEAL

2 K.

.


tions w ith hi s solicitor to let h is suite of cham bers a 56A, ll all on such ter s and for such period (not exceeding six onths) as he thou ght proper. On Ju e 17, 1902, the defendant noticed an announcement in the windows of the plaintiff's flat to the effect that windows to view the coronation processions were to be let. Th e d efendant interviewed the housekeeper on the subject, when it was pointed out to him ha t a good view f th e processions could be obtained from the premises, and he eventually agreed with the housekeeper to take the suite for the two days in question for a sum of 75/. On Ju ne 20 the defendant wro te th e following letter to th plaintiff's solicitor:— " I am in receipt of yours of th e 1 8th in sta nt, inclosing form of agreement for the suite of chambers on the third floor at , Pa ll M all, which I have agreed to take or the two days, the 26 th and 27th instan t, for the sum f 75/. Fo r reasons given you I cannot enter into the agreem ent, but as arranged over the telephone I inclose herewith cheque for 25/. as deposit, and will thank you to confirm to me that I shall have the entire use of these rooms during the days (not the nights) f the 26 th and 27th ins tan t. You ma y rely th at every care will be taken of the prem ises and their co nten ts. On th 24th inst. I will pay the balance, viz., 50/., to complete the 75/. agreed upon." On th e sam e day th e defe nda nt received th e following reply from the plaintiff's solicitor:— I am in.rece ipt of your letter of to-day 's date inclosing cheq ue for 2 . deposit on you r agree ing to ta ke r. K rell's chambers on the third floor at 56A, Pall Mall for the two days, the 26th and 27th June, and I confirm the agreement that you are to have the entire use of these rooms during the days (but no t the nig hts), the balance, 5 0/., to be paid to m e on Tuesday next the 24th instant." The processions not having taken place on the days originally appointed, nam ely, Ju e 26 and 27, the defendant declined to pay th e balanc e f 50 /. alleged to be due from him und er contrac t in riting of Ju e 20 constituted by the above tw letters. He nce the present action.

74 . A.

74 2


. 1903 "

[1903]

Darling J., on August 1 , 1902, held, upon the auth ority Taylor Caldwell (1) and The Moorcock (2), that there was an implied condition in the contract that the procession should take place, and gave jud gm ent for th e defendant on th e claim and counter-claim. The plaintiff appealed. Spencer Bower, K.C., Hobnan Gregory, for the plaintiff. In the contract nothing is said about the coronation procession, but it is admitted that both parties expected that there would be a procession, and t at th e price to be paid for th e ro om was xed with reference to th e expected procession. arlin g held that both the claim and the counter-claim were governed Taylor Caldwell (1), and tha t the re was an implied ter in the contract th at th e procession should take place. It is subm itted th at th e learned judge was wro ng. If he was righ t, th e resu lt w ill be th at in every case f th is kind an un remunerated promisor will be in effect an insurer of the hopes and expectations of the promisee. Taylor Caldwell (1) purports to be founded on two passages in the Digest. ut o ther passages in the Digest are mo re directly in point, and shew that the implied condition is that there shall not be a physical extinction of the subject-matter of the contract. .J . he Eng lish cases have [VAUGHAN W I L L I A M S extended the doctrine of the Digest.] he limits f the extensio n are—(1.) th e no t coming in to being of a thing which was not in existence at the date of the co tr ac t; 2.) th e case f a thi ng , e.g., a ship , or a person in a contract for personal service, being incapacitated from doing th e work intended. In order th at the person who has contracted to pay the price should be excused from doing so, there must be (1.) no default on his part; (2.) either the physical extinction or the not coming into existence of the subject-matter of the contract; (3.) the performance of the contract must have been thereby rendered impossible.

In the present case there has been no default on the part of (1) 3 B. & S. 826 .

(2) (1889) 14 P. D. 64.

2 K.

.

•


th e defendant. t ther e has been no physical extinction f the subjec t-ma tter, and the performance f the con tract was quite Caldwell (1), and not possible. ule 1, laid down in Taylor rule - is th e rule th at regu lates t is ' case; Eu le 1 is directly in the plaintiff's favour, for her e th e co ntra ct was positive and absolute. n tha t case the mu sic hall which was the subject of the contract had been burnt down, so that performance of the contract by either party had become impossible. . . referred to Wright Hall. (2)] he cases hich will be relied on for th e defenda nt are all distinguishable from the present case. Applehy Myers (3), Boast Firth (4), Baily Crespigny (5), Howell Coupland (6), and Nickoll Ashton (7) are all distinguishable from the present case, in which two of the necessary elements do not exist. There are a number of authorities in favour of the plaintiff, Jane (8) ; Barker Hodgson (9); Marquis such as Paradine of Bute Thompson (10); Hills Sughrue (11) ; Brown Boyal'Insurance Co. 12) Th ese cases were all ante rior to Taylor Caldwell. 13) Th ere are othe r cases subseq uent to Taylor Caldwell (13), such as Kennedy Panam a, dec., ail (14); In re Arthur (15); The Moorcock. (16) Th e real question is, t was the position f the parties on June 20, and what was the contract then entered into between them ? he righ t possessed by th e plaintiff on t ha t day w as the right of looking out of the window of the room, with the opportunity of seeing the procession from that window; the only sale to the defendant was of such right as the plaintiff had, and that was all that the plaintiff was parting with by the con tract. Th ere w as, f course, the risk tha t the procession, [VAUGHAN WILLIAMS

(1) (2) (3) (4) (5) (6) (7) (8)

3 B. & (1858) (1867) (1868) (1869) (1876) [1901] (1646 )

S. at p. 833. (9) (1814) E. B. & E. 746. 485. L. R. 2 C. P. 51 . (10) (1844) L. R. 4 C. P. 1. (11) (184 ) L. R. 4 Q. B. 180. (12) (1859) 1 Q. B. D. 258. (13) 3 B. & 2 . B. 126 . (14) (186 7) Al. 26. (15) (1880) (16) 14 P. D. 64. 3 D 2

3 M. & S. 26 7; 15 R. R. 13 M. W. 487. 15 M. & . 253. 1 E. & E. 853. S. 826. L. R. 2 Q. . 580. 14 Oh. D. 03.

74 c. A.

744

KING'S BENCH DIVISION. 0. . 3

[1

3I

the anticipation f which gave th e room a arketab le valu e, igh t, from some cause or othe r, never tak e place • bu t th risk passed to the defendant by the con tract. On entering intothe contract with the defendant the plaintiff put it out of hispower to let the room to an y one else: h e passed th e righ and th e risk at the same time . No implied condition can b imp orted into th e con trac t th t th e object of it shall attained . Th ere can be no implied condition th t the defendan t shall be placed in th e actu al p osition f seeing th procession. Th is case is closely analogous to th t of LondonFounders' Association, Limited Clarice (1), where it was hel& tha t in a contrac t for th e sale of shares in a company there was no implied covenant that the purchaser should be put intoth e status f a shareholder by registra tion. So in Turner Goldsmith 2), wh ere th e defendant contrac ted to employ the plaintiff for a fixed term as agent in a business which he, the defendant, ultima tely abandoned before the expiration of th e term , it was held tha t there was no implied condition for the continued existence of the business, and accordingly the plaintiff was held, entitled to dam ages for bre ach f co ntr ac t. And th at was so althou gh part of th e res had perished ; h er no pa rt f the res had perished. Th e rule is tha t th e Cou will no t imply any condition in a co ntra ct except in case of Wood. ) No doubt, un de r absolute necessity : Hamlyn the Sale f Goods ct, 1893 (56 & 57 iet. c. 71), s. 7, wherethe specific goods, the subject of the contract, perish, the con tract is go ne ; bu t this is not a case f th at kind. An s. 14 enacts that, unless specified, no implied warranty or condition as to the quality or fitness of the goods supplied under a contract shall be imported. Ashmore (4) is an> authority in favour of the plaintiff, for it was there held that abuyer under'a contract took the risk of the performance of the contrac t being rendered impossible by unforeseen circum stances. Blakeley Mutter (5) is also in the plaintiff's favour to theextent of the counter-claim. (1) (1888) 20 Q. B. D. 576, 579, 580, 582. (2) [1891] 1 Q. B. 544, 548, 55 1. (3) [1891] 2 Q. B. 488, 491 -2.

(4) [1899] 1 Q. B. 436, 441 (5) (1903) 88 L. T. 90 ; 67 J. P. post, p. 760 (note).

•2

.

.


[Duke, K.C. The defendant abandons his counter-claim for •251., so that the sole question is as to his liability for the 50/!. ] pon the ain question, then, it is subm itted tha t both the -decision in Blakeley Mutter (1) and of Darling J. in the pre sen t case are opposed to th e principle Taylor Caldioell. 2) Th e contrac t here is absolute, and th e defendt has not, as he m ight have done, guarded himself against ih risk by suitable words.

he n, f it is said t t th is was a me re licence to use th oom a nd therefore revocable as not being u nde r sea l, it ha aiow been decided that even if such a licence is revoked an •action is still maintainable for breach of contract: Kerrison Smith. (3) In conclusion it is submitted that the Court cannot imply an express condition th at th e procession should pass. oth ing should be implied beyond what was necessary to give to the •contract that efficacy which the parties intended at the time. Th ere is no such necessity re ; in fact, the inference is the •other wa y, for m oney wa s paid before th e days specified ; wh ich •shews that the passing of the procession did not really ••constitute the basis of the contract, except in a popular sense. The truth is that each party had an expectation, no doubt; but the position is simply th is : one says, " ill you take the room '? " and the other says, " es." ha t is all. Th e contrac d noth ing ore t ha n give the defendant the opportunity seeing whatever might be going on upon the days mentioned. Duke, K.C., Bicardo, or the defenda nt. Th e question t was the bargain ? Th e defendant contends th at it was .a bargain with an implied condition that the premises taken we re premises in front f w hich a certa in act f tate would •take place by Eoy al Pro clam ation . A particu lar chara cter was •thus impressed upon the premises; and when that character -ceased to be impressed upon them the contract was at an en d. t is throu gh nobody's fault, but throug h an unforesee isfortune th at the premises lose tha t character. Th e price agreed to be paid ust be re ga rd ed : it is equivalent to (1) 88 L. T. 90 ; 67 J. P. 1. (3) [1897] 2 Q. B. 445.

(2) 3 B. & S. 820.

. 74 A. 1903 KREM.


A. 3

[1903J

any thousa nds a year; t explanation can be given th t, except tha t it as agreed to be paid for th e purpose enabling the defendant to see the procession? t was th •HENRY, absolute assumption of both parties when entering into the contract that the procession would pass. Caldwell (1)—namely, that a conThe principle of Taylor tract for the sale of a particular thing must not be construed as a positive contract, but as subject to an implied condition that, when the time comes for fulfilment, the specified thing continues to exist exactly applies. Th e certainty of th corona tion and conseque nt procession takin g place was th basis f this contract. oth parties bargained upon the ha ppening of a certain event the occurrence of which gave the premises a special character with a corresponding value tothe defendant; but as the condition failed the premises lost their adventitious value. Th ere has been such a change i the character of the premises which the plaintiff agreed the defendant should occupy as to deprive them of their value. he n the premises become unfit for the purpose for w hich Caldioell (2), the they were taken the bargain is off: Taylor principle of which case was adopted by the Court of Appeal in Nickoll Ashton. ) t was in contemplation here was not th at the defendant should m erely go and sit in th e roo but that he should see a procession which both parties regarded as an inevitable event. The re was an implied wa rran ty or condition founded on the presumed intention of the parties, Moorcock. ) and upon'reason : o doubt the observations f t he Cou rt in th at case were addressed to a totally different subject-matter, but the principle laid down was exactly as stated in Taylor Caldwell (1) and Nickoll Ashton. (5) Hamlyn Wood 6) it was held th at in a contrac t the re must be a reasonable implication in order to give the trans- . action such eff cacy as bo th pa rties intend ed it to hav e, and th t itho ut such imp lication the consideration would ai the case of a demise, collateral bargains do not arise ; but here (1) 3 B. & S. 826 . (2) 3 . & S. at p. 832. (3) [1901] 2 K. B. 12 ,1 37.

"

(4) 14 P. D. 64, 8. (5) [1901] 2 K. B. 126 (6 ) [1891] 2 Q. B. 488.

