10 Doctrine of Frustration

LawofContractKDUOBU
Doctrineof Frustration
Thistopiccoverscontractswherethesubjectmatterorcircumstances surroundingthecontracthasmadeitimpossibleforpartiestoperformtheir obligationsunderthecontract.Howeverthecourtsarereluctanttofind frustrationundercommonlawinsomecircumstances.Youwouldneedto explorethenatureandapplicationoffrustration.Inadditionyouhavetoattain understandingofthemethodsthecourtsusetoascertainwhetherthereis frustration.Finallyconsiderthewhathappensinselfinducedfrustration.Also determinehowthecourtsassessdamagesintheeventoffrustrationunder commonlawandLawReform(FrustratedContracts)Act1943.
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 Leightons 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 Lloyds 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 Lloyds 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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Doctrineof
Contractualfrustration
Introduction
Inthischapterwewillcover: 1. Whatisfrustration? 2. Wasthereradicalchangeinobligation? 3. Selfinducedfrustration 4. Effectsoffrustration 5. Commonlaw 6. LawReform(FrustratedContracts)Act1843
preparedbySriBalaMurugan
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Introduction
Keyconsideration:theapproachthelaw takeswhenmatterschangeaftercontract hasbeenconcluded Wherethechangeisdrastic the doctrineoffrustrationmayinvoked I.e thecontractshouldbebroughttoan endbecauseofthecircumstances
Introduction
TheDoctrineshouldnotbeinvoked lightly ithastheeffectofkillingthecontract and dischargepartiesfromtheirobligations seeJ.Lauritzen A.S.vWijsmuller B.V. (TheSuperServantTwo)[1990]1Lloyds Rep1
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Introduction
Commentaryonthedevelopmentof frustrationseeparas 17 2 17 5 f t ti 17.2 17.5,pg353, 353 OSullivan&Hilliard Seethefollowingcasesforanideaofthe judicialattitudeatthetime:
Paradine v Jane (1646) 82 ER 897 vJane(1646)82ER897 GreatPeaceShippingLtdvTsavliris Salvage (International)Ltd[2002]EWCACiv 1407
Thecurrenttestforfrustration
DavisContractorsLtdvFareham UDC[1956] AC696 frustrationoccurswhen: AC 696 f t ti h
Withoutfaultofeitherparty Contractualobligation incapableofbeing performed Circumstancesinwhichperformanceiscalledfor renderitradicallyathing Differentfromthatwhichwasundertaken originally(significantchangeinobligation)
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AdditionalrequirementtoDaviscase:
Th Thecontractdoesnotdealproperlyoratallwith t td td l l t ll ith happensintheeventoffrustration Forifthecontractdoesdealwithsuchmatters thenonewouldbeprecludedfromclaiming frustration
See: JosephConstantineSSLineLtdvImperial SmeltingCorpLtd[1942]AC154 GreatPeacecase
Thetestforfrustration
Thetesthas3elements: 1. Radicalchangeinobligation contractmust 1 R di l h i bli ti t t t notdistributetheriskoftheeventoccurring and 2. theoccurrencemustbethefaultofeither party 3. Doesthecontractprovideforwhathappens inviewofthefrustratingevent?Ifyesthen thereisnoroomforthedoctrine viceversa
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Seethefollowingcasesforillustration: Ogilvy & Mather Ltd v Silverado Blue Ltd [2007] Ogilvy&MatherLtdvSilveradoBlueLtd[2007] EWHC875 NationalCarriersLtdvPanalpina (Northern)Ltd [1981]AC675 GreatPeaceCase Whatcouldyouobserveaboutthejudicialattitudes inthesecases? SeecommentarybyOSullivan&Hilliard,para 17.7 17.8,pg354 355
Wasthereradicalchangeinthe obligation?
1. Non occurrence of event Nonoccurrenceofevent 2. Destructionofcontractualsubjectmatter 3. IncreasedExpense 4. Forcedalterationinthemannerofperformance 5. Illegality 6. Theoutbreakofwar 8. Delayortemporaryinterruption 8 D l i i 9. Contractsforpersonalservices 10. Therelevanceofforeseeability
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Nonoccurrenceofevent
Mostchallengingofothergroundsunder frustration f t ti Analysisoftwoclassiccasesrequiredto providefoundationtothisarea Thecases: Krell v Henry [1903] 2 KB 740 vHenry[1903]2KB740 HerneBaySteamshipCovHutton[1903]2 KB683
Krell vHenry Facts:
Contract(20/6/1902)defendantagreedtohire claimantaflatinPallMallfor2627June Coronationprocesswastotakeplaceonthose datesandpassalongtheflat(goodview) Contract Defendantonlytouseduringdaynot night i h Depositwaspaid Kingbecameillprocessiondidnottakeplace Defrefusedtopayoutstanding
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CourtofAppeal: f l Heldthattheprocessiontakingplacealong theflatwasthefoundationofthecontract Thecontractwasfrustratedandthedefdid notneedtopay not need to pay
Reasoning(VaughanWilliamsLJ): Theroomwasletforaspecificpurpose Thiswasthefoundationofthecontract Thepurposehadnottakenplace(notby parties fault) partiesfault) Thecontractwasfrustrated
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Reasoning(VaughanWilliamsLJ): Distinguished from a hypothetical scenario Distinguishedfromahypotheticalscenario cabman IfapassengerengagedacabtogotoEpsomon DerbyDayataprice,thecontractwouldnotbe frustratedjusttheracegotcancelledforsome reason Thecabhadnospecialqualificationthatmade himuniqueforthepurposewhichcanbe distinguishedfromKrells case
ProblemwithKrells case difficultto distinguishinpractice.See: di ti i hi ti S HerneBayStemship Larringa &CoLtdvSociete Franco Americanae desPhosphatesdeMedulla,Paris (1923)39TLR316 (1923) 39 TLR 316 MaritimeNationalFishLtdvOceanTrawlers Ltd[1935]AC524
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NonoccurrenceoftheEvent
AnalysisofKrell case: Th ThereasonforwhichAentersintothe f hi h A t i t th contractisnotthebusinessofB HenceifAmakesabadbargain,Ashouldbear therisk needaverygoodreasontoshiftrisk EvenifAmakesawrongassumptionoffact existingunderthecontract,andBknowsthis, itisnotenoughtodischargeoneselffromthe contract
AnalysisofKrell Case sowhatelseisneeded?
Krell entersinto contractwithhotel
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AnalysisofKrell Case sowhatelseisneeded? WhatsHisPurpose? Toseethecoronation procession
AnalysisofKrell Case sowhatelseisneeded?
WhypickthisHotel? yp Theyadvertisedthattheywere lettingroomsspecificallyforthe coronation sellingtheview
Onlyrentedtherooms for thedayduringthe procession purpose wasveryspecific knowntobothparties
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NonOccurrenceoftheEvent
AnalysisofKrell Case sowhatelseisneeded? K ll did t hi th Krell didnothiretheroomforordinaryuse. f di Thiswasthedistinguishingfactorbetweenthe badbargaininthecabscenarioandKrells case HencethedecisioninKrell wassoundon analysis l i ForfullanalysisofKrell andHenryseeparas 17.11 17.19,pgs355to358,OSullivan& Hilliard
SecondcasetoanalysethecaseofHerneBay SteamshipCovHutton Steamship Co v Hutton Facts:
CandDcontractedtheuseoftheCssteamship foratourofthenavalfleeton28June1902 Thetourwasarrangedfornavalreviewofthefleet Th D h d id d TheDhadpaidadepositof50for250fare it f 50 f 250 f Thereviewwascancelled OnJune25thereviewwasofficiallycancelled
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Facts(cont):
ThiswasnotmadeknowntotheCandcontract wasrepudiatedon29June On28JunesincetheChadnotheardfromtheDs theyusedthesteamshipandmadeaprofit NowtheCsareclaimingtheamountduetothem fromtheDsminustheprofitsmade
CourtofAppeal(samecompositionasKrell case): ) Hiringoftheshipwasthedefendantsventure RiskofthingsnotgoingasplannedistheDs riskalone Contract not frustrated and C was able to ContractnotfrustratedandCwasableto claimtheamountowingminusprofit
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Analysis: Thehappeningofnavalreviewwasnotthe foundationofthecontractascontemplatedby bothparties MeaningthattheCofferedservicesspecifically fornavalreviewandthiswasacceptedbytheDs whohadthesamepurposeinmind SeecommentarybyOSullivan&Hilliardatparas 17.2017.22,pgs358to359
Keypointstonotehere: I Inorderforcontracttobefrustratedunder d f t tt b f t t d d thishead,mustlookattheassumptionsof bothparties Wasthecontractmadeontheassumptionof bothpartiesthatwasthesamething? Notenoughthatonepartysmotivesare disappointedorthattheotherknowsofthe motives theseareirrelevantfacts
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Destructionofthesubjectmatterof thecontract
Extremescenario thesubjectmatterofthe contracthasbeenfrustrated t th b f t t d SeecaseofTaylorvCaldwell[186173]AllER Rep24
Destructionofthematterofthe contract
TaylorvCaldwell Facts:
Dagreedtohireoutpremisestotheclaimantfor stagingaperformance Premisesburntdownthenextdaybefore performancecouldtakeplace ClaimantarguedthattheDwasinbreachof contract
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Destructionofthematterofthe contract
TaylorvCaldwell Held(perBlackburnJ):
Partiescontractedonthebasisthatthevenueexisted Sincethevenuedidnotexistnow,thecontractwas frustrated
SeeasimilarcasewheretheCagreedtoerect machineryonDpremisesbutthepremisesand machinerywasdestroyed contractfrustrated (ApplebyvMyers(1867)LR2CP651)
Increasedexpense
Justbecauseacontractbecomesmore expensive NOfrustration expensive NO frustration DavisContractorsLtdvFareham UDC
Davisagreedtobuild78housesfor94,000 Workwastobecompletedin8months Workactuallytook22monthsandadditionalcost of17,000 f 17 000 Davisclaimedthatthecontractshouldbe dischargedandpaidareasonablesumforthe workthatwasdone
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Increasedexpense
Held:
Th f Thefactsthatperformancehadbecomemore h f h db onerousisnotsufficientreasontofrustratecontract SimilarreasoninguseasKrell caseandHuttoncase,in thattheassumptionsofonepartyisnotthebusiness oftheother
Current state of the law is that increased expense Currentstateofthelawisthatincreasedexpense willneverfrustratethecontract seeTsakiroglou &CoLtdvNoblee Thorl GmbH[1962]AC93
ForcedAlterationofMannerof Performance
Iftheeventmerelypreventsaparty performingthecontractashewantedto NO f i th t t h t d t NO frustration Itishisbusinesshowheperformsthecontract SeethecaseofBlackburnBobbinCoLtdv Allen(T.W)&SonsLtd[1918]2KB467 Allen (TW) & Sons Ltd [1918] 2 KB 467
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BlackburnBobbincase Facts SelleragreedtosupplyFinnishtimbertothe purchaser Outbreakofwarcutoffthesupplyform Finland Purchaser claimed breach of contract Purchaserclaimedbreachofcontract Sellerdefendedandraisedfrustration
BlackburnBobbincase Decision Contractnotfrustrated Why?Sourceofsupplyimportanttosellernot tothepurchaseri.e.aslongashegothis Finnishtimberhewashappy See the view of Pickford LJ SeetheviewofPickfordLJ
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Illegality
Contractmaybefrustratedifitbecomesillegalto perform Howeverillegalitymusthaveseriousenough impactonthecontract Startingpoint:Partiesnormallyassumethat majorityofthecontractcanbeperformedi.e. legalperformanceisintheassumptionofthe parties SeeKrell caseandHuttonCase parties See Krell case and Hutton Case SeeCricklewood PropertyandInvestmentTrust LtdvLeightonsInvestmentTrustLtd[1945]AC 221
Theoutbreakofwar
OutbreakofWardoesaffectperformanceof contracts Whetheritwillfrustratethecontract dependsontheimpactonthecontract Ifitjustaffectsthewayinwhichcontractisto beperformedthenthereisNOfrustration SeethecaseofTsakiroglou &Cocase Alsoseethethe CommentarybyOSullivan& Hilliard,paras 17.2917.30,pg361362
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DelayorTemporaryInterruption
Whetherthisfrustratesacontractdependson thelengthofthedelayandthelengthofthe contract Problemforcontractingparties difficulttohave foresighthowlonginterruptionanddelaywilllast Partiesneedtoknowwhentowalkawayfrom thecontract Chitt ChittyonContracts:thedelaymustbeso C t t th d l tb abnormalinitscauseandeffectorexpected duration,sothatitfallsoutsidewhattheparties couldreasonablycontemplateatthetimeof contracting
SeethecaseofEdwinton Commercial CorporationvTsavliris Russ(Worldwide Salvage&Towage)Ltd(TheSeaAngel)[2007] 2LloydsRep517
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TheSeaAngel Facts Oil tanker sank near port of Karachi, Pakistan OiltankersanknearportofKarachi,Pakistan Causedmajorpollution DcontractedtosalvagevesselandcharteredTheSea AngelfromC Charterfor20days 20Augto9Sept PakistanportauthoritydidnotgiveclearanceforDto goin go in DhadtotakelegalproceedingsinPakistanandgotthe shipredelivered Cclaimedhirechargesintheamountof1.3mfomr SepttoJanforwhichtheshipwasused
TheSeaAngel Decision Darguedthatcontractwasfrustratedwhen portauthoritydidnotgiveclearance CAheldthatthecontractwasnotfrustrated Thedelaywasrelevantbutdidnotinterupt theheartofcontractualadventure the heart of contractual adventure Dmustpayhireuntilredelivery RiskoftheinterruptingeventisonD
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Contractforpersonalservices
Contractsforpersonalservicessuchas employmentcanbefrustrated l t b f t t d E.g.death,illnessandincapacity Relevantpoint bothpartiesassumethatone wouldbeoccasionallyillorincapacitated But there is also assumption that certain parts Butthereisalsoassumptionthatcertainparts ofthecontractcanbeperformed
Contractforpersonalservices
Mattersthatthecourtslookinto:
Howlongisthepersonunabletoperform Howlongwasthecontractfor Thetermsofthecontract
See the case of Marshall v Harland & Wolff Ltd SeethecaseofMarshallvHarland&WolffLtd [1972]2AllER715
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Therelevanceofforeseeability
Thefactsthatpartieshaveforeseentheevent, therecanbenofrustration there can be no frustration Easiestwaytoproveistolookatthetermsof thecontract Ifcontractdoesnotprovideeventhoughit wasforeseenthenthecourtswilldecidethat itwasthebusinessofoneparty it th b i f t Youknowhowthecourtsapproachthisissue NOFrustration
Someexceptionalcases Tatem vGamboa [1939]1KB132 [1939] 1 KB 132 Contractcanbefrustratedeveniftheparties contractedundertheassumptionoffrustrating event Reason:bothpartiescontractedonthebasisthat theshipwouldbeavailableforevacuation the ship would be available for evacuation Henceifbothpartiescontractonthebasisthat theeventwillnotoccurthencontractcanbe frustratedevenifeventwasforseeable
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Theissueforcourtstoconsider:
Whetheronepartyortheotherhasassumedthe riskoftheevent Treitel:Foreseeablity willsupporttheinferenceof riskassumptiononlywherethesuperveningevent isonewhichanypersonorordinaryintelligence wouldregardaslikelytooccur ld d lik l t
TheapproachwasapprovedbytheSeaAngel case
SelfInducedFrustration
Pointtonote,ifthepartyseekingtorelyon frustrationcausedthefrustration causefor f t ti d th f t ti f reliefislessstrong SeetheLordBinghamsviewintheSuper ServantTwo[1990]1LloydsRep1
The essence of frustration it should not be due Theessenceoffrustration itshouldnotbedue totheactorelectionofthepartyseekingtorely onit Thefrustratingeventmustbeanoutsideevent
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SeeGryfLowczowski vHinchingbrooke HealthcareNHSTrust[2005]EWHC2407 Healthcare NHS Trust [2005] EWHC 2407
Employmentcontract NHSTrustclaimedthattherewasfrustration becauseGL(asurgeon)didnotundergoare skillingplacementandunabletofindone It was found that NHS Trust prevented GL ItwasfoundthatNHSTrustpreventedG L obtainingtheplacement HenceNHSTrustwasnotallowedtoclaim contractfrustrated
SelfInducedFrustration Interestingcasesinthisareaare: MaritimeNationalFishLtdv OceanTrawlersLtd[1935]AC524 AND TheSuperServantTwoCase
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MaritimeNationalFishcaseFACTs: MNFcharteredatrawlersfromOTandfittedwith anottertrawl an otter trawl Usageofanottertrawlrequiredlicense MNFoperated5 3ofitsown,1fromOTand anotheronefromanothercompany MNFobtained3licensesandusedallthreefor theirown MNFclaimedthatthecontractwithOTwas frustratedbecausetheycouldnotgetlicenseto useOTstrawler
MaritimeNationalFishing HELD: PCheldthatthecontractwasnotfrustrated becausetheinabilitytouseOTstrawlerwas duetoMNFnotnominatingOTstrawlerto usethelicense MNF could have legally used OTs trawler but MNFcouldhavelegallyusedOT strawlerbut choosenotto Theybroughtabouttheirownfrustration
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TheSuperServantTwo FACTS: Nature of the contract D were to transport Cs Natureofthecontract DweretotransportCs drillingrigononeof2barges SuperServant1& 2 Dsenteredintosimilarcontractwithanother partytousetheSuperServant1 Super Servant 2 sank before the contract to the SuperServant2sankbeforethecontracttothe Cscouldbeperformed CsaskedthatSuperServant1beused Ds refused
TheSuperServantTwocase FACTS(cont): Csclaimedforbreachofcontract Dsclaimedforcemajeureclauseinthe contract(circumstanceoutsidethecontrolof theparties) In the alternative Ds also claimed frustration Inthealternative,Dsalsoclaimedfrustration
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TheSuperServantTwo HELD: CA h ld th t th CAheldthatthecontractwouldnotbe t t ld t b frustrated TheDscouldhavestillperformedthecontract withouttheSuperServantTwo Buttheychosenotto SoitwastheDschoicenottousetheSuper ServantOnethatmadethemunableto performthecontract
SeeCommentarybyOSullivan&Hilliardatpg 366,paras 17.40 17.42 366 paras 17 40 17 42 TakenoteofthecaseofJosephConstantine SteamshipLineLtdvImperialSmelting CorporationLtd[1942]AC154 thisisacase thatdealswithtortwhereithasbeenstated th t d l ith t t h it h b t t d thatnegligenceissufficienttoprevent frustration
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WhataretheeffectsofFrustration?
Commonlaw Frustrationhas4maineffects
1. Contractbroughttoanendimmediately 2. Partieswerereleasedfromtheobligationsthat wouldhavefallendueaftertheoccurrenceofthe frustratingevent 3. Partieswerenotreleasedfromobligationsthat shouldhavebeenperformedbeforethefrustrating evenoccurred 4. Onlycanrecoverthevalueofbenefittransferredif theotherpartyhadperformednoneofhis obligations,thatis,iftherewasatotalfailureof basis
Withregardspoint1 Selfexplanatory With regards point 2 from the point of Withregardspoint2 fromthepointof frustrationtheobligationsaredischargedi.e.not requirementthatitbeperformed Withregardspoint3 Anythingtobeperformed orbenefitbeforefrustratingeventshouldbe performed Withregardspoint4 seethecaseofFibrosa Spolka Akcyjna vFairburnLawsonCombe BarbourLtd[1942]2AllER122
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Fibrosa Spolka case FACTS: Polishcompanypaid1000underacontract forthesupplyofmachinery Therespondentdidconsiderableworkunder thecontract Contract frustrated when Germany occupied ContractfrustratedwhenGermanyoccupied Poland
Fibrosa Spolka case FACTS: Respondents obligation (the main obligation) is Respondent sobligation(themainobligation)is todeliverythegoods Thiswasnotdone Hencetherewastotalfailureofconsideration Andthemoneypaidcouldberecovered i.e. money paid for obligation not performed can be i.e.moneypaidforobligationnotperformedcanbe recovered Foranalysisofthecommonlawpositionsee OSullivan&Hilliardpgs367368,para 17.45
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LawReform(FrustratedContracts)Act 1943
S1(1):TheActappliestocontractsthathave becomeimpossibletoperformorotherwise b i ibl t f th i frustrated S2(3):Ifthecontractmakesprovisionfor whatshouldhappeninlightoffrustrating event Actwillnotoperate p S1(2) dealswithobligationtopaymoney S1(3) dealswithotherobligations
S1(3) forfullcitationseepara 17.47,pg368, OSullivan&Hilliard OS lli & Hilli d Dealswithsituationwhereeitheryouhave paidmoneyorowemoneytotheotherparty Ifpaidmoneybeforethefrustratingevent thenyoucangetthemoneybacksubjectto then you can get the money back subject to theallowanceforexpensethattheother partyhasmade
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Keyissue:howmuchtheotherpartyshouldget intermsofexpenses in terms of expenses Onusofproofisontherecipienttodemonstrate thatheshouldbeallowedtorecoverorretain someofthemoneybecauseoftheexpensesthat hehasinccurred. Courthavebroaddiscretionontheappropriate Court have broad discretion on the appropriate figure SeethecaseofGamerco SAvICM/FairWarning (Agency)Ltd[1995]1WLR1226
Gamerco case FACTS: C C,aconcertpromotercontractedwithfirst t t t t d ith fi t andseconddefendantsaffiliatedwithGuns& RosesinMadrid Thegovernmentdeclaredthevenueunsafe therebyfrustratingthecontracts Csuedfor$412,500thatithadpaidthe secondDwhohadspent$50,000inrelationto performingtheirsideofthecontract
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Gamerco HELD: Thefull$412,500canbeclaimed GarlandJstatedthatthecourtshadbroad discretiontodowhatwasjustinthe circumstances On the facts it was just for the claimant to Onthefactsitwasjustfortheclaimantto claimallofthemoneypaid
Ifotherobligationshavebeenperformed otherthanmoneypaidover,thenonewould other than money paid over then one would needtorelyons1(3) SeeOSullivan&Hilliard,pg369para 17.50for citation Theconditionsofsubsections(a)and(b) shouldconsidered i h ld id d importantatthisstageto t t t thi t t readsec1(3)intotalitybeforecommencing further
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Firstissueofsec1(3)Howdoyouvaluethebenefitthat hasbeenconferred? has been conferred? Goods Noproblem Services BigProblem! SeeGoffJ,BPExplorationCo(Libya)LtdvHunt[1979] 1WLR783 determinevalueoftheendproductofthe services,nottheservicesthemselves Resultnotthe process Whatifthereisnoendproductfortheservice? GoffJ thenvalueplacedontheservicesthemselves Valuetotheotherpartyiswhatcounts! subjective
Problem:wheredothefactorsoflimb(a)and(b)fit in? Factorsrequirethatyouhavetotakeintoaccount theeffectofthefrustratingeventonthebenefit conferred Alsoaccounttheexpensesoftheotherparty The above are considered to ascertain the Theaboveareconsideredtoascertainthe amountnotthevalueofthebenefit Thiswouldhavemadesenseinapplyingsec1(3)
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Problem:wheredothefactorsoflimb(a)and(b)fit in? GoffJcomplicatedthematterinHuntbyholding theopposite That(a)and(b)aretakenintoaccountto determinethevalueconferred Meansweevaluatethebenefitnotatthetime thebenefitwasreceivedbutafterthefrustrating th b fit i d b t ft th f t ti event Seethedifferenceintheapproachesatpara 17.52and17.53atpg370 371,OSullivan& Hilliard
SecondIssue:interpretationallowsgreater flexibleforthecourt fl ibl f th t GoffJstatedthatHuntcaseshouldbethe guidingprinciple PreventunjustenrichmentoftheDattheCs expense SeetheviewofOSullivan&Hilliard,paras 17.54 17.56,pgs371 372
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YOL. I I ]
TKINITY TEEM, XXX YICT.
G51
the right which has been invaded here is a right to an interest in 18G7 land, and that the damage in respect of which the plaintiff claims compensation is not too remote, but is directly consequent upon " the loss of the plaintiff's property iu the light. No difficulty could RAILWAY CO. have arisen here but for the umpire having inserted an impertinent averment in his award. That the saleable value of the premises has not been diminished is not the only and certainly not a conclusive test. A man is not to be driven to sell his property. He may choose to continue his business. I entertain no doubt whatever as to the conclusion we ought to come to. Judgment for the plaintiff. Attorneys for plaintiff: Brake & Son. Attorney for defendants: J. Freeland.
[IN THE EXCHEQUER CHAMBER.] APPLBBY AKD ANOTHEK V. MYERS.
j u n e 21.
Contractj Construction of 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 of 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 of the Court of Common Pleas,that both parties were excused from the further performance of the contract; but that the plaintiffs were not entitled to sue in respect of those portions of the work which had been completed, whether the materials used had become the property of the defendant or not. APPEAL 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.
Hannen (Lwmley Smith with him), for the defendant. It is a
652 1867
M" -
COURT OF COMMON PLEAS.
[L. E.
general rale that, when a person has undertaken to do certain work to be paid on completion, he is not entitled to payment for a portion, unless he is prevented from completing^ the work by the wrongful act of his employer. The authority for this is Gutter v. Powell. (1) The judgment of the Common Pleas, now appealed from, makes an exception in the 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 which the work was being done; and this upon the ground that there is, in such a case, an implied contract that the premises shall be kept in a state in which the work can be performed on it. [MARTIN, B. In Chitty on Contracts, 7th ed. p. 514, it is said that a workman is entitled to be paid for the work that 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 the present case the exception arises from the express terms of the contract, instead of from the custom of the trade. Adlard v. Booth (2) is strongly in the defendant's favour. [BLACKBURN, J. In that case the plaintiff did receive payment 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.] The Eoman, Scotch, and American laws are all opposed to the principle upon which the judgment of the Court below is based : see Story on Bailments, s. 426 ; Bromley v. Smith (3), in which all the authorities upon the subject are referred to; Wilson v. Enott (4); 1 Bell's Commentaries, 6th ed. s. 8, p. 147 ; Pothier's Contrat de Louage, chap. ii. s. 433. See also, for the English law, Addison on Contracts, 4th ed. 450; and, for the French law, the Code Civil, articles 17881790. [BLACKBURN, J. The general rule of law, as I have always
