Die Jovis,
19° Aprilis 1956
Parliamentary
Archives,
HL/PO/JU/4/3/1036
Viscount
Simonds
Lord
Morton of
Henryton
Lord Reid
Lord
Radcliffe
Lord
Somervell
of Harrow
HOUSE OF LORDS
DAVIS CONTRACTORS LIMITED
v.
FAREHAM URBAN
DISTRICT COUNCIL
19th April, 1956.
Viscount
Simonds
MY LORDS,
This
appeal arises out of arbitration proceedings to which the parties
were
the Appellants Davis Contractors Limited, a firm of building
contractors,
and the Respondents the Fareham Urban District
Council. On the 9th
July, 1946, the parties had entered into a
building contract whereby the
Appellants agreed to build for the
Respondents 78 houses at Gudgheath
Lane, Fareham, in the county of
Southampton within a period of eight
months for a sum of £85,836.
For
various reasons, the chief of them the lack of skilled labour, the
work
took not eight but twenty-two months. The Appellants were in
due course
paid the contract price which, together with stipulated
increases and adjust-
ments, amounted to £94,424. They
contended, however, that owing to the
long delay the contract
price had ceased to be applicable and that they were
entitled to a
payment on a quantum meruit basis.
The
Appellants put their claims on alternative grounds (a) that the
contract
price was subject to an express overriding condition
contained in a letter
of the 18th March, 1946, that there should
be adequate supplies of labour
and material and (b) that
the contract had been entered into on the footing
that adequate
supplies of labour and material would be available to complete
the
work within eight months, but, contrary to the expectation of
both
parties, there was not sufficient skilled labour and the work
took twenty-two
months, and that this delay amounted to
frustration of the contract. It
was conceded by the Respondents
that, if the contract was frustrated as
alleged, the Appellants
were entitled to a further sum upon the basis of a
quantum meruit.
With this aspect of the case which might have presented
some
difficulty your Lordships will not be troubled. These two
grounds
of claim have persisted through the long course of these
proceedings which
have included a prolonged hearing before an
arbitrator, an award in the
form of a special case, a hearing of
the case by the Lord Chief Justice,
an appeal to the Court of
Appeal, a reference back to the arbitrator, a
supplemental award
by him, a further hearing by the Court of Appeal,
and an order of
that Court rejecting the Appellants' claim.
My Lords,
with the first ground of claim I will deal very briefly. I am
in
full agreement with the opinion of Lord Justice Parker on this
part
of the case, which will be elaborated by my noble and learned
friend, Lord
Radcliffe. The Appellants' letter of the 18th March.
1946, to which I have
referred, was a covering letter in which,
while enclosing their tender prepared
in accordance with the
Respondents' Bills of Quantities and Specifications,
they made a
number of statements about the basis of that tender. The
material
statement was as follows: " Our tender is subject to adequate
sup-
" plies of material and labour being available as and
when required to
" carry out the work within the time
specified ". It is possible that, if this
letter had been
followed by an immediate acceptance, the parties must have
been
deemed to enter into a contract which contained some such term,
though
its precise content and effect would have been extremely
difficult to define.
But that is not what took place nor what
might be expected to take place.
On the contrary, there were
negotiations following the tender and these
resulted in the formal
agreement of the 6th July, which did not incorporate
the letter of
the 18th March. It would as it appears to me be contrary
to all
practice and precedent to hark back to a single term of
preceding
negotiations after a formal and final agreement omitting
that term has been
signed. The reference to the letter in an
appendix to the tender is clearly
confined to the matter with
which that appendix dealt, namely the so-called
" escalator"
clause of the conditions of contract.
2
The second
ground of claim demands more serious consideration not
because it
has any intrinsic merit but because it has acquired from the
course
of the proceedings a certain specious validity.
I cannot
avoid reciting to your Lordships some of the findings of
the
Arbitrator. After stating that the site was handed to the
Appellants and
work was begun on the 20th June, 1946, and
completed on the 14th May,
1948, the Arbitrator proceeded thus:
" (6)
At the time of entering into the said agreement the Claimants
"
and the Respondents anticipated that there would be available in
the
" building industry a sufficient labour force and a
sufficient supply of
" materials to enable the work specified
in the agreement to be carried
" out substantially within the
time stipulated in the agreement.
" (7)
The conditions in which the work had to be carried out were
"
different from those anticipated by the Claimants and the
Respondents
"in that:
" (a)
At all times there was a serious shortage of skilled labour
"
in the industry and the Claimants were unable to obtain an
"
adequate supply of such skilled labour ;
" (b)
There was difficulty in obtaining adequate supplies of bricks,
"
timber and plumbers' goods ;
" (c)
There was an adequate supply of unskilled labour in the
"
industry but not at all times within the locality of Fareham where
"
the Claimants were required under the General Conditions of
"
Contract to recruit such labour unless the importation of labour
"
from elsewhere were specially sanctioned by the Respondents.
" (8)
As a result of the said shortage of labour and materials the
"
Claimants were unable to complete the work within the time
specified
" in the agreement and the Respondents accepted the
position and
" allowed the work to continue until finally
completed on 14th May,
" 1948, without serious objections by
the Respondents.
" (9)
As a result of the longer time taken to complete the work the
"
Claimants incurred additional expense and the actual cost to them
"
of carrying out the contract was £115,233 14s. 0d. The
Claimants
" have been paid by the Respondents the sum of
£94,424 17s. 9d."
He then
referred to the Appellants' claim for further payment in respect
of
their additional cost and expense, which he found to have been
partly
due to the circumstances set out above, over which they had
no control,
and to exceptional weather conditions and partly due
to matters for which
they were themselves to blame, and came to
the conclusion that the sum
of £17,651 13s. 1d. (which was
afterwards slightly reduced) represented the
amount of additional
cost properly and unavoidably incurred by them. He
then stated the
submission of the Appellants on this point, viz.: that the
contract
was entered into on the " basis" that adequate supplies of
labour
and materials would be available at the times required and
that because
they were not so available the " footing "
of the contract was removed and
that they were entitled to be paid
on the basis of a quantum meruit. The
question of law stated by
him which was intended to cover this point was
put baldly thus "
Whether the Claimants " [the Appellants] " are entitled to
be
" paid any sum in excess of £94,424 17s. 9d. already
paid them? "
Upon the
matter coming before the Court the Lord Chief Justice was of
the
opinion which your Lordships have rejected that the letter of the
18th
March, 1946, was incorporated in the contract and upon that
basis was
further of opinion that there was an implied promise by
the Respondents
to pay a further reasonable sum if the conditions
of the letter were not
satisfied. The learned Judge referred to
the case of Bush v. Whitehaven
Trustees, which must
be discussed later, but observed " I do not think that
"
it is necessary to go as far as that because I do not think that it
is a destruc-
" tion of the whole foundation of the
contract".
An appeal
was taken to the Court of Appeal. Upon the question of
the letter
of 18th March being incorporated in the contract the Court,
though
no order to that effect was drawn up, expressed a view adverse
3
to the
Appellants, but upon the alternative ground of claim, with which
I
am now concerned, thinking that the findings of the arbitrator
were
inadequate referred the case back to him with this direction
" that the
" said Arbitrator may make further findings
of fact for the information
" of this Court relevant to the
application of the principle in the case of
" Bush v.
