Davis Contractors Ltd v Fareham Urban District Council [1956]

English Contract Law

Davis Contractors Ltd v Fareham Urban District Council [1956]
‘Construction Site’ by Jan Altink

The principle of ‘frustration’ and the nature of commercial contracts are both given equal consideration when a local authority fails to acknowledge or pay costs exceeding the original agreement despite pleas for reasonability by the claimants.

Shortly after World War II the appellants tendered for the construction of a large number of houses over a fixed period, and so due to the economic fragility of the country, their submission included a letter outlining allowances for rising material costs and labour shortages, while after further negotiations the respondents allowed them to perform their contractual obligations until the agreed eight-month period expired. 

Upon discovery that only a fraction of the total number of houses had been completed the appellants cited frustration through inclement weather, delays in material deliveries and a shortage of labour, whereupon the local authority expressed no disagreement with their statement and the work continued for another fourteen months, however upon completion the total cost of the work was £115,233 versus the agreed £94,424, which left the appellants facing a loss of around £20,000.

When asked to pay the additional sum on grounds of quantum meruit (payment for services rendered and therefore deserved) the respondents refused to pay and offered only the amount contracted for, before the appellants claimed recovery on grounds that:

1. The letter submitted with the tender was part of the contract.

2. The contract was entered into on the proviso that both materials and labour were available.

3. Because those two elements were absent the contract had ceased to exist thus any subsequent performance was subject to a quantum meruit. 

Under arbitration the doctrine of frustration was given considered significance in favour of the appellants on the strength of the letter, while in court the judge also agreed the letter formed part of the contract and so awarded accordingly. 

Under challenge the Court of Appeal disagreed and referred the matter back for greater clarification of frustration, and so with the arbitrator remaining resolute on the letter the Court held that the letter was a mere facet of negotiations therefore frustration had not occurred, after which it was put before the House of Lords in order that the appellants could advance their contention that where frustration failed quantum meruit ought to succeed.

To clarify, the nature of frustration relies more upon unforeseen circumstances affecting both parties to a contract as opposed to one at a loss through unexpected events, while in this instance the appellants were aware that labour and material shortages were likely, and neither party had agreed that the original contract had ceased to exist and that another had begun.

With this in mind the House dismissed the appeal on grounds that unless agreed to, the terms of the original contract had remained unaltered despite the increased duration of the project and escalating costs incurred by the appellants, all of which amounted to little more than a seemingly well-drafted plan gone awry, while the House clarified for the parties that:

“[F]rustration occurs whenever the law recognizes 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.”

University Moot

Contract Law Moot | 2014

Advocate
‘Three Lawyers’ by Honoré Daumier

I’m only too aware that many law undergraduates often feel somewhat lost and confused when drafting their debut law moot, and so I thought I would publish mine here for those who wish to draw reference, or at the very least guidance from it when preparing themselves for a public argument (albeit inside a university classroom).

Just to provide a little background, I represented the respondents in a contract law ‘frustration’ claim, and yes I won by a clear and wide margin, which instantly confirmed and validated my love for the subject and a deeply ingrained wish to advocate professionally.

Anyway without waffling on, by all means click here and read away, while I can only hope that this post helps somebody somewhere at some point.

 

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd (1942)

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.”