(1) (2) (3) (4) 2 Smith's L. 0. 1. 7 C. & P. 108. 5 Alabama Eop. (N.S.) 143. 3 Humph. Rep. 473.
YOL. II.]
TSINITY TEEM, XXX YIOT.
653
understood it, is, Ees perit domino suo; and it may depend, there1867 fore, upon whether the property in any of the materials supplied APPLEBY by the plaintiffs had passed to the defendant.] MYEBS That maxim of law is in the defendant's favour. The plaintiffs lose their work, and the defendant his property. [BKAMWELL, B. If a man agrees to deliver a chattel, and it is burnt before delivery, is he excused ?] If the property had passed before delivery, he would be: Williams v. Lloyd (1), where the defendant agreed to deliver a horse upon request, and the horse died before request made, and he was held excused. The broad principle is, that where the completion of the work is prevented by the act of God, neither party has a remedy against the other: Bayne v. Walker. (2) Soil, for the plaintiffs. It was assumed by the Court below, that the property in the work which had been done passed to the defendant ; and as to some of it, at any rate, that clearly was the case. There is no doubt as to the general principle, that payment cannot be claimed until completion of the contract. But the law has, for general convenience, engrafted upon that rule certain exceptions ; and the question is, whether the present case does not form one of them. It is admitted that if the full performance of the work had been prevented by the act of the defendant, the law would imply a 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) The true principle is, that where work is done or materials 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 property the materials have become, to pay for so much of the work and materials as have been done and supplied. That proposition is supported by the authority of The Digest, and also by that of several eminent foreign jurists, and amongst them of Duranton, Troplong, Pothier, and Domat. In Digest, Lib. 19, tit. ii. Locati Conducti, 1. 36, De Aversione, the rule is laid down: " Opus quod aversione locatum est donee adprobetur, conductoris periculum est.
(1) Sir W. Jones, 179. (2) 3 Dow, 233. (3) 8 Bing. 14.
654 1807
COUET OF COMMON PLEAS.
[L. R
Quod vero ita conductum sit, ut in pedes mensurasve prasstetur,
Stats
eatenus conductoris jDericulo est, quatenus admensum non sit; et in utraque causa nocitururn locatori, si per eum steterit, quomimi opus adprobetur vel admetiatur. Si tamen vi majore opus prius interciderit quam adprobaretur, locatoris periculo est; nisi si aliud actuin sit." [BLACKBURN, J. Suppose a riotous mob entered the defendant's premises and broke the machinery before the work was completed, according to the principle you contend for the plaintiffs would be excused from repairing and completing the work.] The argument must go that length. Neither party being in fault, the question is, which is to be the sufferer. The work being out of the control of the workmen, and the customer being the dominus of the property, the maxim Ees perit domino suo applies. [BLACKBURN, J. L. 37 is more consonant with good sense: " Si prius quam locatori opus probaretur, vi aliqua consumptum est, detrimentum ad locatorem ita pertinet si tale opus fuit ut probari deberet." Here, no part of the work was, 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 regards all the consequences which equity, 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. Extraordinary and unlooked-for events are never in terms provided for. The machinery, though not completed, would enhance the marketable value of the defendant's premises. In the same title of the Digest, L. 59, the following case is put: " Marcius domum faciendam a Flacco conduxerat: deinde operis parte effecta terrse motu concussum erat ajdificium. Massurius Sabinus, si vi naturali, veluti terras motu, hoc accident, Flacci esse periculum." [BLACKBURN, J. If the contract were to pay for the building on completion it would be like Sinclair v. Boivles. (1) SHEE, J. The note to the last passage you cite throws you back upon 1. 36.] That is a note by an unknown commentator. In Domat's Lois Civiles, liv. tit. iv. s. viii. art. 8, it is said: " Si on a donne"} quelque. matiere a un ouvrier pour faire un ouvrage a un certain prix de
(1) 9 B. & C. 9 2 ; 4 M. & K. 1.
YOL. II.]
TKIMTY TEEM, XXX VICT. 1867
655
l'ouvrage entier, l'entrepreneur n'aura satisfait a son engagement et n'en sera decharge qu'apre3 que tout l'ouvrage etant verifid, il se trouvera tel qu'il doive etre recu. Et si c'est un travail qui soit de plusieurs pieces, ou a la mesure, et a un certain prix pour chaque piece ou chaque mesure, l'entrepreneur sera decharge a proportion de ce qui sera compte ou mesure" et trouve bien fait. Et il portera aucontraire la perte de son ouvrage, et les dommages et inteiets du maitre, s'il y en a, pour ce qui se trouverait n'etre pas de la qualite dont il devait etre. Que si dans l'un et dans l'autre cas de ces deux marches la chose perit par un cas fortuit avant que l'ouvrage soit ve'rifie', le maitre en portera la perte, et devra 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. That assumes the work to be completed.] Article 9 says: " Si un architecte ayant entrepris de faire une maison ou autre edifice, et qu'ayant 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 maitre, et il ne laissera pas de devoir, et les materiaux fournis par l'entrepreneur, et ce qui se trouvera du de la faeon de l'edifice; car la deliverance lui etait faite de tout ce qui etait bati sur son fonds. Mais si le batiment perit par le defaut de l'ouvrage 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." Duranton, Cours de Droit Frangais. vol. ix. tit. 8, Du Contrat de Louage, s. 250, ed. 1833, is to the same effect. Speaking of L. 36 of the Digest, he says: " Mais le jurisconsulte, en mettant les risques a la charge du conducteur tant 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 mesure, n'entend parler que des risques ordinaires., et non des cas fortuits extraordinaires; car il ajoute de suite : ' Si tamen vi majore opus prius interciderit quam adprobaretur, locatoris periculo est; nisi si aliud actum sit: non enim amplius praestari locatori oporteat, quam. quod sua cura atque opera consequutus esset.' Le-jurisconsulte Javolenus dit e'galement, dans la loi suivante, que si l'ouvrage vient a perir par quelque accident de force majeure, avant d'avoir ete n\[LUSH,
656
COUET OF COMMON PLEAS.
[L. E.
prouve par celui qui l'a donne a faire, la perte en est supported par API-MBY dernier; si toutefois l'ouvrage etait tel qu'il diit ete recu: ' Si * priusquarn locatori opus probaretur, vi aliqua consumptum est detrimentum ad locatorem ita pertinet, si tale opus fuit ut probari deberet.' Et il est bien clair que c'est m&ne quant au prix de la main d'ceuvre, que la perte est a la charge de celui qui a donne l'ouvrage a. faire, puisque ce ne peut etre que sous ce rapport qu'il y a lieu a la question de savoir si l'ouvrage a ete fait comme il devait l'etre." The 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 that " La perte par force majeure, de constructions en cours d'execution, est pour le compte du proprietaire du sol dans lequel ces constructions sont incorporees, quoique l'entrepreneur en ait fourni les mate'riaux et que la perte soit survenue avant la reception des travaux, ou une raise en demeure de les verifier." The case of Bromley v. Bmith (1) is certainly opposed to this view. But that case is mainly founded on a passage in Story on Bailments, s. 426, where the Digest, . Lib. 19, tit. 2,1. 59, and also Bell's Commentaries, vol. i. p. 146, 5th ed., are not referred to.
ce
1867
[MARTIN, B. In the notes to Cutter v. Powell (2), it is said that the mere fact of the part performance having been beneficial is not sufficient to render the party benefited liable; but that there must be circumstances to raise an implied promise to pay for the work done.] The Court will so construe the contract as to carry out, if possible, the intention of the parties: and it is evident that both parties here contemplated the premises continuing to exist in a condition to receive the work: Withers v. Beynolds (3); Clay v. Yates. (4) Another class of cases, of which Bugg v. Minett (5) is a leading one, shews that where goods which have been bought are destroyed before delivery, the vendor is excused from delivering them, and is yet entitled to the price, if the property had (1) (2) (3) (4) (5) 5 Alabama Rep. (N.S.) 143. 2 Smith's L. C. 1. 2 B. & Ad. 882. 1 H. & N. 73; 25 L. J. (Ex.) 237. 11 East, 210.
VOL. n.]
TRINITY TEEM, XXX VICT.
" 1867
657
passed to the vendee prior to their destruction. This is also laid down by Pothier, as quoted in Blackburn on the Contract of Sale,
APPIEBY
V. MYERS.
p. 172.
[BLACKBTJBN, J. That was put by Pothier on the ground that the price is not paid for the delivery, but for the vesting of the goods.] Menetone v. Athawes (1) is a direct authority in the plaintiffs' favour. Whether the contract be for an entire sum or not, if it is to do a certain work it is an entire contract, and no payment is due until the whole is finished: and such was the fact in that case. The authority cited from Pothier's Contrat de Louage, c. 3, is also in the plaintiffs' favour. There is nothing there to shew that the work was to be done on the premises of the employer. [BLACKBURN, J., referred to Boberts v. Haveloeh. (2) ] In Taylor v. CaldweU (3), Blackburn, J., delivering the judgment of the Court, enunciates the principle by which this case is to be governed. " There seems," he says, " 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 burdensome, or even impossible. The law is so laid down in Roll. Abr. vol. i. p. 450, Condition (Gr), and in the note to Walton v. Waterhouse (4), and' is recognised as the general rule by all the judges in the much discussed case of Hall v. Wright. (5) 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 thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence
"
(1) 3 Burr. 1592. (2) 3 B. & Ad. 404. (3) 3 B. & S. 826, 833 ; 32 L. J. (Q,B.) 164. (4) 2 W m s . Saund. 421a, 6th ed. (5) E. B. & E. 746,
658 18G7
an
[L. E.
as the foundation of what was to be done; there, in the absence of y 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." Sannen, in reply. If the parties have thought fit to contract that the work shall be paid for when completed, why should the Court imply any other contract ? In the absence of any illegality, the Court must give effect to the contract as they find it. The opinions of foreign jurists, however valuable to aid in the elucidation of a doubtful principle, cannot affect the decision here. [LUSH, J. The Court below does not profess to found its judgment upon the Civil law, but it assumes that there is an implied, warranty that the premises shall remain in a state to receive the work. If that be so, the plaintiffs should have recovered the whole sum.] The case does not shew that the property in the machinery which was fixed passed to the defendant. The statement that they were fixed to the premises must be read with reference to the subject matter. These would be trade fixtures. Besides, the plaintiffs might have removed one piece of machinery and substituted another. Cur. adv. vult. June 21. The judgment of the Court (Martin, B., Blackburn, J., Bramwell, B., Shee and Lush, JJ.), was delivered by
BLACKBTJKN, J. This case was partly argued before us at the last sittings: and the argument was resumed and completed at the present sittings. Having had the advantage of hearing the very able arguments of Mr. Holl and Mr. Hannen, and having during the interval had the opportunity of considering the judgment of the Court below, there is no reason that we should further delay expressing the opinion at which we have all arrived, which is, that the judgment of the Court below is wrong, and ought to be reversed. The whole question depends upon the true construction of the contract between the parties. We agree with the Court below in
YOL. n.]
TRINITY TEEM, XXX VICT.
659
thinking that it sufficiently appears that the work which the 1867 plaintiffs agreed to perform could not be performed unless the APPLEBY defendant's premises continued in a fit state to enable the plaintiffs MYERS to perform the work on them; and we agree with them in thinking that, if by any default on the part of the defendant, his premises were rendered unfit to receive the work, the plaintiffs would have had the option to sue the defendant for this default, or to treat the contract as rescinded, and sue on a quantum meruit. But we do not agree with them in thinking that there was an absolute promise or warranty by the defendant that the premises should at all events continue so fit. We think that where, as in the present case, the premises are destroyed without fault on either side, it is a misfortune equally affecting both parties; excusing both from further performance of the contract, but giving a cause of action to neither. Then it was argued before us, that, inasmuch as this was a contract of that nature which would in pleading be described as a contract for work, labour, and materials, and not as one of bargain and sale, the labour and materials necessarily became the property of the defendant as soon as they were worked into his premises and became part of them, and therefore were at his risk. We think that, as to a great part at least of the work done in this case, the materials had not become the property of the defendant; for, we think that the plaintiffs, who were to complete the whole for a fixed sum, and keep it in repair for two years, would have had a perfect right, if they thought that a portion of the engine which they had put up was too slight, to change it and substitute another in their opinion better calculated to keep in good repair during the two years, and that without consulting or asking the leave of the defendant. But, even on the supposition that the materials had become unalterably fixed to the defendant's premises, we do not think that, under such a contract as this, the plaintiffs could recover anything unless the whole work was completed. It is quite true that materials worked by one into the property of another become part of that property. This is equally true, whether it be fixed or movable property. Bricks built into a wall become part of the house; thread stitched into a coat which is under repair, or planks and nails and pitch worked into a ship
660 1867
APPLEBY
M
[L. E.
"
under repair, become part of the coat or the ship ; and therefore, generally, and in the absence of something to shew a contrary intention, the bricklayer, or tailor, or shipwright, is to be paid for the work and materials he has done and provided, although the whole work is not complete. It is not material whether in such a case the non-completion is because the shipwright did not choose to go on with the work, as was the case in Roberts T. Havelooh (1), or because in consequence of a fire he could not go on with it, as in Menetone v. Atliawes. (2) But, though this is the prima facie contract between those who enter into contracts for doing work and supplying materials, there is nothing to render it either illegal or absurd in the workman to agree to complete the whole, and be paid when the whole is complete, and not till then: and we think that the plaintiffs in the present case had entered into such a contract. Had the accidental fire left the defendant's premises untouched, and only injured a part of the work which the plaintiffs had already done, we apprehend that it is clear the plaintiffs under such a contract as the present must have done that part over again, in order to fulfil their contract to complete the whole and " put it to work for the sums above named respectively." As it is, they are, according to the principle laid down in Taylor v. Caldwell (3), excused from completing the work ; but they are not therefore entitled to any compensation for what they have done, but which has, without any fault of the defendant, perished. The case is in principle like that of a shipowner who has been excused from the performance of his contract to carry goods to their destination, because his ship has 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 something to justify the conclusion that there has been a 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 great assistance in tracing out any question of doubtful principle; but they do not bind us: and we think that, on the principles of English law laid down in Cutter v. Powell (4), Jesse v. (1) 3 B. & Ad. 404. (3) 3 B. & S. 826; 32 L. J. (Q.B.) 164. (2) 3 Burr. 1592. (4) 6 T. B. 320 ; 2 Smith's L. C. 1.
VOL. H.]
TEINITY TEEM, XXX TICT.
661 1867
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 the 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.] MEYEESTELN v. BARBER AND OTHEBS. Bill of Lading, how long in ForceGoods landed at a Sufferance Wharf with a " 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 of 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 of the bill of lading; A. fraudulently retaining the third copy, which the plaintiff supposed to be in the hands of the captain. On the 6th and 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,affirming the judgment of the Court of Common Pleas,that the bill of lading, when deposited with the plaintiff, retained its full force and effect, and consequently that there was a valid pledge of the cotton to the plaintiff before the advances made to A. by the defendants. APPEAL from a decision of the Court of Common Pleas upon a ' rule to set aside a verdict for the plaintiff and enter a verdict for the defendants, reported ante, p. 38.
Jme
2 o.
(1)1C.M.&E.316.
(2) 8 E. & B. 738.
(3)9B.&C.92.
2 K. B .
KING'S BENCH DIVISION. 1918
467
not costs and expenses under t h e Act, and the point therefore fails. I n the result there will be judgment for the plaintiffs for 551.
!!
GEAYS
URBAN COUNCIL
Judgment for the plaintiffs. Solicitors for plaintiffs : Kingsford, Asplin, Grays. Dorman & Co., for Hatten &
.
GBAYS CHEMICAL
WOEKS.
Solicitors for defendants : Kirhy, Millett & Ayscough. J. F . C.
[IN THE COUKT OF APPEAL.] B L A C K B U E N B O B B I N COMPANY, L I M I T E D v. T. W. A L L E N & SONS, L I M I T E D . [1917 B. 722.] ContractSale of GoodsImpossibility of Performance due to Outbreak of WarDischarge. By a contract made in the early part of 1914 the defendants, who were timber merchants at Hull, sold to the plaintiffs 70 standards of Finland birch timber to be delivered to the plaintiffs free on rail at Hull, deliveries to commence in June or July, 1914, and to continue during the season which would terminate in November, 1914. The contract contained no war or force majeure or suspension provisions. Before the outbreak of war in August, 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 not keep Finland timber in stock. Up to the outbreak 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 defendants for failure to deliver the timber, the defendants contended that the contract had been dissolved by the outbreak of war: Held, that the contract had not been dissolved, and that the defendants 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.
A#
iM8 J**> 19,20.
468 C A. 1918
BLACKBURN OO'MPAKY
KING'S BENCH DIVISION.
[1918]
*
X W . ALLEN
McCardie J. gave judgment for the plaintiffs, holding (1.) that the contract had not been dissolved, and that the defendants were liable in damages for the non-delivery of the timber ; and (2.) that * n e c o n 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)
Act, 1917.
& SONS.
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 unnecessary to discuss them, the argument is not set out.]
PICKFORD 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 matters 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 that 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 the defendants as to the timber, the former asking for supplies, and the defendants taking up the position that all pre-war contracts had been cancelled by the war.
The defendants contend that the contract was at an end because
2 K. B.
469
it was in the contemplation of both parties that 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 impossible both parties were discharged from their obligations. We BOBBIN have had a most interesting discussion of the numerous cases where v. T W ALLFN this doctrine has been dealt with, and it is from no disrespect to ' & "sons. Mr. MacKinnon's argument that I refrain from going through p ick j~7 LiI them, but I refrain from doing so because I accept the principle for which those cases were cited. The principle was thus stated by Lord Haldane in Tamplin Steamship Co. v. Anglo-Mexican Petroleum Products Co. (1): " The occurrence itself," i.e. the occurrence preventing the 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 that foundation." It was also stated thus by Lord Shaw in Horlock v. Beal (2): " The underlying ratio is the failure of something which was at the basis of the contract in the mind and intention of the contracting parties." 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 they 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 the 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. II. 1918. (2) [1916] 1 A. C. 486, 512. 2
VOL.
21
470 c. A. 1918]
BLACKBUBN
COMPANY
[1918]
BOBBIN
and to free the defendants from liability this would have to be said that the continuance of the normal mode of shipping the timber frm Finland was a matter which both parties contemplated as necessary for the fulfilment of the contract. To dissolve the conJ
v. tract the matter relied on must be something which both parties had " & g0NS< in their minds when they entered into the contract, such for instance picktolLj. a s * n e 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 that 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, that was a matter which to the plaintiffs was wholly immaterial. It was not a matter forming the basis of the contract they 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 31, 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 that case was rightly decided, and this is an a fortiori case. For the reasons I have given the defendants have failed on the facts to make out their case that the contract was dissolved. The appeal will be dismissed.
BANKES L.J. I agree. I rest my decision upon the facts of this particular case. No doubt the defendants when they 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 partly by land and partly by sea. In those circumstances, whether one applies the test laid down by Lord Haldane in the
(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 .
471
Tamplin Case (1), or that laid down by Lord Shaw in Horlock v. c A. Beal (2), or whether it is said that performance became impossible 1918 as that expression is found in the judgment of Hannen J. in Baity BLACKBURN v. Be Crespigny (3), or whether the matter is treated as one to ( ^ ) 0BB P J which the principle of an implied condition as explained by Lindley L.J. in Turner v. Goldsmith (4) applieswhichever of ' &SONS. these is the correct methodor 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 think that 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 contract in the mind and intention of the contracting parties." In the present case what is alleged to have failed is the normal mode of transporb of the subject matter of the contract from Finland to this country. It was not proved that the continuance of that normal mode of transport was at the basis of the contract in the mind and intention of the contracting parties. 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 that that normal mode must be deemed to have been in their mind and intention. I do not deal, in detail with the argument 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 C. A. 1918
BLACKBUKN
[1918]
so. For the reason I have given I agree that the judgment of McCardie J. should be affirmed. Appeal dismissed. Solicitors for plaintiffs: Gibson & Weldon, for H. Blackpool. Solicitors for defendants : Trinder, Capron & Co. Warden,
CBMÂNY
V.
'&VSo^sI,EN
J.S.H.
C. A.
1918 o J ine 25 26
[IN THE COUKT OP APPEAL.]

