Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd

English Contract Law

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd
‘Steamship on Seashore’ by Vittorio Avondo

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.”

FA Tamplin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd

English Contract Law

FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd
Image: ‘Queen Mary 2’ by Unknown Artist

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.”

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 holding 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.”

Krell v Henry

English Contract Law

Krell v Henry
‘Summer Morning, Pall Mall’ by Bruce Yardley

Performance of a contract since frustrated through unexpected events, lies at the heart of a matter between a landlord and potential tenant, who having secured a room for the purposes of viewing a landmark event, was left unable to realise it when those plans were thwarted through a sudden cancellation.

In 1902, the appellant had negotiated the private use of a room within a property owned by the respondent, who for reasons of convenience, had recently offered the whole property for rent for a six-month period. Having been aware that the King’s Coronation procession was expected to pass along the Pall Mall, the appellant read that the respondent was offering a single room for a fixed time and sum to those wishing to take advantage of the view afforded. By means of letter, the two parties agreed upon the arrangement, after which the appellant paid by cheque, a sum of 25l with a further 50l outstanding.

Unfortunately, the date of the procession was put back, at which point the appellant refused to pay the outstanding 50l, thereby prompting the respondent to seek recovery of the balance owed, while the appellant counter-claimed for the 25l on grounds that the contract was unenforceable and the deposit due for return.

In the fist hearing, the court awarded in favour of the respondent on both counts, relying upon the principle that the contact rested upon the presence of the Coronation procession, which for the reasons stated had not occurred, and so therefore the contract was unable to be completed to the satisfaction of both parties.

Taken to the Court of Appeal, the facts were revisited, along with the earlier facts of Taylor v Caldwell, in which it was remarked:

“[W]here, 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 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.”

It was this approach that gave effect to the cancellation of the Coronation procession as being an event that was, as stated in Baily v De Crespigny:

“[O]f such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, and that they are not to be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happened.”

While in ‘Taylor on Evidence’ (vol II) it was also stressed that:

“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 subject-matter of the instrument, or, in other words, to identify the persons and things to which the instrument refers, must of necessity be received.”

So it was for these fundamental reasons that the Court agreed with the previous decision, and ruled again in favour of the respondent, while reminding the court that:

“[W]hatever is the suggested implication – be it condition, as in this case, or warranty or representation – one must, in judging whether the implication ought to be made, look not only at the words of the contract, but also at the surrounding facts and the knowledge of the parties of those facts.”

Grant v Bragg

English Contract Law

Grant v Bragg
Image: ‘Attorney Reading’ by Honore Daumier

Sadly as can sometimes happen, the mediation by a solicitor can prove the undoing of bargaining between parties, when for one reason or another, the third party attempts to manipulate matters to the detriment of those he was initially employed to serve.

On this occasion, a shareholder sale agreement was drafted by two company co-directors, who upon his retirement, the respondent had decided to relinquish his stake holding for a sum of around £347,000. During the preliminary stages of the contract, numerous oral agreements were made with little to no conflict, however as time progressed, the matter became complicated through the construction of a draft agreement, which had been worded by a second firm of solicitors.

At the point of litigation, communication had deteriorated to a quick succession of emails between the respondent and the solicitor alleged to be acting for both parties. Within these exchanges were a number of comments and misinterpretations that ultimately derailed the negotiations, however for the purposes of the clarification the timeline was as follows:

(1) A draft agreement was made on behalf of both parties, subject to mutual consent to document wording.

(2) The respondent’s solicitors suggested an amendment to the terms of the agreement.

(3) The suggestion was construed by the appellant as a rejection of the agreement.

(4) The mediating solicitor construed from a telephone conversation, that the respondent was refusing to sign the agreement without knowledge of the appellant’s future plans.

(5) The respondent expressed that he perceived the appellant to be contractually obliged to purchase the shares.

(6) The respondent denied he had any interest in the future of the company or the appellant.

(7) The mediating solicitor imposed a time restriction for acceptance of the draft agreement.

(8) The mediating solicitor withdrew his services upon expiration of the time restriction.

