While the doctrine of frustration relies upon the existence of an unforeseen and thus unexpected event, its design is not one that requires any element of blame in order to apply, as was seen in this case between a corporation and shipowner.
In August of 1836 the now appellants contracted to supply one of their steamships to the respondents for the purposes of transportation to a number of international sea ports by way of commercial enterprise. Having been used for the reasons agreed, the ship was later anchored over the Christmas period while awaiting further use until its return in January 1837.
Unfortunately while dockside the ship suffered an enormous explosion that sent the auxiliary boiler over one hundred and sixty four feet from its original position, while the primary boilers were forced backwards by the blast, all of which rendered the vessel inoperable and thereby unable to complete its journey to the respondents.
Having cited frustration of contract, the appellants looked to leave matters as they were, however the respondents argued that the explosion had arisen by way of negligence, and so damages were owed for the loss accrued.
First heard in the Court of the Kings Bench, the judge held that the appellants were merely unwitting victims of unforeseen circumstances, particularly when a Board of Trade Enquiry had failed to establish any liability in relation to the cause of the explosion, or any possible negligence shown by those working on the ship at the time; and so in closing the court held that:
“It is plain that it has not been established that they were guilty of negligence and there is no finding of any negligence. The worst finding against them is under the one heading of possibility of negligence.”
To which the respondents challenged the finding in the Court of Appeals, who awarded in their favour while holding 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. There is no frustration in the legal sense unless he proves affirmatively that the cause was not brought into operation by his default.”
After being denied leave to appeal, the House of Lords Appeal Committee granted it so that the issue of liability could be afforded examined and conclusive clarification, and so the matter was once again given due discussion.
In the first instance Viscount Simon turned to Taylor v Caldwell in which the court held that:
“[I]n 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.”
While Viscount Maugham noted that in Hirji Muji v Cheong Yue Steamship Co Ltd the Privy Council held that:
“[W]hatever 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, which has brought this about, but on its occurrence in such circumstances as show it to be inconsistent with further prosecution of the adventure.”
Before illustrating that in Bank Line Ltd v Arthur Capel & Co the House of Lords had held that:
“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.”
And so it was that a uniform House held how the appeal court judgment was to be reversed on the very simple yet clear principle that:
‘[W]hen frustration 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 automatically.’