ARBITRATION BETWEEN
'
' ' In re
In re AGRICULTURAL HOLDINGS ACT. LANCASTEE AND MACNAMARA.
Agricultural " Holding "Landlord and TenantLease of Premises 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 TenancyCompensation for ImprovementsAgricultural 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. 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 barns, 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 1711. There was no written agreement setting forth the terms of the tenancy. The respective rateable
APPEAL
A. C.
AND PRIVY COUNCIL.
221
Their Lordships will therefore humbly advise His Majesty j.c. that this appeal be allowed and that the case be remitted to 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 & Co.
SADR EDDIN ET-TIBI.
[HOUSE O F LORDS.]
H. L.
(E.)*
CRICKLEWOOD PROPERTY AND\ APPELLANTS INVESTMENT TRUST, LIMITED . /

AND
1944 Nov. 21, 23. 1945
LEIGHTON'S LIMITED
INVESTMENT
TRUST,"!
Jan. 25. RESPONDENTS.
Landlord and tenantBuilding leaseFrustrationWarInability to carry on building operationsLiability to pay ground rent. By a building lease dated 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 by them as sites on which they covenanted to erect a number of shops within a time limit. So far as concerned each of the sites here in question, the rent reserved was a peppercorn till the expiration of one year 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 thereafter 35/. yearly. Notification having been given in respect of the sites, the 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 by frustration, and the liability for rent continued.
Per VISCOUNT SIMON L.C. and LORD W R I G H T : The doctrine
of frustration may in certain circumstances apply to a lease.

Present': VISCOUNT SIMON L . C , LORD RUSSELL OF KILLOWEN, LORD WRIGHT, LORD PORTER and LORD GODDARD.
222
HOUSE OF LORDS
Per LORD RUSSELL OF KILLOWEN and
[1945]
LORD GODDARD : The
H. L. (E.) 1945
CRICKLEWOOD
PROPERTY AND INVESTMENT TRUST, LD.
doctrine of frustration can never apply to put 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.
v.
LEIGHTON'S INVESTMENT TRUST, LD.
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 predecessors 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 that 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.
223
H . L. (E.)
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 freehold 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
1945
CRICKLKWOOD PROPERTY AND INVESTMENT TRUST, L D .
v.
LEIGHTON'S INVESTMENT TRUST, L D .
224
H . L. (E.) 1945
CRICKLEWOOD PROPERTY AND INVESTMENT TRUST, L D .
-HOUSE OF LORDS
[1945J
v.
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 that involved in the case. He held that 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 cardinal: 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 . 740. (2) (1863) 3 B . & S. 826, 832.
A. C.
AND PRIVY COUNCIL.
225
H . L. (E.) 1945
frustrate i t : 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 that 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) (2) (3) (4) 1929, S. C. 5 9 3 . (1646) A l e y n 26. [1916] 1 K. B. 20. [1920] 1 K : B . 680. (5) (6) (7) (8) [1922] [1942] (194 1 ) [1944] 2 A . C. 180, 199. 1 K . B . 375. 8 5 Sol. J . 106. A. C. 265.
v.
226
H . L. (E.) 1945
HOUSE OF LORDS
[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 that 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, that 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, 237. 680, 687. 20, 24. 740. (5) 3 B . & S. 826, 832. (6) [1918] A. C. 119. (7) [1903] 2 K. B . 740, 744, 745.
v.
A. C.
AND PRIVY COUNCIL.
227 H. L. (E.) 1945

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.
v.
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 establishing 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 the 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.) S e p t . 16, 1942. (3) [1943] K . B . 493. 496.
228 H . L. (E.) 1945

HOUSE OF LORDS
[1945]
v.
LEIGHTON'S INVESTMENT TRUST, L D . Viscount Simon L.C.
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 the 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 the agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement. If, therefore, 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 Corporation, 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 the 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 termin the present instance, for ninety-nine years from March 25, 1936but it is liable to
(1) [1922] 2 A. C. 180. (2) [1942] A. C. 154, 160.
A. C.
AND PRIVY COUNCIL.
229
H. L. (E.)
be determined by the landlord's re-entry for non-payment of rent or for breach of covenant. This is expressly provided for by cl. 4 of the present lease. The question therefore is whether, in addition to pre-determination under such express provisions, it is possible that a lease for years should pre-determine from a supervening cause which amounts to frustration. If so, the term ends, no further rent is payable, and the lessor recovers the property with all permanent structures erected upon it, at once. It is said that this cannot be so, because a lease is more than a contract and amounts to an estate : but this reasoning seems to me to be dangerously near to arguing in a circle ; if we assume that frustration can only arise in cases 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 the lease by frustrationthough 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,'' but 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 the 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 combined 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
1945
v.
230
H. L. (E.) 1945
HOUSE OF LORDS
[1945]
v.
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 considered 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 circumstances be ended by frustration. In Matthey v. Curling (2), the House did not say so : the decision there was that requisitioning 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 eventsnamely, 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, 200. (4) (1863) 3 B . & S. 826.
A. C.
AND PRIVY
COUNCIL.
231
whether the hall which was burnt down was demised to the H. L. (E.) defendant or not, Blackburn J. said (1) : " Nothing however, " in our opinion, depends on this." The impression, which I venture to think is erroneous, that this House in Matthey v. C R I C K L E WOOD Curling (2) actually decided that frustration cannot arise in the PROPERTY case of a lease, is encouraged by the headnote to that case in IN^STthe Law Reports, which states that that decision affirmed MENT Whitehall Court, Ld. v. Ettlinger (3). I t is true that T R U " ' Lr>Lord Atkinson in Matthey v. Curling (4) expressed the view LEIGHTON'S] that the Whitehall Court case (3) was rightly decided, but none M^N?" of the other 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 prevented from residing in the leased flat did not affect the existence of the chattel property vested in him under the lease. It is true that Lord Reading 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 the ground of decision on which both members of the Divisional CourtAvory and Lush J J.concurred, 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 determined by events equivalent to frustration. At any rate, this House is not obliged to accept such a proposition, and, as I have indicated, I think it goes too far. The occasions, however, on which frustration terminates a lease must be exceedingly rare. So much for the abstract and theoretical question. But there remains the practical issue whether what is proved to have happened in the present case could be enough to constitute frustration of such a lease. I do not agree with Asquith J. t h a t the orders requiring a suspension of building are sufficient to strike at the root of the arrangement. The lease at the time had more than ninety years to run, and though we do not know
(1) (1863) 3 B . & S. 832. (2) [1922] 2 A. C. 180. (3) [1920] 1 K. B . 680. (4) [1922] 2 A. C. 180, 237. (5) [1916] 1 K . B . 20, 24.
232
H. L. (E.) 1945
HOUSE OF LORDS
[1945]
v.
[LEIGHTON'S INVESTMENT TRUST, L D . Viscount Simon L.C.
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 that 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 interruption 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.
LORD RUSSELL OF KILLOWEN (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, that 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 that is to carry out the very provisions of the lease which is said to be frustrated. The rent thereunder 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 (1) [1918] A . C. 119.
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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 contract 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 circumstances 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) [1916] 1 K . B . 20, 24. (2) [1920] 1 K . B . 680, 686, 687. A . C. 1945. (3) [1922] 2 A. C. 180, 237. 3 T
v.
Lord Russell of Killowen.
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[1945]
1945
CRICKLEWOOD PROPERTY AND INVESTMENT TRUST, L D ,
v.
LEIGHTON'S INVESTMENT TRUST, L D . Lord Russell of Killowen.
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 landlord 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 relation to a lease of land, which is expressed in the following terms : " I f 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 the 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
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CRIOKLEWOOD PROPERTY AND INVESTMENT TRUST, L D .
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 that it may so apply. I concur in the motion proposed.
LORD WRIGHT. 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 (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.
v.
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HOUSE OF LORDS
[1945]
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LEIGHTON'S INVESTMENT TRUST, L D . Lprd Wright.
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 frustration 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 the 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 p p . Cas. 38, 53(5) [1918] A. C. 119, 131.
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limited and determined by the contractual terms of the lease and is governed by the agreement between the lessor and lessee. It may be that in earlier days the element of covenant bulked sometimes more largely in the eyes of the law than the question of tenure. In Paradine v. Jane (1), the judges do not mention the element of tenure. The claim was in debt. The court states the absolute character of the contract in language which, has often been quoted (2) : " When the party by his " own contract creates a duty or charge upon himself, he is " bound," they said, " to make it good, if he may, notwith" standing any accident by inevitable necessity, because he " might have provided against it by his contract." Lord 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 carefully 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) Aleyn 26. I b i d . 27. [1922] 2 A . C. 180, 233. [1942] A . C. 154. (5) I b i d . 2 0 3 . (6) [1926] A. C. 497, 510. (7) [1922] 2 A. C. 180.
v.
Lord Wright.
238 H. L. (E.)
1945
HOUSE OF LORDS
[1945]
v.
Lord Wright.
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 paramount 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 that 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. [1922] 2 A. C. 180, 237. [1920] 1 K. B . 680, 686. I b i d . 687. (5) [1922] 2 A. C. 180. (6) [1916] 1 K . B . 20. (7) I b i d . 24.
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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 has been held over and over again that a temporary interruption of the tenant's use and occupation does not affect the covenants or the chattel interest. The rule may be different, it seems, in Scotland : see Tay Salmon Fisheries Co., Ld. v. Speedie (1) and Mackeson v. Boyd (2). But the Scotch authorities afford no analogy applicable to English law, because they proceed, it seems, on a different view of the contract and of the legal background. In England, since Paradine v. Jane (3) and earlier, the law has been that 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 enjoyment of the demised land. The lessor as a general rule gives no warranty in these respects in favour of the tenant. 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 whether the loss of enjoyment is due to the landlord's failure to fulfil his obligation to repair (Hart v. Rogers (6)). In that latter case the tenant would have his cross-claim against the landlord for damages. On the 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 and many similar authorities show that by English law the lessee's covenants are generally absolute. The enjoyment and the covenant do not generally march together. I think Lord Buckmaster's judgment proceeds on this basis. He does not put it on the circumstances that the lease also creates an estate in land. B u t though the lessee's covenants are generally absolute, there are qualifications which the law implies in relief of the lessee, even in the absence of express terms. In other words, covenants in the lease may be suspended or terminated by operation of law and the court will decree accordingly. Thus the covenant to pay rent may be suspended: 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 INVESTMENT TRUST, LD.
LKIGHTON'S INVESTMENT TRUST, LD.

Lord Wright
240 H. L. (E.) 1945

HOUSE OF LORDS
[1945]
v.
Lord Wright.
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 Trowbridge (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 dissolved, 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 operation of law. Lord Buckmaster does not mention this aspect, though Whitehall Court, Ld. v. Ettlinger (3) was cited in argument (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 that 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) [1922] 2 A. C. 180, 227. (1839) 10 A. & E . 427. [1920] 1 K. B . 680. [1922] 2 A. C. 180, 222. I b i d . 237. , I b i d . 227. (7) (8) (9) (10) (11) L. R. 4 Q. B . 180. I b i d . 185. I b i d . 188. 1 Salk. 198. [1922] 2 A. C. 180, 228.
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" 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 the 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.
LORD PORTER. My Lords, the 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 the 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 the appeal is whether the doctrine of frustration applies
v.
Lord Wright.
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[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 CRICKLEthat 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 INVESTMENT claim the only answer presented to your Lordships was that TRUST, L D . the lease or the agreements contained in it had been frustrated. v. LETGHTON'S The exact question for your Lordships therefore is not does INVESTthe doctrine of frustration apply to leases generally, but in MENT T R U S T , L D . 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 determined. 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 circumstances 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
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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.
LORD GODDARD (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 that one fact it is impossible to say, supposing the doctrine to be applicable to a lease, that 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
v.
LEIGHTON'S INVESTMENT TRUST, L D
244
H. L. (E.) 1945
HOUSE OF LORDS
[1945]
v.
LEIGHTON'S INVESTMENT TRUST, L D . Lord Goddard.
period the tenant may not be obliged to build within that period and may not do so. This abeyance period might quite conceivably 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 that 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 that 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 expressed 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) [1922] 2 A. C. 180. (3) [1922] 2 A. C. 180, 230. (4) [1920] 1 K . B . 680.
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245
H. L. (E.) 1945
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. 1945. 3 X
v.
LEIGHTON'S INVESTMENT 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 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
Case Digest
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
Case Analysis
Where Reported
[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 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
Case Digest
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
32
HOUSE OF LORDS
[1943]
H. L. (Sc.) case not only does the statute ordain the degree of care required, but it also, in my opinion, points out the dividing line between 1942 criminal and civil negligence, and, while it frees the employer POTTS OR from the former on proof that he has fulfilled certain require RIDDELL ments, it leaves the latter untouched. v. REID For the reasons I have given, I think the appeal should be allowed, and that the appellant should be awarded the damages Lord Porter. 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