K.


t h e r e is an a g r e e m e n t , w h a t h a s t o b e done is to ascertain the meaning intention parties h a d i n entering into it. [ S T I R L I N G L . J . I n Appleby Myers (1 t h e r e w a s c o n t r a c t to supply certain machinery o building, before completion of the c o n t r a c t building burnt down ; and held that both parties were excused from performance of the contract.! In that case contract been partly performed; b u t t h e defendant's case s t ro n g e r t h a n t h a t . he n, here, contract wholly executory a n d t h e subject-matter fails, t h e c o n t r a c t is at a n en d. Crespigny (2), w h e r e t h e p e r L . J . I n Baily formance of covenant rendered impossible by an A ct P a r l i a m e n t , i t w a s held that covenantor discharged. VATJGHAN WILLIAMS L . J . Coupland (3) the I n Howell contract held to be subject t o a n implied condition that the parties should excused if performance became impossible through perishing of the s u b j e c t - m a t t e r . ] T h a t a p p l i e s h e r e : it is impossible for the plaintiff give the defendant that which bargained for, and, therefore, t h e r e s total failure of consideration. sum up, the of the a procession—that is to sa y, it i s a contract based upon certain thing coming into existence: there s condition precedent that there shall e procession. B u t f o r t h e m u t u a l e x p e c t a t i o n of procession- upon days men tioned there would have been contract whatever. basis of the contract also c o n t i n u a n c e of thing n certain c o n d i t i o n ; for on J u n e 2 0 t h e rooms were capable of being described s place from which view procession o n t w o particu lar d ay s; wherea s wh en tho se days arrived rooms were longer capable of being described. [STIRLING

Holman Gregory replied.

Cur. adv. vult.

Aug. 11. VATJGHAN WILLIAMS L.J. read the following written judgment:—The real question in this case is the extent (1) L. E. 2 C. P.

51 .

(2) L. E. 4 Q. B. 180.

(3) 1 Q. B. D. 258.

C. A.

1903

748

KING'S BENCH DIVISION. A. 3

f theapplication

[1903]

f theprinciple f the English law om an law hich has been adopted and acted on m a n y English decisions, and notably in the case Taylor HENKV ha t case least makes clear that where, Caldwell. 1) vlnTau the nature the contract, appears that the parties Williams L.J. the beginning have known that could not fu filled unless, wh en t he tim e for th e fulfilment f th e c on trac arrived, some particular specified thing continued to exist, so that when entering into the contract they must have contemp lated such co ntinued existence as the foundation f ha o b done; there, the absence any express implied warran ty tha t th e th ing . shall exist, th e contract is not to be considered a positive contract, but as subject to an implied condition that parties shall excused case, before breach, performance becomes im possible from the perishing the thing without default the contra ctor." Th us fa it is clear that the principle of the Roman law has been introduced into the En glish law. Th e doubt the present case arises as to how this principle extends. Th e Eom an law dealt ith obligationes de certo corpore. ha tev er ma y have been the limits the Eoman law, the case Nickoll Asliton (2) makes plain that the English law applies the principle not only to cases where the performance the contract becomes impossible by the cessation existence of the thing which the subject-matter of the contract, but also to cases where the event which renders the contract incapable of performance the cessation or non-existence of an express condition or state of things, going to the root of the contract, and essential to its t i said, performance. the one side, that the specified thing, state thin gs, or condition the continued existence of which necessary for thefulfilment f thecontract, so that parties entering into th contract must have contemplated the continued existence of that thing, condition, or state things as he foundation what was o b done under contract, limited things which r either the subject-matter f thecontract condition state things, present anticipated, which expresssly (1) 3 B. & S. 826. (2) 1901] 2 K. B. 126.

.

.


entioned in the contract. ut , on the othe r side, it is said th t th e cond ition or sta te f thin gs need not be expressly .specified, but that it is sufficient if that condition or state of thin gs clearly appears by extrinsic evidence to have be n assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility :is of such a character that it cannot reasonably be supposed •to have been in the contemplation of the contracting parties when the contract was ade. In such a case the contracting parties will not be held bound by the general words which, •though large enough to include, were not used with reference to •a possibility of a particular event rendering performance of the contract impossible. I do not think th at the principl /of the civil law as introduced into the English law is limited to cases in which th e event causing the impo ssibility •performance is the destruction or non-existence of some thing which is the subject-matter of the contract or of some condition or sta te of thing s expressly specified a s a con dition of it. •think that you first have to ascertain, not necessarily from the •terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognised by both contracting parties, what is the substance of the contract, .and then to ask the question whether that substantial contract jieeds for its foundation th e assum ption of th e existence f a ^particular sta te f thi ng s. If it does, this will lim it th operation of the general words, and in such case, if the contract •becomes impossible of performance by reason of the nonexistenc e f the state f things assumed by both contrac ting parties as the foundation of the contract, there will be no •breach f th e co ntract thu s limited. Now wh at are the facts f the pre sen t case'? he con tract is contained in two lette rs •of June 20 which passed between the defendant and the plaintiff's agen t, r. Cec l Bisgood. Th ese letters do not ention th e coronation, but speak m erely f the taking f r. Kre ll's -chambers, or, rath er, f the use of 'them, in the da ytime e 26 an d 27, for th e su m f 752 , 25/. the n pa id, balance t the affidavits, wh ich by •50Z. to be paid on th e 24th . agreem ent between the parties are to be taken as stating the iacts of the case, shew that the plaintiff exhibited on his

74 c.

HENRY.

,,—

William3LJ

75 0


[19033

. . 3

prem ises, thir d floor, 56A, Pa ll Mall, an announcement to th ef ect tha t window s to view the Eo ya l coron ation procession " were to be let, and tha t th e defendant was induced by th HENUY announcement to apply to the housekeeper on the premises, who said that the owner was willing to let the suite of rooms Vauglum

Williams L.J.

_

purpose of seeing the Eoyal procession for both days, but not nights, f Ju ne 26 and 27. In my judgm ent the use f the rooms was let and take n or th e purpose f seeing th Eo yal procession. t was not a demise f the room s, or even an agreem ent to let and tak e the room s. t is a licence to use rooms for a particu lar purpose and no ne o ther. And in my jud gment the taking place of those processions on the days proclaimed along th e proclaimed rou te, wh ich passed 56A, Pall Mall, was regarded by both contracting parties as the foundation of the co ntr ac t; and I think that it can not reasonably be supposed to have been in the contemplation of the contracting parties, when the co ntract was made, tha t th e coronation would no t be held on the proclaimed days, or .the processions, not take place on those days along the proclaimed ro te ; and I thin k th t t he words imposing on th e defendant the obligation to accept and pay for the use of the rooms for the named days, although general and uncond itional, were not used with reference to the possibility of the particular contingency which afterwards occurred. t was suggested in the course of th argument that if the occurrence, on the proclaimed days, of the coronation and the procession in this case were the foundation f th e co ntract, and if th e. general words are there by lim ited or qualified, so that in the event of the non-occurrence of the coronation and procession along the proclaimed route they would discharge b oth parties from further performance, f th contract, it would follow that if a cabman was engaged to take some one to Epsom on Derby Day at a suitable enhanced price for such a journey, say 1QL, both parties to the contract would be discharged in the contingency of the race at Epsom for some reason becoming impossible; but I do not think this, follows, for I do not thin k th at in th e cab case the ha ppen ing f the race would be the foundation of the con tract. No d ou bt the purpose of the engager would be to go to see the Derby,, or

2

.

.


75

no special qualifications for the purpose which led to the selection of th e cab for this pa rticu lar occasion. Any other cab would have done as well. oreover, I think th at , unde the cab contract, the hirer, even if the race went off, could hav e said, " Drive m e to Ep so ; I will pay you th e agreed ,

.

.

n

n

-- IT

sum; you have nothing to do with the purpose tor which I hired the cab ," and th at if the cabman refused he would have been guilty of a breach of contract, there being nothing to qualify his promise to drive the hirer to Epsom on a particular day. her eas in the case f the c oronation, there is not merely the purpose of the hirer to see the coronation procession, bu t it is the co ronation procession and th e relative position of the rooms which is the basis of the contract as much for the lessor as the h ire r; and I think th at if the King, before the coronation day and after the contract, had died, the hirer could not have insisted on having the rooms on the days nam ed. t could not in the cab case be reasonably said th seeing th e D erby race was th e foundation f the con tract, as it was f the licence in this case. her eas in th e present case, where the rooms were offered and taken, by reason of th ei r peculiar suitab ility from th e position of th e room s for view of the coronation procession, surely the view of the coronation procession was th e foundation of the co ntra ct, wh ich is a very different thin g from the pu rpose f th e an who engaged the cab—namely, to see the race—being held to be the foundation of th e con tract. ac h case ust be judged by its own circumstances. n each case one ust ask oneself, first, what, having regard to all the circumstances, was the foundation of the co ntr ac t? Secondly, was the performan ce f the contract preven ted? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contem plation f the p arties a t th e date f the con tract ? If all these questions are answered in the affirmative (as I think they should be in this case), I think both parties are discharge d from further performance of th e con tract. I th ink that the coronation procession was the foundation of this contract, and that the non-happening of it prevented the performance f the co ntr ac t; a nd, secondly, I think tha t th

1903

KRELL HENBY.. illiam

h.

752


. .

non-happening

3

.[1903]

f the procession, to use the words f Sir Jame

n in Baily v. Dc Crespigmj (1), was an event " of such a

KRELL

character that it cannot reasonably be supposed to have bee

HENRY

*^ contemplation of the contracting parties when the contract was made, and that they are not to be held bound by

—r

Vaughan

WilliamsL.J.

enera

words which, though large enough to include, were

not used with reference to the possibility of the particular contingency which afterwards happened."

The test seems to

be whether the event which causes the impossibility was or might have been anticipated and guarded against.

t seems

difficult to say, in a case where both parties anticipate th happening

f an event, which anticipation is the foundation o

the contract, that either party must be taken to have anticipated, and ought to have guarded against, the event which prevented the performance of the contract.

n both Jackson

v. Union Marine Insurance Co. (2) and Nickoll v. Ashton ihe parties might have anticipated as a possibility that perils f the sea might delay the ship and frustrate the commercial venture: in the former case the carriage

f the goods to ef ct

which the charterparty was entered int o; in the latter case the sale

f the goods which were to be shipped on the steamship

which was delayed.

But the Court held in the former case

that the basis of the contract was that the ship would arrive in time to carry out the contemplated commercial venture, and in the latter that the steamship would arrive in time for the .loading f the goods the subject of the sale.

I wish to observe

hat cases f this sort are very different from cases where contract or warranty or representation is implied, such as was implied in The Moorcock (4), and refused to be implied in Hamlyn v. Wood. (5)

But The Moorcock ) is f importance

n the present case as shewing that whatever is the suggested implication—be it condition, as in this case, or warranty or representation—one must, in judging whether the implication ought to be made, look not only at the words

f the con-

tract, but also at the surrounding facts and the knowledge f the parties of those facts.

There seems to me to be ample

(1) L. E. 4 Q. B. 185. (3) [1901] 2 K. B. 126. (2) (1873) L. R, 8 C. P. 572. (4) 14 P. D. 64. (5) [1891] 2 Q> B. 488.

2 K. B.


Union auth ority or this proposition. hu s in Jackson Marine Insurance Co. (1), in th e Com mon Pl ea s, th e question heth er th e object of th e voyage had been frustrated by the delay of the ship was left as a question of fact to the jury, although there was nothing in the charterparty denning the time within which the charterers were to supply the cargo of iron rails for San Fran cisco, and no thing on th e face of the charterparty to indicate the importance of time in the venture; and that was a case in which, as Bramwell B. points out in his Caldioell (2) was a strong authority judgm ent at p. 148 Taylor to support the conclusion arrived at in the judgment—that the ship not arriving in time for the voyage contemplated, but atsuch time as to frustrate the commercial venture, was not only a breach of the contract but discharged the charterer, though, he had such an excuse th at no action would lie. And, again, Dreesman (3) the vessel had to be loaded, as no in Harris particular time was me ntioned, within a reasonable tim e; and, in judging of a reasonable time, the Court approved of evidencebeing given that the defendants, the charterers, to the knowledge of the plaintiffs, had no control over the colliery from which both parties knew that the coal was to come; and that, although all that was said in the charterparty was that the vessel should proceed to Spital Tongue's Spout (the spout of the Spital Tongue's Colliery), and there take on board from the freighters, a full and complete cargo of coals, and five tons of coke, and although there was no evidence to prove any custom in the po rt as to loading vessels in tu rn . Again it was held in Mumford Gething ) tha t, in construing a written con trac of service under which A. was to enter the employ of B., oral evidence is admissible to shew in what capacity A. was toserve . See als Price he rule seems to be Mouat. 5) that which is laid down in Taylor on Evidence, vol. ii. s. 1082:. " It may be laid down as a broad and distinct rule of law that extrinsic evidence of every material fact which will enable the Court to ascertain the nature and qualities of the subjectatte r f the in strum ent, or, in othe r words, to identify the (1) L. K. 8 C. P. 572; (1874) 10 C. P. 125 ; 42 L. J. (C.P.) 284. (2) 3 B. & S. 826.