(9) The respondent later agreed to sign the agreement, despite his earlier reservations.

In the first hearing, the judge found that the discussions within the first and last email were tantamount to a binding contract, and so awarded accordingly. However, at the Court of Appeal, a reexamination of the facts and the chronology of events, painted quite a different picture.

Here, it was held that while the contract itself was not subject to time penalties, the position adopted by the ‘mediating’ solicitor was one that implied how all terms of the bargain were now defined through his presence, therefore by the imposition of a threshold upon which to contract, the eventual acceptance by the respondent was both after the fact and thereby null in effect, thus it was for that reason (and perhaps unnecessary element of the negotiation), that the appeal was upheld and judgment awarded to the appellant, while holding that:

“[T]here is a distinction between a counter-offer or a refusal, which does put an end to an offer, and a request for further information which does not amount to a new offer but is to an investigation of the offering party’s position.”

Carlton Communications plc v The Football League

English Contract Law

Carlton Communications plc v The Football League
‘Football’ by Anthony Barrow

The phrase ‘subject to contract’ is pivotal to the preservation of legal rights, particularly when negotiating for multi-million pound contracts. On this occasion, the eagerness of a national sports fraternity overtook the urgency for a logical and constructive approach to long-term franchise agreements, resulting in an outcome none would have wished for.

In June 2000, the Football League entered into a contract for licensing rights with ITV Digital (or ONDigital as they were then known), who themselves were subsidiaries to both Carlton Communications Plc and Granda Media Plc. Having begun negotiations in April 2000, ONDigital were extended permissions to tender for contracts not exceeding £10m, whereupon this particular bid was now worth in excess of £240m, which therefore required the oversight of Granda and Carlton, but nothing more.

In a document titled ‘Initial Bid for Audio-Visual Rights Football League 2001/2 – 2003/4 ONDigital’ Executive Director Graeme Stanley expressed within the Financial Arrangements section, that:

“ONdigital and its shareholders will guarantee all funding to the FL outlined in this document.”

While noting that as with the remainder of the document, all statements therein were ‘subject to contract’ and therefore not binding upon any parties.

During the negotiation period, the value of the contracts increased to £315m, and at the point of their contracting, express notice was given in clause 18, which read:

“18. ONdigital and FL shall use their best endeavours to execute a long form agreement within 60 days which will be negotiated with reference to the Football League Pre-Tender Document of 27th March 2000…and will include clauses such as standard legal boilerplate, confidentiality, compensation for ONdigital if there are significant changes in competition structure which adversely affect the value of the rights granted to ONdigital, minimum broadcast commitments, quality guarantees for programmes and competitions and the like.”

In December 2001, talks began which centred around the alleged winding down of ONDigital, and so the claimants proposed that the defendants Carlton and Granda were now liable as guarantors for any sums due, which at the point of litigation, was little under £134m. As was expected, the defendants noted that while assisting as a parent company, at no point did they enter into a contract with the claimants, and as such, were not responsible for any ONDigital debts outstanding.

Relying upon the comments made in the pre-contract documentation, as well as a vague mention of guarantees in Clause 18, the court examined how corporate contracting and personal liability are distinctly different animals. With reference to principles espoused in Salomon v Salomon, Kerr LJ had himself expressed in JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry how:

“The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation‟s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members.”

While due reference was given to the Statute of Frauds 1677, in which s.4 clearly explains how:

“No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”

While it was further noted that in ‘Chitty on Contracts’, paragraph 4-022 stressed how:

“Apart from the exceptional case of a written offer signed by one party and accepted orally by the other, the writing must acknowledge the existence of a contract. It is now settled, after some hesitation, that a letter expressed to be ‘subject to contract’ is not in itself a sufficient memorandum to satisfy the statute.”

This rendered any argument for financial guarantee fatal to the claim, and left the court no choice but to exempt the defendants from all liability relating to damages for breach of contract, while holding that:

“[A] subject to contract proposal is the antithesis of or at the least incompatible with a unilateral offer. The former is not open to acceptance; it is the essence of the latter that it is.”