Whitehaven and the contentions of the parties on this issue.
The
" Arbitrator to state his own conclusions on the
contentions of the parties
" if he intends his award to be a
final award ".
My Lords,
I do not find it easy to interpret this direction. The case of
Bush
v. Whitehaven Trustees, which is reported only in Hudson
on Building
Contracts, if it can be said to embody any principle,
illustrates an early
stage in the development of the doctrine of
frustration which has since been
the subject of many decisions in
this House. And it was, I think, to this
issue that the
contentions of the parties and the further findings of the
Arbitrator
were directed. Thus, while the Appellants repeated their
former
contention that, because adequate supplies of labour and
material were
not available, the footing of the contract was
removed, the Respondents
contended that " in any event the
footing on which the contract was agreed
" was not so changed
that the contract could be declared or treated as
" void or
the Claimants be entitled to payment on a quantum meruit"
and
" That any claim on a quantum meruit basis was
precluded by reason of
" the conduct of the parties after a
claim for additional payment was first
" intimated by the
Claimants " and " That the Respondents so far from
"
allowing the Claimants to continue work on a different basis
consistently
" maintained that the contract was still
applicable ".
The
Arbitrator then stated (inter alia) the following question of
law
" Whether the Claimants are entitled to be paid any sum
in excess of the
" £94,424 17s. 9d. already paid them,
namely on a quantum meruit, by
" reason of: (a)
the footing upon which the contract was made having been
" so
changed in the course of its execution that its provisions no
longer
" applied or (b) an implied term in the
contract that it ceases to bind in the
" circumstances as
found ".
Having
been asked to state his own conclusions he further found that
both
parties entered into the contract on the basis that adequate
supplies
of labour and material would be available at the times
required, that such
supplies were not so available and that, as
the duration of the work was
unavoidably extended from a period of
eight months to one of twenty-two
months, the footing of the
contract was removed. I do not think it necessary
to state all his
conclusions but it is proper to add that, for reasons which
are
set out, he found that " the footing of the contract was so
changed that
" it became void and the Claimants are entitled
to a fair and reasonable
" price for the work they have done
". I do not refer to his findings about
the conduct of the
parties except to say that at an early stage they were
at issue,
the Appellants making and pressing a claim for additional pay-
ment
which the Respondents steadfastly resisted. Giving effect to his
own
conclusions the Arbitrator found that the Appellants were
entitled to be
paid a further sum of £17,258 13s. 1d.
Now the
matter came back to the Court of Appeal, which was not con-
stituted
as on the former occasion. The alternative grounds of claim
were
again fully argued. The first ground, that of the
incorporation of the letter
of the 18th March in the contract, was
rejected either because it was held
not to be incorporated or
because, even if incorporated, it had not the
effect for which the
Appellants contended. Upon this I will say no more.
The second
ground of claim remains, and upon this the learned Judges
of the
Court of Appeal were unanimously against the Appellants and
they
were, in my opinion, clearly right. If the matter had in the first
instance
come before a Court of Law which after finding the facts
as found by the
Arbitrator had then to consider the law applicable
to those facts, there
could only have been one answer. The Lord
Chief Justice was, in my
opinion, stating the obvious when he said
in the passage that I have cited
" I do not think it is a
destruction of the whole foundation of the contract".|
4
The
doctrine of frustration of a contract (for it is that doctrine and
nothing
else which must be invoked) has never been applied or, so
far as I am
aware, been sought to be applied to such a case unless
indeed Bush v.
Whitehaven was one. The contract was
for completion of certain work in
eight months: the contractors
made their tender in the expectation that
they would be able to do
the work in the time and made a price accordingly.
It may then be
said that they made the contract on the " basis " or on
the
" footing " that their expectations would be fulfilled. Nor
presumably
were the expectations, or at least the hopes, of the
Respondents in any
way different. Let it be said, then, of them,
too, that they contracted upon
the same basis or footing. But it
by no means follows that disappointed
expectations lead to
frustrated contracts. I do not propose to revive the
controversy
about the juridical basis of the doctrine of frustration. If it
rests
on an implied term of the contract to the effect that the parties
will
not be bound if a certain event happens or does not happen, I
can see
no ground for saying that such a term must be implied in
this contract.
If it is permissible to judge by the event, it is
clear that the parties would
not have agreed on any such term. I
pause to observe that it is not enough
to say that in the event of
something unexpected happening some term must
be implied: it must
be clear also what that term should be. In such a
case as this I
can see no reason for supposing that the parties would
have agreed
either at what moment the frustrating event was to be deemed
to
happen or what was to be the position when it in fact happened.
Equally,
if, as is held by some, the true doctrine rests not on an
implied term of
the contract between the parties but upon the
impact of the law on a
situation in which an unexpected event
would make it unjust to hold
parties to their bargain, I would
emphasise that in this aspect the doctrine
has been and must be
kept within very narrow limits. No case has been
cited in which it
has been applied to circumstances in any way comparable
to those
of the present case. It is sufficient to ask when in the course
of
this twenty-two month contract that unexpected disruptive event
happened
which put an end to it. " Rights ", said Lord
Sumner in Bank Line, Limited
v. Arthur Capel &
Company [1919] AC 435, "ought not to be left in
"
suspense or to hang on the chances of subsequent events ". It is
wholly
inconsistent with this, as I think, fundamental condition
that a building
contractor should without intermission work upon
his contract over a period
which by much or little exceeds the
contract time and at the end of it say,
as the Appellants say
here, " A twenty-two month project is not an eight
"
month project " or less formidably " An expenditure of
£111,000 is not an
" expenditure of £94,000 ",
" therefore the original contract must be regarded
" as
frustrated and for all the work that has been done we must be paid
"
not the contract price but upon the basis of a quantum meruit".
My Lords,
I say it with all respect to the arguments of learned
Counsel but it appears to
me that that is to make nonsense of a
doctrine which, used within its proper
limits, serves a valuable
purpose.
But, it
was urged, this case cannot be regarded in the manner that
I
postulated. There are the findings of the Arbitrator, a man
experienced
in the matter of building contracts, and they should
not be set aside. I will
say at once that the Arbitrator has
clearly done his work with great care
and skill. But his findings
involve a blend of law and fact and, deliberately
using the words
that he has chosen, " basis" and " footing", I
can see
no justification for a conclusion of law that the contract
was frustrated.
It remains
to say something about the case of Bush v. Whitehaven
Trustees
which has loomed so large in the earlier stages of
this case and. in the
argument before this House. I must say for
myself that I find it an extremely
puzzling case and, if it had
been a decision of this House and therefore
binding on us, I
should have felt grave difficulty about it. But two things
may be
said: first it is not binding on us; secondly in so far as it is
an
authority on the law of frustration for which purpose alone I
conceive it
to have been cited, it must be read in the light of
the numerous decisions
of higher authority which have since been
given. I am not satisfied that
it can be supported on the ground
suggested by Lord Justice Denning nor,
5
on the
other hand, do I say that the decision is a wrong one. But I
do
emphatically say that it cannot in the light of later authority
be used to
support the proposition that where, without the default
of either party,
there has been an unexpected turn of events which
renders the contract
more onerous than the parties had
contemplated that is by itself a ground
for relieving a party of
the obligation he has undertaken. I agree with
the learned Lord
Justice that that is the import of the decision of this
House in
British Movietonews Ltd. v. London & District Cinemas
Ltd., [1952]
A.C. 166 and that it precisely covers this case.