(3) (1854) 23 L. J. (Ex.) 2L0. (4) (1859) 7 C. B. (N.S.) 305. (5). (1862) 11 C. B. (N.S.) 508.

C.A.

HENRY.

"^~jia,,

illilms L

4


[1903]

0. . 3

persons and things to which the instr um ent refers, us t necessity be received." And ord Cam pbell in his jud gm en I am f opinion th at , whe n there is a con tract for says: e HENRY °^ specific subject-matter, oral evidence may be — received, or the purpose f shewing ha t th at subject-m atter ithin the knowledge of the parties before wituams L,J. w a S j everv and at th e time of th e co ntra ct." See per Cam pbell C.J., Macdonald Longbottom. 1) t seems to e th at the language of Willes J. in Lloyd Guibert (2) points in the sam e direction. I myself am clearly f opinion th t in thi •case, where we have to ask ourselves whether the object of the contract was frustrated by the non-happe ning f the . 'Coronation and its procession on th e d ays proclaime d, pa rol •evidence is adm issible to shew th t th e subject of th e co ntra ct was rooms to view the coronation procession, and was so to th e knowledge f bo th pa rtie s. When once this is establishe d, I see no difficul y w hate ver in t e case. t is no t esse ntial to the application of the principle of Taylor Caldwell (3) that the direct subject of the contract should perish or fail to be in existence at the date of performance of the contr ac t. t is suff cient f a sta te of thin gs or con dition expressed in the contract and essential to its performance perishes or fails to be in existence at that tim e. the present case the condition which fails and prevents the achiev em ent f th at wh ich wa s, in the co ntemp lation of both partie s, the foundation f the con tract, is not expressl mentioned either as a condition of the contract or the purpose f i ; but I think for the reasons wh ich I have given tha t the principle of Taylor his Caldwell ) ou ght to be applied. •disposes of t e plaintiff's claim for 50L un pa id bala nce f th price agreed to be paid for th e use f th e room s. he defendant at one time set up a cross-claim for the return of the 25Z. lie paid at the date f the con tract. As th t claim is now ithdra wn ' it is unnece ssary to say any thing abo ut it. have only to add that the facts of this case do not bring it •within the principle laid down in Stubbs Holywell By. Co. (4); th t in the case f con tracts falling directly within the rule (1) (1859) 1 . & E. 977, at p. 983. <2) (1865) 35 L. J. (Q.B.) 74, 75.

(3) 3 . & S. 826 (4) (1867) L. E. 2 Ex . 311

2

.

.


75

Taylor Caldwell 1) th e subse quen t imp ossibility does no t affect rig hts already acqu ired, because th e defend ant had th e whole of June 24 to pay the balance, and the public announcement that the coronation and processions would not take place on the proclaimed days was made early on the morning of the 24th, and no cause of action could accrue till the end of that da y. I think this appeal oug ht to be dismissed.

L.J . ith some doubt I have a so come to the conclusion that this case is governed by the principle on which Taylor Caldwell (1) was decided, and accordingly that the appe al ust be dismissed. he doubt I have felt was whe ther the parties to the contract now before us could be said, under the circumstances, not to have had at all in their contemplation the risk that for some reason or other the coronation processions might not take place on the days fixed, or, if the processions took place, ight no t pass so as to be capable being viewed from th e rooms men tioned in th e co ntr ac t; and whether, under this contract, that risk was not undertaken by th e defendan t. t on the question of fact as to wh at was in th e contemplation of the parties at the time, I do not think it rig ht to differ from th e conclusion arrived, at by au gh an Williams L.J., and (as I gather) also arrived at by my brother Stirling . Th is being so, I concur in th e conclusions arrived at ROMER

to add anything to what he has said so fully and completely. L.J. said he had had an opportunity of reading the judgm ent delivered by Va ugh an W illiams L. J. , with which he entirely agreed. Th ou gh th e case was one f very great difficulty, he thought it came within the principle of Taylor Caldioell. (1) Appeal dismissed. STIRLING

Solicitors : Cecil Bisgood;

. Grune baum.

NOTE.—For other cases arising out of the po stponem ent of the coronation, see the next following case; Elliott Crutchley, ante, p. 476, and Ilerne Bay Steam Boat Co. Uutton, ante, p. 68o.

(1) 3 B. & S. 826 W. C. D.

C.A.

[1985]

HOUSE OF LORDS

[PRIVY COUNCIL.]

MARITIME NATIONAL FISH, LIMITED .

APPELLANTS ;

AND

OCEAN TRAWLERS, LIMITED

.

.

. RESPONDENTS.

ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA. Contract —Frustration of Contract —Frustration due to act of repudiating party—Chartered trawler —Want of Government licence.

The respondents were owners and the appellants were charterers of a steam trawler which was fitted with, and could operate as a trawler only with, an ott er trawl . By the chart erpa rty the vessel could be used only in the fishing ind ust ry. The char ter pa rt y was renewed for a year from October 25, 1932. At t ha t date both parties knew that a Canadian statute, which was applicable, made it an offence to leave a Canadian port with intent to fish with a vessel using an otter trawl, except under licence from th e Minister. In Marc h, 1933, th e appell ant s applied to the Minister for licences for five trawlers which they were operat ing. The Minist er int ima ted th at only thr ee licences would be granted, and requested the appellants to name the three trawlers in respect of which the three licences should be granted. The appellants named three trawlers, excluding the trawler now in question, and accordingly licences were granted for those three only. The appellants thereupo n claimed th at they were no longer bound by the charterparty, and to an action claiming the charter hire pleaded that the charterparty had become impossible of performance and th ei r obligations unde r it ended : — Held, that there had been no frustration of the charterparty,

as the absence of a licence was due to the election of the appellants, who remained liable for the hire. Krell v. Henry [1903] 2 K. B. 740 commented on. Ju dg me nt of th e Supreme Court of Nova Scotia affirmed.

APPEAL (No. 103 of 1934) from an order of the Supreme

Court of Nova Scotia En Banco (June 9, 1934) reversing an order of the Supreme Court of Nova Scotia (January 19,

1934)The facts appear from the judgment of the Judicial Committee. *

Present:

LORD

LORD

WRIGHT.

ATKIN,

LORD

TOMLIN,

LORD MACMIIXAN,

and

A. C.

AND PRIVY COUNCIL.

1935. March 25. for th e ap pe ll an ts . H. U. Willink

C. B. Smith

K.C.

525

and Frank Gahan

K.C. and Mocatta for the respondents.

J. c. 1935 MARITIME

NATIONAL FISH, L D .

1935. April 12. The judgment of their Lordships was «. TRAWLIL. delivered by LD . LORD WRIGHT. The appellants were charterers of a steam trawler the St. Cuthbert which was the property of the respondents. The charterparty, dated October 25, 1928, had originally been entered into between the respondents and the National Fish Company, Ld., but was later by agreement taken over by the appellants. It was for twelve calendar months, but was to continue from year to year unless terminated by three months' notice from either party, the notice to take effect at the end of one of the years. It was expressly agreed that the trawler should be employed in the fishing industry only ; the amount of monthly hire was to be fixed on a basis to include a percentage of the.purchase price, and also operating expenses. There was an option given to the charterers to purchase the trawler.

By letters dated July 6 and 8, 1932, exchanged between the appellants and respondents, it was agreed that the charterparty as then existing should be renewed for one year from October 25, 1932, but at a rate of monthly hire which was 25 per cent, lower than that previously paid: the amount so agreed came to $590.97 per month. It was also then agreed that in the event of the appellants giving notice on or before July 25 in any year that they did not intend to renew, they should further give notice whether or not they intended to exercise the option to purchase. In fact the appellants gave notice on January 27, 1933, that they did not intend to renew the charter or to purchase the vessel. When the parties entered into the new agreement in July, 1932, they were well aware of certain legislation consisting of an amendment of the Fisheries Act (c. 73 Revised Statutes of Canada, 1927) by the addition of s. 69A, which in substance made it a punishable offence to leave or depart from any port A. C. 1935.

3

2N

526

HOUSE OF LORDS J. C. 1935

MARITIME NATIONAL FISH, LD. 11.

OCEAN TRAWLERS, LD.

[1936]

in Canada with intent to fish with a vessel that uses an otter or other similar trawl for catching fish, except under licence from the Minister : it was left to the Minister to determine the number of such vessels eligible to be licensed, and Regulations were to be made defining the conditions in respect of licences. The date of this amending s. 69A was June 14, 1929. Regulations were published on August 14, 1931, former Regulations having been declared invalid in an action in which the appellants had challenged their validity. The St. Ctdhbert was a vessel which was fitted with, and could only operate as a trawler with, an otter trawl. The appellants, in addition to the Si. Culhbert, also operated four other trawlers, all fitted with otter trawling gear. On March 11, 1933, the appellants applied to the Minister of Fisheries for licences for the trawlers they were operating, and in so doing complied with all the requirements of the Regulations, but on April 5, 1933, the Acting Minister replied that it had been decided (as had shortly before been announced in the House of Commons) that licences were only to be granted to three of the five trawlers operated by the appellants : he accordingly requested the appellants to advise the Department for which three of the five trawlers they desired to have licences. The appellants thereupon gave the names of three trawlers other than the St. Ctdhbert, and for these three trawlers licences were issued, but no licence was granted for the St. Cuthbert. In consequence, as from April 30, 1933, it was no longer lawful for the appellants to employ the St. Cuthbert as a trawler in their business. On May, 1 1933, the appellants gave notice that the St. Cuthbert was available for re-delivery to the respondents ; they claimed that they were no longer bound by the charter. On June 19, 1933, the respondents commenced their action claiming $590.97 as being hire due under the charter for the month ending May 25, 1933 : it is agreed that if th at claim is justified, hire at the same rate is also recoverable for June, July, August, September and October, 1933.

A. C.

AND PRIVY COUNCIL.

527

The main defence was that through no fault, act or J. C. omission on the part of the appellants, the charterparty 1935 contract became impossible of performance on and after MARITIME April 30, 1933, and thereupon the appellants were wholly p , * ™^ relieved and discharged from the contract, including all "• TRAWLERS, obligations to pay the monthly hire which was stipulated. D The defence succeeded before the trial judge, Doull. J. ' His opinion was that there had been a change in the law, including the Regulations, which completely changed the basis on which the parties were contracting. He thought it " not unreasonable to imply a condition to the effect that if the law prohibits the operation of this boat as a trawler the obligation to pay hire will cease." He also thought the appellants were not bound to lay up another boat instead of the St. Cuthbert. It seems that the learned judge proceeded on the footing that the change of law was subsequent to the making of the contract, whereas it was in fact anterior to the agreement of 1932, under which the trawler was being employed at the time the licence was refused. This judgment was unanimously reversed by the judges in the Supreme Court En Banco. The judges of that Court rightly pointed out that the discharge of a contract by reason of the frustration of the contemplated adventure follows automatically when the relevant event happens and does not depend on the volition or election of either party. They held that there was in this case no discharge of the contract for one or both of two reasons. In the first place they thought that the appellants when they renewed the charter in 1932 were well informed of the legislation, and when they renewed the charter at a reduced rate and inserted no protecting clause in this regard, must be deemed to have taken the risk that a licence would not be granted. They also thought that if there was frustration of the adventure, it resulted from the deliberate act of the appellants in selecting the three trawlers for which they desired licences to be issued. Their Lordships are of opinion that the latter ground is sufficient to determine this appeal. Great reliance was placed A. C. 1935.