1942
APPELLANTS;
Apr~Z, i7, FAIRBAIRN LAWSON COMBE 20, 21, 23, BOUR, LIMITED 24;
June 15.
BAR-
RESPONDENTS.
Contract Frustration Payment on account of purchase price RecoveryFailure 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 : "Should dispatch be hindered or delayed . . . . by any "cause whatsoever beyond our reasonable control, including " . . . .war . . . . 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 out between Germany and Poland and on September 3 Great Britain declared
*Present: VISCOUNT SIMON L.C., LORD ATKIN, LORD RUSSELL OF KILLOWEN, LORD MACMILLAN, LORD W R I G H T , LORD ROCHE and LORD PORTER.
A. C.
AND PRIVY COUNCIL.
33
war on Germany. On and after September 23, Gdynia was H. L. (E.) occupied by the Germans : 1942 Held, (1.) that, cl. 7 being limited in its ambit to a delay in respect of which " a reasonable extension of time " might be FIBROSA SPOLKA granted, did not prevent frustration of the contract by reason of the war on the ground that it made express provision for that AKCYJNA 1). contingency, since this war involved prolonged and indefinite FAIRBAIRN interruption of prompt contractual performance ; and (2.) that, LAWSON COMBE there having been a total failure of consideration and the payment BARBOUR, of the 1000/. being, under the terms of the contract, a conditional LD. payment on account of the purchase price and not an absolute, final, or " out and out " payment, the appellants 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 contracts by custom. But, in the absence of a term 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 surrendered. The claim of a party who has paid money 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 what he bargained for. Although, in the formation of a contract, 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. 19433 L >
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.
FAIRBAIRN LAWSON COMBE BARBOUR, LD.
months from the settlement of 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, one-third of the price (1600/.) with the order and the balance (3200/.) against shipping documents. By cl. 7 of the conditions of sale attached to the contract: " Should "dispatch be hindered or delayed by your instructions, or "lack of instructions, or by any cause whatsoever beyond our "reasonable control including strikes, lock-outs, war, fire, "accidents . . . . a reasonable extension of time shall be "granted. . . ." By cl. 10 provisions were made for dispatch and possible storage pending dispatch. On July 18, 1939, the appellants paid to the respondents 1000/. on account of the initial payment of 1600?. due under the contract. On September 1, 1939, Germany invaded Poland and on September 3 Great Britain declared war on Germany. On September 7, the appellants' agents in England wrote to the respondents : " Owing to the outbreak of hostilities, it is "now quite evident that the delivery of the hackling machines "on order for Poland cannot take place. Under the circum" stances we shall be obliged if you will kindly arrange to "return our initial payment of 1000/. at your .early "convenience." To this request, the 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 to the return of this payment. "After the war the matter 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 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 affirmed 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.: If the appellant company, as 'things now stand, has its head and seat at Vilna, must it not be regarded as an alien 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).] We have not asked for any licence. [VISCOUNT SIMON L.C. : I should suppose that the Board 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, to hear that you have put yourself in 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 for storage to be made under cl. 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, 1939. In October, 1939, it was absorbed into Lithuania, which was itself absorbed into Russia in August, 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
36
H. L. (E.) 1942
HOUSE 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 rests on an implied term, but 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 man would think of entering into. 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, they have sustained no loss. Such a conception is known to the law of Scotland: see Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (1). Even if the contract has been frustrated, there has been a total failure of consideration and the appellants are entitled to the return of the money. Their right to recover 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. 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 the contract is rescinded ab initio. Taylor v. Caldwell (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) ; Partnership Act, 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 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. 826. W . J o . 179. 11 E a s t , 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. In any event, it is not so mani 1942 festly wrong as to justify the House of Lords in overruling it FIBROSA after it has been affirmed and followed in so many cases during 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 out the rights of parties to contracts. It con LAWSON COMBE stitutes a simple rule against which the parties can provide by BARBOUR, LD. express terms if they so desire. It is the best rule from the point of view of justice which it was possible for the judges, as distinct from the legislature, to devise. The rule is in effect that the loss lies where it falls and it has greafad vantages in that (i.) it is easily understood by the commercial com munity, (2.) it is easily applied by them, and (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 Co. (6)" the coronation "cases "were all instances of the application of the rule before the decision in Chandler v. Webster (7) in which the Court of Appeal followed Taylor v. Caldwell (8). There is no 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). 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 of the Law Revision Committee on the rule. There is no distinction between the present case and that of advance freight which is never returnable. This is an instance of a final payment which cannot be recovered: see Chandler v. Webster (12) per Mathew L.J. and Anglo-Egyptian Navigation Co. v. Rennie (9). The doctrine of frustration rests on a 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
H O U S E OF LORDS
[1943]
H. L. (E.) that, on the appellants paying them i6oo., they would proceed w 1942 i t h 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 territory, both parties would be excused further FAIRBAIRN performance. The respondents did not undertake such an ÔMBB 1 obligation to deliver that, if complete performance became BARBOUR, impossible, they would repay the money notwithstandLp " ing the expenses incurred in part performance. The date of the contract was July, 1939, and the court can take judicial notice of the state of international affairs then. The machines to be manufactured were of an unusual type. The respondents were taking the payment to provide against any possible contingency. In making the contract the parties must have envisaged the possibility of its premature determination by frustration. So far as the actual manufacture of the machines was concerned there could be no question of impossibility of performance. The contract has been partly performed, and so there can be no claim for the return of the money on the ground that the consideration has wholly failed. The considera tion for the payment made was the respondents' promise to deliver the goods c.i.f. Gdynia. The respondents, by merely binding themselves by a contractual 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 moment the contract was entered into the consideration started. On any view, the consideration has only partly failed and so the money is irrecoverable. Further, there was no fault on the part of the respondents, and, therefore, even if the consideration had wholly failed, there could be no claim for the return of this payment. [They 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 Ex. 311. 2 C. P . 6 5 1 . 6 E x . 3196 C. P. 78, 8 5 . (6) (7) (8) (9) (1857) (1917) [1926] [1939] 3 C. B . (N. S.) 569. 33 T. L. R . 390. A. C. 497. 1 K. B. 132.
A . C.
AND PRIVY COUNCIL.
39
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, Geipel v. Smith (6), Bank Line, Ld. v. Arthur Capel & Co. (7). L D . 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) (2) (3) (4) (5) (6) (7) [1942] A. C. 154. 11 East, 210. (1879) 13 Ch. D . 1. (1880) 5 A p p . Cas. 176. (1858) E . B . & E . 485. (i872)L.R.7Q.B.404,4i4. [1919] A. C. 435. (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. 815. 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 a e r cuen FIBROSA *^ * ^ ' t s might be in the position of an alien enemy. SPOLKA The House was content to let the case proceed on this basis. AKCYJNA j t fs n o t ( therefore, necessary to consider, in dealing with the FAIRBAIRN present appeal, whether the recent decision of the Court of QWBE Appeal in In re an Arbitration between N. V. Gebr. van Udens BARBOUR, Scheepvaart en Agentuur Maatschappij v. Sovfracht (i), P ' should be approved. If, as the result of the decision of the viscounty Sm n House, any payment becomes due to the appellants, and if io 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 . 222. (2) [1919] A. C. 435. (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 Co., Ld. (2), for the charterparty in that case contained an F I B ^ S A exception of perils of the sea (3), but none the less the contract SPOLKA was held to have been terminated and the adventure to have AKC JJNA 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 w a r " (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 . 125. L . R . 8 C. P . 572, 584. L R - - 7 Q- B . 404, 414. (5) [1918] A. C. 260. (6) [1942] 1 K . B . 12, 27. (7) [1904] 1 K . B . 4 9 3 .
42
HOUSE OF LORDS
[1943]
H. L. (E.) been frustrated by such a supervening event as releases from i 942 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 that 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 Sm n owing to King Edward VII. 's sudden illness. In that case, io 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.
AND PRIVY COUNCIL.
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 there is a stipulation that the prepayment is " out and out." 1 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 that 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 arisenand 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 them is binding upon your Lordships." Similarly in the same case, Viscount Finlay (i) observed ig42 FIBROSA ^hat * * w o u l d be out of place on that occasion to enter into SPOLKA the question dealt with in Chandler v. Webster (2), adding: KCYJNA j ^ e principle of English law was re-stated with great clearness FAIRBAJRN " b y 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 ' "Lords in that case, but there is no doubt that the principle viscount simon " h a s been repeatedly acted on in the Court of Appeal." Lord Dunedin 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 repayment of money once paid. But he added : " I do not enlarge on the topic, for I am not 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, "would have been decided the other way." Lord Dunedin'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 nearly forty years, which has been so frequently 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 provide. These are weighty considerations", but 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 the view which has hitherto prevailed in this
(1) [1924] A. C. 226, 2 4 1 . (2) [1904] 1 K . B . 493(3) [1921] 2 A. C. 494, 523. (4) [1924] A. C. 226, 248. (5) I b i d . 259.
A.C.
AND PRIVY COUNCIL.
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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 . 493. (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
HOUSE OF LORDS
[1943]
H. L. (E.) "consideration. He says that the condition on which he paid " t h e 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 consideration. That contention does no doubt raise a KCYJNA " q U e s t i o n 0 f s o m e difficulty, and one which has perplexed FAIRBAIRN " t h e courts to a considerable extent in several cases. The I COMSBEI "principle on which it has been dealt with is that which BARBOUR, "was applied in Taylor v. Caldwell (i)namely, that where, Lp ' "from causes outside the volition of the parties, something viscountysunou "which was the basis of, or essential to the fulfilment of, the L.C "contract has become impossible, so that, from the time when " t h e 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 "from further performance of it. If the effect were that the "contract were wiped out altogether, no doubt the result " would be that money paid under it would have to be repaid " a s on a failure of consideration. But that is not the effect " of the doctrine ; it only releases the parties from further "performance of the contract. Therefore the doctrine 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 party, who has 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 that for which he bargained. 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 regarded as received to the plaintiff's use. It is true that the effect of frustration is that, while the contract can no further be performed, " it remains a perfectly good contract up to " t h a t point, and everything previously done in pursuance of it "must be treated as rightly done," but it by no means follows that the situation existing at the moment of frustration 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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AND PRIVY COUNCIL.
47
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 FlB ^, 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 that 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
[1943]
H. L. (E.) elected to treat as avoiding the contract, and cases in which i942 intervening impossibility " only releases the parties from FIBROSA "farther performance of the contract." But does the disSPOLKA tinction between these two classes of case justify the deduction 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 a p p l y " where the contract remains a perfectly c^j^f good contract up to the date of frustration ? This conclusion BARBOUR, seems to be derived from the view that, if the contract remains D ' good and valid up to the moment of frustration, money which viscomusimon has already been paid under it cannot be regarded as having been paid for a consideration which has wholly failed. The party that has paid the money has had the advantage, what ever it may be worth, of the promise of the other party. That is true, but it is necessary to draw a distinction. In English 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 contracts under sealand thus, 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, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment 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 promise was given but could not be fulfilled : see the notes in Bullen and Leake's Precedents of Pleading, 9th ed., p. 263. In this connexion the decision in Rugg v. Minett (1) is instructive. There the plaintiff had bought at auction a number of casks of oil. The contents 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 until this had been done. The plaintiff paid 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 the others had not. The plaintiff's action was to recover the money he had paid as money received by the
(1) 11 E a s t , 210.
A.C.
AND PRIVY COUNCIL.
49
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 result is an agreement to buy a horse, the price to be paid down, AKCJf->NA 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 "state 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 that the English common law does not undertake to apportion a prepaid sum in such circumstancescontrast 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, 748. A. C. 1943(2) [1904] 1 K. B. 493. 3 E
50
HOUSE OF 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.
LORD ATKIN. 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 (1) [1903] 2 K . B . 740, 748.
A.C.
AND PRIVY
COUNCIL.
51
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. that 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 that 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 that 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 . 826. E2
52 H. L. (E.) 194
2
H O U S E OF LORDS
[1943]
v.
FAIRBAIRH LAWSON COMBE BARBOUR, LD. Lord Atkin.
"were wiped out altogether, no doubt the result would be that "money paid under it would have to be repaid as on a failure "of consideration. But that is not the effect of the doctrine : "it only releases the parties from further performance of the "contract. Therefore" (the italics are mine) "the doctrine "of failure of consideration does not apply." It seems plain that the Master of the Rolls is not repelling the claim for money had and received on the ground that the doctrine as to impossibility of performance itself, as part of its content, excludes the claim. Taylor v. Caldwell (i), the principle of which he is expressly applying, had nothing to do with money had and received. The claim was for damages in costs of advertisements, etc., for concerts for which the defendants had agreed to let their hall at the Surrey Gardens, a contract which it was impossible to perform because the hall was destroyed by fire after the contract. The Master of the Rolls there is applying the common law rule as to money had 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 "where the contract is wiped out altogether. In this case "it is not. The parties are only discharged from further "performance. Therefore, the claim for money had and "received must fail." My Lords, the difficulty which this decision causes me is to understand how this great lawyer came to the conclusion that the claim for money paid on a consideration which wholly failed could only be made where the contract was wiped out altogether, and I have sought for some construction of his words which stopped short of that absolute statement, but I can find none. I know of no authority for the proposition. It is true that where a party is in a position to rescind a contract he may be able to sue for money which he has paid under the contract now rescinded, but there are numerous cases where there has been no question of rescission where such an action has lain. I may refer to Giles v. Edward (2) where a contract to deliver wood was prevented by the defendant preventing performance by not loading all the wood ; Rugg v. Minett (3), where the buyer had paid part of the purchase price on a sale of turpentine in casks, where the property in
(1) 3 B . & S. 826. (2) (1797) 7 Term R e p . 181. (3) 11 East, 210.
A. C.
AND PRIVY COUNCIL.
53
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 FIBROSA casks in which the property had not passed ; Nockels v. SPOLKA Crosby (i); Wilson v. Church (2); National Bolivian Navigation AKCYJNA V. Co. v. Wilson (3) ; Johnson v. Goslett (4) ; and Ashpitel v. FAIRBAIRN Sercombe (5), in all of which the plaintiff had put up money LAWSON COMBE for an adventure which was eventually abandoned by the BARBOUR, LD. promoters ; Devaux v. Conolly (6), where there had been an over-payment in respect of goods delivered. In none of these Lord Atkin. cases was it suggested that the contract was " wiped out "altogether." Indeed, in other cases where it is 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 and to recover what he himself has paid. With 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 Gdynia; and the promise was always effective until further performance was excused. I personally agree with that statement of what the consideration was, and I do not think it necessary to use the word " consideration " in two senses. I understand by the phrase that the 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. I should add that, 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. It is true that the right to receive 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 afford a defence to the counterclaim. Lord Dunedin quotes 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.) 569. (5) (1850) 5 E x . 147. (6) 8 C. B . 640. (7) [1904] 1 K. B. 493.
54
H. L. (E.) 1942
HOUSE OF LORDS
[1943]
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Atkin.
Napolitaine d'Eclairage et de Chauffage par le Gaz (1), and the expression aptly fits the English law in this respect. It was urged before us that in the case last cited the House of 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 had 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. It is obvious, therefore, that the present question did not arise, and in Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Co., Ld. (5), a case which turned on the Scots law, all their Lordships treated the question of the English 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 the contract was frustrated, and it is satisfactory to find that the English and Scots law now agree on this point. It is unnecessary to discuss the interesting suggestion that the Scots law does not in fact entitle the claimant to recover necessarily the whole amount paid, but only so much as can be shown to be an unjust enrichment of the defenderin other words, that the latter may claim an adjustment in respect of the amount by which he is out of pocket for expenses incurred in respect of the contract. There was no decision on this point in the case, though this House affirmed the interlocutor of Lord Hunter, the Lord Ordinary, who had given permission to the defenders to amend their pleas in order, as it appears, to counterclaim for expenses, a proceeding which in any event I do not understand. It may be that such an adjustment was possible under 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 result of the law may cause hardship when a contract is automatically stayed during performance and any further right to performance is denied to each party is incontrovertible. One party may have almost completed expensive work. He can get no compensation. The other
(1) [1921] 2 A. C. 494, 5 1 1 . (2) [1904] 1 K . B . 4 9 3 . (3) [1921] 2 A. C. 494. (4) I b i d . 517. (5) [1924] A. C. 226. (6) (T871) 10 M. 142, 152.
A. C.
AND PRIVY COUNCIL.
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H . L. (E.) 1942
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 that if no money has been paid on the contract there is no legal principle by which loss can be made good. What is being now decided is that the application of an old-established principle of the common law does enable a man who has paid money and received nothing for it to 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. It is always possible to provide for the risk of frustration, but what provision the parties may agree will probably take some time to negotiate. Meanwhile, by the 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 which is frustrated and receives nothing for his payment is entitled to recover it back. I think, therefore, that the appeal should be allowed.
LORD RUSSELL OF KILLOWEN (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 it shortly) that in cases of frustration loss lies where it falls, or (at greater length) that where a contract is discharged 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 parties will be excused from liability further to perform the contract. 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 that the case which he was deciding was one which, on its facts, was governed by a rule already estab lished by the authorities. In Scotland the consequence of frustration is not that loss lies where it falls. The Scots law derives from the Roman law a 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 England, and (1) [1904] 1 K. B . 4 9 3 .
v.
Lord Atkin.
56
H. L. (E.) 1942
HOUSE OF LORDS
[1943]
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Russell of Killowen.
determine whether the appellants are entitled to be repaid the 1000Z. If Chandler v. Webster (1) was rightly decided, they would clearly not be so entitled. It is to be observed that the doubt as to the correctness of the rule only arises in cases in which one of the parties to the contract has paid over to the other party the whole or part of the money payable by him as the consideration for what he is to receive as the consideration moving from the other party. If no such money has been paid the rule must apply, for I know no principle of English law which would enable either party to a contract which has been frustrated to receive from the other compensation for any expense, or indemnity from any liability, already incurred in performing the contract. Nor could moneys paid before frustration be recovered if the person making the payment has received some part of the consideration moving from the other party for which the payment was made. In such a case the rule would still apply. But I am of opinion that this appeal should succeed because of another aspect of the matter. In the present case the appellants, before frustration, paid in advance a part of the price of the machines. We heard an elaborate argument as to what was the exact consideration moving from the respondents for that part of the contract which stipulated for payment of part of the price in advance. I am not aware of any justification for splitting up the consideration in this way, and assigning a consideration for each separate provision of a contract. Under the contract here in question the con sideration moving from the respondents was either the delivery of the machines at Gdynia, or the promise to deliver 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 part of the price of the machines was paid ever reached the appellants. There was a total failure of the consideration for which the money was paid. In those circumstances, why should the appellants not be entitled to recover back the money paid, as money had and received to their use, on the ground that it was paid for a consideration which has wholly failed ? I can see no reason why the ordinary law, applicable in such a case, should not apply. In such a case the person who made the payment is entitled to recover the money
(1) [1904] 1 K . B . 493-
A.O.
AND PRIVY COUNCIL.
57
H . L. (E.) 1942
paid. That is a right which in no way depends upon the 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 that 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.
LORD MACMILLAN. My Lords, speaking in 1923 of the so-called " coronation cases" 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. (1) [1904] 1 K . B . 493(2) (1835) 2 C. M. & R . 124.
v.
58
HOUSE OF LORDS
[1943]
H. L. (E.) v. Clyde Shipbuilding and Engineering Co. (i). The mills of the law grind slowly. Thirty-eight years have elapsed since the Ig42 FIBROSA Court of Appeal pronounced judgment in Chandler v. SPOLKA Webster (2), and nineteen years have passed since Lord Shaw KCYJNA u s e ( j ^ e words which I have quoted, but now at length in FAIRBAIRN the present appeal the occasion foretold has arisen, and I m a v COMBS' ^ e P e r m i t t e d to express my gratification that it has BARBOUR, been employed to clear the law of England by the unanimous D ' judgment which the House is to-day pronouncing from the Lord Macmiiian. reproach to which it was exposed so long as the law laid down in Chandler v. Webster (2) held the field. My Lords, every system of law has had to face the problem of defining the consequences of a contract becoming impossible of fulfilment owing to some external supervening event for which neither of the parties is responsible. That such an eventuality releases both parties from further performance of any of the stipulations of the contract is agreed on all hands. Each must fulfil his contractual obligations up to the moment when impossibility supervenes, for the contract is not avoided by becoming impossible of fulfilment, but the duty of further performance ceases. Having so declared, must the law stop there ? What if money 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 the contract which now can never be completed ? The law may say that the 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 frustrated. On the other hand, the law may endeavour 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 having proved abortive. I find this doctrine of restitution stated in its broadest terms in Pufendorf's celebrated treatise on the Law of Nature and Nations, first published in 1672, as follows : " When the thing at the time of making the "promise or pact appeared possible and afterwards becomes "impossible, we must enquire whether this happened by
(1) [1924] A. C. 226, 233, 257, 258. (2) [1904] 1 K. B . 493-
A. C.
AND PRIVY COUNCIL.
59
"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 i t ; 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. III., 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, that 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 doing so and with what qualifications it would be out of place for me to discuss here. It may suffice to refer I942 e FIBROSA * ^ speeches of Lord Dunedin and Lord Shaw in the Canliare SPOLKA SanRocco case (i). But the law of England has characteristically 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 ar tne COMBS' P t y t other for a consideration which has completely BARBOUR, failed. The right of a plaintiff to recover, under the common P " indebitatus count for money received, any sum which he has Lord Macmiiian. p a id for a consideration which has wholly failed has long been fully recognized in the common law of England: 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 entirely failed ? The explanation is to be found in the passage in the judgment of Collins M.R. (3), where he said that the doctrine of failure of consideration applies only where a contract is " wiped out altogether" or, as Romer L.J. put it (4) " rescinded ab initio," and does not apply where the parties are merely released from further 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 authority to prove that it does not exist. It has no basis in principle or precedent. So Chandler v. Webster (4) and its congeners must be consigned to the limbo of cases dis approved and overruled. They will be unwept save by those to whom for so many years they have furnished a fruitful and enlivening topic of discussion in lecture rooms and periodicals. Your Lordships being of one mind that the so-called rule in Chandler v. Webster (4) is unsound, the way lies clear for the decision of the present case. The appellants made a payment to the respondents on account of the price of certain plant which the respondents were to manufacture and deliver to them. Owing to circumstances arising out of the present hostilities the contract has become impossible of fulfil ment according to its terms. Neither party is to blame.
(1) [1924] A. C. 226. (2) [1904] 1 K. B. 493. (3) Ibid. 499(4) Ibid. 501.
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In return for their money the 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.
LORD WRIGHT. 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 tort, 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., (1) [1926] A . C. 670, 696. (2) (1841) 9 M. & W . 54. (3) (1704) H o l t 36.
v.
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"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 contract; 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 Burr. 1005, 1012. (2) 2 Burr. 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 Lord Wright. accurately, imposed, by law in much the same way as the law 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 the 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 the 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," the authors add, "is " [that is by 1868] virtually become obsolete." Lord Atkin in the United Australia case (2), after instancing the 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 adds: "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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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 that 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 that 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. 398, 452. (2) [1926] A. C. 670, 696.
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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 future 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 E a s t , 210. (2) [1926] A. C. 497, 5 J oA. C. 1943(3) [1913] A. C. 283, 296.
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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 FIBROSA t subsequently to the payment and which has become SPOLKA abortive. The lender has in this case a right to claim the 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 FAIRBAIRN held to his use. This language of Brett L.J. was used in ^COMBT connexion with the failure of a scheme for the development BARBOUR, of a concession in Bolivia which the Bolivian government revoked, thus rendering 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 the loan had failed : National Bolivian Navigation Co. v. Wilson, in particular per Lord Cairns L.C. (2). Some years earlier a decision, not dissimilar in principle, was reached in 1850, in Ashpitel v. Set-combe (3). The plaintiff had 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 appeal was heard before Patteson, Coleridge, Maule, Cresswell, Wightman, Erie and Williams J J . , all masters of the common law. The plaintiff's claim for return of the deposit was upheld. Patteson J., delivering the judgment of the court, said (4) : "This was an action "for money had and received, brought by the plaintiff, an "allottee of shares in a proposed railway company, which " h a d 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 There seems to be no doubt that " t h e 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 " o n a consideration which has failed, and may recover it "back 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 the application of his money. The books contain other cases of a similar character, such as Johnson v. Goslett (5). These cases were merely special instances
"(1) 13 Ch. D. 1, 49. (2) 5 App. Cas. 176, 185. (3) 5 Ex. 147.
(4) 5 E x - 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 for the purchase of an estate. Thus, in Greville v. Da Costa (1), Lf 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) Peake Add. Cas. 113. (2) (1875) 1 App. Cas. 209, 253. (3) (1683) 2 Shower 283. (4) L. R. 6 Ex. 319. 3 F*
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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 . 6 5 1 .
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that was done under the contract was void. In the former case, the claim was for damages, in the latter it was on a quantum meruit for partial performance of an entire con sideration. Each claim failed. Neither was a claim for money had and received. Channell J. instanced the case of advance freight under the charterparty. I have already explained that rule, which in Lord Selborne's view is peculiar. I have also explained my view that the right to repayment of advance payments as money had and received to the plaintiff's use is not a claim under the contract or for further performance of the contract or for damages, but a claim outside the con tract. The ground of the claim is that 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) [1903] 2 K . B . 760W, (2) [1904] 1 K , B . 493, 499.
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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. " I t 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 m a n " 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. 497, 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, 233.
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in the passage quoted by Lord Birkenhead in the Cantiare case (1) from Lord President Inglis's judgment in William Watson & Co. v. Shankland (2), that judge seems to accept that FIBROSA SPOLKA the payer who had paid in advance should give credit to the AKCYJNA extent that he is lucratus by any part performance. I do not v. FAIRBAIRN wish to discuss how far, if at all, this is open in English law. LAWSON That was a case of advance freight, which Scots law treats COMBE as a prepayment on account, but I think it is clear both in BARBOUR, LD. English and Scots law that the failure of consideration which Lord Wright. 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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A N D P R I V Y COUNCIL.
73
H. L. (E.) 1942
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.
LORD ROCHE. 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 (1) [1938] A. C. 173. (2) [1940] A. C. 412. (3) [1904] 1 K. B . 493(4) Ibid. 499.
v.
74
HOUSE OF LORDS
[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 i t 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 . 4 9 3 . (3) [1921] 2 A. C. 494, 513, 519. (4) I b i d . 5 1 3 . (5) I b i d . 519.
A.C.
AND PRIVY
COUNCIL.
75
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 the 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 that 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 the 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 the 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) I b i d . 497. (3) [1903] 2 K . B . 756, 762, 764. (4) E. B. & E. 485, 492.
76
HOUSE OF LORDS
[1943]
H. L. (E.) 1942
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LD. i-ord Roche.
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.
LORD PORTER. 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 (1) 11 E a s t , 210. (2) Ibid. 219. (3) [1904] 1 K . B . 493.
A. C.
AND PRIVY COUNCIL.
77
H. L. (E.) 1942
variously stated by saying that in a case where a contract is frustrated (i.) the loss lies where it falls, and (2.) one who has paid money in advance under a contract which provides for the making of such payment cannot recover that money if the contract is afterwards frustrated. Whether either or both principles are to be found in Chandler v. Webster (1) need not be determined for the moment. The vital question is whether they are in fact accurate statements of the law. The question has given rise to much controversy, and it has been contended, on the one hand, that in case of total failure 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 . 493. (2) [1924] A. C. 226.
v.
Lord Porter.
y8
H. L. (E.) 1942
HOUSE OF LORDS
[1943]
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LD. Lord Porter.
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 . 493, 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," FAIRBAIRN 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 labour" : 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 "on 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 timeit 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 the fact that 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 . 6 5 1 , 659. (2) L. R. 2 E x . 3 1 1 .
(3) (4) (5) (6)
L. R. 6 C. P. 78. L. R. 10 C. P. 271, 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
H. L. (E.) 1942
HOUSE OF
LORDS
[1943]
v.
Lord Porter.
"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 that 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 said: "The 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 . 6 5 1 . [1903] 2 K. B . 760M, 762M. [1903] 2 K. B . 756, 764. 3 B . & S. 826.
A. C.
AND PRIVY COUNCIL.
8l
H. L. (E.) 1942
that (i) where, owing to frustration, "the contract can no "fuither 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 s are both discharged from further performance "of it. If the effect were that the contract were wiped out "altogether no doubt the result would be that money paid "under it would have to be repaid as on a failure of consider"ation. But that is not the effect of the doctrine ; it only "releases the parties from further performance of the contract. "Therefore the doctrine of failure of consideration does not "apply." 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 statementthat 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) I b i d . 501! A. C. 1943. (3) 13 Ch. D . 1, 49. (4) 5 A p p . Cas. 176
v.
Lord Porter.
82
H . L. (E.) 1942
H O U S E OF LORDS
[1943]
v.
Lord Porter.
Royal Bank of Canada v. Reg. (1). It may be urged that these were cases of borrowed money and that there was fault, though not fraud, in the borrower. I do not think that 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 itselfnot for the doing of something but for the chance that 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 that 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 that in the majority of cases the consideration fails because one party or the other fails to
(1) [1913] A. C. 283, 296. (2) 11 E a s t , 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.
AND PRIVY COUNCIL.
83
carry out his contract, but it is not the breach but the failure H. L. (E.) of consideration which enables money paid in advance to be 1942 recovered. FIBROSA The question whether the payment of the 1000/. in advance SPOLKA in the present case was a " final payment " or not depends on AKCYJNA v. no general principle of law but on the wording of the contract FAIRBAIRN in this particular case. To my mind, clearly it was not. The LAWSON COMBE contract was for the sale of machines c.i.f. Gdynia. It is true BARBOUR, LD. that there was an additional provision for the services of a skilled monteur, but, in my view, the contract would have Lord Porter. 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 falls" 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 party who has advanced money is by the ordinary rules of the common
(1) [1904] 1 K . B . 493. 3 G2
84
H. L. (E.)
1942
HOUSE OF LORDS
[1943]
v.
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 AND
APPELLANTS ; RESPONDENT.
July*, 23. ROSS
Emergency legislationHire-purchase contractPayments in arrear Agreement between parties to determine contractOwners to retake goods and refund part of money paid by hirerBargain freely entered intoNo necessity to obtain leave of courtCourts [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 t h a t 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, the hirer informed the owners that 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 June, 1941, the parties 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 ATKIN, LORD THANKERTON, LORD W R I G H T and LORD PORTER.
Page1
Gamerco SA v ICM/Fair Warning (Agency) Ltd