I would
dismiss this appeal with costs.
Lord
Morton of Henryton
MY LORDS,
Two
questions of law arise on this appeal:
Was the
letter of 18th March, 1946, from the Appellants to the
Respondents,
incorporated in the contract under seal which was entered
into by
the parties on the 9th July, 1946?
Was that
contract frustrated, with the result that the Appellants,
who
have erected 78 houses for the Respondents, are not bound to
accept
the contract price, but are entitled to a further sum of
over £17,000,
which the arbitrator has awarded to them?
My Lords,
in my opinion the letter of 18th March, 1946 merely formed
part of
the negotiations between the parties which led up to the contract
of
9th July and its terms were not incorporated into that contract.
This
matter is dealt with fully in the opinion which will be
delivered by my noble
and learned friend, Lord Radcliffe, and I am
content to say that I agree with
his reasoning and his conclusion.
I can
state quite briefly my views on the second question, since I
understand
your Lordships are all of opinion, as I am, that the
Court of Appeal reached
the right conclusion. The Appellants
contracted to complete 40 houses
within six months, 70 within
seven months, and all the 78 houses within
eight months. It is
agreed that the work started on the 20th June, 1946,
and should,
therefore, have been completed in February, 1947. In fact,
the
progress of the work was delayed, because, as the arbitrator
held, " adequate
" supplies of labour and materials were
not available at the times required ".
Nevertheless, the
Appellants went on with the work, without any actual inter-
ruption,
and completed it in a period of 22 months. They now contend that
the
contract was frustrated, and they rely on certain findings by the
arbitrator,
which have already been read, and on the decision of
the Court of Appeal
in Bush v. Whitehaven, reported
in Hudson on Building Contracts, fourth
edition, volume 2, page
122.
My Lords,
it is clear that the Appellants are entitled to no more than
the
contract price, unless they can satisfy your Lordships that at some
time
the contract of 9th July, 1946, came to an end, so that in
continuing to erect
houses they were no longer working under that
contract. I am not so satisfied.
I agree with the observation of
Morris, L.J. that " though the basis or footing
" of the
contract was removed in the limited sense that the anticipations of
"
the parties were not realised, the facts found do not require an
implication
" in the contract that it was to come to an end
if these anticipations were
" not realised ". It is, I
think, impossible to hold that a contract has been
frustrated
unless it can be said " as and from such and such a date, at
latest.
" the contract ceased to bind the parties ".
In the
course of the hearing Counsel for the Appellants were asked:
"
When do you say that the contract came to an end?", and they
replied
that they were unable to specify any time. I think that
this answer was
correct and inevitable, but it reveals the
inherent weakness of the Appellants'
case.
6
The facts
in the case of Bush v. Whitehaven are very briefly stated in
the
report, but I think it is clear that the judgments of the
Court of Appeal in
that case were based upon the findings of the
jury, and in particular the fifth
finding. The question put to the
jury was: " Were the conditions of the
" contract so
completely changed, in consequence of the defendant's inability
"
to hand over the sites of the work as required, as to make the
special pro-
" visions of the contract inapplicable?",
and the jury replied: " Yes ". This
question was, I
think, a question of law, or at least of mixed fact and law,
but
the Court of Appeal accepted the jury's answer, and on that
footing
held that by 8th October, 1886, when the contractors got
possession of the
required sites, the contract had ceased to
exist. In my opinion Bush v.
Whitehaven was a
decision upon very special facts, which enabled the Court
to find
that, although the contractors finished the work specified in
the
contract, they were not working under the contract from 8th
October, 1886,
onwards. For this reason the case does not, in my
opinion, assist the
Appellants. I would add that since the
decision in the case just cited, the
doctrine of frustration has
frequently been considered in your Lordships'
House, and for an
authoritative exposition of the doctrine one should turn
to the
speeches in this House rather than to the judgments of the Court
of
Appeal in Bush v. Whitehaven.
I would
dismiss the appeal.
Lord
Reid
MY LORDS,
The
arbitrator has found in his supplementary award that " the
footing of
" the contract was removed ", and his reason
for so finding is that " both
" parties entered into the
contract on the basis that adequate supplies of
" labour and
materials would be available at the times required " but
that
adequate supplies were not available with the result that the
duration of the
work was unavoidably extended from 8 months to 22
months. It seems clear that
he has used the words " footing "
and " basis " because the Special Case was
referred back
to him for further findings of fact relevant to the application
of
the principle in the case of Bush v. Whitehaven, and
the contentions of
the parties on this issue, and the parties used
these words in their contentions.
The Appellants' submissions as
stated in the award are almost identical with
the arbitrator's
findings, and the Respondents' submission is that the footing
on
which the contract was agreed was not so changed that the contract
could
be treated as void. This form of award gives rise to
considerable difficulty.
But I have some sympathy with the
arbitrator: he may have found as much
difficulty as I have in
discovering " the principle in the case of Bush v.
"
Whitehaven ".
In order
to determine how far the arbitrator's findings are findings of
law
and therefore subject to review I think it is necessary to
consider what is the
true basis of the law of frustration.
Generally this has not been necessary:
for example, Lord Porter
said in Denny, Mott & Dickson v. Fraser &
Co,
[1944] A.C. 265 at p. 281: " Whether this
result follows from a true construc-
" tion of the contract
or whether it is necessary to imply a term or whether
" again
it is more accurate to say that the result follows because the
basis
" of the contract is overthrown, it is not necessary to
decide ". These are the
three grounds of frustration which
have been suggested from time to time
and I think that it may make
a difference in two respects which is chosen.
Construction of a
contract and the implication of a term are questions of law,
whereas
the question whether the basis of a contract is overthrown, if
not
dependent on the construction of the contract, might seem to
be largely a
matter for the judgment of a skilled man comparing
what was contemplated
with what has happened. And if the question
is truly one of construction I
find it difficult to see why we
should not apply the ordinary rules regarding
the admissibility of
extrinsic evidence whereas, if it is only a matter of com-
paring
the contemplated with the actual position, evidence might
be
admissible on a wider basis
7
Further, I
am not satisfied that the result is necessarily the same
whether
frustration is regarded as depending on the addition to
the contract of an
implied term or as depending on the
construction of the contract as it stands.
Frustration
has often been said to depend on adding a term to the contract
by
implication: for example, Lord Loreburn in Tamplin Steamship Co.