3

2O

528

HOUSE OF LORDS

[1935]

J. c. 1935

in th e able arg um ent of Mr. Smi th for th e ap pel la nts on Bank Line, Ld. v. Arthur Capel & Co. (1), and in particular on MARITIME th e jud gme nt of Lor d Sumne r in t h a t case. Th at case was in FKH^LD!" princi ple ver y different from thi s, becaus e th e vessel which was ,_ " chart ered in th at case was actu ally tak en from th e control OCEAN

TRAWLERS,

L

J

of the shipowners for a period such as to defeat the contemplated adventure : it was in consequence impossible during that time for the shipowners to place the vessel at the charterers' disposal at all. In the present case the St. Cuthbert was not requisitioned: it remained in the respondents' control, who were able and willing to place it at the appellants' disposal: what happened was that the appellants could not employ the St. Cuthbert for trawling with an otter trawl. No doubt it was expressed in the charterparty that the St. Cuthbert should be employed under the charter in the fishing industry only, but the respondents did not warrant the continued availability of the vessel for that employment nor was payment of hire made dependent on that condition. The St. Cuthbert was available for the appellants to make such use of her as they desired and were able to make. This case is more analogous to such a case as Krell v. Henry (2), where the contract was for the hire of a window for a particular day : it was not expressed but it was mutually understood that the hirers wanted the window in order to view the Coronation procession : when the procession was postponed by reason of the unexpected illness of King Edward, it was held that the contract was avoided by that ev en t: the person who was letting the window was ready and willing to place it at the hirer's disposal on the agreed date ; the hirer, however, could not use it for the purpose which he desired. It was held th at the contract was dissolved, because the basis of the contract was that the procession should take place as contemplated. The correctness of that decision has been questioned, for instance, by Lord Finlay L.C. in Larrinaga v. Sociiti Franco-Americaine des Phosphates (3) : Lord Finlay observes: " It may be that (1) [1919] A. C. 43 5. (2) [1903] 2 K . B . 740. (3) (1922) 29 Com. Cas. 1, 7.

A. C.

AND PRIVY COUNCIL.

529

the parties contracted in the expectation that a particular event would happen, each taking his chance, but that the actual happening of the event was not made the basis of the contract." The authority is certainly not one to be extended: it is

J. C. 1935 MARITIME NATIONAL FISH, LD.

"• OCEAN

particularly difficult to apply where, as in the present case, TRAWLERS, the possibility of the event relied on as constituting a °' frustration of the adventure (here the failure to obtain a licence) was known to both parties when the contract was made, but the contract entered into was absolute in terms so far as concerned th at known possibility. It may be asked whether in such cases there is any reason to throw the loss on those who have undertaken to place the thing or service for which the contract provides at the other parties' disposal and are able and willing to do so. In Hirji Mulji v. Cheong Yue Steamship Co. (1) Lord Sumner speaks of frustration as " a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands." In a case such as the present it may be questioned whether the Court should imply a condition resolutive of the contract (which is what is involved in frustration) when the parties might have inserted an express condition to that effect but did not do so, though the possibility that things might happen as they did, was present in their minds when they made the contract. This was one of the grounds on which the judges of the Supreme Court were prepared to decide this case. Their Lordships do not indicate any dissent from the reasoning of the Supreme Court on this point, but they did not consider it necessary to hear a full argument, or to express any final opinion about it, because in their judgment the case could be properly decided on the simple conclusion that it was the act and election of the appellants which prevented the St. Cuthbert from being licensed for fishing with an otter trawl. It is clear that the appellants were free to select any three of the five trawlers they were operating and could, had they willed, have selected the St. Cuthbert as one, in which event (1) [1926] A. C. 49 7. 510 . 3

2 O 2

HOUSE OF LORDS

530

[1935]

J. c. 1935

a licence would have been granted to her. It is immaterial to speculate why they preferred to put forward for licences MARITIME the three trawlers which they actually selected. Nor is it ma FKH° LDL terial, as between the appellants and the respondents, v that the appellants were operating other trawlers to three TRAWLERS, of which they gave the preference. What matters is tha t LD. they could have got a licence for the St. Cuthbert if they had so minded. If the case be figured as one in which the St. Cuthbert was removed from the category of privileged trawlers, it was by the appellants' hand that she was so removed, because it was their hand that guided the hand of the Minister in placing the licences where he did and thereby excluding the St. Cuthbert. The essence of " frustration " is that it should not be due to the act or election of the party. There does not appear to be any authority which has been decided directly on this point. There is, however, a reference to the question in the speech of Lord Sumner in Bank Line, LA. v. A rthur Capel & Co. (1) What he says is: " One matter I mention only to get rid of it. When the shipowners were first applied to by the Admiralty for a ship they named three, of which the Quito was one and intimated that she was the one they preferred to give up. I think it is now well settled that the principle of frustration of an adventure assumes that the frustration arises without blame or fault on either side. Reliance cannot be placed on a self-induced frustration; indeed, such conduct might give the other party the option to treat the contract as repudiated. Nothing, however, was made of this in the courts below, and I will not now pursue it." A reference to the record in the House of Lords confirms Lord Sumner's view that the Court below had not considered the point, nor had they evidence or material for its considera tion. Indeed, in the war time the Admiralty, when minded to requisition a vessel, were not likely to give effect to the preference of an owner, but rather to the suitability of the vessel for their needs or her immediate readiness and availability. However, the point does directly arise in the facts now before the Board, and their Lordships are of (1) [1919] A. C. 435, 452.

A. C.

AND PRIVY COUNCIL.

531

opinion that the loss of the St. Cuthbert's licence can correctly J. c. be described, quoad the appellants, as " a self induced 1935 frustration." Lord Sumner in Hirji Mulji v. Cheong Yue MARITIME 0 Steamship Co. (1) quotes from Lord Blackburn in Dahl v. pfs" ^^ Nelson, Donkin & Co. (2), who refers to a " frustration " as being „ "• v

'

°

O C EA N

a matter " caused by something for which neither party was res- TRAWLERS, P ponsible" : and again (3) he quotes Brett J.'s words, ' which postulate as one of the conditions of frustration th at it should be " without any default of either party. " It would be easy, but is not necessary, to multiply quotations to the same effect. If either of these tests is applied to this case, it cannot in their Lordships' judgment be predicated that what is here claimed to be a frustration, that is, by reason of the withholding of the licence, was a matter for which the appellants were not responsible or which happened without any default on their part. In truth, it happened in consequence of their election. If it be assumed th at the performance of the contract was dependent on a licence being granted, it was that election which prevented perform ance, and on that assumption it was the appellants' own default which frustrated the adventure: the appellants cannot rely on their own default to excuse them from liability under the contract. On this ground, without determining any other question, their Lordships are of opinion that the appeal should be dismissed with costs. They will humbly so advise His Majesty. Solicitors for appellants : Charles Russell & Co. Solicitors for respondents : William A. Crump & Son. (1) [1926] A. C. 497, 507(2) (1881) 6 Ap p. Cas. 38, 53. (3) [1926] A. C. 508.

Page1

Marshall v Harland & Wolff Ltd National Industrial Relations Court 13 March 1972


[1972] 1 W.L.R. 899; [1972] 2 All E.R. 715; [1972] 1 R.L.R. 90; [1972] I.C.R. 101; [1972] I.R.L.R. 90; (1972) 7 I.T.R. 150; (1972) 116 S.J. 484

Case Digest

Subject: Employment Keywords: Contract of employment; Redundancy; Sick leave Summary: Redundancy; payments; dismissal; during prolonged absence due to illness; entitlement Abstract: Short of an employee's inability to work being of sufficient duration to bring the relationship of employer and employee to an end by frustration, the relationship continues, and it is a question of fact whether any dismissal is due to redundancy. M had been employed by H Co since 1946 under a contract of employment which did not entitle him to sick pay. It was not the practice of H Co to terminate their employees' contracts on account of sickness. M was absent from work for eighteen months due to illness. Then H Co gave notice that their London works were to be closed, and offered four weeks paid notice, together with an ex gratia payment of GBP 50. M sought redundancy payment. Held, there had been no medical evidence that M was permanently incapacitated or as to the duration of his incapacity, and as no wages were payable as sick-pay, and it was not H Co's policy to terminate employment due to sickness, it could not be said that further performance of M's obligations were either impossible or radically different from those under his contract of employment. Accordingly there was no frustration, and M was entitled to payment. (Dictum of Lord Radcliffe in Davis Contractors v Fareham Urban DC [1956] A.C. 696 HL applied). Judge: Sir John Donaldson (President)


Davis Contractors v Fareham Urban DC [1956] A.C. 696; [1956] 3 W.L.R. 37; [1956] 2 All E.R. 145; 54 L.G.R. 289; (1956) 100 S.J. 378; (HL)


Applied by GF Sharp & Co Ltd v McMillan [1998] I.R.L.R. 632; (EAT) Hare v Murphy Bros [1974] 3 All E.R. 940; [1974] I.C.R. 603; [1974] I.R.L.R. 342; 18 K.I.R. 31; (1975) 10 I.T.R. 1; (1974) 118 S.J. 596; (CA (Civ Div)) Hebden v Forsey & Son [1973] I.C.R. 607; [1973] I.R.L.R. 344; 15 K.I.R. 161; [1973] I.T.R. 656; (NIRC) Hills v Securicor [1995] C.L.Y. 1979; (CC (Epsom))

Page2

Hogan v Cambridgeshire CC Unreported; (EAT) Explained by Tan v Berry Bros and Rudd [1974] I.C.R. 586; [1974] I.R.L.R. 244; (NIRC)

Legislation cited

Contracts of Employment Act 1963 s.4 Contracts of Employment Act 1963 s.9 Industrial Court Rules 1971 (SI 1971 ) r.52 Redundancy Payments Act 1965 s.1 Redundancy Payments Act 1965 s.1(2) Redundancy Payments Act 1965 s.25 Redundancy Payments Act 1965 s.25(1) Redundancy Payments Act 1965 s.9 © 2010 Sweet & Maxwell

Page1

National Carriers Ltd v Panalpina (Northern) Ltd House of Lords 11 December 1980


[1981] A.C. 675; [1981] 2 W.L.R. 45; [1981] 1 All E.R. 161; (1982) 43 P. & C.R. 72; (1981) 125 S.J. 46; Times, December 17, 1980

Case Digest

Subject: Landlord and Tenant Other related subjects: Housing; Real property Keywords: Contracts; Frustration; Leases; Termination Summary: Lease; termination by frustration Abstract: The doctrine of frustration of contracts is in principle applicable to leases, although the occasions on which it may be applied are rare. A warehouse was demised to the defendants for a 10-year period. The only access to the warehouse was by a street which the local authority closed, after five years of the term had elapsed, for a 20-month period. In an action for unpaid rent the defendants claimed that the lease had been frustrated. The judge held that a lease could not be frustrated. On appeal direct to the House of Lords, held, dismissing the appeal, (1) frustration could be applied to leases in rare cases; (2) on the facts here the doctrine did not apply. (Dictum in Davis Contractors v Fareham Urban DC [1956] A.C. 696 HL applied). Judge: Lord Hailsham of St Marylebone, L.C.