Maple Leaf Macro Volatility Master Fund v Rouvroy

English Contract Law

Maple Leaf Macro Volatility Master Fund v Rouvroy
‘Still Life with Vodka and Herring’ by Roxana Paul

When consideration is given by at least one party to a contract (whether interim or final) it becomes in principle, very hard for the other party to claim no contract could stand, irrespective of signatures or third-party withdrawal. In this case, the founder-directors of a beverage firm sought to rescind an agreement between themselves and a hedge fund provider, despite a long-standing commercial history, and openly agreed terms of engagement.

After enjoying moderate success as an alcoholic drinks manufacturer, and having recently acquired a smaller company as part of their expansion, it was decided that the time had come to recoup on their investment, and so a controlling share of their business was sold to a large financial holdings company. Within a year, the working relationship between the investors and owners deteriorated, to the degree that the appellants moved to buy back their company and regain controlling influence.

As part of this reversion, the terms of the arrangement required them to obtain significant loans within a very narrow timeframe, which themselves provided stakeholder rights to the lenders. During the construction of the funding package, the defendants took the step of paying the monies loaned directly to the controlling firm, as part of their commitment to the loan arrangement and repurchase scheme. When a third party to the draft contract renegotiated a different arrangement with the appellants, they declined to add their signature to the final agreement, leaving only the appellants’ and defendants’ ink upon the document.

It was then argued by the appellants that the absence of a third signature rendered the contract void, and so there now existed no binding obligation on their part to continue with the loan or invitation to share control, however when stripped down and reassembled in its proper context, it was found by the Court of Appeal that due to the significant consideration given by the defendants, there was sufficient evidence to show an enforceable contract that bound both signatories, despite the reluctance of the third party, and so the court dismissed the appeal, while holding that:

“[A]lthough no contract can be made without an intention to be legally bound, that intention has to be ascertained objectively, not by looking into the parties’ minds.”

Scriven Bros & Co v Hindley & Co

English Contract Law

Scriven Bros & Co v Hindley & Co
‘Hull Docks by Night’ by Arthur E. Grimshaw

Negligence and mistake, are two elements of contract law which conflict as between vendor and purchaser, particularly when the former is unreasonably applied to the buyer. In this very brief but notable case, the issue in hand turns upon the overpayment for a product at auction.

As was typical of the period, many agricultural products were imported for domestic use, as the temperate weather of foreign countries provided for larger tonnage and lower prices. On this occasion, the subject matter was Russian industrial grade hemp, which while grown widely across the UK, remained their largest export at the time, and was a much sought after commodity. Contrastingly, tow is a by-product of hemp, and is thus sold at a much lower price, often for use as upholstery stuffing and other secondary purposes.

When a dockside auctioneer put out large bales of both hemp and tow, the samples shown to potential bidders were easily confusable. To make matters worse, the two consignments were given similar lot names, therefore for those uninitiated, the possibility of bidding in error was high. On this occasion, the purchaser had recruited a manager to bid on his behalf, at which point he had placed similar bids on both items on the assumption that he was buying hemp. To his further detriment, the auction programmes failed to distinguish the lots, and so only those who had the foresight to inspect them beforehand were spared the embarrassment of overpaying for items of lower market value.

When the purchaser discovered his managers error, he sued the auctioneers for misrepresentation upon the principle of ‘ad idem’ (which is parties not in agreement to the nature of a contract), who themselves counter-sued for negligence on the part of the manager. In the original trial, it was found that there could be no evidence of a contract as per the principle of disagreement, and that no grounds of negligence existed in the absence of any duty of care by the manager to examine the lots prior to bidding.

When brought before the Court of the Kings Bench, it became apparent despite appreciation of a number of opposing facts, that the auctioneers had been recent victims of fraud, thus were simply looking to pass on the loss to another unsuspecting buyer. And so irrespective of any argument that the onus of inspection fell to the buyer’s representative, it was found that a contract could not be found to exist where no agreement had been settled between the vendor and the purchaser, and so the court awarded for the defendants, while holding that:

“A buyer when he examines a sample does so for his own benefit and not in the discharge of any duty to the seller.”