Ltd.
v. Anglo Mexican Petroleum Products Co. Ltd. [1916]
2 A.C. 397 at p. 404,
after quoting language of Lord Blackburn,
said: " That seems to me another
" way of saying that
from the nature of the contract it cannot be supposed
" the
parties, as reasonable men, intended it to be binding on them under
"
such altered conditions. Were the altered conditions such that, had
they
" thought of them, they would have taken their chance of
them, or such
" that as sensible men they would have said: '
If that happens, of course,
"' it is all over between us"?
What, in fact, was the true meaning of the
" contract? Since
the parties have not provided for the contingency, ought a
"
court to say it is obvious they would have treated the thing as at an
end? ".
I find
great difficulty in accepting this as the correct approach because
it
seems to me hard to account for certain decisions of this House
in this way.
I cannot think that a reasonable man in the position
of the seaman in Horlock
v. Beal [1916] 1 A.C. 486 would
readily have agreed that the wages payable
to his wife should stop
if his ship was caught in Germany at the outbreak
of war, and I
doubt whether the charterers in the Bank Line case could
have
been said to be unreasonable if they had refused to agree to a
term
that the contract was to come to an end in the circumstances
which occurred.
These are not the only cases where I think it
would be difficult to say that a
reasonable man in the position of
the party who opposes unsuccessfully
a finding of frustration
would certainly have agreed to an implied term
bringing it about.
I may be
allowed to note an example of the artificiality of the theory of
an
an implied term given by Lord Sands in Scott & Sons v. Del
Sel [1922]
S.C. 592 at p. 595: " A tiger has escaped from
a travelling menagerie. The
" milk girl fails to deliver the
milk. Possibly the milkman may be exonerated
" from any
breach of contract: but even so it would seem hardly reasonable
"
to base that exoneration on the ground that ' tiger days excepted '
must be
" held as if written into the milk contract".
I think
that there is much force in Lord Wright's criticism in Denny,
Mott
& Dickson at p. 275: " The parties did not
anticipate fully and completely,
" if at all, or provide for
what actually happened. It is not possible, to my
" mind, to
say that, if they had thought of it, they would have said: ' Well,
if
" ' that happens, all is over between us '. On the
contrary, they would almost
" certainly, on the one side or
the other, have sought to introduce reservations
" or
qualifications or compensations ".
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 light of the nature of the contract
and of the relevant
surrounding circumstances when the contract
was made. There is much
authority for this view. In British
Movietonews Ltd. v. London & District
Cinemas, Ltd.
[1952] A.C. 166 at p. 185 Lord Simon said: " If, on the
other
" hand, a consideration of the terms of the contract,
in the light of the circum-
" stances existing when it was
made, shews that they never agreed to be bound
" in a
fundamentally different situation which has now unexpectedly
emerged,
" the contract ceases to bind at that point—not
because the court in its
" discretion thinks it just and
reasonable to qualify the terms of the contract,
" but
because on its true construction it does not apply in that situation
".
In Parkinson v. Commissioners of Works [1949]
2 K.B. 632 Asquith, LJ.
said (at p. 667): " In each case a
delay or interruption was fundamental
" enough to transmute
the job the contractor had undertaken into a job of a
"
different kind, which the contract did not contemplate and to which
it
"could not apply, although there was nothing in the
express language of
" either contract to limit its operation
in this way ". I need not multiply
citations but I might note
a reference by Lord Cairns so long ago as 1876 to
"
additional or varied work so peculiar so unexpected and so different
from
" what any person reckoned or calculated upon "
(Thorn v. The Mayor and
8
Commonalty
of London, 1 App. Cas 120 at p. 127). 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.
In my
view, the proper approach to this case is to take from the
arbitrator's
award all facts which throw light on the nature of
the contract or which
can properly be held to be extrinsic
evidence relevant to assist in its con-
struction and then, as a
matter of law, to construe the contract and to
determine whether
the ultimate situation as disclosed by the award is or
is not
within the scope of the contract so construed.
The
Appellants on 18th March, 1946, sent to the Respondents with
their
tender a covering letter. I agree with your Lordships that
this letter was not
incorporated in the contract of 9th July,
1946, and I do not think that it can
be used in construing this
contract. It was simply part of the preliminary
negotiations and
we do not know and cannot enquire why it was not
incorporated in
the contract.
The
arbitrator has found that both parties " anticipated that there
would
" be available in the building industry a sufficient
labour force and a sufficient
" supply of materials to enable
the work specified in the agreement to be
" carried out
substantially within the time stipulated in the agreement".
The
nature of the contract is such that they must have expected this.
The
contract required the Appellants to complete the work within 8
months and
provided for payment of liquidated damages if the
Appellants failed to do so
subject to the surveyor being required
in certain events to allow such addi-
tional time as he might deem
fair and reasonable: and it was clearly of great
importance to the
Appellants that there should be no substantial delay
because any
such delay was bound to add considerably to their costs. It
appears
from the arbitrator's findings that the parties did not make
their
expectations known to each other, and I do not think that a
finding that
the parties in fact expected that there would be no
substantial delay adds
anything material or alters the legal
position.
The
arbitrator then found that the conditions in which the work had to
be
carried out were different from those anticipated in that at
all times there was
a serious shortage of labour and difficulty in
obtaining adequate supplies
of bricks and other material. He found
that as a result of this shortage and
the consequent delay in
completing the work the actual cost to the Appellants
of carrying
out the contract was £115,233 whereas the sum paid to
them
under the contract was £94,424. The arbitrator has not
awarded the whole of
the difference between these sums. He held
that to some extent the Appellants
were themselves to blame and
awarded £17,651 as the additional cost and
expense properly
and unavoidably incurred by them
If the
contract continued to apply then the Appellants are not entitled
to
more than they have already received; but if it was brought to an
end
then the Respondents admit that the Appellants are entitled to
the sum
awarded subject to a very small adjustment.
The
arbitrator found that "the Respondents accepted the position
"
and allowed the work to continue until finally completed on 14th
"
May, 1948, without serious objections by the Respondents". I
do
not think that that means or was intended by the arbitrator to
mean
that at some time while the work was in progress the parties
agreed
or must be held to have agreed that their contract should
no longer
apply and that the work should proceed on some other
basis. There
is no finding as to when any such agreement must be
held to have been made
or what were its terms and there are no
facts found from which such an
agreement could be inferred. The
Respondents no doubt recognised that
the delays were not due to
the fault of the Appellants: they made no claim
for liquidated
damages, and they made no attempt to take the work out of
the
hands of the Appellants as they could have done if the Appellants
had
been at fault. But that is no ground for inferring an
agreement to terminate
the contract and proceed on some different
basis.
9
The
Appellants' case must rest on frustration, the termination of the
con-
tract by operation of law on the emergence of a fundamentally
different
situation. Using the language of Asquith, L.J. (as be
then was) which I have
already quoted, the question is whether the
causes of delay or the delays were
" fundamental enough to
transmute the job the contractor had undertaken
" into a job
of a different kind, which the contract did not contemplate and to
"
which it could not apply ". In most cases the time when the new
situation
emerges is clear, there has been some particular event
which makes all the
difference. It may be that frustration can
occur as a result of gradual change,
but if so the first question
I would be inclined to ask would be when the
frustration occurred
and when the contract came to an end. It has been
assumed in this
case that it does not matter at what point during the progress
of
the work the contract came to an end, and that, whatever the time
may
have been, if the contract came to an end at some time the
whole of the
work must be paid for on a quantum meruit basis.