Cricklewood Property & Investment Trust Ltd v Leighton's Investment Trust Ltd [1945] A.C. 221; [1945] 1 All E.R. 252; (HL) Davis Contractors v Fareham Urban DC [1956] A.C. 696; [1956] 3 W.L.R. 37; [1956] 2 All E.R. 145; 54 L.G.R. 289; (1956) 100 S.J. 378; (HL) Krell v Henry [1903] 2 K.B. 740; (CA) Matthey v Curling [1922] 2 A.C. 180; (HL) Rom Securities v Rogers (Holdings) (1967) 205 E.G. 427 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] A.C. 93; [1961] 2 W.L.R. 633; [1961] 2 All E.R. 179; [1961] 1 Lloyd's Rep. 329; (1961) 105 S.J. 346; (HL)


Considered by Forkhurst v Secretary of State for the Environment (1983) 46 P. & C.R. 89; [1982] J.P.L. 448; (QBD) Hussein v Mehlman [1992] 2 E.G.L.R. 287; [1992] 32 E.G. 59

Page2

John Lewis Properties Plc v Viscount Chelsea (1994) 67 P. & C.R. 120; [1993] 34 E.G. 116; [1993] E.G. 46 (C.S.); (Ch D) R. v Immigration Appeal Tribunal Ex p. Ali (Jaifor) [1990] Imm. A.R. 531; [1991] C.O.D. 37; (QBD)

Referred to by Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia) [1981] 2 Lloyd's Rep. 613; [1981] Com. L.R. 243; (QBD (Comm))

Legislation cited

Administration of Justice Act 1969 (c.58) s.12 Aliens Restriction (Consolidation) Order 1914 (SI 1914 ) Land Charges Act 1925 s.10 Land Charges Act 1972 (c.61) s.2 Landlord and Tenant Act 1954 Part III Law Reform (Frustrated Contracts) Act 1943 (c.40) s.2 Public Health Act 1961 (c.64) s.25 Road Traffic Regulation Act 1967 (c.76) s.12 Rules of the Supreme Court (Revision) 1965 (SI 1965 1776) para.3 Rules of the Supreme Court Ord.14 Sale of Goods Act 1893 s.7

Journal Articles

Contractual termination of leases: lessons from the Commonwealth: Part 2 Frustration; Landlords' rights; Leaseholds; Repudiation; Tenants' rights; Termination. L. & T. Review 2009, 13(5), 182-185 Questions and answers (May/June) Adjoining premises; Assured tenancies; Business tenancies; Competitors; Fire; Fitness for habitation; Frustration; Landlords' duties; Private nuisance; Quiet enjoyment; Shopping centres; Tenants' rights; Waste disposal. L. & T. Review 2009, 13(3), 111-112 Business interruption: preparing for the unknown Companies; Contractual liability; Employers' liability; Finance; Insurance; Negligence; Occupiers' liability; Risk management; Terrorism. P.L.C. 2003, 14(7), 13-24 Business interruption: preparing for the unknown Companies; Contractual liability; Employers liabilities; Finance; Insurance; Negligence; Occupiers liability; Risk management; Terrorism. P.L.C. 2003, 14(7), 13-24 Common mistake: theoretical justification and remedial inflexibility Charterparties; Equitable remedies; Implied terms; Mistake; Rescission; Void contracts.

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J.B.L. 2004, Jan, 34-58

A new way of terminating leases? Conditions; Frustration; Housing benefit; Implied terms; Mutual mistake; Residential tenancies; Termination. Conv. 2008, 1, 70-80 Reichman v Beveridge Abandonment; Affirmation; Business tenancies; Damages; Mitigation; Rent; Repudiation. Conv. 2008, 2, 165-173 Recovery position Assignment; Business tenancies; Commission; Fire insurance; Frustration. E.G. 2008, 0820, 130-131 Mistake, frustration and implied conditions in leases Conditions; Frustration; Implied terms; Leases; Mutual mistake; Termination. L. & T. Review 2007, 11(5), 158-161 Wynn or lose? Accidents; Damage to property; Frustration; Paintings; Repudiation; Sale of goods. N.L.J. 2007, 157(7269), 535 Time to challenge our assumptions? Breach; Landlords; Leases; Repudiation; Termination. L. & T. Review 2007, 11(2), 37 Frustration of leases: the hazards of contractualisation Frustration; Leases. N.I.L.Q. 2001, 52(1), 82-97 The doctrine of frustration and leases Frustration; Leases. J. Leg. Hist. 1989, 10(1), 90-109 © 2010 Sweet & Maxwell

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Ogilvy & Mather Ltd v Silverado Blue Ltd (formerly Oktobor Ltd) Queen's Bench Division 23 May 2007


[2007] EWHC 1285 (QB); Official Transcript

Case Digest

Subject: Contracts Keywords: Agreements; Cancellation; Commercial contracts; Frustration; Rescission; Variation Summary: Commercial contracts; Cancellation; Time contract came to an end; Sums due under terms of contract Abstract: The claimant advertising agency (O) sought recovery of an instalment paid to the defendant (S) production services provider following the cancellation of a contract between the parties. O and S entered into an agreement whereby S undertook to produce a commercial for a manufacturer of a fabric conditioner by a specified date four months later. The first of two instalments, being the price for the assignment, was paid in accordance with the agreement, prior to the start date for production. Within less than two weeks of signing the agreement, it became clear that there could be a delay due to unfavourable market research of the proposed script and there were discussions between O and S about the cost implications and the length of any delay. When, within a couple of days, it was clear there would be delay, S released bookings for its artists and resources and for freelancers to a certain date, hoping for a revised production start date. Three weeks later, S cancelled bookings for a later period, making rebookings which it confirmed to O were "pencil bookings". The parties agreed that the agreement had been cancelled by a date some three months after it had been signed but there was disagreement as to whether it had come to an end at an earlier date. The agreement provided that S was entitled to recover from O sums "in respect of commitments necessarily undertaken ... in pursuance of" the agreement. O submitted that the agreement was cancelled, frustrated or rescinded on a date some 10 weeks before the date that it was accepted that it was cancelled. S contended that it incurred losses "in respect of commitments necessarily undertaken ... in pursuance of" the agreement such as to extinguish O's right to the return of the initial payment. Judgment for claimant. (1) The agreement was neither cancelled nor discharged upon any other basis prior to the date that it was accepted it was cancelled. It was agreed that upon cancellation on the accepted cancellation date, O had a prima facie right to the return of the deposit subject to S's claims under the agreement. There was nothing to suggest that O was seeking to cancel the agreement in accordance with its terms on a date before the accepted cancellation date. It was accepted that there was no written notice to the effect that the agreement was cancelled and there was no evidence to suggest some oral cancellation which S was prepared to accept. It was difficult for the doctrine of frustration to apply since the contract itself seemed to contemplate the possibility of a substantially different performance from that originally contemplated. It contained a machinery for dealing with a revised timetable arising from a revised script. Rescission required that both parties had mutually agreed to set aside their agreement, but there

Page2

was no evidence that that was the express or implied position of the parties 10 weeks before the accepted cancellation date. There was no unilateral cancellation by O and no mutual recognition that the agreement no longer existed, largely as both parties hoped that some revised position might be accommodated. In a sense, there was provision for rescission, for O, in the opportunity to cancel within the agreement. In the period before the accepted cancellation the parties were considering or negotiating the terms upon which a formal cancellation of the agreement was to be made and the terms on which a new agreement was to be substituted. Neither had brought the agreement to an end formally. (2) The rebooking on a "pencil" basis of relevant resources could not have represented the basis for S entering into "commitments necessarily undertaken ... in pursuance of" the agreement. The period being discussed was as a possible commencement date for what was becoming a substantially revised project, and there remained uncertainty about when production would recommence because there was still uncertainty about the script to be used. It had been accepted that "pencilling" did not constitute a firm, contractually binding commitment to the artists approached. Judge: David Foskett Q.C. © 2010 Sweet & Maxwell

Page1

*898

Paradine v Jane 1 January 1646

(1646) Aleyn 26 82 E.R. 897 1646 Mich. 23 Car. Banco Regis . Hil. 22 Car. Rot . 1178, & 1179. [Rule applied, Atkinson v. Ritchie , 1809, 10 East, 533; Lloyd v. Guibert , 1865, L. R. 1 Q. B. 121. Discussed, Lord Clifford v. Watts , 1870, L. R. 5 C. P. 586. Adopted, Carstairs v. Taylor , 1871, L. R. 6 Ex. 223. Questioned, and not applied,The Teutonia , 1871, L. R. 3 A. & E. 411. Limited, Jackson v. Union Marine Insurance Company , 1874, L. R. 10 C. P. 139. Explained, Wear River Commissioners v. Adamson , 1877, 2 App. Cas. 748. Rule applied, Sheffield Waterworks Company v. Carter , 1882, 8 Q. B. D. 645; Jacobs v. Credit Lyonnais , 1884, 12 Q. B. D. 603.] Debt. In debt the plaintiff declares upon a lease for years rendring rent at the four usual feasts; and for rent behind for three years, ending at the Feast of the Annunciation, 21 Car. brings his action; the defendant pleads, that a certain German prince, by name Prince Rupert, an alien born, enemy to the King and kingdom, had invaded the realm with an hostile army of men; and with the same force did enter upon the [27] defendant's possession, and him expelled, and held out of possession from the 19 of July 18 Car. till the Feast of the Annunciation, 21 Car. whereby he could not take the profits; whereupon the plaintiff demurred, and the plea was resolved insufficient. 1. Because the defendant hath not answered to one quarters rent. 2. He hath not averred that the army were all aliens, which shall not be intended, and then he hath his remedy against them; and Bacon cited 33 H. 6. 1. e. where the gaoler in bar of an escape pleaded, that alien enemies broke the prison, &c. and exception taken to it, for that he ought to shew of what countrey they were, viz. Scots, &c. 3. It was resolved, that the matter of the plea was insufficient; for though the whole army had been alien enemies, yet he ought to pay his rent. And this difference was taken, that where the law creates a duty or charge, and the party is disabled to perform it without any default in him, and hath no remedy over, there the law will excuse him. As in the case of waste, if a house be destroyed by tempest, or by enemies, the lessee is excused. Dyer, 33. a. Inst. 53. d. 283. a. 12 H. 4. 6. so of an escape. Co. 4. 84. b. 33 H. 6. 1. So in 9 E. 3. 16. a supersedeas was awarded to the justices, that they should not proceed in a cessavit upon a cesser during the war, but when the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. And therefore if the lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it. Dyer 33. a. 40 E. 3. 6. h. Now the rent is a duty created by the parties upon the reservation, and had there been a *899 covenant to pay it, there had been no question but the lessee must have made it good, notwithstanding the interruption by enemies, for the law would not protect him beyond his own agreement, no more then in the case of reparations; this reservation then being a covenant in law, and whereupon an action of covenant hath been maintained (as Roll said) it is all one as if there had been an actual covenant. Another reason was added, that as the lessee is to have the advantage of casual profits, so he must run the hazard of casual losses, and not lay the whole burthen of them upon his lessor; and Dyer 56. 6. was cited for this purpose, that though the land be sur- [28] -rounded, or gained by the sea, or made barren by wildfire, yet the lessor shall have his whole rent: and judgment was given for the plaintiff. © 2010 Sweet & Maxwell

Page2


W. J. T A T E M , L I M I T E D

1938

[19 39

GAMBOA.

27. 30. Contract Charterparty Frustration Destruction of subject-matter or interruption in performance Event causing destruction or interruption in contemplation of parties If the foundation of a contract goes, either by the destruction of the subject-matter or by reason of such long interruption or delay that the performance is really in effect that of a different contract, and the parties have not provided what in that event is to happen, the performance of the contract is to be regarded as frustrated, even though the event which causes the destruction f the subject-ma tter or th e interrup tion or delay was within the contemplation of the parties when they made the contract. Principle stated by Viscount Haldane in F. A. Tamplin Steamship Co., Ld. Anglo-M exican P etroleum Products Co., Ld. [1916] Arthur Capel &> 2 A. C. 397, 406, and Bank Line, Ld. [1919] A. C. 435 ; and followed in Countess of Warwick Steamship Le Nickel Sociiti Anonyme 1918] 1 K. . 372 applied. Co ACTION

in the Commercial List tried by Goddard J. without

a jury. By a charterparty dated June 25, 1937, the plaintiffs, as owners, ch artered to the defendant, w ho was an agent f the Republican Government of Spain, the steamship Molton fo thirty days from July 1, 1937. C l e 1 f t he c h a r te r p a rt y p ro v id ed . S te a m er t o "b e emp oyed . within the ow g lim its: North "Spain (Government ports) and French Bay ports for the "ev acu atio n f civil popu lation from No rth Spain y clause 5 : "C ha rtere rs to pa y hire at the rate f 250/. "B ritish sterling per day . until her rede ivery to "owners." y clause 15 : "Sh ou ld steam er be lost or missing, hire to "cea se om the da te when she was lost y clause 26 : " Steamer m ust not carry arms, munitions, " con traban d f war, or any description f cargo prohibited y the ritish overnment or nava l or ilitary persons At all material times the Republican Government of Spain was engaged in civil war with the Spanish "Nationalists." On July 1, 1937, the Molton was duly delivered to the defendant a t San tande r. She took a num ber of refugees to French port and returned to Santander for more, but on

1 K. B.


July 14 she was seized by a Nationalist ship inside territorial waters off Santander, taken to Bilbao and kept in custody there un til Septem ber 7, when she was released. She then went to Bordeaux, where she was re-delivered to the plaintiffs on September 11. he defendant paid in advance the agreed hire up to Ju ly 31, bu t on A ugust 18 he wrote to the plaintiffs declining to have any further concern with the steam er. he plaintiffs, accordingly, brought this action, claiming payment of hire at the rate of 250I. a day from ugust 1 until S eptemb er 11 , the d ate o re-delivery. he defendant denied liability on the ground (inter alia) that the adventure had been frustrated by the seizure of the ship. Sir Robert Aske K.C. Cyril Miller for the plaintiffs. The doctrine of frustration does not apply in the present case. It only applies to contracts which have become impossible of fulfilment for some cause which was not c on tem plate d by the contract itself. It should not be applied when it is possible to hold that reasonable men could have contemplated the circumstances which in fact occurred and yet have entered into the bargain expressed in the doc um en t: per . Lawrence J. in Scottish Navigation Co., Ld. Souter (W. A.) 6- Co. (1), approved by Lord Sumner in Bank Line, Ld. Arthur Capel & Co. (2) and by Bailhache J. in Comptoir Com mercial Anversoi Power, Son & Co. 3) See also pe Lord Parker in F. A. Tam plin Steamship Co., Ld. Anglon the prese nt case Mexican Petroleum Products Co., Ld. ) the seizure of the vessel was clearly contemplated by the par ties. he risk was well known to every one at the time and it is reflected in the high rate of hire.