Queen's Bench Division 31 March 1995
Case Analysis
Where Reported
[1995] 1 W.L.R. 1226; [1995] C.L.C. 536; [1995] E.M.L.R. 263; Times, May 3, 1995 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
Case Digest
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
Page1
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd Cape Providence, The
Court of Appeal (Civil Division) 14 October 2002
Case Analysis
Where Reported
[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 Subject: Contracts Keywords: Avoidance; Equitable principles; Mistake; Rescission; Shipping Summary: mistake; rescission; contract based on mistake of fact; 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 the cancellation fee under a binding contract between the parties. T had been engaged to provide salvage 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 period or alternatively damages for wrongful repudiation of the 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 of the 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 the appeal, that precedents covering the effect of mistake on contract had historically been difficult to reconcile and the instant case provided the first opportunity to clarify the relationship between Bell and Solle. It was important to analyse the rights and obligations created by the contract before considering the effect of an alleged mistake. Bell indicated that equitable intervention such as that 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 an agreement in different 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 essentially different from that which they had contracted to provide, Solle and the cases which followed it were more concerned with circumstances where the effect of the mistake made
Case Digest
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 was valid and enforceable as far as the ordinary principles of contract law were concerned, Solle doubted and Bell applied. In the instant case, the contract between the parties was binding and upon cancellation of it, there was no injustice in the cancellation fee provided for in the contract becoming payable. Cooper considered. Judge: Lord Phillips of Worth Matravers, M.R.; May, L.J.; Laws, L.J. 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 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. 972; [2004] N.P.C. 133; Times, August 27, 2004; (CA (Civ Div)) Butters v BBC Worldwide Ltd [2009] EWHC 1954 (Ch); [2009] 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 v 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)
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Standard Chartered Bank v Banque Marocaine du Commerce Exterieur [2006] EWHC 413; (Ch D) Considered by 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. 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 ASA v Louis Dreyfus Energy 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 v Arnold [2007] EWHC 1875 (QB); [2008] P.I.Q.R. P1; [2008] LS Law Medical 78; (2007) 104(33) L.S.G. 27; (QBD)
Legislation cited
Law Reform (Frustrated Contracts) Act 1943 (c.40) Sale of Goods Act 1893 s.6 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. 2003, 3, 173-187 Litigation & dispute resolution Compromise; Costs; Disclosure; Dispute resolution; Interest; 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.
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I.H.L. 2004, 125(Nov), 65-68 Err on the right side Contract for sale of land; EC law; Good faith; Mistake; Rectification. 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. 2004, Jan, 34-58 Controversy in common mistake Charterparties; Mistake; Rescission; Void contracts. Conv. 2003, 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 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? Common mistake and frustration after Great Peace Shipping Contracts; Frustration; Impossibility; Mistake. K.C.L.J. 2005, 16, 69-98 An uncommon mistake? Charterparties; Equitable principles; Mistake; Rescission; Void contracts. K.C.L.J. 2004, 15, 127-132 Compromises and mistakes of law Compromise; Mistake of law. 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. 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,
2 K. B.
683
[IN THE COURT OF APPEAL.]
0. A:
HEBNE BAY STEAM BOAT COMPANY v. HUTTON.

ShipNaval ReviewContract of HiringSpecific PerformanceFailure of ConsiderationLiability of HirerDemise of Ship. In consequence of the public announcement of an intended Eoyal 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 June 28 to take passengers from Herne Bay " for the purpose of viewing the naval review and for a day's cruise round the fleet; also on June 29 for similar purposes: price 2502. payable, 501. down, balance before ship leaves Herne Bay." On the signing of the agreement the defendant paid the 501. deposit. On June 25 the review was officially cancelled, whereupon the plaintiffs wired to the defendant for instructions, stating that the ship was ready to start, and also requesting payment of the balance. Receiving no reply, the plaintiffs, on June 28 and 29, used the ship for their own purposes, thereby making a profit. On June 29 the defendant repudiated the contract in toto. During the 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 the sole basis of the contract, so that there had been no total failure 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.
*903P
Aug. G.
THE plaintiffs were owners of a steamboat called the 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 Spitheadwhich it had been publicly announced would be held on June 28and also for trips round the fleet, entered into negotiations for that purpose with the plaintiff company through Mr. Henry C.
684 C. A. 1903
[1903]
Jones, a director and the secretary of the company. Ultimately, on May 23, 1902, the following agreement, signed HBBSE BAY by both parties, was entered into between the defendant and S Com?T4T J o n e s : " T h e Cynthia to be at Mr. Hutton's disposal at an " approved pier or berth at Southampton on the morning of June 28, perils of the sea, &c, permitting, to take out a party, 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 Sunday, June 29th, for similar purposes. Owners to provide crew, coals, and all necessary assistance. Mr. Hutton to pay all tolls, pier dues, &c. Owners to have the right of ten persons above crew, &c, on board. Price 250J. payable, 50Z. down, balance before ship leaves Herne Bay." It was also agreed that the plaintiffs should cater for the passengers during the two days at so much a head. Upon the signing of the agreement the defendant paid Jones the 50Z. deposit. Considerable correspondence then 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 passengers, and other matters: the plaintiffs, moreover, assisted the defendant in the disposal of tickets and in posting notices of the intended trips. Ultimately, on June 23, Mr. Jones wrote to the defendant requesting payment of the balance of 200Z., and also asking for a definite statement as to the number of people to be catered for, but received no reply. On June 25, 1902, the official announcement cancelling the review was published, whereupon, the ship being then af Herne Bay, Jones wired to the defendant's address, " What about Cynthia ? She ready to start six to-morrow. Waiting cash," but received no answer, and accordingly the plaintiffs decided that the ship should resume, her ordinary sailings between Herne Bay and places on the Thames, which she did, and the plaintiffs made profits thereby on June 28 and 29. On June 29 the defendant called on Jones and stated that, as the review had been cancelled, he did not require the use of the
2 K. B.
KING'S BENCH DIVISION. 0. A. 1903
685
ship, and he therefore declined to pay the balance of 2001. or to have anything more to do with the agreement.
On the two days in question, although the review was HEBNE BAY cancelled, the fleet remained anchored at Spithead.
On July 7, 1902, the plaintiffs issued the writ in this action
HuTTOX.
claiming the balance of 2001. under the agreement. 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 at his disposal at Southampton, 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 June 22 and July 2, inclusive. The defendant further alleged that it was a condition of the agreement, either expressed or implied, that the naval review should take place on June 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 that they provided a crew, obtained coals, and prepared the ship for the use of the defendant, but that according to the terms of the agreement she was not to leave Herne Bay until payment of the balance of the agreed price; and that they did not run the ship until after the defendant had 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. It appeared that the plaintiffs made a profit of 90Z. on their running of the ship.during 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 the defendant on the claim, with costs, and for the plaintiffs
686 C.A. 1903
[1903]
on the counter-claim, with costs, but execution was stayed to enable the plaintiffs to appeal. The plaintiffs appealed from so much of the judgment as
refused their claim
HUTTON.
The appeal was heard on August 6, 1903.
Montague Lush, K.C., and A. S. Poyser, for the plaintiffs. It cannot be said that this contract was altogether impossible 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 contract under 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. The contract really operated as a demise of the ship. Again, the payment of the money did not depend upon the happening of the contemplated event at all, for it was to be paid before the ship left Herne Bay. The defendant cannot be permitted to import into the contract a stipulation that, if he did not see all he wanted to see, he was not to pay. It is well settled that, where there is a positive contract to do a thing, the contractor must perform it or pay damages, although in consequence of unforeseen accidents the performance of his contract has become unexpectedly burdensome or even impossible ; and that the contract is not subject to any condition either express or implied: Taylor v. Caldwell. (1) The motive for the contract must not be mixed with the consideration; the one has nothing to do with the other: Besant v. Wood. (2) Therefore failure of the motive does not make the consideration fail. There is no principle upon which the plaintiffs should be treated as if they had never made a contract. E. W. Hansell, and 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 nomineesa 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. D. 605, 617.
2 K. B.
687
The true effect and meaning of the contract and the sole object 0. A. of it was that the ship should be a review-visiting ship ; but as 1903 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 S c o ^ ^ really one impossible of performance: Nickoll v. Ashton. (1) v. The principle of Taylor v. Cdldioell (2)that where the existence of a particular person, or thing, or state of things, can be regarded as the very foundation of the transaction, it may be implied that if the foundation fails, the transaction based on it ceases to be effectualapplies equally to the non-happening of a particular event. In short, the eventual non-existence of the subject-matter of a contract excuses the parties from performance : Hobson v. Pattenden. (3) [VATJGHAN WILLIAMS L.J. In Jackson v. Union Marine Insurance Co. (4) the rule in Taylor v. Caldwell (2) was held to apply although there was no certum corpus.] The rule in Taylor v. Caldwell (2) is not limited to a case in which the certum corpus has been destroyed: it has been extended to a case where the certum corpus is not capable of being used; and it has 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 upon the happening of the particular event, just as much as upon the continuation at a future date of a thing at present existing. The review was abandoned before there was any breach of contract, and that excused both parties. As to the contract operating as a demise of the ship, it has been held that a charter is not a demise : Scrutton on Charterparties and Bills of Lading, p. 6, citing Dean v. Hogg (5) and Lucas v. Nockells. (6) This was merely a conditional licence to the defendant to put a certain number of people on board this steamer. Moreover, 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. 126,133. (2) 3 B. & S. 826. (5) (1834) 10 Bing. 345 ; 38 R. R 443.
(3), (1903) 88 L. T, 90; 19 Times (6) (1828) 4 Bing. 729; 29 R. R. L. K.186. 721. (4) (1874) L. R. 10 C. P. 125.
688 C. A. 1903
[1903]
nominees of the plaintiffs should be taken on board: so that it was in reality a joint speculation, and in point of fact the HERNE BAY plaintiffs were themselves instrumental in selling tickets and STEAM BOAT j n issuing notices of the intended trips. Again, the plaintiffs . have themselves virtually repudiated the contract, for they chose to use the ship for their own purposes on the days in question. (1)
VAUGHAN WILLIAMS L.J. In my opinion this appeal must be allowed. I wish first to call attention to this, that what the 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. That actual sum, in my judgment, 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 my judgment there was, in this case, before the time came for the performance of the contract, a plain repudiation by the defendant of his obligations under it; and this is in fact admitted. He refused to carry out the contract on his part, and the plaintiffs, acting very properly in the circumstances, employed the steamer on her usual daily services, and made what profit they could out of her during the two days they intended by the contract that the defendant should have the use of the vessel. Under these circumstances the 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 2001., but that sum less the profit made by the plaintiffs from having the use of the ship after the repudiation of the contract by the defendant. These damages, I think, the plaintiffs are entitled to recover. In my opinion, this contract really placed the vessel at the disposal of the defendant for these particular days. The contract, which was signed by Mr. Jones, acting for the owners of the ship, runs thus: [The Lord Justice read it, and continued:] According to my understanding of this con(1) See Elliott v. Crutchley, ante, p. 476, and Krell v. Eenry, post, p. 740.
2 K. B.
689
tract, this ship was placed at the disposal of Mr. Hutton really C. A. for those two days. Mr. Hansell says this does not constitute 1903 a demise of the ship, and with that I agree. It is1 very rarely HEBNE BAY that a charterparty does contain a demise of a ship. Generally COMPANY*1 speaking, the ship is not demised at all, but remains under the " management and control of her owner. But at the same time this contract does, in my opinion, place the ship at the disposal wmiams L.J. of Mr. Hutton, just as a charterparty places the vessel, the subject of it, at the disposal of the charterers. That being so, what is. there besides in the present case? Only this, that Mr. Hutton, 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 seem to me that because, as it is said, those purposes became 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 v. Caldwell, (1) On the "contrary, when the contract is properly regarded, I 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 contract. I will content myself with saying this, that I see nothing that makes this contract differ from a case where, for instance, a person has engaged a brake to take himself and a 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 not be said that he could be relieved of his bargain. So in the present case it is sufficient to say that the happening of the naval review was not the foundation of the contract.
(1) 3 B. & S. 826.
690 C. A. 1903
[1903]
E O M E E L . J . I am of the same opinion. I may point out that this case is not one in which the HEBNE BAY subject-matter of the contract is a mere licence to the defendS ^ P ^ T a n * * u s e a s hip f r the purpose of seeing the naval review * and going round the fleet. I n my opinion, as my Lord has said, it is a contract for the hiring of a ship by the defendant for a certain voyage, though having, no doubt, a special object, namely, to see the naval review and the fleet; but it appears to me that the object was a matter with which the defendant, as hirer of the ship, was alone concerned, and not the plaintiffs, the owners of the ship. T h e case cannot, in my opinion, be distinguished in principle from many common cases in which, on the hiring of a ship, you find the objects of the hiring stated. Very often you find the details of the voyage stated with particularity, and also t h e nature and details of the cargo to be carried. If t h e voyage is intended to be one of pleasure, the object in view may also be stated, which is a matter that concerns the passengers. B u t this statement of the objects of the hirer of the ship would not, in my opinion, justify him in saying that the owner of the ship had those objects just as much in view as the hirer himself. The owner would say, " I have an interest in the ship as a passenger or cargo carrying machine, and I enter into the contract simply in that capacity; it is for the hirer to concern himself about the objects." I n the present case, with regard to the suggestion that there was something in the stipulation that the plaintiffs were to have the right on their part of placing ten persons on board, which would change the nature of the hiring, I need only say that there is nothing in that provision to lead the Court to treat the transaction otherwise than as an ordinary case of hiring a vessel: it does not make it in any sense a joint speculation or anything of that sort. T h e stipulation that the owners are " to have the right of ten persons above crew, & c , on board " only amounts to this, that in the eye of the law the defendant as the hirer of the ship licenses the owner to send ten persons on board. The view I have expressed with regard to the general
2 K. B.
KING'S BENCH DIVISION
691
effect of the contract before us is borne out by the following C. A. considerations. The ship (as a ship) had nothing particular 1903 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 S c E 0 ^ . ^ T carrying passengers would have done equally, as well. Just as _ in the case of the hire of a cab or other vehicle, although the object of the hirer might be stated, that statement would not make the object any the less a matter for the hirer alone, and would not directly affect the person who was letting out the vehicle for hire. In the present case I may point out that it cannot be said that by reason of the failure to hold the naval review there was a total failure of consideration. That cannot be so. Nor is there anything like a total destruction of the subject-matter of the contract. Nor can we, in my opinion, imply in this contract any condition in favour of the defendant which would' enable him to escape liability. A condition ought only to be implied in order to carry out the presumed intention of the parties, and I cannot ascertain any such presumed intention here. It follows that, in nay 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 subject-matter or essence of this contract. With regard to the one contention of fact on which the defendant relied, namely, that the plaintiffs, the owners of the ship, had on their part put themselves in the position of not having been able to carry out the contract, and so repudiated it, I can only say that the defendant has not proved his case.
STIKLING L.J. I am of the same opinion. The plaintiffs are owners of a steam vessel for carrying passengers from Herne Bay to Gravesend and other places on the Thames. The defendant is a gentleman who seems to have formed the idea of making a profit by the conveyance of passengers on June 28 and 29 from Southampton 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
692 C. A. 1903
[1903]
posting notices of what was proposed to be done, yet the risk was entirely that of the defendant. 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 the defendant for the purpose of this venture, which, as I say, was his alone. The contract was reduced
Stirling L.J. . . .
into writing. I need not read it again, but the most material part is that the vessel is to be " at Mr. Hutton's disposal" to take out the party of passengers. I agree that this contract 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 the plaintiffs to prevent it. That is established by De Mattos v. Gibson. (1) It is said that, by reason of the reference in the contract to the " naval review," the existence of the review formed the basis of the contract, and that as the review failed to take place the parties became discharged from the further performance of the contract, in accordance with the doctrine of Taylor v. Caldwell. (2) I am unable to arrive at that conclusion. It seems to me that the reference in the contract to the naval review is easily explained ; it was inserted in order to define more exactly the nature of the 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 v. Caldwell. (2) I come to this conclusion the more readily because the object of the voyage is not limited to the naval review, but also extends to a cruise round the fleet. The fleet was there, and passengers might have been found willing to go round it. It is true that in the event which happened the object of the voyage became limited, but, in my opinion, that was the risk of the defendant whose venture the taking the passengers was.
(1) (1859) 4 De G. & J. 276. (2) 3 B. & S. 826.
2 K. B.
693
For these reasons I am unable to agree with the learned C. A. judge in holding that in the contemplation of the parties the 190:; taking place of the review was the basis for the performance of H EBNE the contract, and I think that the defendant is not discharged S from its performance. I also agree that there is no evidence that the plaintiffs ' (repudiated the contract before any breach by the defendant. Appeal allowed. Solicitors : Jones & Hamp ; Biggs-Boche, Saiotjer d^Co.
G. I. F. C.
THE KING v. BEEE.

