Rescission of contract under abnormal circumstances, can often be cited as frustration, yet unless the parties bargaining are in agreement as to the essence of the contract, there is little a court can do to amend the terms to suit.
In winter of 1912, a ship owner agreed to let one of their fleet to a commercial entity for a period of five years, with no specific requirements as to its use, aside from which types of cargo were acceptable for carriage.
Just over two years into the agreement, the vessel was requisitioned by the British Government under Royal Proclamation; an act which would result in full compensation payable to the affected parties upon its safe return.
Having planned to return the ship after only two months, the Admiralty Transport Service informed the respondents that they would in fact, be extending their requisition indefinitely, thereby denying the respondents any future use of the ship until the end of its military use.
This left the appellants under the assumption that by an alteration in the use of the vessel, the contract had now expired; and so, no further payments were due, and that when issuing compensation, the State was liable for the loss suffered only by the appellants, as they were legally the owners of the ship at the time of requisition; a position fiercely argued by the respondents.
Having failed to settle the matter through arbitration, the case went to trial; during which, the judge held that the requisitioning of the ship did not constitute a termination of the contract, but instead served to suspend the contract until such time that the vessel was returned; which at the point of litigation, was looking unlikely to happen within the agreed five year period.
When presented to the Court of Appeal, the Court affirmed the original judgment; at which point, the matter was placed again before the House of Lords, who first examined the statement by Lord Blackburn in Dahl v Nelson, Donkin & Co; in which, he stressed:
“[A] delay in carrying out a charterparty, caused by something for which neither party was responsible, if so great and long as to make it unreasonable to require the parties to go on with the adventure, entitled either of them, at least while the contract was executory, to consider it at an end.”Dahl v Nelson, Donkin & Co
However, art.20 of the charterparty agreement also noted that:
“[T]he act of God, perils of the sea, fire, barratry of the master and crew, enemies, pirates and thieves, arrests and restraints of princes, rulers, and peoples, collisions, stranding and other accidents of navigation always excepted, even when occasioned by negligence, default or error in judgment of the pilot, master, mariners or other servants of the shipowner.”
Were exceptions to any rule that might provide for the end of the contract through unforeseen events.
Therefore, the respondents argument that the contract was merely suspended was in fact validated by the imposition by the State during a time of war; and that despite implications forwarded by the appellants, the Court was in no position to argue against an express term of a contract, no matter how inconvenient that might be to those involved.
It was for that simple reason, that the House ruled by majority in favour of the Appeal Court judgment and dismissed the appeal with costs, while reminding the parties that:
“When a lawful contract has been made and there is no default, a Court of law has no power to discharge either party from the performance of it unless either the rights of someone else or some Act of Parliament give the necessary jurisdiction.”