On that ground this case is distinguishable from Taylor Caldwell (5), where the parties could n ot h ave been tak en to contemplate that the music-hall, the letting of which was the subject of the contract, would be burned, and from Krell (1 [1917] i K . B . 222, 249. (2) [1919] A. C: 435, 460. 3) [1920] 1 . B . 868, 879.

(4) [1916I 2 A . C. 397 . 423(5) (1863) 3 B . & S. 826.

13 1938 TATEM, GAMBOA.

K IN G S B E N C H 1938

. TATEM,

V. GAMBOA.

I V I SI O N .

[19S9]

Henry (1) and Clark Lindsay (2), where the cancellation f the Coronation procession could not ha ve been con tem plated In any case the authority of the two last-named cases is not to be extended, particularly where, as here, the possibility of the event relied on as constituting frustration was known to both parties when the contract was made : per L ord W right in Maritime National Fish, Ld. Ocean Trawlers, Ld. (3) Willink K.C. W. L. McNair for the defendant. he plaintiffs are not entitled to recover, because the a dv en ture was frustrated by the seizure f the ship. n the facts, t ha seizure was not in the contemplation of the parties at the time of the charter; but, even if it were, the fact that the event which prevents the performance of a contract is contemplated or known by the parties when they enter into the contract does not prevent the doctrine of frustration applying : Jackson Union M arine Insurance Co., Ld., per C leasby B . ( ) ; Hirji Mulji & Others Cheong Yue Steamship Co., Ld. (5); Bank Line, (6), it being held in the last nam ed case A rthur Capel & tha t the doctrine applied where the adv enture had been rendered impossible by the requisition f a ship by the overnm ent, although that requisition was foreseen and the charterers given in the cha rter pa rty a n option to cancel in the event f it. hen people ente r into a co ntrac t which s depend ent for its performance on the co ntinued ava ilability of a spec fic thing an d th availability comes to an end through circumstances beyond the control of the parties, the contract is prima facie dissolved : F. A . Tam plin Steamship C o., Ld. v. Ang lo-Mexican Petroleum alda ne ) Products Co., Ld., per Viscount Nickoll & Knight Ashton, Edridge & Co. (8) ; Countess of Warwick Steamship Co. Le Nickel Sociiti Anonyme (9) ; Larrinaga & Co., Ld. SociiU Franco-A miricaine des Phospha tes de he contingency Midulla, Paris, per Viscount Fin lay. ( ) which has arisen must be treated as one about which no 1) 2) 3) (4) 39 (5)

[1903] (1903) [1935] (1874)

2 88 A. L.

. B . 740. L . T . 198. C. 524, 529. R. 10 C. P. 125

[1926] A . C. 497-

(6) 7) 8) 9) (10) 318.

|"I9I9] [1916] [1901] [1918] (1923)

A. C. 435. 2 . C. 397, 406. 2 K. B . 126. 1 . B . 372. 39 im es L . R. 316,

1 K. B.

K I NG S B E N CH

IVISION.

bargain was made at all: F. A. Tam plin Steamship Co., Ld. Anglo-Mexican Petroleum Products Co., Ld., per Viscount Ha ldane ) an d per L ord tkinson. ( ) he true test i whether the parties as reasonable men could have intended the con tract to be binding on the m in the altered cir cumstances which occurred : F. A. Tamplin Steamship Co., Anglo-Mexican Petroleum Products Co., Ld., per Earl oreb urn. ( ) He re the partie s could not hav e so intende d. The seizure of the ship defeated their common object and the doctrine of frustration, therefore, applies: Anglo-Northern Trading Co. Emlyn Jones & Williams, per Pickford L.J. (4) J. t is said on behalf f the defen dant tha t so soon as this ship was seized there was a frustration of the contract and that the contract became impossible of performance as from that date, and, therefore, that all rights and liabilities und er the contrac t ceased. He adm its th at he cannot reclaim any part of the hire he paid in advance, but contends that he is not liable to pay any further additional hire, that is to say, for the time during which the ship was in the hands of the insurgents. Sir Rob ert A ske, on the othe hand, has argued very strongly that the enterprise in this case cann ot be said to hav e been frustra ted, because both sides ust be taken to have contemplated when they made this contract that the ship might be seized—indeed, that the risk of seizure was plain and obvious to everybody— and t ha t it mu st be take that that was one of the risks which the ship was running. GODDARD

I do not feel that I can hold on the evidence which I have before me that a risk of seizure of the description which took place here, and the detaining of the vessel not only for the period of her charter but for a long period thereafter, was a risk which was contem plated by the parties. t ma y well be that they thought that the Nationalists might seize the ship an d hold it for the cha rtered period so long as it was u nde cha rter to the Republican overnment. t ay well be that the parties contemplated that the Nationalists (1) [1916] 2 A. C. 397, 406. (2) Ibid. 42T.

3) [1916] 2 A . C. 397. 4°44) [1918] 1 . B . 372, 380.

1938

w.

TATKM,

v.

GAMBOA.

K IN G S B E N C H 1938 w. TATEM, V.

GAMBOA.

Goddard J.

I V I SI O N .

[1939]

would hes itate, after th e c ha rter h ad come to an end, to seize and detain a British ship which had no contraband on boa rd an d which, after the period for which it was ch artered would be mo st unlikely to be engaged in the work, however hum anitarian it may ha ve been, of evacuating civil population. The shipowners having got the month's hire in their pockets would not be at all concerned what the fate of the ship might be during the charter, though what the fate of the ship might be after the charter was anothe r atte r. ut I do not think that these are matters which I have to consider, because in considering the doctrine of frustration these questions, in my opinion, do not arise. I will assume that the parties contemplated that the ship ight be seized an d de taine d as she wa s. t is difficult to reconcile all the judgm ents an d speeches which hav e been ma de on this difficult subject of frustration, which was very little discussed in the books before the wa r. here are the well Caldwell ( 1 ) ; Jackson Union known cases of Taylor arine Insurance Co., Ld. ( 2 ) ; t h e Coronation seats c a s e s ; a n d

so forth. ut no one would contend th at until the war th subject of frustration often came before the Courts, and the development of the doctrine of frustration occurred through the many incidents which happened in the course of the war. Most of it is modern, and indeed its whole history may be said to be found in the various judg ents which have been delivered since 1916, to most of which reference has been made in the course f the argu ent. hate ver be the true doctrine frustration, I prefer, if I may, to rely on the passage in Lord Haldane's speech in F. A. Tam plin Steamship Co., Ld. Anglo-Mexican Petroleum Products Co., Ld. (3), which was quoted by Lord Sumner in Larrinaga & Co., Ld. SociiU Franco-A miricaine des Phospha tes de idulla, Paris. (4) ord Sumner first said : "S o far as the ships are concerned, "th is s not a contract de certo corpore at all." I read th at because the present case seems to me to be eminently one de certo corpore. he certum corpus is this pa rticula r ship, 1) 3 . & S: 826. 2) . R 10 C. . 125.

(3) ti9i6] 2 A. C. 397. 4° - 4°7(4) 39 Times L. R. 316, 321.

1 K. B.

K I NG S B E N C H

IVISI N.

ord Sum ner Molton, cha rtered for a par ticula r service. continued : "N or can it be said tha t " he then quoted L ord Haldane—"' the foundation of what the parties are deemed to '" e h ad in contemplation has disappeared and the ' con tract itself has vanished with the fou ndation.' " ha seems to me to be the surest groun d on which to rest the doctrine of frustration, and I prefer it to founding it on implied term s. Viscount Fin lay said words to the same effect in Larrinaga & Co., Ld. Sociiti Franco) : "W he Am dricaine des Phospha tes de idulla, Paris "certain risks are foreseen the contract may contain conditions "providing that in certain events the obligation shall cease o exist. ut even when the re is no express condition in "the contract, it may be clear that the parties contracted on "the basis of the continued existence of a certain state of "facts, and it is with reference to cases alleged to be of this "k ind th at the doctrine f 'f ru st ra ti ' s most frequently "inv ok ed. If the contrac t be one which or its performance "depends on the continued existence of certain buildings or "other premises, it is an implied condition that the premises "should continue to be in existence, and their total destruction "by fire without fault on the part of those who have entered "i nt o the con tract will be a good defence. Such a con tract "does not as a matter of law imply a warranty that the "buildings or other property shall continue to exist." Sir Robert Aske meets this point by saying there cannot be frustration where the circumstances must have been contemplated by the parties. y " circu stanc es" I mean circumstances which are afterwards relied on as frustrating the con tract. t is true th at in any of the cases there i found th e expression " unforeseen circum stanc es," a nd it is argued th at " unforeseen circumstances " ust ean circum stances which could not have been foreseen. ut it seems to me, with respect, that, if the true doctrine be that laid down by ord Haldane , frustration depends on the absolute disappearance f the co ntr ac t; or, if the true basis be, as ord Finla y put it, " the continued exis"te nc e f a certain sta te f fac ts," it ma kes very little (1) 39 Times L. R. 316, 318.

1938

W. J.

TATEM.

v.

GAMBOA.

Goddard J.

KING S BENCH

1938

w. j.

TATEM, V.

GAMBOA. Goddarrt J.

[1939]

DIVISIO N.

difference heth er th e circum stance s are foreseen or no t. If th e foundation f the con tract goes, it goes hether or n ot the parties have ma de a provision for it. he pa rties may make provision about what is to happen in the event of this destruction taking place, but if the true foundation of the doctrine is that once the subject-matter of the contract is destroyed, or the existence of a certain state of facts has come to an end, the contract is at an end, that result follows whether or not the event causing it was contemplated by the parties. It seems to me, therefore, that when one uses the expression "unforeseen circumstances " in relation to the frustration of the performance of a contract one is really dealing with circumstances which are unprovided for, circumstances for which (and in the case of a written contract one only has to look at the document) the contract makes no provision. In support of that I think I need only further refer to the words of Lord Haldane in the Tamplin case (1), which were cited by Pickford L.J. in Countess of W arwick Steamship Co. ) Pickford .J. sa id Le N ickel SocUU Anonyme. "Putting it in other words, does it come within the doctrine "laid down by Lord Haldane early in his judgment in Tamplin "Steamship Co. Anglo-Mexican Petroleum Products Co. (1) in "th es e words : ' hen people ente r into a con tract which i "'dependent for the possibility of its performance on the ' continued availability f a spec fic thing, and th at ava ilability "'comes to an end by reason of circumstances beyond the "' control of the parties, the contract is prima facie regarded s dissolved. he contingency which has arisen s treated "'in the absence of a contrary intention made plain, as being ' one about which no bargain at all was ade. he principle "'applies equally whether performance of the contract has t commenced or has in part taken place. here ay b "'included in the terms of the contract itself a stipulation "' which provides for the merely partial or temporary suspen'" sion of certain of its obligations, should some event (such, "' for instance, as in the case of the charterparty under con' sideration, restra int f princes) so hap pen as to impede (i)[i9i6] 2 A.

.

, 4°6.

(2) [191 8] 1

.

. 37 2, 37 6.


1 E. B. performance.

139

In that case the question arises whether

e event which has actually made the specific thing "'longer available for performance is such that it can be '"regarded as being of a nature sufficiently limited to fall within the suspensory stipulation, and to admit of the contract being deemed to have provided for it and to have n intended to continue for other purposes.

lthough

the words of the stipulation may be such that the mere letter would describe what has occurred, the occurrence itself may yet be of a character and extent so sweeping t the foundation of what the parties are deemed to have had in contemplation has disappeared, and the contract "'itself

has vanished with that

foundation.'"