Municipal CorporationCouncillorDisqualification for " holding " Office BankruptcyRemedy by Quo WarrantoMunicipal Corporations Act, 1882 (45 & 46 Viet. c. 50), ss. 12, 87Bankruptcy 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 the office of councillor, a disqualification limited by s. 9 of the Bankruptcy Act, 1890, to five years from the date of discharge. By s. 87 of the 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 a 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 disqualification not merely for election, but also for "holding" the office of councillor, <juo warranto would lie. NISI for an information in the nature of a writ of quo warranto calling upon one George Beer to shew by what right
VOL.
1903
May 22, 25,
28.
II. 1903.
3 A
Page1
J Lauritzen AS v Wijsmuller BV (The Super Servant Two) Super Servant Two, The
Court of Appeal (Civil Division) 12 October 1989
Case Analysis
Where Reported
[1990] 1 Lloyd's Rep. 1; Times, October 17, 1989; Independent, October 30, 1989; Financial Times, October 24, 1989 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.
Case Digest
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.
Page3
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
154
HOUSE OF LORDS
[1842]
[HOUSE OF LORDS.]
H. L. (E.) * JOSEPH
T TXT _.
CONSTANTINE
T
STEAMSHIP , A
y APPELLANTS ;
i94i
Feb. 20, 2 i ;
LINE, LIMITED
.
AND
j
n
May 9.
T TUTTun
IMPERIAL SMELTING CORPORATION, ) LIMITED )
\ RESPONDENTS.
ShipCharterpartyFrustrationExplosion on shipNo evidence of cause Liability of shipownersOnus of proof. 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 the 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 the 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 due 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 had frustrated the chartered voyage. The cause of the explosion was not ascertained : Held, that the shipowners, having established t h a t the explosion had frustrated the commercial object of the adventure, were not bound to prove further that the explosion was not due t o their neglect or default, and the defence of frustration succeeded. Decision of the 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 and 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, LD. 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 that 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 that the true cause of the disaster "has 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.
156 H. L. (E.)
1941
J OSEPH
H O U S E OF LORDS
[1942]
CONSTANTINE STEAMSHIP LINE, L D .
i'.
IMPERIAL SMELTING CORPORA TION, L D .
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. (3) U939) 44 C m ' Cas. 345. (4) [1919] A. C. 435. (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." ST ANTINE S That has been introduced into the law of contract, but it is an SLTI E A M LH I P NE, D . 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. 1941. 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. 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
H. L. (E.) 1941
JOSEPH CONSTANTINE STEAMSHIP LINE, L D .
HOUSE OF LORDS
[1942]
v.
IMPERIAL SMELTING CORPORA TION, L D . Viscount Simon L.C.
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.
159
H. L. (E.) 1941
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. 812. (2) (1883) 11 Q. B. D . 440, 456.
v.
IMPERIAL SMELTING CORPORATION, L D . Viscount Simon L.C
i6o H. L. (E.) 1941

JOSEPH CONST ANTINE STEAMSHIP LINE, L D .
H O U S E OF LORDS
[1948]
v.
IMPERIAL SMELTING CORPORATION, L D .
Viscount Simon L.C.
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 that 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 that 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 that 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. 826. (4) [1935] A- C. 524, 530, 53*
A. C.
AND PRIVY
COUNCIL.
161 H. L. (E.) 1941

"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 "due 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 negativein some cases, indeed, a whole series of negatives. Suppose that 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. (2) [1926] A. C. 497, 507. A. C. 1942. (3) (1881) 6 A p p . Cas. 38, 5 3 . M
v.
l62 H. L. (E.) 1941

JOSEPH CONSTANTINE STEAMSHIP LINE, LD.
H O U S E OF LORDS
[1942J
v.
IMPERIAL SMELTING CORPORATION, L D . Viscount Simon L.C.
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.
163 H. L. (E.) 1941

" 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 that 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 wayssometimes 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 casesnowhere 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. 839. (2) [1916] 2 A. C. 397, 43. 443 M 2
v.
164 H. L. (E.) 1941

JOSEPH CONSTANTINB STEAMSHIP LINE, L D .
HOUSE OF LORDS
[1942]
v.
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.
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I65 H. L. (E.) 1941

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 . 292. (2) (1874) L . R . 10 C. P . 125. (3) I b i d . 142, 144.
v.
IMPERIAL SMELTING CORPORA TION, L D . Viscount Simon L.C
i66
H. L. (E.) 1941
H O U S E OF LORDS
[1942]
v.
Viscount Simon L.C.
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 that 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. "Default" 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. 572. (2) Ibid. 581. (3) Ibid. 572. (4) Ibid. 573.
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167 H. L. (E.) 1941

V.
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.
VISCOUNT MAUGHAM. 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.
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
i68
H. L. (E.) 1941
HOUSE
OF
LORDS
[1942]
v.
Viscount Maugham.
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 that 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 that 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. 826. (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 that 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 that, 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) [1916] 2 A. C. 397. 423*
v.
Viscount Maugham.
170 H. L. (E.) 1941

HOUSE OF LORDS
[1942]
v.
Viscount Maugham.
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 that 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 that the arbitrator, therefore, had
(1) [1926] A. C. 4 9 7 , 5 0 5 , 5 0 7 , 5 0 9 ,
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JOSEPH CONSTANT1NE STEAMSHIP LINE, LD.
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 automaticallyfor 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 the other party 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 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 " : 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) [1919] A. C. 4 3 5 , 4 5 2 .
v.
Viscount Maugham.
172 H. L. (E.) 1941

H O U S E OF LORDS
[1942]
v.
IMPERIAL SMELTING CORPORA TION, L D . Viscount Maugham.
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 contract automatically comes to an end irrespective of the wishes of either party, provided only that the event is "caused by "something for which neither party was responsible" (see Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (2)) I can see no firm ground for the proposition that the 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 judgment of Scott L.J. in the present case.) Such a proposition seems to me to be equivalent to laying down that the determination of the contract by frustration is not the automatic result of the event, but is dependent on the option of the parties, for neither party can be compelled to call evidence to prove affirmatively that the cause was not due to his default. Such a view is not, in my opinion, reconcilable with the 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 different, circumstances. First, in cases resembling the present where there has been the destruction of a specific thing necessary for the performance of the contract. Secondly, where performance becomes virtually impossible owing to a change in the law. Thirdly, where circumstances arise which make the performance of the contract impossible in the manner and at the time contemplated. Fourthly, where performance becomes impossible by reason of the death or incapacity of a party whose continued good health was essential to the carrying out of the contract. There may be other categories, and I have not forgotten the coronation and the review cases, of which Krell v. Henry (4) is the leading example, but they do not come within the same principle of impossibility, and I do not desire to express any opinion about them. Taking the 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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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, to the view that it would be JOSEPH CONunreasonable, if not absurd, to lay on the person relying on STANTINE frustration the onus of proof that he was not responsible for the STEAMSHIP LINE, L D . event. In the first category we have the case of fire. v. IMPERIAL Destruction of a building by fire is generally due to someone's SMELTING fault or negligence. If the owner of a large building, in which CORPORA TION, L D . he employs many persons, sets up the doctrine of frustration Viscount on the ground of the destruction of the building by fire, it Maugham. may be quite impossible for him to prove affirmatively that one of his employees who has left his service was not guilty of default. If both the plaintiff and the defendant have had duties to perform in the building under the terms of the contract, the cause of the fire may be due to 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, it may be mere accidental circumstances which cause one party rather than the other to rely on the doctrine. If the destruction of the thing is due to earthquake, volcanic action, flood, storm, lightning, restraint of princes, change in the law and so forth, it would seem to be absurd to apply the suggested doctrine of onus except in very unlikely circumstances. This shows, at 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 yet suggested that, if the person promising the personal service is alive and sets up frustration, he must show that his illness was not due to some rash act on his part. Nor, if the promisor is dead, would it, I think, be reasonable to expect his legal personal representative to prove absence of some default leading to the disaster. My 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 the vessel in this case, or in any case of true frustration, does not throw on the plaintiff or claimant the burden of proving something which it may be
174
H. L. (E.) 1941
HOUSE OF LORDS
[1942]
v.
Viscount Maugham,
impossible in practice to prove. The term or condition is not for the benefit of one party rather than the other. As I have already indicated, it is usually impossible at the date of the contract to know, if frustration of the adventure takes place, which of the two parties will desire to rely on the doctrine. In these circumstances I cannot see why a court should decide that the parties ought to be presumed to have intended that the ordinary rules as to onus of proof ought not to apply. After all, the question is essentially one of common sense as 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 to exist, to be entitled to sue the other for damages based on his failure to perform the impossible ? The law intervenes with the doctine of frustration, and declares that the contract is at an end. Is the doctrine subject to the condition as to onus of proof which the Court of Appeal thinks should be implied ? To my mind, that is a condition which is artificial and which may operate in some cases with great injustice, and your Lordships have not heard any sufficient reason for thinking that it forms, or ought to form, part of the rule. For the reasons above stated I have come to the conclusion, with all respect to the Court of Appeal, that their view is incorrect and ought not to prevail. Agreeing with the learned trial judge, I think the burden of proof in any particular case depends on the cirumstances under which the claim arises. In general the rule which applies is "Ei qui affirmat non ei qui "negat incumbit probatio." It is an ancient rule founded on considerations of good sense and it should not be departed from without strong reasons. The position as to proof of nonresponsibility for the event in such a case as the present is not very different from the position of a plaintiff in an action for negligence where contributory negligence on his part is alleged. In such a case the plaintiff must prove that there was some negligent act or omission on the part of the defendant which caused or materially contributed to the injury, but it is for the defendant to prove affirmatively, if he so contends, that there was contributory negligence on the part of the
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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). The mere circumstances JOSEPH CONof the occurrence which led to the event may be sufficient to STANTINE supply prima facie evidence that the plaintiff is himself STEAMSHIP LINE, L D . responsible for it, but if that is not so it is for the 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 in a case where frustration is prima facie established, Viscount since the voyage admittedly became impossible, we still have Maugham. to determine whether the facts found in the special case, in the absence of further evidence as to the cause of the explosion, are sufficient to lead to the conclusion that the appellants were to blame for the disaster. The respondents plainly were in no way to blame. The explosion of the auxiliary 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 circumstance must 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. They so pleaded in the belief 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. 7 of the charterparty. This view of the law was, I think, ill-founded. Atkinson J. so decided, and the appellants have not contended that his decision in that respect was erroneous. But it would seem clear that the appellants were endeavouring to establish affirmatively in the arbitration that their own servants were to blame, and it may be remarked that no weight can, therefore, be attached to the fact that the donkeyman was paid off in Australia three weeks after the explosion. Your Lordships have, of course, no knowledge of the course pursued as regards calling evidence in the arbitration. All that is known is that evidence was called,
(1) (1886) 12 A p p . Cas. 4 1 . (2) 11 Q. B . D . 440, 456.
176
H. L. (E.) 1941
HOUSE OF LORDS
[1942]
v.
Viscount Maugham.
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 latent defect in the boiler not discoverable by due diligence, or that, if there were such a defect, it caused or contributed to the explosion of the boiler. It is true that he also stated 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, in my view, amounts to a finding that, notwithstanding the evidence, there was a possibility that there had been negligence or default on the part of the servants of the appellants. If, however, I am right in the 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 of frustration. 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 case of contracts the performance of which is necessarily dependent on the continued existence, or the continued existence in a sound condition, of a person or thing. In the 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. For convenience' sake I will refer to this cesser of existence as the destruction of the corpus. 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 charterparty. The answer 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.
LORD RUSSELL OF KILLOWEN
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177
The respondents contend that it must be affirmatively H. L. (E.) established, as a condition precedent to the application of the 1941 doctrine in the promisor's favour, that, in respect of the JOSEPH destruction of the corpus, he is free from fault or default. In STANTINE other words, he must prove that he is not responsible for that STEAMSHIP r r
. LINE, LD.
destruction. The appellants contend that 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
v.
SMELTING CORPORATION, LD.
]JOT& Russell
destruction.
T.,
The rival contentions may be stated t h u s :

n it T MI 1
(1.) The appellants say: Frustration will excuse unless of Kiuowen. " i t is proved to be self-induced." (2.) The respondents 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 correct. In coming to this conclusion I am influenced by three considerations. First, the proving of a negative, a task always difficult and often impossible, would be a most exceptional burden to impose on a litigant. Secondly, I know of no case of frustration in the books, in which an attempt has been made, or called for, to prove the suggested negative. Thirdly, 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 words : " 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 " t h e perishing of the person or thing shall excuse the per"formance." No mention is there made of absence of fault or default. It is true that in an earlier part of his judgment (2) he said that such a contract was to be construed as " subject " t o an implied condition that the parties shall be excused " i n 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
H. L. (E.) 1941
JOSEPH CONSTANTINB STEAMSHIP LINE, LD.
HOUSE OF LORDS
[1942]
v.
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 . 440, 456.
A. C.
AND PRIVY COUNCIL.
ljry
H . L. (E.) 1941
JOSEPH
"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
CONSTANTINE STEAMSHIP LINE, LD.
v.
i8o H. L. (E.) 1941

JOSEPH CONSTANTINE STEAMSHIP LINE L B .
HOUSE
OF LORDS
[19481
v.
IMPERIAL SMELTING CORPORA TION, L D . Lord Wright.
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
A. C.
AND PRIVY
COUNCIL.
181 H. L. (E.) 1941

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 "yet 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.
v.
182 H. L. (E.) 1941

JOSEPH CONSTANTINE STEAMSHIP LINE LD.
H O U S E OF LORDS
[1942]
v.
Lord Wright.
"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 that 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 party." 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 that 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.) 733, 7 4 1 .
A. C.
AND PRIVY COUNCIL.
183
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 object does indeed exist, but its condition has by some casualty JOSEPH 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 good as lost. Another case, often described as frustration, is CoRI>RA0
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.
184 H. L. (E.) 1941

HOUSE
OF
LORDS
[1942]
v.
Lord Wright.
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 "contract." I am not clear what "if he m a y " means. It may mean " legally may," but the reference to inevitable accident seems inconsistent with reading "if he m a y " 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. 826. (2) (1647) Aleyn, 26. (3) [1926] A. C. 497- 5 i o . (4) (.1:856) 5 H . L. Cas. 673, 6S1.
A. C.
AND PRIVY COUNCIL.
185
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
HOUSE OF LORDS
[1942]
H; L. (E.) "which is one that they did not really make. If it were not 1941 "so, a doctrine designed to avert unintended burdens would JOSEPH "operate to enable one party to profit by the event and to 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, for the SMELTJNG " purpose of giving effect to them." CORPORAJ have quoted these statements of law to emphasize that the r
TION, LD. ^
court is exercising its powers, when it decides that a contract 01 !? ' 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. 5io(2) [1919] A. C. 435, 445. (3) 3 B . & S. 826. (4) [1916] 2 A. C. 397, 403. (5) [1919] A. C. 435. (6) [1926] A. C. 497-
A. C.
AND PRIVY COUNCIL.
187
the question is still open in English law, I should prefer to H. L. (E.) rest the 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
, . , , , , . . , . LINE, LD.
v.
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 that 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
SMELTING CORPORATION, LD.
- g
(1) [1941] A. C. 108.
i88
H. L. (E.) 1941
HOUSE OF
LORDS
[1942]
v.
Lord Wright.
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 that aspect here. There are no exceptions to be considered. Scott L.J. seems, however, to be leading up to the proposition that frustration is the only
(1) [1926] A. C. 407. (2) [1919] A. C. 435.
A. C.
AND PRIVY COUNCIL.
189
possible defence, and then excluding it, not on the ground H. L. (E.) that the appellants cannot rely on their own fault if that 1941 had been proved, but on the ground that, though no fault JOSEPH was proved, they had not affirmatively proved absence of STANTINE fault. I think that the Lord Tustice is basing his decision STEAMSHIP
J
LINE, L D .
on the view that affirmative proof of absence of fault is an essential part of the case of the party relying on frustration, so that, if he fails to establish it, there is no case to go
0
.
SMELTING CORPORATION, L D . Lord Wright.
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 question, are very rare in the English reports. In the 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 not raise the question. " I think it is "now well settled that the principle of frustration of an " adventure assumes that the frustration arises without blame " o r fault on either side. Reliance cannot be placed on a " self-induced frustration; indeed, such conduct might give " t h e other party the option to treat the contract as repudiated." In Mertens v. Home Freeholds Co. (2), a builder was sued for damages for failing to complete a building which he had agreed to erect. He pleaded by way of defence that he was discharged from further performance b y a refusal of the Minister of Munitions to give a licence to proceed under the Defence of the Realm Regulations existing in 1916. The defendant had applied for a licence, but it was refused because he had intentionally (as it was found), in order to get out of a losing contract, delayed in the work. I t was held by the Court of Appeal, reversing the decision of the Divisional Court, that the defence failed. Lord Sterndale M.R., without any precise
(1) [1919] A . C. 452. (2) [1921] 2 K . B . 526.
190 H. L. (E.) 1941

V.
H O U S E OF LORDS
[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 the 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. 5 3 i (4) Ibid. 530.
A. C.
AND PRIVY COUNCIL.
191
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 "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 CRPRAelements to be considered: (1.) impossibility or frustration under the contract and the facts, and (2.) the causation of that - g 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 that 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 App. Cas. 38.
LINE, LD.
192 (H. L. E.)

1941 JOSEPH CON STANTS NE STEAMSHIP LINE, L D .
HOUSE OF LORDS
[1942]
v.
But I do not desire to decide the question in this appeal on that 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, the 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 the 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 t h e loss of a ship which h a d sunk STEAMSHIP
LINE, L D .
through causes not explained. The defence was that the ship was unseaworthy. The underwriters showed facts which raised a presumption in favour of unseaworthiness, and shifted at that
r x
.
SMELTING CORPORATION, L D . Lord Wright.
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 that 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 that 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 that the master did not receive and ignore
(1) [1901] A. C. 362. A. C. 1942. 3 O
194
H. L. (E.) 1941
H O U S E OF LORDS
[1942]
v.
IMPERIAL SMELTING CORPORATION, L D .
Lord Wright.
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 lawM on the custom of the realm, like that 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) [1901] A. C. 362. (2) [1937] 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, L D .
special contracts or statutes. They do not give any support . for the rule adopted by the Court of Appeal. SMELTING The Court of Appeal do not define what in this context is the CORPORAr r
TION,
LD.
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 "fault" 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
: -*
196
H. L. (E.)
HOUSE OF LORDS
[1942]
1941
JOSEPH CONSTANTtNE STEAMSHIP LINE, LD.
v.
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.
LORD PORTER. 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, that 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 that there had been a breach of contract for which the shipowners were liable in damages.
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 the "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, L D . "did 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 that 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, "was 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,"
198 H. L. (E.) 1941

H O U S E OF
LORDS
[1942]
v.
Lord Porter.
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 that 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. 826. 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 . 740. (6) L. R . 10 C. P . 125. (7) I b i d . 145, 148.
A . C.
199 H. L. (E.) 1941

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 party or the other, no difficulty arises, but if the view were to prevail that the party alleging frustration has
(1) (1597) Cro. Eliz. 552, 553. (2) 3 B . & S. 826, 832. (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.
v.
Lord Porter.
200 H. L. (E.) 1941

H O U S E OF LORDS
[1942]
v.
Lord Porter.
to prove that neither party is in fault he would be in consider able difficulty. Not only would he have to prove that 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 that 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" t i o n " 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 E x , 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 the 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, v. IMPERIAL it has still to be determined whether it must be established that SMELTING that perishing was without fault of the parties. The words CORPORATION, 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. Each side claimed support for its argument in the fact that in no case has the present contention been put forwardthe 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 contract: 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 party." 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.
202
HOUSE OF LORDS
[1942]
H. L. (E.)
1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D . v. IMPERIAL SMELTING CORPORA TION, L D . Lord Porter.
" 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 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 that 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.
A N D PRIVY
COUNCIL.
203 H. L. (E.)
1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .
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. 125. (2) Aleyn, 26. (3) (1809) 10 East, 530.
v.
IMPERIAL SMELTING CORPORATION, L D . Lord Porter.
204
H . L. (E.) 1941 JOSEPH CONSTANTINE STEAMSHIP LINE, L D .
HOUSE OF LORDS
[1942]
v.
IMPERIAL SMELTING CORPORA TION, L D . Lord Porter.
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 the 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). But 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. 8 3 3 . (2) L . R . 9 Q. B . 462. (3) (1870) L . R . 6 Q . B . 115. (4) (1884) 12 Q. B . D . 6 0 3 . (5) (1870) L . R . 5 C. P . 5 8 5 .
A. C.
AND PRIVY COUNCIL.
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 that 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 party." 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.
v.
IMPERIAL SMELTING CORPORA TION, LD.
[HOUSE O F LORDS.] H. L. (E.)*