I do not pursue this
matter because the Respondents have admitted
that if there was frustration
at any time the Appellants are
entitled to the sum awarded. But even so,
I think one must see
whether there was any tune at which the Appellants
could have said
to the Respondents that the contract was at an end and that
if the
work was to proceed there must be a new contract, and I cannot
find
any time from first to last at which they would have been
entitled to say
that the job had become a job of a different kind
which the contract did not
contemplate. There is a difficulty
about a party being entitled to go on
and finish the work without
raising the question that a new agreement is
necessary and then
maintain that frustration occurred at some time while
the work was
in progress, but again I do not pursue that matter because it
does
not arise in view of the course this case has taken.
In a
contract of this kind the contractor undertakes to do the work for
a
definite sum and he takes the risk of the cost being greater or
less than
he expected. If delays occur through no one's fault that
may be in the con-
templation of the contract and there may be
provision for extra time being
given: to that extent the other
party takes the risk of delay. But he does
not take the risk of
the cost being increased by such delay. It may be that
delay could
be of a character so different from anything contemplated that
the
contract was at an end, but in this case in my opinion the most
that
could be said is 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.
Bush v.
Whitehaven Trustees appears to me to be a very special case
and
it must be read in light of the development of the law in
later cases. I agree
with your Lordships' comments on it and I can
get little assistance from it
for the decision of the present
case. I agree that this appeal should be
dismissed.
Lord
Radcliffe
MY LORDS,
I agree
that this appeal fails. Of the two main grounds upon which
the
Appellants rely the shorter is that which concerns the
question whether their
building contract was made subject to a
condition as to the availability of
adequate supplies of labour
and material by incorporating in its terms the
relevant part of a
letter from the Appellants to the Respondents dated 18th
March,
1946. I will deal with that point first. But at the outset I
must
remark that if I thought, as I do not, that the Appellants
were right in their
argument that such a condition was
incorporated, I should not necessarily
conclude from that that
they were entitled to succeed in their appeal. For
their success
would depend upon a further question, What significance should
be
attached to the words of the condition as part of the whole contract
and
what legal consequences should flow from them? As I believe
that your
10
Lordships
are at one in thinking that the incorporation claimed never
took
place, I do not think that I need say anything more with
regard to this further
question except that it is itself a
difficult one upon which some difference of
view has already shown
itself in the Courts.
The
building contract is contained in a written agreement under seal
dated
the 9th July, 1946. The agreement itself is quite short and
its main purpose
is to identify a number of separate documents
which, it states, are to " form
" and be read and
construed as part of this Agreement." These other docu-
ments
had come into existence for the purpose or during the course of
the
negotiations which had proceeded the making of the formal
agreement.
Thus,
early in the year 1946 the Respondents had drawn up Bills of
Quan-
tities and a Form of Tender which indicated the nature of
their requirements,
and had invited inspection of their Drawings,
Specifications and Conditions
of Contract. Contractors wishing to
tender for all or part of the projected
work were to deliver their
tenders on the form prescribed by the 19th March,
1946.
On the
18th March, the Appellants sent in a signed Tender on the
appro-
priate form undertaking the erection of (inter alia) 78
houses at Gudgeheath
Lane, Fareham, at a price of £92,425
and within the time limits specified.
With it went a covering
letter of the same date. As this is the letter which
contains the
alleged contractual term it is desirable to set it out in full.
"
davis contractors limited
325,
Kilburn High Road,
London,
N.W.6
18th March, 1946.
RL/JEM
Clerk of
the Council,
Fareham
Urban District Council,
Westbury
Manor,
Fareham,
Hants.
dear sir,
Re
Gudgeheath Lane, Fareham.
We have
pleasure in enclosing herewith our Tender prepared in accordance
with
your Bills of Quantities, and Specifications submitted by your
Engineer
and Surveyor for One hundred and fifty two houses on four
sites.
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.
It is also
based on the present published market prices of materials
delivered
to site and existing established rates of wages in the
various trades for the
district.
Purchase
tax has not been allowed for in our Tender and payment of such
will
form a nett addition to the Contract's sum. Also any variation in
price
of labour or materials will form nett additions or omissions
to or from the
Contract's sum, as may be determined by
calculation.
We have
based our price for facings on a p.c. amount of 20s. on the
present
quoted price for Fletton bricks delivered Fareham station.
This has been
necessary as we have been unable to get firm
quotations for facings delivered
to site.
Thank you
for this opportunity of serving you, and we assure you always of
our
best attention.
Yours
faithfully,
For and on
behalf of
davis
contractors ltd.
(sd) W. B. W. C. Curd.
Director.
contracts
manager."
11
The Form
of Tender which the Respondents prescribed had an Appendix
attached
to it, bearing the heading " Materials and Goods to be
purchased
" directly by the Contractor, in respect of which
variation of the Contract sum
" is desired in accordance with
Clause 68a of the Conditions of Contract."
There was then a
blank space left under two column headings " Materials or
"
Goods " and " Basic Price." In this blank
space the Appellants had written
the words " As terms of
letter attached dated 18th March, 1946, reference
" RL/JEM."
There was nothing else in the Appendix except a Clause limiting
to
some extent the contractor's right to vary the contract sum in
respect of
price variations of materials and goods. As the
Arbitrator found in his original
Award, the purpose of the
Appendix was " to enable contractors tendering
" for
work to make a list in that Appendix of all materials or goods
which
" might be subject to a rise or fall in price so that
both parties to the contract
" would be protected from the
effect of fluctuation of prices ..."
Between
the 18th March and the date when the formal Agreement was
entered
into the Appellants in fact supplied the Respondents with a
detailed
Schedule of Prices, which was intended to constitute the
list of materials and
goods called for by Appendix I and was
accepted. No further reference
appears to have been made to the
letter of the 18th March.
These are
the circumstances in which it has to be decided whether the
second
paragraph of this letter formed a qualifying condition
incorporated
into the building contract. As the formal Agreement
of 9th July was evidently
intended to sum up everything that had
emerged from the preceding negotia-
tions, it is necessary for the
Appellants to show that that Agreement somehow
carried into its
terms the stipulation contained in that second paragraph.
Nor did
their argument before your Lordships proceed on any other basis.
It is put
in two ways. I do not agree with either of them. On the con-
trary,
I agree with the way that this question was disposed of by
Lord
Justice Parker in the Court of Appeal: but, since the
Appellants' argument
on this point commended itself both to the
Lord Chief Justice in the Queen's
Bench Division and to a majority
of the Court of Appeal on the occasion of
each hearing, it is only
right that I should notice it with some particularity.
The formal
Agreement, as I have said, referred to and incorporated a num-
ber
of the preliminary documents. These were listed in Clause 2
as
follows: —
" (a)
The said Tender
" (b)
The Drawings
" (c)
The General Conditions of Contract
" (d)
The Specification
" (e)
The Bill of Quantities
" (f)
The Schedule of Rates and Prices (if any)."