I

regard

the learned Lord as saying there that, unless the contrary intention is made plain, the law imposes this doctrine of frustration in the events which have been described.

If the

foundation of the contract goes, either by the destruction of the subject-matter or by reason of such long interruption or delay th t the performance is really in ffect th at

f a different

contract, and the parties have not provided what in that event is to happen, the performance of the contract is to be regarded as frustrated. To the same effect, I think, are the cases which deal with this doctrine in relation to the requisitioning of ships.

When

the war had proceeded but a very short time the Admiralty Requisitioning Board was set up.

Ships were requisitioned

freely, and I suppose it is not putting it too high to say th at no shipowner knew when his ship would be requisitioned. Accordingly, one finds, for instance, in Bank Line, Ld. v. Arthur Capel & Co. (1) that the charterparty actually provided

for requisition.

It provided that the charterers were to hav

the option of cancelling the charterparty should the steamer be commandeered by the Government during the charter, and yet for reasons which appear in the speeches in the House of Lords it was held that it did not prevent the doctrine of frustration

f performance applying.

t seems to me that

the parties must have had before them the possibility, or the (1 [1919] A. C. 435.

1938

W. J.

TATEM, v.

GAMBOA. Goddard J.

KING S

140

1938

w. j. TATEM, V.

GAMBOA. Goddard J.

BE NCH

DIVISIO N.

[1939]

probability if you will, requisition every bit as m u c h th parties had of seizure in this case. think, therefore, that that case an other cases, fo example, the two cases which were tried togeth er, Anglo-Northern Trading Co. v. Emlyn Jones Williams an Countess of Warwick Steamship Co. v. charterLe Nickel Sociiti Anonyme (1), which w ere also cases parties made after th outbreak of war, show in effect that, although th parties may have had or must be deemed to have had the m a t t e r in contemplation, th doctrine frustration is not prevented from applying. To apply th doctrine as I understand it to this case, wh at do we find ? We find that there is a charter for a month only, charter at very high rate freight. lthough it is a time charter, th limits in which it is to trade are very narrow— from the northern ports in the hands of the Republican Government Spain to ports in France—and th specific purpose of the charter is made plain. It is the evacuation of th civil population from north Spain. must be obvious, therefore, that th foundation that contract was destroyed as soon as the insurgent war vessel ha seized th ship, which it did after it had performed one voyage an when th period No more could be done of th charter had but half expired. with th ship. The owners were unable to leave it under th control of the charterer. The charterer was unable to m a k e se of it or to return it to the owneis. The charterer ad paid his month's hire, an t h a t he not only cannot get back but does no seek to get back. In my opinion, th performance of the charter was frustrated from th time of the seizure, an consequently th reasoning of the cases to which I have referred applies. It follows from that that there must be judgment for the defendant, with costs. Judgment for the defendant.

Solicitors fo plaintiffs Sinclair, Roche Vaughan Roche, Cardiff. Solicitors fo defendant: Fetch & Co.

Temperley, for

(1) [1918] 1 K. B. 372. G. F. L. B.

Page1

*310

Taylor and Another v Caldwell and Another 6 May 1863

(1863) 3 Best and Smith 826 122 E.R. 309 1863 [826] Wednesday, May 6th, 1863.—Contract. Accidental destruction of the subject-matter. Demise or agreement for demise.—1. Where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible.—2. But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied.—3. Where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.—4. A. agreed with B. to give him the use of a Music Hall on certain specified days, for the purpose of holding concerts, with no express stipulation for the event of the destruction of the Music Hall by fire: held, that both parties were excused from performance of the contract.—5. An instrument is not a demise, although it contains the usual words of demise, if its contents shew that such was not the intention of the parties. [S. C. 32 L. J. Q. B. 164; 8 L. T. 356; 11 W. R. 726. Followed, Appleby v. Meyers , 1867, L. R. 2 C. P. 660. Principle applied, Boast v. Firth , 1868, L. R. 4 C. P. 8. Distinguished, Gamble v. Accident Life Insurance Company , 1870, Ir. R. 4 C. L. 204. Followed, Robinson v. Davison , 1871, L. R. 6 Ex. 275. Referred to, Jackson v. Union Marine Insurance Company , 1874, L. R. 10 C. P. 141. Followed, Howell v. Coupland , 1876, 1 Q. B. D. 258. Applied, In re Arthur , 1880, 14 Ch. D. 608. Distinguished, Marshall v. Schofield , 1882, 52 L. J. Q. B. 60. See Chapman v. Withers , 1888, 20 Q. B. D. 824. Referred to, Grove v. Johnston , 1889, 24 L. R. Ir. 358. Distinguished, Turner v. Goldsmith , [1891] 1 Q. B. 549. Referred to, In re Jamieson and Newcastle Steamship Freight Insurance Association , [1895] 1 Q. B. 515; [1895] 2 Q. B. 90. Followed, Nicholl v. Ashton , [1901] 2 K. B. 126. Referred to, Elliott v. *311 Crutchley , [1903] 2 K. B. 479; [1904] 1 K. B. 565; [1906] A. C. 7. Distinguished, Herne Bay Steamboat Company v. Hutton , [1903] 2 K. B. 689. Applied, Krell v. Henny , [1903] 2 K. B. 740. Discussed, Blakeley v. Muller , [1903] 2 K. B. 760 ( n ). Applied, Civil Service Cooperative Society v. General Steam Navigation Company , [1903] 2 K. B. 764; Chandler v. Webster , [1904] 1 K. B. 497. Referred to, In re Hull and Meux's Arbitration , [1905] 1 K. B. 590.] The declaration alleged that by an agreement, bearing date the 27th May, 1861, the defendants agreed to let, and the plaintiffs agreed to take, on the terms therein stated, The Surrey Gardens and Music Hall, Newington, Surrey, for the following days, that is to say, Monday the 17th June, 1861, Monday the 15th July, 1861, Monday the 5th August, 1861, and Monday the 19th August, 1861, for the purpose of giving a series of four grand concerts and day and night fêtes, at the Gardens and Hall on those days respectively, at the rent or sum of 1001. for each of those days. It then averred the fulfilment of conditions &c., on the part of the plaintiffs; [827] and breach by the defendants, that they did not nor would allow the plaintiffs to have the use of The Surrey Music Hall and Gardens according to the agreement, but wholly made default therein, &c.; whereby the plaintiffs lost divers moneys paid by them for printing advertisements of and in advertising the concerts, and also lost divers sums expended and expenses incurred by them in preparing for the concerts and otherwise in relation thereto, and on the faith of the performance by the defendants of the agreement on their part, and had been otherwise injured, &c. Pleas. First. Traverse of the agreement. Second. That the defendants did allow the plaintiffs to have the use of The Surrey Music Hall and

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Gardens according to the agreement, and did not make any default therein, &c. Third. That the plaintiffs were not ready or willing to take The Surrey Music Hall and Gardens. Fourth. Exoneration before breach. Fifth. That at the time of the agreement there was a general custom of the trade and business of the plaintiffs and the defendants, with respect to which the agreement was made, known to the plaintiffs and the defendants, and with reference to which they agreed, and which was part of the agreement, that in the event of the Gardens and Music Hall being destroyed or so far damaged by accidental fire as to prevent the entertainments being given according to the intent of the agreement, between the time of making the agreement and the time appointed for the performance of the same, the agreement should be rescinded and at an end; and that the Gardens and Music Hall were destroyed and so far damaged by accidental fire as to prevent the entertainments, or any [828] of them, being given, according to the intent of the agreement, between the time of making the agreement and the first of the times appointed for the performance of the same, and continued so destroyed and damaged until after the times appointed for the performance of the agreement had elapsed, without the default of the defendants or either of them. Issue on all the pleas. On the trial, before Blackburn J., at the London Sittings after Michaelmas Term, 1861, it appeared that the action was brought on the following agreement:— “Royal Surrey Gardens, “27th May, 1861. “Agreement between Messrs. Caldwell & Bishop, of the one part, and Messrs. Taylor & Lewis of the other part, whereby the said Caldwell & Bishop agree to let, and the said Taylor & Lewis agree to take, on the terms hereinafter stated, The Surrey Gardens and Music Hall, Newington, Surrey, for the following days, viz.:— “Monday, the

17th June; 1861,

„

„

15th July, 1861,

„

„

5th August, 1861,

„

„

19th August, 1861,

for the purpose of giving a series of four grand concerts and day and night fêtes at the said Gardens and Hall on those days respectively at the rent or sum of 1001. for each of the said days. The said Caldwell & Bishop agree to find and provide at their *312 own sole expense, on each of the aforesaid days, for the amusement of the public and persons then in the said Gardens and Hall, an efficient and organised military and quadrille band, the united bands to consist of from thirty-five to forty members; al fresco entertainments of various descriptions; coloured min- [829] -strels, fireworks and full illuminations; a ballet or divertissement, if permitted; a wizard and Grecian statues; tight rope performances; rifle galleries; air gun shooting; Chinese and Parisian games; boats on the lake, and (weather permitting) aquatic sports, and all and every other entertainment as given nightly during the months and times above mentioned. And the said Caldwell & Bishop also agree that the before mentioned united bands shall be present and assist at each of the said concerts, from its commencement until 9 o'clock at night; that they will, one week at least previous to the above mentioned dates, underline in bold type in all their bills and advertisements that Mr. Sims Reeves and other artistes will sing at the said gardens on those dates respectively, and that the said Taylor & Lewis shall have the right of placing their boards, bills and placards in such number and manner (but subject to the approval of the said Caldwell & Bishop) in and about the entrance to the said gardens, and in the said grounds, one week at least previous to each of the above mentioned days respectively, all bills so displayed being affixed on boards. And the said Caldwell & Bishop also agree to allow dancing on the

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new circular platform after 9 o'clock at night, but not before. And the said Caldwell & Bishop also agree not to allow the firework display to take place till a ¼ past 11 o'clock at night. And, lastly, the said Caldwell & Bishop agree that the said Taylor & Lewis shall be entitled to and shall be at liberty to take and receive, as and for the sole use and property of them the said Taylor & Lewis, all moneys paid for entrance to the Gardens, Galleries and Music Hall and firework galleries, and that the said Taylor & Lewis may in their own discretion secure the patronage of any [830] charitable institution in connection with the said concerts. And the said Taylor & Lewis agree to pay the aforesaid respective sum of 1001. in the evening of the said respective days by a crossed cheque, and also to find and provide, at their own sole cost, all the necessary artistes for the said concerts, including Mr. Sims Reeves, God's will permitting. (Signed) “ J. Caldwell . “Witness (Signed)

“ Chas. Bishop . “S. Denis.”

On the 11th June the Music Hall was destroyed by an accidental fire, so that it became impossible to give the concerts. Under these circumstances a verdict was returned for the plaintiff, with leave reserved to enter a verdict for the defendants on the second and third issues. Petersdorff Serjt., in Hilary Term, 1862, obtained a rule to enter a verdict for the defendants generally. The rule was argued, in Hilary Term, 1863 (January 28th); before Cockburn C.J., Wightman, Crompton and Blackburn JJ. H. Tindal Atkinson shewed cause.—First. The agreement sued on does not shew a “letting” by the defendants to the plaintiffs of the Hall and Gardens, although it uses the word “let,” and contains a stipulation that the plaintiffs are to be empowered to receive the money at the doors, and to have the use of the Hall, for which they are to pay 1001., and pocket the surplus; for the possession is to remain in the defendants, and the whole tenor of the instrument is against the notion of a letting. Whether an instrument shall be construed as a lease or [831] only an agreement for a lease, even though it contains words of present demise, depends on the intention of the parties to be collected from the instrument; Morgan d. Dowding v. Bissell (3 Taunt. 65). Christie v. Lewis (2 B. & B. 410) is the nearest case to the present, where it was held that, although a charter party between the owner of a ship and its freighter contains words of grant of the ship, the possession of it may not pass to the freighter, but remain in the owner, if the general provisions in the instrument qualify the words of grant. Secondly. The destruction of the premises by fire will not exonerate the defendants rom performing their part of the agreement. In Paradine v. Jane (Al. 26) it is laid down that, where the law creates a duty or charge, and the party is disabled to perform it without any default in him, and hath no remedy over, there the law will excuse him; but when the party, by his own contract, creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. *313 And there accordingly it was held no plea to an action for rent reserved by lease that the defendant was kept out of possession by an alien enemy whereby he could not take the profits. Pearce, in support of the rule.—First. This instrument amounts to a demise. It uses the legal words for that purpose, and is treated in the declaration as a demise. Secondly. The words “God's will permitting” override the whole agreement. Cur. adv. vult. [832] The judgment of the Court was now delivered by Blackburn J. In this case the plaintiffs and defendants had, on the 27th May, 1861, entered into a contract by which the defendants agreed to let the plaintiffs have the use of The Surrey Gardens and Music Hall on four days then to come, viz., the 17th June, 15th July, 5th August and 19th August, for the purpose of giving a series of four grand concerts, and day and night fêtes at the Gardens and Hall on those days respectively; and the plaintiffs agreed to take the Gardens and Hall on those days, and pay 1001. for each day.