1941 Sept. 18, 19, 22 ;
LIVERSIDGE
AND
APPELLANT;
SIR JOHN ANDERSON AND ANOTHER
. RESPONDENTS.
Nov. 3.
Emergency legislationDetention of personBelief of Secretary of State that person of hostile associationsCause for beliefPowers of courtDefence {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 cannot inquire whether in fact the Secretary of State had reasonable grounds for his belief. The matter 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 had reasonable cause to believe the 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. The 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 burden of establishing that the order is invalid : So held, affirming the decision of the Court of Appeal, Lord Atkin dissenting. APPEAL 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
* Present: VISCOUNT MAUGHAM, LORD ATKIN, LORD MACMILLAN, LORD W R I G H T , and LORD ROMER.
740
[1903]
[IN THE COUET OF APPEAL.] 15;' Aug. 11.
114>
KEELL v. HENEY.
ContractImpossibility of PerformanceImplied Condition-Necessary InferenceSurrounding CircumstancesSubstance of Contract Coronation ProcessionInference that Procession would pass. 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 it had been announced that 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 J.), 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 for 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. The plaintiff, Paul Krell, sued the defendant, C. S. Henry, for 50Z., being the balance of a sum of 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 counterclaimed 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 instrucAPPEAL
2 K. B.
741 C. A. 1903
tions with his solicitor to let his suite of chambers at 56A, Pall Mall on such terms and for such period (not exceeding six months) as he thought proper. On June 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. The defendant interviewed the housekeeper on the subject, when it was pointed out to him what a good view of the 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 June 20 the defendant wrote the following letter to the plaintiff's solicitor: " I am in receipt of yours of the 18th instant, inclosing form of agreement for the suite of chambers on the third floor at 56A, Pall Mall, which I have agreed to take for the two days, the 26th and 27th instant, for the sum of 75/. For reasons given you I cannot enter into the agreement, 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) of the 26th and 27th instant. You may rely that every care will be taken of the premises and their contents. On the 24th inst. I will pay the balance, viz., 50/., to complete the 75/. agreed upon." On the same day the defendant received the following reply from the plaintiff's solicitor: " I am in.receipt of your letter of to-day's date inclosing cheque for 2SZ. deposit on your agreeing to take Mr. Krell'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 not the nights), the balance, 50/., to be paid to me on Tuesday next the 24th instant." The processions not having taken place on the days originally appointed, namely, June 26 and 27, the defendant declined to pay the balance of 50/. alleged to be due from him under the? contract in writing of June 20 constituted by the above two letters. Hence the present action.
VOL. II.
1903.
3D
742 C.A. 1903 ""
[1903]
Darling J., on August 11, 1902, held, upon the authority of Taylor v. Caldwell (1) and The Moorcock (2), that there was an implied condition in the contract that the procession should take place, and gave judgment for the defendant on the claim and counter-claim. The plaintiff appealed. Spencer Bower, K.C., and 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 that the price to be paid for the rooms was fixed with reference to the expected procession. Darling J. held that both the claim and the counter-claim were governed by Taylor v. Caldwell (1), and that there was an implied term in the contract that the procession should take place. It is submitted that the learned judge was wrong. If he was right, the result will be that in every case of this kind an unremunerated promisor will be in effect an insurer of the hopes and expectations of the promisee. Taylor v. Caldwell (1) purports to be founded on two passages in the Digest. But other passages in the Digest are more 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. [VAUGHAN WILLIAMS L.J. The English cases have extended the doctrine of the Digest.] The limits of the extension are(1.) the not coming into being of a thing which was not in existence at the date of the contract; (2.) the case of a thing, e.g., a ship, or a person in a contract for personal service, being incapacitated from doing the work intended. In order that 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. B.
KING'S BENCH DIVISION. c. A. 1903
743
the defendant. But there has been no physical extinction of the subject-matter, and the performance of the contract was quite possible. Eule 1, laid down in Taylor v. Caldwell (1), and not rule 3,- is the rule that regulates this' case; Eule 1 is directly in the plaintiff's favour, for here the contract was positive and absolute. In that case the music hall which was the subject of the contract had been burnt down, so that performance of the contract by either party had become impossible. [VAUGHAN WILLIAMS L. J. referred to Wright v. Hall. (2)] The cases which will be relied on for the defendant are all distinguishable from the present case. Applehy v. Myers (3), Boast v. Firth (4), Baily v. Be Crespigny (5), Howell v. Coupland (6), and Nickoll v. 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, such as Paradine v. Jane (8) ; Barker v. Hodgson (9); Marquis of Bute v. Thompson (10); Hills v. Sughrue (11) ; Brown v. Boyal'Insurance Co. (12) These cases were all anterior to Taylor v. Caldwell. (13) There are other cases subsequent to Taylor v. Caldwell (13), such as Kennedy v. Panama, dec., Mail Co. (14); In re Arthur (15); The Moorcock. (16) The real question is, What was the position of the parties on June 20, and what was the contract then entered into between them ? The right possessed by the plaintiff on that day was 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 contract. There was, of course, the risk that the procession,
(1) (2) (3) (4) (5) (6) (7) (8) 3 B. & S. at p. 833. (9) (1814) 3 M. & S. 267; 15 R. R. (1858) E. B. & E. 746. 485. (1867) L. R. 2 C. P. 651. (10) (1844) 13 M. & W. 487. (1868) L. R. 4 C. P. 1. (11) (1846) 15 M. & W. 253. (1869) L. R. 4 Q. B. 180. (12) (1859) 1 E. & E. 853. (1876) 1 Q. B. D. 258. (13) 3 B. & S. 826. [1901] 2 K. B. 126. (14) (1867) L. R. 2 Q. B. 580. (1646) Al. 26. (15) (1880) 14 Oh. D. 603. (16) 14 P. D. 64. 3 D 2 2
744 0. A. 1903
[1903Ii
the anticipation of which gave the room a marketable value, might, from some cause or other, never take place ; but that risk passed to the defendant by the contract. On entering intothe contract with the defendant the plaintiff put it out of hispower to let the room to any one else: he passed the right and the risk at the same time. No implied condition can be imported into the contract that the object of it shall be* attained. There can be no implied condition that the defendant shall be placed in the actual position of seeing the procession. This case is closely analogous to that of LondonFounders' Association, Limited v. Clarice (1), where it was hel& that in a contract for the sale of shares in a company there was no implied covenant that the purchaser should be put intothe status of a shareholder by registration. So in Turner v. Goldsmith (2), where the defendant contracted to employ theplaintiff for a fixed term as agent in a business which he, the defendant, ultimately abandoned before the expiration of the term, it was held that there was no implied condition for the continued existence of the business, and accordingly the plaintiff was held, entitled to damages for breach of contract. And that was so although part of the res had perished ; here no part of the res had perished. The rule is that the Court? will not imply any condition in a contract except in case of absolute necessity : Hamlyn v. Wood. (3) No doubt, under ' the Sale of Goods Act, 1893 (56 & 57 Viet. c. 71), s. 7, wherethe specific goods, the subject of the contract, perish, the contract is gone; but this is not a case of that kind. And 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 v. Cox (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 contract being rendered impossible by unforeseen circumstances. Blakeley v. 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, 551. (3) [1891] 2 Q. B. 488, 491-2. (4) [1899] 1 Q. B. 436, 441. (5) (1903) 88 L. T. 90; 67 J. P. 51; post, p. 760 (note).
2 K. B.
. 745 C. A. 1903
KREM.
v
[Duke, K.C. The defendant abandons his counter-claim for 251., so that the sole question is as to his liability for the 50/!. ] Upon the main question, then, it is submitted that both the -decision in Blakeley v. Mutter (1) and of Darling J. in the present case are opposed to the principle of Taylor v. Caldioell. (2) The contract here is absolute, and the defendant has not, as he might have done, guarded himself against ihe risk by suitable words. Then, if it is said that this was a mere licence to use the ..room and therefore revocable as not being under seal, it has aiow been decided that even if such a licence is revoked an action is still maintainable for breach of contract: Kerrison v. Smith. (3) In conclusion it is submitted that the Court cannot imply .an express condition that the procession should pass. Nothing should be implied beyond what was necessary to give to the contract that efficacy which the parties intended at the time. There is no such necessity here; in fact, the inference is the other way, for money was paid before the days specified ; which 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 this: one says, " Will you take the room '? " and the other says, " Yes." That is all. The contract did nothing more than give the defendant the opportunity of seeing whatever might be going on upon the days mentioned. Duke, K.C., and Bicardo, for the defendant. The question is, What was the bargain ? The defendant contends that it was .a bargain with an implied condition that the premises taken were premises in front of which a certain act of State would take place by Eoyal Proclamation. A particular character was thus impressed upon the premises; and when that character -ceased to be impressed upon them the contract was at an end. It is through nobody's fault, but through an unforeseen misfortune that the premises lose that character. The price agreed to be paid must be regarded: it is equivalent to
(1) 88 L. T. 90; 67 J. P. 51. (2) 3 B. & S. 820. (3) [1897] 2 Q. B. 445.
'
746 C.A. 1903
[1903J
many thousands a year; What explanation can be given of that, except that it was agreed to be paid for the purpose of enabling the defendant to see the procession? It was the HENRY, absolute assumption of both parties when entering into the contract that the procession would pass. The principle of Taylor v. Caldwell (1)namely, that a contract 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 existexactly applies. The certainty of the coronation and consequent procession taking place was the basis of this contract. Both parties bargained upon the happening 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. There has been such a change in the character of the premises which the plaintiff agreed the defendant should occupy as to deprive them of their value. When the premises become unfit for the purpose for which they were taken the bargain is off: Taylor v. Caldioell (2), the principle of which case was adopted by the Court of Appeal in Nickoll v. Ashton. (3) What was in contemplation here was not that the defendant should merely go and sit in the room, but that he should see a procession which both parties regarded as an inevitable event. There was an implied warranty or condition founded on the presumed intention of the parties, and upon'reason : The Moorcock. (4) No doubt the observations of the Court in that case were addressed to a totally different subject-matter, but the principle laid down was exactly as stated in Taylor v. Caldwell (1) and Nickoll v. Ashton. (5) In Hamlyn v. Wood (6) it was held that in a contract there must be a reasonable implication in order to give the trans- . action such efficacy as both parties intended it to have, and that without such implication the consideration would fail.- In the case of a demise, collateral bargains do not arise ; but here
(1) 3 B. & S. 826. (2) 3 B. & S. at p. 832. (3) [1901] 2 K. B. 126,137. " (4) 14 P. D. 64, 68. (5) [1901] 2 K. B. 126. (6) [1891] 2 Q. B. 488.
2 K. B.
747 C. A. 1903
there is an agreement, and what has to be done is to ascertain the meaning and intention the parties had in entering into it. [ S T I R L I N G L . J . I n Appleby v. Myers (1) there was a contract to supply certain machinery to a building, but before the completion of the contract the building was burnt down ; and it was held that both parties were excused from performance of the contract.! I n that case the contract had been partly performed; but the defendant's case is stronger than that. When, as here, the contract is wholly executory and the subject-matter fails, the contract is at an end. [ S T I R L I N G L . J . I n Baily v. Be Crespigny (2), where the performance of a covenant was rendered impossible by an Act of Parliament, it was held that the covenantor was discharged. VATJGHAN W I L L I A M S L . J . I n Howell v. Coupland (3) the contract was held to be subject to an implied condition that the parties should be excused if performance became impossible through the perishing of the subject-matter.] That applies h e r e : it is impossible for the plaintiff to give the defendant that which he bargained for, and, therefore, there is a total failure of consideration. To sum up, the basis of the contract is that there would be a processionthat is to say, it is a contract based upon a certain thing coming into existence: there is a condition precedent that there shall be a procession. But for the mutual expectation of a procession- upon the days mentioned there would have been no contract whatever. The basis of the contract was also the continuance of a thing in a certain condition; for on June 20 the rooms were capable of being described as a place from which to view a procession on two particular days; whereas when those days arrived the rooms were no longer capable of being so described. 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. 651. (2) L. E. 4 Q. B. 180. (3) 1 Q. B. D. 258.
748 C. A. 1903
.KING'S BENCH DIVISION.
[1903]
of the application in English law of the principle of the Roman law which has been adopted and acted on in many English decisions, and notably in the case of Taylor v. HENKV Caldwell. (1) That case at least makes it clear that " where, vlnTau from the nature of the contract, it appears that the parties Williams L.J. m u s t 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 continued 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 considered 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." Thus far it is clear that the principle of the Roman law has been introduced into the English law. The doubt in the present case arises as to how far this principle extends. The Eoman law dealt with obligationes de certo corpore. Whatever may have been the limits of the Eoman law, the case of Nickoll v. Asliton (2) makes it plain that the English law applies the principle not only to cases where the performance of the contract becomes impossible by the cessation of existence of the thing which is the subject-matter of the contract, but also to cases where the event which renders the contract incapable of performance is 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. I t is said, on the one side, that the specified thing, state of things, or condition the continued existence of which is necessary for the fulfilment of the contract, so that the parties entering into the contract must have contemplated the continued existence of that thing, condition, or state of things as the foundation of what was to be done under the contract, is limited to things which are either the subject-matter of the contract or a condition or state of things, present or anticipated, which is expresssly (1) 3 B. & S. 826. (2) [1901] 2 K. B. 126.
Z K. B.
.KING'S BENCH DIVISION.
749 .c. A. 1903

HENRY.
mentioned in the contract. But, on the other side, it is said that the condition or state of things need not be expressly .specified, but that it is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been 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 made. 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 that the principle /of the civil law as introduced into the English law is limited to cases in which the event causing the impossibility of performance is the destruction or non-existence of some thing which is the subject-matter of the contract or of some condition -or state of things expressly specified as a condition of it. I 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 the assumption of the existence of a ^particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the nonexistence of the state of things assumed by both contracting parties as the foundation of the contract, there will be no breach of the contract thus limited. Now what are the facts of the present case'? The contract is contained in two letters of June 20 which passed between the defendant and the plaintiff's agent, Mr. Cecil Bisgood. These letters do not mention the coronation, but speak merely of the taking of Mr. Krell's -chambers, or, rather, of the use of 'them, in the daytime of June 26 and 27, for the sum of 752., 25/. then paid, balance 50Z. to be paid on the 24th. But the affidavits, which by agreement between the parties are to be taken as stating the iacts of the case, shew that the plaintiff exhibited on his
,,William3LJ
750 O. A. 1903
[19033
premises, third floor, 56A, Pall Mall, an announcement to the effect that windows to view the Eoyal coronation procession " were to be let, and that the defendant was induced by that 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. for th e purpose of seeing the Eoyal procession for both days, but not nights, of June 26 and 27. In my judgment the use of the rooms was let and taken for the purpose of seeing the Eoyal procession. It was not a demise of the rooms, or even an agreement to let and take the rooms. It is a licence to use rooms for a particular purpose and none other. And in my judgment the taking place of those processions on the days proclaimed along the proclaimed route, which passed 56A, Pall Mall, was regarded by both contracting parties as the foundation of the contract; and I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or .the processions, not take place on those days along the proclaimed route; and I think that the words imposing on the defendant the obligation to accept and pay for the use of the rooms for the named days, although general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards occurred. It was suggested in the course of the argument that if the occurrence, on the proclaimed days, of the coronation and the procession in this case were the foundation of the contract, and if the. general words are thereby limited or qualified, so that in the event of the non-occurrence of the coronation and procession along the proclaimed route they would discharge both parties from further performance, of the 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 think that in the cab case the happening of the race would be the foundation of the contract. No doubt the purpose of the engager would be to go to see the Derby,, and the price would be proportionately high; but the cab had
2 K. B.

GA
751
no special qualifications for the purpose which led to the selection of the cab for this particular occasion. Any other cab would have done as well. Moreover, I think that, under the cab contract, the hirer, even if the race went off, could have said, " Drive me to Epsom; I will pay you the agreed
, ,,. , . ..-in n 1--IT
1903
KRELL HENBY..
vaughin
Williams h. J<-
sum; you have nothing to do with the purpose tor which I hired the cab," and that 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. Whereas in the case of the coronation, there is not merely the purpose of the hirer to see the coronation procession, but it is the coronation procession and the relative position of the rooms which is the basis of the contract as much for the lessor as the hirer; and I think that 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 named. It could not in the cab case be reasonably said that seeing the Derby race was the foundation of the contract, as it was of the licence in this case. Whereas in the present case, where the rooms were offered and taken, by reason of their peculiar suitability from the position of the rooms for a view of the coronation procession, surely the view of the coronation procession was the foundation of the contract, which is a very different thing from the purpose of the man who engaged the cabnamely, to see the racebeing held to be the foundation of the contract. Each case must be judged by its own circumstances. In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? 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 contemplation of the parties at the date of the contract ? If all these questions are answered in the affirmative (as I think they should be in this case), I think both parties are discharged from further performance of the contract. I think that the coronation procession was the foundation of this contract, and that the non-happening of it prevented the performance of the contract; and, secondly, I think that the
752 C. A. 1903
KRELL HENRY
.[1903]
,rr
Vaughan
non-happening of the procession, to use the words of Sir James Hannen in Baily v. Dc Crespigmj (1), was an event " of such a character that it cannot reasonably be supposed to have been *n *ê contemplation of the contracting parties when the contract was made, and that they are not to be held bound by J
' J
Williams L.J. g e n e r a i 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. It seems difficult to say, in a case where both parties anticipate the happening of an event, which anticipation is the foundation of 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. In both Jackson v. Union Marine Insurance Co. (2) and Nickoll v. Ashton (3) ihe parties might have anticipated as a possibility that perils of the sea might delay the ship and frustrate the commercial venture: in the former case the carriage of the goods to effect which the charterparty was entered into; in the latter case the sale of 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 of the goods the subject of the sale. I wish to observe that cases of this sort are very different from cases where a 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 (4) is of importance in the present case as shewing that whatever is the suggested implicationbe it condition, as in this case, or warranty or representationone must, in judging whether the implication ought to be made, look not only at the words of the contract, but also at the surrounding facts and the knowledge of 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 .
753
authority for this proposition. Thus in Jackson v. Union C.A. Marine Insurance Co. (1), in the Common Pleas, the question 1903 whether the object of the voyage had been frustrated by the delay of the ship was left as a question of fact to the jury, HENRY. although there was nothing in the charterparty denning the v"^~jia,, time within which the charterers were to supply the cargo of Willilms L-3iron rails for San Francisco, and nothing on the 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 judgment at p. 148, Taylor v. Caldioell (2) was a strong authority to support the conclusion arrived at in the judgmentthat 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 that no action would lie. And, again, in Harris v. Dreesman (3) the vessel had to be loaded, as no particular time was mentioned, within a reasonable time; 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 port as to loading vessels in turn. Again it was held in Mumford v. Gething (4) that, in construing a written contract of service under which A. was to enter the employ of B., oral evidence is admissible to shew in what capacity A. was toserve B. See also Price v. Mouat. (5) The rule seems to be 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 subjectmatter of the instrument, or, in other 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.
754 0. A. 1903
[1903]
persons and things to which the instrument refers, must of necessity be received." And Lord Campbell in his judgment says: " I am of opinion that, when there is a contract for HENRY *ê sa ^ e ^ a specific subject-matter, oral evidence may be received, for the purpose of shewing what that subject-matter wituams L,J. w a S j of e v e r v f ac t w ithin the knowledge of the parties before and at the time of the contract." See per Campbell C.J., Macdonald v. Longbottom. (1) It seems to me that the language of Willes J. in Lloyd v. Guibert (2) points in the same direction. I myself am clearly of opinion that in this case, where we have to ask ourselves whether the object of the contract was frustrated by the non-happening of the . 'Coronation and its procession on the days proclaimed, parol evidence is admissible to shew that the subject of the contract was rooms to view the coronation procession, and was so to the knowledge of both parties. "When once this is established, I see no difficulty whatever in the case. It is not essential to the application of the principle of Taylor v. Caldwell (3) that the direct subject of the contract should perish or fail to be in existence at the date of performance of the contract. It is sufficient if a state of things or condition expressed in the contract and essential to its performance perishes or fails to be in existence at that time. In the present case the condition which fails and prevents the achievement of that which was, in the contemplation of both parties, the foundation of the contract, is not expressly mentioned either as a condition of the contract or the purpose of it; but I think for the reasons which I have given that the principle of Taylor v. Caldwell (3) ought to be applied. This disposes of the plaintiff's claim for 50L unpaid balance of the price agreed to be paid for the use of the rooms. The defendant at one time set up a cross-claim for the return of the 25Z. lie paid at the date of the contract. As that claim is now withdrawn' it is unnecessary to say anything about it. I have only to add that the facts of this case do not bring it within the principle laid down in Stubbs v. Holywell By. Co. (4); that in the case of contracts falling directly within the rule of
(1) (1859) 1 E. & E. 977, at p. 983. <2) (1865) 35 L. J. (Q.B.) 74, 75. (3) 3 B. & S. 826. (4) (1867) L. E. 2 Ex. 311.
2 K. B.
KING'S BENCH DIVISION. C.A. 1903
755
Taylor v. Caldwell (1) the subsequent impossibility does not affect rights already acquired, because the defendant had the 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 day. I think this appeal ought to be dismissed. L.J. With some doubt I have also come to the conclusion that this case is governed by the principle on which Taylor v. Caldwell (1) was decided, and accordingly that the appeal must be dismissed. The doubt I have felt was whether 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, might not pass so as to be capable of being viewed from the rooms mentioned in the contract; and whether, under this contract, that risk was not undertaken by the defendant. But on the question of fact as to what was in the contemplation of the parties at the time, I do not think it right to differ from the conclusion arrived, at by Vaughan Williams L.J., and (as I gather) also arrived at by my brother Stirling. This being so, I concur in the conclusions arrived at by Vaughan Williams L.J. in his judgment, and I do not desire to add anything to what he has said so fully and completely.
ROMER STIRLING L.J. said he had had an opportunity of reading the judgment delivered by Vaughan Williams L.J., with which he entirely agreed. Though the case was one of very great difficulty, he thought it came within the principle of Taylor v. Caldioell. (1) Appeal dismissed.
Solicitors : Cecil Bisgood; M. Grunebaum.