Now what
was the " said Tender'"? The actual form of the words is
due
to the only recital of the Agreement, it which it is stated
that the Employer
" has accepted a Tender by the Contractor
for the sum of £92,425 8s. 4d.,"
etc. The first way
that the Appellants put their case is that the Tender
referred to
is the whole offer made on the 18th March, and that this
offer
included the second paragraph of the covering letter which
was intended
as a qualification of the terms of the Form of
Tender.
My Lords,
I think that this argument is a misreading of what the Appellants
and
Respondents intended by the formal Agreement. Certainly all the
other
documents incorporated by Clause 2 are separate named
documents which the
parties were at some pains to identify by
their respective signatures. Every-
thing points to the "
said Tender" being, similarly, the document called
Form of
Tender which the Appellants had signed on the 18th March
and
forwarded by their letter. Nothing else in fact could properly
be referred
to as a " Tender " : for there is a
contradiction in terms in speaking of a
letter which states that "
our Tender " is enclosed as if it were itself part of
that
very Tender. As I see it, the truth of the matter is that in
forwarding
their Tender the Appellants proposed a qualification of
the expected contract
which the Respondents did not accept and to
which the Appellants did not
themselves return. I do not think it
unfair to add the point that if they had,
12
their
stipulation could hardly have been left in its existing form which is
at
once sweeping and inconclusive.
The
alternative argument rests upon the fact that the Appendix to
the
Form of Tender had had written in it by the Appellants a
reference to the
letter of 18th March. But I do not see how this
can avail them with regard
to the second paragraph of that letter.
For the whole purpose of the Appendix
was to provide a list of
materials and goods that were to rank in allowing
variations of
the contract sum. In so far as parts of the letter did refer
to
prices of materials and goods, as indeed some did, I think that
it would be
correct to say that those passages formed part of the
Form of Tender and, as
such, might have been incorporated in the
formal Agreement. I say " might
" have been ",
because I think that the Arbitrator's finding that the later
Schedule
of Prices supplied on 20th May was intended to constitute Appen-
dix
I of the tender must mean that the original reference to the letter
of 18th
March ceased to have any contractual significance by the
time that the formal
Agreement was made. But, however that may be,
I think it plain that the
reference in the Appendix could only
bear upon matters relating to the
prices of materials and goods
and could not possibly have been understood by
the parties as
bearing upon the general question of the availability of supplies
of
labour and material. The context of the Appendix makes it
impossible
to suppose that the reference was intended to introduce
the letter of 18th
March as a whole.
If the
second paragraph of that letter did not form part of the
contractual
arrangements, the Appellants' right to claim any
payment beyond the
original contract sum rests upon the argument
that at some date before
completion the original contract became
frustrated by the continued shortage
of the necessary supplies of
labour and material and that as from that date
the building work
was carried on under a new working arrangement which
admitted of
further payment. The supplemental Award of the Arbitrator
was
drawn up on the basis that this argument succeeded. Despite
his
findings I think that the law is against the Appellants on
this point and
that the award in their favour cannot be sustained.
Before I
refer to the facts I must say briefly what I understand to be
the
legal principle of frustration. It is not always expressed in
the same way, but
I think that the points which are relevant to
the decision of this case are
really beyond dispute. The theory of
frustration belongs to the law of con-
tract and it is represented
by a rule which the Courts will apply in certain
limited
circumstances for the purpose of deciding that contractual
obligations,
ex facie binding, are no longer enforceable
against the parties. The description
of the circumstances that
justify the application of the rule and, consequently,
the
decision whether in a particular case those circumstances exist are,
I
think, necessarily questions of law.
It has
often been pointed out that the descriptions vary from one case
of
high authority to another. Even as long ago as 1918 Lord Sumner
was able
to offer an anthology of different tests directed to the
factor of delay alone,
and delay though itself a frequent cause of
the principle of frustration being
invoked is only one instance of
the kind of circumstance to which the law
attends (see Bank
Line Ltd. v. Arthur Capel & Co. [1919] AC 435, 457/460).
A
full current anthology would need to be longer yet. But the
variety
of description is not of any importance so long as it is
recognised that each
is only a description and that all are
intended to express the same general
idea. I do not think that
there has been a better expression of that general
idea than the
one offered by Lord Loreburn in F. A. Tamplin Steamship Co.
Ltd.
v. Anglo-Mexican Petroleum Products Co. Ltd [1916] 2 A.C.
397,
403/404. It is shorter to quote than to try to paraphrase it:
" A court can
" and ought to examine the contract and
the circumstances in which it was
" made, not of course to
vary, but only to explain it, in order to see whether or
"
not from the nature of it the parties must have made their bargain on
the
" footing that a particular thing or state of things
would continue to exist.
" And if they must have done so,
then a term to that effect will be implied,
" though it be
not expressed in the contract ... no court has an absolving
"
power, but it can infer from the nature of the contract and the
surrounding
13
"
circumstances that a condition which is not expressed was a
foundation on
" which the parties contracted." So
expressed, the principle of frustration,
the origin of which seems
to He in the development of commercial law, is seen
to be a branch
of a wider principle which forms part of the English law of
contract
as a whole. But, in my opinion, lull weight ought to be given to
the
requirement that the parties " must have made "
their bargain on the particu-
lar footing. Frustration is not to
be lightly invoked as the dissolvent of a
contract
Lord
Loreburn ascribes the dissolution to an implied term of the
contract
that was actually made. This approach is in line with the
tendency of English
courts to refer all the consequences of a
contract to the will of those who
made it. But there is something
of a logical difficulty in seeing how the parties
could even
impliedly have provided for something which ex hypothesi
they
neither expected nor foresaw; and the ascription of frustration to
an
implied term of the contract has been criticised as obscuring
the true action
of the Court which consists in applying an
objective rule of the law of con-
tract to the contractual
obligations that the parties have imposed upon them-
selves. So
long as each theory produces the same result as the other,
as
normally it does, it matters little which theory is avowed (see
British Movie-
tone News Ltd. v. London & District
Cinemas Ltd. [1952] A.C. 166, 184 per
Viscount Simon). But it
may still be of some importance to recall that, if
the matter is
to be approached by way of implied term, the solution of
any
particular case is not to be found by inquiring what the
parties themselves
would have agreed on had they been, as they
were not, forewarned. It is
not merely that no one can answer that
hypothetical question: it is also
that the decision must be given
" irrespective of the individuals concerned,
" their
temperaments and failings, their interest and circumstances "
(Hirji
Mulji v. Cheong Yue Steamship Co. [1926] A.C.
497 at 510). The legal effect
of frustration " does not
depend on their intention or their opinions, or even
"
knowledge, as to the event" (loc cit at 509). On the
contrary, it seems
that when the event occurs 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 " (Dahl v. Nelson, Donkin & Co.
6
App. Cas. 38, at 59 per Lord Watson).
By this
time it might seem that the parties themselves have become so
far
disembodied spirits that their actual persons should be
allowed to rest in
peace. In their place there rises the figure of
the fair and reasonable man.
And the spokesman of the fair and
reasonable man, who represents after
all no more than the
anthropomorphic conception of justice, is and must be
the Court
itself. So perhaps it would be simpler to say at the outset
that
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.