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The parties inaccurately call this a “letting,” and the money to be paid a “rent;” but the whole agreement is such as to shew that the defendants were to retain the possession of the Hall and Gardens so that there was to be no demise of them, and that the contract was merely to give the plaintiffs the use of them on those days. Nothing however, in our opinion, depends on this. The agreement then proceeds to set out various stipulations between the parties as to what each was to supply for these concerts and entertainments, and as to the manner in which they should be carried on. The effect of the whole is to shew that the existence of the Music Hall in the Surrey Gardens in a state fit for a concert was essential for the fulfilment of the contract,—such entertainments as the parties contemplated in their agreement could not be given without it. After the making of the agreement, and before the first day on which a concert was to be given, the Hall was destroyed by fire. This destruction, we must take it on the evidence, was without the fault of either party, and was so complete that in consequence the concerts [833] could not be given as intended. And the question we have to decide is whether, under these circumstances, the loss which the plaintiffs have sustained is to fall upon the defendants. The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it, so that the answer to the question must depend upon the general rules of law applicable to such a contract. There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible. The law is so laid down in 1 Roll. Abr. 450, Condition (G), and in the note (2) to Walton v. Waterhouse (2 Wms. Saund. 421 a. 6th ed.), and is recognised as the general rule by all the Judges in the much discussed case of Hall v. Wright (E. B. & E. 746). But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied: and there are authorities which, as we think, establish the principle that where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied con- [834] -dition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor. There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract. For in the course of affairs men in making such contracts in general would, if it were brought to their minds, say that there should be such a condition. Accordingly, in the Civil law, such an exception is implied in every obligation of the class which they call obligatio de certo corpore. The rule is laid down in the Digest, lib. XLV., tit. 1, de verborum obligationibus, 1. 33. “Si Stichus certo die dari *314 promissus, ante diem moriatur: non tenetur promissor.” The principle is more fully developed in 1. 23. “Si ex legati causa, aut ex stipulatû hominem certum mihi debeas: non aliter post mortem ejus tenearis mihi, quam si per te steterit, quominus vivo eo eum mihi dares: quod ita fit, si aut interpellatus non dedisti, aut occidisti eum.” The examples are of contracts respecting a slave, which was the common illustration of a certain subject used by the Roman lawyers, just as we are apt to take a horse; and no doubt the propriety, one might almost say necessity, of the implied condition is more obvious when the contract relates to a living animal, whether man or brute, than when it relates to some inanimate thing (such as in the present case a theatre) the existence of which is not so obviously precarious as that of the live animal, but the principle is adopted in the Civil law as applicable to every obligation of which the subject is a certain thing. The general subject is treated of by Pothier, who in his Traité des Obligations, partie 3, chap. 6, art. 3, [835] § 668 states the result to be that the debtor corporis certi is freed from his obligation when the thing has perished, neither by his act, nor his neglect, and before he is in default, unless by some stipulation he has taken on himself the risk of the particular misfortune which has occurred. Although the Civil law is not of itself authority in an English Court, it affords great assistance in investigating the principles on which the law is grounded. And it seems to us that the common law authorities establish that in such a contract the same condition of the continued existence of the thing is implied by English law.

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There is a class of contracts in which a person binds himself to do something which requires to be performed by him in person; and such promises, e.g. promises to marry, or promises to serve for a certain time, are never in practice qualified by an express exception of the death of the party; and therefore in such cases the contract is in terms broken if the promisor dies before fulfilment. Yet it was very early determined that, if the performance is personal, the executors are not liable; Hyde v. The Dean of Windsor (Cro. Eliz. 552, 553). See 2 Wms. Exors. 1560, 5th ed., where a very apt illustration is given. “Thus,” says the learned author, “if an author undertakes to compose a work, and dies before completing it, his executors are discharged from this contract: for the undertaking is merely personal in its nature, and, by the intervention of the contractor's death, has become impossible to be performed.” For this he cites a dictum of Lord Lyndhurst in Marshall v. Broadhurst (1 Tyr. 348, 349), and a case mentioned by Patteson J. in Wentworth v. Cock (10 A. & E. 42, 45-46). [836] In Hall v. Wright (E. B. & E. 746, 749), Crompton J., in his judgment, puts another case. “Where a contract depends upon personal skill, and the act of God renders it impossible, as, for instance, in the case of a painter employed to paint a picture who is struck blind, it may be that the performance might be excused.” It seems that in those cases the only ground on which the parties or their executors, can be excused from the consequences of the breach of the contract is, that from the nature of the contract there is an implied condition of the continued existence of the life of the contractor, and, perhaps in the case of the painter of his eyesight. In the instances just given, the person, the continued existence of whose life is necessary to the fulfilment of the contract, is himself the contractor, but that does not seem in itself to be necessary to the application of the principle; as is illustrated by the following example. In the ordinary form of an apprentice deed the apprentice binds himself in unqualified terms to “serve until the full end and term of seven years to be fully complete and ended,” during which term it is covenanted that the apprentice his master “faithfully shall serve,” and the father of the apprentice in equally unqualified terms binds himself for the performance by the apprentice of all and every covenant on his part. (See the form, 2 Chitty on Pleading, 370, 7th ed. by Greening.) It is undeniable that if the apprentice dies within the seven years, the covenant of the father that he shall perform his covenant to serve for seven years is not fulfilled, yet surely it cannot be that an action would lie against the father? Yet the only reason why it would not is that he is excused because of the apprentice's death. [837] These are instances where the implied condition is of the life of a human being, but there are others in which the same implication is made as to the continued existence of a thing. For example, where a contract of sale is made amounting to a bargain and sale, transferring presently the property in specific chattels, which are to *315 be delivered by the vendor at a future day; there, if the chattels, without the fault of the vendor, perish in the interval, the purchaser must pay the price and the vendor is excused from performing his contract to deliver, which has thus become impossible. That this is the rule of the English law is established by the case of Rugg v. Minett (11 East, 210), where the article that perished before delivery was turpentine, and it was decided that the vendor was bound to refund the price of all those lots in which the property had not passed; but was entitled to retain without deduction the price of those lots in which the property had passed, though they were not delivered, and though in the conditions of sale, which are set out in the report, there was no express qualification of the promise to deliver on payment. It seems in that case rather to have been taken for granted than decided that the destruction of the thing sold before delivery excused the vendor from fulfilling his contract to deliver on payment. This also is the rule in the Civil law, and it is worth noticing that Pothier, in his celebrated Traité du Contrat de Vente (see Part. 4, § 307, &c.; and Part. 2, ch. 1, sect. 1, art. 4, § 1), treats this as merely an example of the more general rule that every obligation de certo corpore is extinguished when the thing ceases to exist. See Blackburn on the Contract of Sale, p. 173. The same principle seems to be involved in the [838] decision of Sparrow v. Sowgate (W. Jones, 29), where, to an action of debt on an obligation by bail, conditioned for the payment of the debt or the render of the debtor, it was held a good plea that before any default in rendering him the principal debtor died. It is true that was the case of a bond with a condition, and a distinction is sometimes made in this respect between a condition and a contract. But this observation does not apply to Williams v. Lloyd (W. Jones, 179). In that case the count, which was in assumpsit, alleged that the plaintiff had delivered a horse to the defendant, who promised to redeliver it on request. Breach, that though requested to redeliver the horse he refused. Plea, that the horse was sick and died, and the plaintiff made the request after its death; and on demurrer it was held

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a good plea, as the bailee was discharged from his promise by the death of the horse without default or negligence on the part of the defendant. “Let it be admitted,” say the Court, “that he promised to deliver it on request, if the horse die before, that is become impossible by the act of God, so the party shall be discharged, as much as if an obligation were made conditioned to deliver the horse on request, and he died before it.” And Jones, adds the report, cited 22 Ass. 41, in which it was held that a ferryman who had promised to carry a horse safe across the ferry was held chargeable for the drowning of the animal only because he had overloaded the boat, and it was agreed that notwithstanding the promise no action would have lain had there been no neglect or default on his part. It may, we think, be safely asserted to be now English law, that in all contracts of loan of chattels or bailments if the performance of the promise of the borrower or [839] bailee to return the things lent or bailed, becomes impossible because it has perished, this impossibility (if not arising from the fault of the borrower or bailee from some risk which he has taken upon himself) excuses the borrower or bailee from the performance of his promise to redeliver the chattel. The great case of Coggs v. Bernard (1 Smith's L. C. 171, 5th ed.; 2 L. Raym. 909) is now the leading case on the law of bailments, and Lord Holt, in that case, referred so much to the Civil law that it might perhaps be thought that this principle was there derived direct from the civilians, and was not generally applicable in English law except in the case of bailments; but the case of Williams v. Lloyd (W. Jones, 179), above cited, shews that the same law had been already adopted by the English law as early as The Book of Assizes. The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel. In the present case, looking at the whole contract, we find that the parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given; that being essential to their performance. *316 [840] We think, therefore, that the Music Hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the gardens and paying the money, the defendants from performing their promise to give the use of the Hall and Gardens and other things. Consequently the rule must be absolute to enter the verdict for the defendants. Rule absolute. © 2010 Sweet & Maxwell

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Tsakiroglou & Co Ltd v Noblee Thorl GmbH Albert D Gaon & Co v Societe Interprofessionelle des Oleagineux Fluides Alimentaires House of Lords 28 March 1961


[1962] A.C. 93; [1961] 2 W.L.R. 633; [1961] 2 All E.R. 179; [1961] 1 Lloyd's Rep. 329; (1961) 105 S.J. 346

Case Digest

Subject: Contracts Other related subjects: Shipping Keywords: CIF contracts; Frustration Summary: Frustration; Prohibition of use of normal route Abstract: In a c.i.f. contract the vendor is bound to procure the goods to be shipped by the route which is usual and customary at the date of the shipment or, if there is no such route, by a reasonable route. Such a contract will not be frustrated by the closure of the route customary at the date of contract if a reasonable route remains open. A contract for the sale of Sudanese groundnuts c.i.f. Hamburg was made at a time when the customary route from the Sudan to Hamburg was via the Suez Canal. The Suez Canal being closed at the date for shipment the sellers refused to ship the nuts. To ship them via the Cape would have cost the sellers a 100 per cent increase in freightage. Held, the contract was not frustrated. Johnson v Taylor Bros & Co Ltd [1920] A.C. 144 HL applied; and Arbitration between Comptoir Commercial Anversois and Power Son & Co, Re [1920] 1 K.B. 868 CA applied; Arbitration between L Sutro & Co and Heilbut Symons & Co, Re [1917] 2 K.B. 348 CA considered; Societe Franco-Tunisienne d'Armement-Tunis v Sidermar SpA [1961] 2 Q.B. 278 QBD (Comm) distinguished; Carapanayoti & Co v ET Green Ltd [1959] 1 Q.B. 131 QBD overruled.

Judge: Viscount Simonds

Appellate History

Queen's Bench Division (Commercial Court) Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1959] 2 W.L.R. 179; [1959] 1 All E.R. 45; [1958] 2 Lloyd's Rep. 515; (1959) 103 S.J. 112

Affirmed by Court of Appeal Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1960] 2 Q.B. 318; [1960] 2 W.L.R. 869; [1960] 2 All E.R. 160; [1960] 1 Lloyd's Rep. 349; (1960) 104 S.J. 426

Affirmed by House of Lords Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] A.C. 93; [1961] 2 W.L.R. 633; [1961] 2 All E.R. 179; [1961] 1 Lloyd's Rep. 329; (1961) 105 S.J. 346

10 Doctrine of Frustration

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