NOTE.For other cases arising out of the postponement of the coronation, see the next following case; Elliott v. Crutchley, ante, p. 476, and Ilerne Bay Steam Boat Co. v. Uutton, ante, p. 68o. (1) 3 B. & S. 826. W. C. D.
HOUSE OF LORDS
[1985]
[PRIVY COUNCIL.]
MARITIME NATIONAL FISH, LIMITED .

AND
APPELLANTS ;
OCEAN TRAWLERS, LIMITED
. RESPONDENTS.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA. ContractFrustration of ContractFrustration due to act of repudiating partyChartered trawlerWant 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 otter trawl. By the charterparty the vessel could be used only in the fishing industry. The charterparty was renewed for a year from October 25, 1932. At that 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 the Minister. In March, 1933, the appellants applied to the Minister for licences for five trawlers which they were operating. The Minister intimated that only three 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 thereupon claimed that 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 their obligations under 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. Judgment of the Supreme Court of Nova Scotia affirmed.
(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.
APPEAL
* Present: LORD ATKIN, LORD TOMLIN, LORD MACMIIXAN, LORD WRIGHT. and
A. C.
AND PRIVY COUNCIL.
525
1935. March 25. C. B. Smith K.C. and Frank Gahan for the appellants. H. U. Willink K.C. and Mocatta for the respondents.
J. c. 1935
MARITIME NATIONAL FISH, L D .
1935. April 12. The judgment of their Lordships was . delivered by TRAWLIL. 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 J. C. 1935
MARITIME NATIONAL FISH, L D .
11.
HOUSE OF LORDS
[1936]
OCEAN TRAWLERS, LD.
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 that 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 " obligations to pay the monthly hire which was stipulated. TRAWLERS, 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
J. c. 1935
HOUSE OF LORDS
[1935]
in the able argument of Mr. Smith for the appellants on Bank Line, Ld. v. Arthur Capel & Co. (1), and in particular on MARITIME the judgment of Lord Sumner in that case. That case was in FKH^LD!" principle very different from this, because the vessel which was ,_ " chartered in that case was actually taken from the control J
OCEAN
TRAWLERS,
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 event: 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 that 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. 435. (2) [1903] 2 K . B . 740. (3) (1922) 29 Com. Cas. 1, 7.
A. C.
AND PRIVY COUNCIL.
529 J. C. 1935
MARITIME
NATIONAL FISH, L D .
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 particularly difficult to apply where, as in the present case, 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 that 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. 497. 510. 3 2 O 2
"
OCEAN
TRAWLERS,
'
530
HOUSE OF LORDS
[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 FKHLDL 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 that 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.
J. c. 1935
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 Steamship Co. (1) quotes from Lord Blackburn in Dahl v. pfs" 0 ^^ Nelson, Donkin & Co. (2), who refers to a " frustration " as being "
v
'
OCEAN
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 that 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 that 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 App. Cas. 38, 53. (3) [1926] A. C. 508.
Page1
Marshall v Harland & Wolff Ltd

National Industrial Relations Court 13 March 1972
Case Analysis
Where Reported
[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 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)
Case Digest
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
Page1
National Carriers Ltd v Panalpina (Northern) Ltd

House of Lords 11 December 1980
Case Analysis
Where Reported
[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 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.
Case Digest
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.
Page3
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
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Ogilvy & Mather Ltd v Silverado Blue Ltd (formerly Oktobor Ltd)
Queen's Bench Division 23 May 2007
Case Analysis
Where Reported Case Digest
[2007] EWHC 1285 (QB); Official Transcript 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
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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.
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*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.
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[1939]
1938
W. J. TATEM, LIMITED v. GAMBOA.
May 27. 30. ContractCharterpartyFrustrationDestruction of subject-matter or interruption in performanceEvent 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 of the subject-matter or the interruption 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. v. Anglo-Mexican Petroleum Products Co., Ld. [1916] 2 A. C. 397, 406, and Bank Line, Ld. v. Arthur Capel &> Co. [1919] A. C. 435 ; and followed in Countess of Warwick Steamship Co. v. Le Nickel Sociiti Anonyme [1918] 1 K. B. 372 applied.
ACTION in the Commercial List tried by Goddard J. without a jury. By a charterparty dated June 25, 1937, the plaintiffs, as owners, chartered to the defendant, who was an agent of the Republican Government of Spain, the steamship Molton for thirty days from July 1, 1937. Clause 1 of the charterparty provided : " . . . . Steamer to "be employed . . . . within the following limits: North "Spain (Government ports) and French Bay ports for the "evacuation of civil population from North Spain " By clause 5 : "Charterers to pay hire at the rate of 250/. "British sterling per day . . . . until her redelivery to "owners." By clause 15 : "Should steamer be lost or missing, hire to "cease from the date when she was lost " By clause 26 : " Steamer must not carry arms, munitions, " contraband of war, or any description of cargo prohibited "by the British Government or naval or military 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 at Santander. She took a number of refugees to a French port and returned to Santander for more, but on
1 K. B.
133
1938
July 14 she was seized by a Nationalist ship inside territorial waters off Santander, taken to Bilbao and kept in custody there until September 7, when she was released. She then went to Bordeaux, where she was re-delivered to the plaintiffs on September 11. The defendant paid in advance the agreed hire up to July 31, but on August 18 he wrote to the plaintiffs declining to have any further concern with the steamer. The plaintiffs, accordingly, brought this action, claiming payment of hire at the rate of 250I. a day from August 1 until September 11, the date of re-delivery. The 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. and 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 contemplated 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 document: per A. T. Lawrence J. in Scottish Navigation Co., Ld. v. Souter (W. A.) 6- Co. (1), approved by Lord Sumner in Bank Line, Ld. v. Arthur Capel & Co. (2) and by Bailhache J. in Comptoir Commercial Anversois v. Power, Son & Co. (3) See also per Lord Parker in F. A. Tamplin Steamship Co., Ld. v. AngloMexican Petroleum Products Co., Ld. (4) In the present case the seizure of the vessel was clearly contemplated by the parties. The 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 v. Caldwell (5), where the parties could not have been taken to contemplate that the music-hall, the letting of which was the subject of the contract, would be burned, and from Krell v.
(1) [1917] i K. B. 222, 249. (2) [1919] A. C: 435, 460. (3) [1920] 1 K. B. 868, 879. (4) [1916I 2 A. C. 397. 423(5) (1863) 3 B. & S. 826.
J
TATEM, LD. t>. GAMBOA.
134 1938
KING S BENCH DIVISION.
[19S9]
w. j .
TATEM, LD. V. GAMBOA.
Henry (1) and Clark v. Lindsay (2), where the cancellation of the Coronation procession could not have been contemplated. 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 Lord Wright in Maritime National Fish, Ld. v. Ocean Trawlers, Ld. (3) Willink K.C. and W. L. McNair for the defendant. The plaintiffs are not entitled to recover, because the adventure was frustrated by the seizure of the ship. On the facts, that 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 v. Union Marine Insurance Co., Ld., per Cleasby B. (4) ; Hirji Mulji & Others v. Cheong Yue Steamship Co., Ld. (5); Bank Line, Ld. v. A rthur Capel & Co. (6), it being held in the last named case that the doctrine applied where the adventure had been rendered impossible by the requisition of a ship by the Government, although that requisition was foreseen and the charterers given in the charterparty an option to cancel in the event of it. When people enter into a contract which is dependent for its performance on the continued availability of a specific thing and that availability comes to an end through circumstances beyond the control of the parties, the contract is prima facie dissolved : F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld., per Viscount Haldane (7) ; Nickoll & Knight v. Ashton, Edridge & Co. (8) ; Countess of Warwick Steamship Co. v. Le Nickel Sociiti Anonyme (9) ; Larrinaga & Co., Ld. v. SociiU Franco-Amiricaine des Phosphates de Midulla, Paris, per Viscount Finlay. (10) The contingency which has arisen must be treated as one about which no
(1) (2) (3) (4) 39(5) [1903] (1903) [1935] (1874) 2 K. B. 740. 88 L. T. 198. A. C. 524, 529. L. R. 10 C. P. 125, (6) (7) (8) (9) (10) 318. |"I9I9] [1916] [1901] [1918] (1923) A. C. 435. 2 A. C. 397, 406. 2 K. B. 126. 1 K. B. 372. 39 Times L. R. 316,
[1926] A. C. 497-
1 K. B.
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bargain was made at all: F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld., per Viscount Haldane (1) and per Lord Atkinson. (2) The true test is whether the parties as reasonable men could have intended the contract to be binding on them in the altered circumstances which occurred : F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld., per Earl Loreburn. (3) Here the parties could not have so intended. The seizure of the ship defeated their common object and the doctrine of frustration, therefore, applies: Anglo-Northern Trading Co. v. Emlyn Jones & Williams, per Pickford L.J. (4)
GODDARD J. It is said on behalf of the defendant that 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 under the contract ceased. He admits that 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 Robert Aske, on the other hand, has argued very strongly that the enterprise in this case cannot be said to have been frustrated, because both sides must be taken to have contemplated when they made this contract that the ship might be seizedindeed, that the risk of seizure was plain and obvious to everybodyand that it must be taken that that was one of the risks which the ship was running. 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 contemplated by the parties. It may well be that they thought that the Nationalists might seize the ship and hold it for the chartered period so long as it was under charter to the Republican Government. It may 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. 44(4) [1918] 1 K. B. 372, 380.
w. j .
TATKM, LD.
v.
GAMBOA.
136
1938 w. j .
TATEM, LD.
V.
[1939]
GAMBOA. Goddard J.
would hesitate, after the charter had come to an end, to seize and detain a British ship which had no contraband on board and which, after the period for which it was chartered, would be most unlikely to be engaged in the work, however humanitarian it may have 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 another matter. But 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 might be seized and detained as she was. It is difficult to reconcile all the judgments and speeches which have been made on this difficult subject of frustration, which was very little discussed in the books before the war. There are the well
known cases of Taylor v. Caldwell (1); Jackson v. Union Marine Insurance Co., Ld. (2); the Coronation seats cases; and
so forth. But no one would contend that until the war the 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 judgments which have been delivered since 1916, to most of which reference has been made in the course of the argument. Whatever be the true doctrine of frustration, I prefer, if I may, to rely on the passage in Lord Haldane's speech in F. A. Tamplin Steamship Co., Ld. v. Anglo-Mexican Petroleum Products Co., Ld. (3), which was quoted by Lord Sumner in Larrinaga & Co., Ld. v. SociiU Franco-Amiricaine des Phosphates de Midulla, Paris. (4) Lord Sumner first said : "So far as the ships are concerned, "this is not a contract de certo corpore at all." I read that because the present case seems to me to be eminently one de certo corpore. The certum corpus is this particular ship,
(1) 3 B. & S: 826. (2) L. R 10 C. P. 125. (3) ti9i6] 2 A. C. 397. 4 6 - 47(4) 39 Times L. R. 316, 321.
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the Molton, chartered for a particular service. Lord Sumner continued : "Nor can it be said that "he then quoted Lord Haldane"' the foundation of what the parties are deemed to '"have had in contemplation has disappeared and the " ' contract itself has vanished with the foundation.' " That seems to me to be the surest ground on which to rest the doctrine of frustration, and I prefer it to founding it on implied terms. Viscount Finlay said words to the same effect in Larrinaga & Co., Ld. v. Sociiti FrancoAmdricaine des Phosphates de Midulla, Paris (1) : "When "certain risks are foreseen the contract may contain conditions "providing that in certain events the obligation shall cease "to exist. But even when there 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 "kind that the doctrine of 'frustration' is most frequently "invoked. If the contract be one which for 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 "into the contract will be a good defence. Such a contract "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. By " circumstances" I mean circumstances which are afterwards relied on as frustrating the contract. It is true that in many of the cases there is found the expression " unforeseen circumstances," and it is argued that " unforeseen circumstances " must mean circumstances which could not have been foreseen. But it seems to me, with respect, that, if the true doctrine be that laid down by Lord Haldane, frustration depends on the absolute disappearance of the contract; or, if the true basis be, as Lord Finlay put it, " the continued exis"tence of a certain state of facts," it makes very little
(1) 39 Times L. R. 316, 318.
W. J.
TATEM. LD.
v.
GAMBOA. Goddard J.
i38 1938
[1939]
w. j.
TATEM, LD.
V.
GAMBOA. Goddarrt J.
difference whether the circumstances are foreseen or not. If the foundation of the contract goes, it goes whether or not the parties have made a provision for it. The parties 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 Warwick Steamship Co. v. Le Nickel SocUU Anonyme. (2) Pickford L.J. said: "Putting it in other words, does it come within the doctrine "laid down by Lord Haldane early in his judgment in Tamplin "Steamship Co. v. Anglo-Mexican Petroleum Products Co. (1) in "these words : ' When people enter into a contract which is "'dependent for the possibility of its performance on the " ' continued availability of a specific thing, and that availability "'comes to an end by reason of circumstances beyond the " ' control of the parties, the contract is prima facie regarded " ' a s dissolved. The contingency which has arisen is treated, " ' i n the absence of a contrary intention made plain, as being " ' one about which no bargain at all was made. The principle "'applies equally whether performance of the contract has " ' n o t commenced or has in part taken place. There may be "'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, restraint of princes) so happen as to impede
(i)[i9i6] 2 A. C. 397, 46. (2) [1918] 1 K. B. 372, 376.
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" ' performance. In that case the question arises whether " ' t h e event which has actually made the specific thing n o ' "'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 '"been intended to continue for other purposes. Although " ' 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 h a 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 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. 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 that 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 have 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 of performance applying. It seems to me that the parties must have had before them the possibility, or the
(1) [1919] A. C. 435.
W. J.
TATEM, LD.
v.
GAMBOA. Goddard J.
140

1938
[1939]
w. j.
TATEM, LD. V. GAMBOA. Goddard J.
probability if you will, of requisition every bit as much as the parties had of seizure in this case. I think, therefore, that that case and other cases, for example, the two cases which were tried together, Anglo-Northern Trading Co. v. Emlyn Jones & Williams and Countess of Warwick Steamship Co. v. Le Nickel Sociiti Anonyme (1), which were also cases of charterparties made after the outbreak of war, show in effect that, although the parties may have had or must be deemed to have had the matter in contemplation, the doctrine of frustration is not prevented from applying. To apply the doctrine as I understand it to this case, what do we find ? We find that there is a charter for a month only, a charter at a very high rate of freight. Although it is a time charter, the limits in which it is to trade are very narrow from the northern ports in the hands of the Republican Government of Spain to ports in Franceand the specific purpose of the charter is made plain. It is the evacuation of the civil population from north Spain. It must be obvious, therefore, that the foundation of that contract was destroyed as soon as the insurgent war vessel had seized the ship, which it did after it had performed one voyage and when the period of the charter had but half expired. No more could be done with the ship. The owners were unable to leave it under the control of the charterer. The charterer was unable to make use of it or to return it to the owneis. The charterer had paid his month's hire, and that he not only cannot get back but does not seek to get back. In my opinion, the performance of the charter was frustrated from the time of the seizure, and consequently the 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 for plaintiffs : Sinclair, Roche & Temperley, for Vaughan & Roche, Cardiff. Solicitors for defendant: Fetch & Co.
(1) [1918] 1 K. B. 372. G. F. L. B.
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*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 ftes, 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 ftes 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
Page3
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 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) S. Denis. Chas. Bishop .
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 ftes 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.
Page4
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 stipulat 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 Trait 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.
Page5
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 Trait 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
Page6
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.
Page1
Tsakiroglou & Co Ltd v Noblee Thorl GmbH Albert D Gaon & Co v Societe Interprofessionelle des Oleagineux Fluides Alimentaires
House of Lords 28 March 1961
Case Analysis
Where Reported
[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 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
Case Digest
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
Page2
Arbitration between Comptoir Commercial Anversois and Power Son & Co, Re [1920] 1 K.B. 868; (1919) 1 Ll. L. Rep. 266; (CA) Arbitration between L Sutro & Co and Heilbut Symons & Co, Re [1917] 2 K.B. 348; (CA) Carapanayoti & Co v ET Green Ltd [1959] 1 Q.B. 131; [1958] 3 W.L.R. 390; [1958] 3 All E.R. 115; [1958] 2 Lloyd's Rep. 169; (1958) 102 S.J. 620; (QBD) Johnson v Taylor Bros & Co Ltd [1920] A.C. 144; (1919) 1 Ll. L. Rep. 183; (HL) Societe Franco-Tunisienne d'Armement-Tunis v Sidermar SpA [1961] 2 Q.B. 278; [1960] 3 W.L.R. 701; [1960] 2 All E.R. 529; [1960] 1 Lloyd's Rep. 594; (1960) 104 S.J. 850; (QBD (Comm))
Applied by 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) Considered by Intertradex SA v Lesieur-Tourteaux Sarl [1977] 2 Lloyd's Rep. 146; (QBD (Comm)) 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) President of India v Metcalfe Shipping Co Ltd (The Dunelmia) [1969] 2 Q.B. 123; [1969] 2 W.L.R. 125; [1969] 1 All E.R. 861; [1969] 1 Lloyd's Rep. 32; (1969) 113 S.J. 69; (QBD (Comm))
Legislation cited
Sale of Goods Act 1893 Sect.32 Sale of Goods Act 1893 s.32
Journal Articles
When is a CIF seller's carriage contract unreasonable? section 32(2) of the Sale of Goods Act 1979 Bills of lading; CIF contracts; Carriage by sea. J.I.M.L. 2007, 13(4), 241-257

10 Doctrine of Frustration

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LawofContractKDUOBU

See: JosephConstantineSSLineLtdvImperial SmeltingCorpLtd[1942]AC154 GreatPeacecase

Krell entersinto contractwithhotel

Onlyrentedtherooms for thedayduringthe procession purpose wasveryspecific knowntobothparties

SeeasimilarcasewheretheCagreedtoerect machineryonDpremisesbutthepremisesand machinerywasdestroyed contractfrustrated (ApplebyvMyers(1867)LR2CP651)

SelfInducedFrustration Interestingcasesinthisareaare: MaritimeNationalFishLtdv OceanTrawlersLtd[1935]AC524 AND TheSuperServantTwoCase

TKINITY TEEM, XXX YICT.

[IN THE EXCHEQUER CHAMBER.] APPLBBY AKD ANOTHEK V. MYERS.

Hannen (Lwmley Smith with him), for the defendant. It is a

COURT OF COMMON PLEAS.

TSINITY TEEM, XXX YIOT.

COUET OF COMMON PLEAS.

Quod vero ita conductum sit, ut in pedes mensurasve prasstetur,

TKIMTY TEEM, XXX VICT. 1867

COUET OF COMMON PLEAS.

TRINITY TEEM, XXX VICT.

COURT OF COMMON PLEAS.

TRINITY TEEM, XXX VICT.

COURT OF COMMON PLEAS.

TEINITY TEEM, XXX TICT.

(2) 8 E. & B. 738.

KING'S BENCH DIVISION. 1918

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

iM8 J**> 19,20.

KING'S BENCH DIVISION.

The defendants contend that the contract was at an end because

KING'S BENCH DIVISION.

KING'S BENCH DIVISION.

(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.

KING'S BENCH DIVISION.

(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

KING'S BENCH DIVISION.

[IN THE COUKT OP APPEAL.]

In re AGRICULTURAL HOLDINGS ACT. LANCASTEE AND MACNAMARA.

AND PRIVY COUNCIL.

CRICKLEWOOD PROPERTY AND\ APPELLANTS INVESTMENT TRUST, LIMITED . /

1944 Nov. 21, 23. 1945

Jan. 25. RESPONDENTS.

of frustration may in certain circumstances apply to a lease.

PROPERTY AND INVESTMENT TRUST, LD.

AND PRIVY COUNCIL.

AND PRIVY COUNCIL.

AND PRIVY COUNCIL.

227 H. L. (E.) 1945

took time for consideration.

228 H . L. (E.) 1945

AND PRIVY COUNCIL.

AND PRIVY COUNCIL.

Lord Russell of Killowen.

AND JPRIVY COUNCIL.

AND PRIVY COUNCIL.

AND PRIVY COUNCIL.

239 H. L. (E.) 1945

PROPERTY AND INVESTMENT TRUST, LD.

LKIGHTON'S INVESTMENT TRUST, LD.

240 H. L. (E.) 1945

AND PRIVY COUNCIL.

AND PRIVY COUNCIL.

243 H. L. (E.) 1945

AND PRIVY COUNCIL.

Davis Contractors v Fareham Urban DC