There is,
however, no uncertainty as to the materials upon which the Court
must
proceed. " The data for decision are, on the one hand, the terms
and
" construction of the contract, read in the light of the
then existing circum-
" stances, and on the other hand the
events which have occurred " (Denny,
Mott v. Dickson
Ltd. & James B. Fraser & Co. Ltd. [1944] AC 265,
274/5,
per Lord Wright). In the nature of things there is often no
room for any
elaborate enquiry. The court must act upon a general
impression of what
its rule requires. It is for that reason that
special importance is necessarily
attached to the occurrence of
any unexpected event that, as it were, changes
the face of things.
But, even so, it is not hardship or inconvenience or
material loss
itself which calls the principle of frustration into play. There
must
be as well such a change in the significance of the obligation that
the
thing undertaken would, if performed, be a different thing
from that
contracted for.
14
I am bound
to say that, if this is the law, the Appellants' case seems to
me
a long way from a case of frustration. Here is a building contract
entered
into by a housing authority and a big firm of contractors
in all the
uncertainties of the post-war world. Work was begun
shortly before the
formal contract was executed and continued,
with impediments and minor
stoppages but without actual
interruption, until the 78 houses contracted
for had all been
built. After the work had been in progress for a time the
Appellants
raised the claim, which they repeated more than once, that they
ought
to be paid a larger sum for their work than the contract allowed:
but
the Respondents refused to admit the claim and, so far as appears,
no
conclusive action was taken by either side which would make the
conduct
of one or the other a determining element in the case.
That is
not in any obvious sense a frustrated contract. But the
Appellants'
argument, which certainly found favour with the
Arbitrator, is that at some
stage before completion the original
contract was dissolved because it
became incapable of being
performed according to its true significance
and its place was
taken by a new arrangement under which they were entitled
to be
paid not the contract sum but a fair price on quantum meruit
for
the work that they carried out during the 22 months that
elapsed between
commencement and completion. The contract, it is
said, was an eight
months contract, as indeed it was. Through no
fault of the parties it turned
out that it took twenty-two months
to do the work contracted for. The
main reason for this was that,
whereas both parties had expected that
adequate supplies of labour
and material would be available to allow for
completion in eight
months, the supplies that were in fact available were
much less
than adequate for the purpose. Hence, it is said, the basis or
the
footing of the contract was removed before the work was completed:
or,
slightly altering the metaphor, the footing of the contract
was so changed
by the circumstance that the expected supplies were
not available that the
contract built upon that footing became
void. These are the findings which
the Arbitrator has recorded in
his Supplemental Award.
In my view
these are in substance conclusions of law: and I do not think
that
they are good law. All that anyone, arbitrator or Court, can do is
to
study the contract in the light of the circumstances that prevailed
at the
time when it was made and. having done so, to relate it to
the circumstances
that are said to have brought about its
frustration. It may be a finding of
fact that at the time of
making the contract both parties anticipated that
adequate
supplies of labour and material would be available to enable the
con-
tract to be completed in the stipulated time. I doubt whether
it is: but, even
if it is, it is no more than to say that when one
party stipulated for completion
in eight months and the other
party undertook it each assumed that what
was promised could be
satisfactorily performed. That is a statement of the
obvious that
could be made with regard to most contracts. I think that
a good
deal more than that is needed to form a " basis " for the
principle
of frustration.
The
justice of the Arbitrator's conclusion depends upon the weight to
be
given to the fact that this was a contract for specified work
to be completed
in a fixed time at a price determined by those
conditions. I think that his
view was that, if without default on
either side the contract period was
substantially extended, that
circumstance itself rendered the fixed price so
unfair to the
contractor that he ought not to be held to his original price.
I
have much sympathy with the contractor: but, in my opinion, if that
sort
of consideration were to be sufficient to establish a case of
frustration, there
would be an untold range of contractual
obligations rendered uncertain and,
possibly, unenforceable.
Two things
seem to me to prevent the application of the principle of
frustration
to this case. One is that the cause of the delay was not any
new
state of things which the parties could not reasonably be thought
to
have foreseen. On the contrary, the possibility of enough
labour and
materials not being available was before their eyes and
could have been the
subject of special contractual stipulation. It
was not made so. The other
thing is that, though timely completion
was no doubt important to both sides,
it is not right to treat the
possibility of delay as having the same significance
15
for each.
The owner draws up his conditions in detail, specifies the
time
within which he requires completion, protects himself both by
a penalty
clause for time exceeded and by calling for the deposit
of a guarantee bond
and offers a certain measure of security to a
contractor by his escalator
clause with regard to wages and
prices. In the light of these conditions
the contractor makes his
tender, and the tender must necessarily take into
account the
margin of profit that he hopes to obtain upon his adventure
and in
that any appropriate allowance for the obvious risks of delay. To
my
mind, it is useless to pretend that the contractor is not at risk if
delay
does occur, even serious delay. And I think it a misuse of
legal terms to
call in frustration to get him out of his
unfortunate predicament.
The
arbitrator had put upon him the duty of making further findings
of
fact " relevant to the application of the principle in the case
of Bush v.
" Whitehaven ". This may have
been hard upon him, for it implies that
that decision can be
ascribed to one ascertainable principle. In my opinion,
it cannot.
The judgment of the Court of Appeal applied a different principle
of
law from that upon which the trial judge's questions to the jury (and
their
answers) were based: and the judgment of the Divisional
Court was more
or less evenly balanced between the two. According
to the findings of the
jury taken together the case was one in
which all the work done by Bush
had been done under the original
contract; the contract was such that it
carried an implied term
that the Whitehaven Trustees should give possession
of the whole
site without delay; the delay which had taken place changed
the
conditions of the contract to such an extent that the " special
provisions "
precluding Bush from making any complaint of
delay could no longer be
applied ; and Bush was entitled to
damages for breach of contract arising
from the Trustees' failure
to keep the implied term, the damages being
represented by the
additional cost of the work to him over and above the
contract
price. It may be difficult to say by what principle of law the
"
special provisions " of the contract became inapplicable while
the contract
itself remained enforceable: but I suppose that judge
and jury had in mind
that the parties by their conduct had waived
the enforcement of the particular
clause. There is nothing out of
order in such a finding, so long as the facts
proved are clear
enough to warrant it, though normally one would expect
them to
include some discussion, oral or written, between the parties.
I
daresay that everyone felt that rough justice had been done.
The Court
of Appeal, however, decided the case upon a basis which had
only a
slight resemblance to the findings of the jury. By ignoring all
the
findings except that which related to the change in the "
conditions of the
" contract " and by treating that as
if it applied to the contract as a whole
and not merely to
whatever was to be understood by the words " special
provisions
", they arrived at a new view of the facts upon which they
thought
that a case of frustration could be made out. At some
time, apparently
unknown to and unmarked by the parties concerned,
the original contract
had disappeared with all its incidents and
obligations and in its place had
been set up the legal
relationship expressed in Bush's claim (though he had
not made it)
to be paid on the basis of a " quantum meruit ". I
should have
thought that it would have been much simpler to say,
had the findings of
the jury warranted it, that the parties had
abandoned the original contract
by mutual consent and substituted
for it a new contract containing the sub-
stance of the old terms
but a reasonable price clause instead of the former
fixed price.
But that is not frustration: it is fulfilment with variations.
My Lords,
I think that Bush v. Whitehaven may be worth
remembering
as an instance of what can happen to a case during its
passage through
successive Courts, but I do not think it worth
recording as an exposition of
any principle of law. In that regard
the editors of the Law Reports, who
ignored it, showed a sounder
judgment than Mr. Hudson, who enshrined it.
In so far as it
applied the principle of frustration to the facts of the case,
the
principle was in my view misapplied. In so far as the judgments
of
the Court of Appeal contain general statements as to the law of
frustration,
I think that the subject has been so fully explored
in later cases of higher
authority that the particular exposition
is of no real value. I am sincerely
16
sorry if
our decision embarrasses builders, who may in some cases have
found
in the second volume of Hudson on Building Contracts a way
of
mitigating the risks of tenders to which the law did not truly
entitle them.
But in my view their safety lies in the insertion of
explicit conditions in any
fixed price contracts they may
undertake; it does not lie in an appeal to
the principle of
frustration.
Lord
Somervell of Harrow
MY LORDS,
I agree
that the words on which the Appellant seeks to rely in the letter
of
18th March were not incorporated in the contract.
I have had
the advantage of reading the opinion which has just been read
by
my noble and learned friend Lord Reid. I agree with him that it
is
desirable to decide what is the proper basis of "
frustration ". I also agree
with his conclusion on that
matter and I should add nothing except the
possibility of
confusion if I sought to restate it in my own words.
I
therefore turn to its application to the issues in the present
appeal.
As the senior member of the Court of Appeal which remitted
the case to
the arbitrator, I would like to express my regret that
we did not give
more assistance to enable him to distinguish the "
facts " from his conclusion
on them. Fortunately, one or two
questions put to counsel in the course
of the argument showed that
there was now no conflict as to relevant facts.
Contracts
to be performed in future are based on expectations. If
each
party is equally well informed as to the data on which
expectations must
be based, it may be said that these expectations
are the " basis" or
" footing " on which the
contract is made. It would, of course, be absurd
to suggest that
if such expectations are not realised the " basis " has
gone
and the contract is frustrated. As Lord Sumner said in the
Larrinaga case
(29 Com. Cas. 1 at p. 18): " In effect
most forward contracts can be regarded
" as a form of
commercial insurance, in which every event is intended to be
"
at the risk of one party or another." Later he says: " No
one can tell
" how long a spell of commercial depression may
last; no suspense can be
" more harrying than the vagaries of
foreign exchanges, but contracts are
" made for the purpose
of fixing the incidence of such risks in advance, and
" their
occurrence only makes it the more necessary to uphold a contract
"
and not to make them the ground for discharging it."
Under the
present contract, was the risk of shortage of skilled labour
fixed
on the Appellant? A builder who undertakes to finish a building by
a
certain day is, on the face of it, plainly taking such a risk. There
are
provisions in the present contract which re-enforce this
construction, were
it necessary to do so. With regard to prices of
certain materials and rates
of wages there are what are called
escalator clauses. The Appellant was
not prepared to take the risk
of increases in these matters. The parties also
directed their
minds to the possibility of the work not being completed in
the
specified time. The Appellant was to pay so much per week in
damages.
Extra time could, however, be allowed if there was delay by
strikes
or if the work was stopped by order of the surveyor. This is to
me
a somewhat obscure clause, but it is sufficient that there was an
exception
clause for delay which did not cover shortage of labour,
and provided only
for relief from penalties and not for any extra
cost that the delay might
cause the Appellant. The shortage of
skilled labour as is shown by the
admitted figures set out in the
points of claim was very substantial. Evidence
was called, which
may not have been admissible, to show that the expecta-
tions were
based on statements on behalf of the government as to the
probable
availability of skilled labour. A party contracting in the light
of
expectations based on data of that or any other kind must make up
his
mind whether he is prepared to take the risk of those
expectations
being disappointed. If not then he will refuse to
contract unless protected
by some specific provision. There is no
such provision here. The Appellant
17
took the
risk under the contract, and it seems to me quite impossible
to
maintain that the contract did not apply in the situation as it
remained,
the expectations on which the estimate was based not
having been realised.
But for
the decision in Bush v. Whitehaven Trustees (2 Hudson's
Building
Contracts 4th edn. p. 122) I doubt if the issue of
frustration would ever
have been raised. I will give my reasons as
shortly as I can for thinking
that that case should not hereafter
be citable as a decision relevant to
the law of frustration. The
case was fully examined by Cohen, L.J., as
he then was, in
Parkinson (Sir Lindsay) & Company Limited v.
Commis-
sioners of H.M.'s Works and Public Buildings [1949]
2 K.B. 632). The plain-
tiffs' claim was for extra expenses
incurred on work and labour in that the
defendants had not made
the site on which the plaintiffs were to do the
work available as
required. The delay was substantial and turned a summer
contract
into a winter contract. The defendants relied on an exception
clause
providing that a failure to make the site available when
required
should not " vitiate or affect the contract". I
think that the jury took
the view, whether sound in law or not,
that the delay was so great that
it ought not to be covered by the
exception and that the defendant should
be treated as in breach.
It is the form of two of the questions left to the
jury that led
the courts to deal with the case as one of frustration. The
first
two questions and answers were as follows: —
" (1)
Was it the duty of the defendants under the contract to be
"
in a position at the commencement of and at all times during the
"
contract to give the contractor the use of so much of the site of
the
" works as might, in the opinion of the engineer, be
required to enable
" the contractor to commence and continue
the execution of the works
" in accordance with the contract?
A. Yes.
" (2)
Was the contract made upon the basis that the defendants would
"
be in a position to act as aforesaid? A. Yes."
I doubt if
this second question was a proper question to put. It was in
any
event liable to mislead. " Basis " may mean no more
than " expectation ".
If it means more it is difficult
to reconcile questions (1) and (2) with
giving any effect to the
exception clause. The fifth question is also difficult.
"
Were the conditions of the contract so completely changed, in
consequence
" of the defendants inability to hand over the
sites of the work as required,
" as to make the special
provisions of the contract inapplicable? A. Yes."
This does
not suggest that the contract is gone altogether but only that
the
special provisions are inapplicable. The jury, in my view, took
these
words as referring to the exception. Question 8 was as to
the " damage
" suffered ", and the jury awarded
£600 over and above the contract price.
It appears
that Lord Esher had some doubt as to whether the answer
to the
fifth question should be taken as a binding finding. Findings
by
juries on mixed questions of law and fact are not precedents.
That is no
doubt why the case was not reported in any law report.
I doubt myself,
with respect, whether on the findings of the jury
taken with the terms of
the contract it was possible to treat it
as a frustration case. I am clear
that it cannot be regarded as a
precedent in the law of frustration as applied
to building or any
other contracts.
I would
dismiss the appeal.
(32087)8124—124
35 5/56 D.L./PA/19
