NATIONAL CARRIERS LIMITED
(RESPONDENTS)
v.
PANALPINA (NORTHERN) LIMITED
(APPELLANTS)
Lord Chancellor
Lord Wilberforce
Lord Simon of Glaisdale
Lord Russell of Killowen
Lord Roskill
Lord Hailsham of St. Marylebone
my lords,
We are all agreed that this appeal from decisions of Master Waldman
and Sheen J. refusing leave to defend under RSC 0.14 fails on the facts
for the reasons given by my noble and learned friends to which personally
I have nothing to add. The appellants have failed to raise a triable issue.
Nevertheless, though they arrive in your Lordships’ House by an unusual
route, the proceedings do raise an interesting and important general question
of principle relating to the extent and nature of the law of frustration
which has long been debated and which, since the matter has reached this
stage and has been fully argued, should now be decided by your
Lordships’ House.
This question is the applicability of the law of frustration to leases and
agreements for a lease. The question is discussed at length in Cricklewood
Property and Investment Trust Ltd. v. Leightons Investment Trust Ltd.
[1945] A.C. 221 by the decision of which in the Court of Appeal, Master
Waldman and Sheen J. rightly considered themselves bound, with the
result that, in dismissing the appeal from Master Waldman, Sheen J. gave
his certificate under section 12 of the Administration of Justice Act 1969,
and so, for the first time in my experience, an Order 14 summons bypasses
the Court of Appeal and ” leapfrogs ” directly to the Appellate Committee
of the House of Lords.
Before I reach a discussion of the point of law it is necessary that I fill in
the factual background. This illustrates the curious and sometimes
unexpected results which can ensue from the present vogue of listing
industrial buildings as part of our national heritage. Kingston Street, Hull
is a continuation of English Street (of which, originally it may have been
part) and terminates by running perpendicularly into a T junction with
Railway Street. Before it reaches this end, it crosses more or less at right
angles an intersection with Commercial Road and Manor House Street.
Hereinafter, when I speak of Kingston Street, I shall be referring solely
to that section of it between this intersection and the T junction with
Railway Street. Although it is now, it would seem, a public highway for
all types of traffic, it may well be that at one time it was the private
property of a railway company, since otherwise it is difficult to explain
the ” demise ” (sic) of a private right of way along it by the lessors of the
property about to be described.
Kingston Street is bounded on both sides by warehouses and on part
of one side by a railway shed. At one side of it, at the point nearest the
intersection, is a derelict and ruinous Victorian warehouse which at some
time has become, under the laws for the conservation of our national
heritage, a ” listed building ” which means that it cannot be demolished
without the consent of the Secretary of State for the Environment, and that,
if the demolition is objected to by local conservationists (as in fact
happened), this consent will not be granted without the holding of a public
local enquiry. Even assuming a result favourable to demolition the total
process is likely to last a year. In the events which have happened, the
process is not yet complete, but, on the material before us, is likely to be
concluded by the end of December 1980 or the beginning of January 1981.
By that time, it will have lasted about 20 months.
2
Since, in course of time, the Victorian warehouse became dangerous
as well as derelict it evidently presented problems of safety to the City
Council of Hull. In 1978 they placed a restriction order on Kingston Street,
and on the 16th May 1979 they closed it altogether to vehicular traffic.
It was not made altogether clear to us under what powers they acted, but
the closure was subsequently confirmed and continued by the Secretary of
State, and, at the present, access to Kingston Street is not merely prohibited
to vehicles, but rendered physically impossible, by the erection across it by
the local authority of a fenced barrier. This will not be removed until
the demolition process is completed at the end of the current year or the
beginning of next.
Opposite the ruinous listed building, there is another warehouse, more
or less triangular in shape, the only access to which (except perhaps on
foot) is via a loading bay in Kingston Street. The consequence of the
application for demolition, and the subsequent proceedings, has been that,
from the 16th May 1979 until the time when the barriers are finally removed
and the prohibition order lifted, this triangular warehouse has been
rendered totally useless for the one purpose, that of a commercial
warehouse, for which alone it is fitted, and for which alone, by the terms
of the contract between the parties, it may be lawfully used.
In 1974 the triangular warehouse had become the subject of a demise
between the plaintiffs/respondents to these proceedings, the lessors, and
the defendants/appellants. This demise was contained in a lease dated
the 12th July 1974 and was expressed to run for 10 years from the 1st
January 1974. The terms of the lease, most of which are not unusual
in documents of this kind, contained inter alia a covenant to pay an
annual rent (£6,500 for the first five years, and for the second five years
subsequently increased by agreement in accordance with a formula
contained in clause 4(1) of the lease to £13,300) payable in advance by four
quarterly instalments. The present proceedings, commenced by writ dated
the 9th July 1979, are for the payment of £5,115.38 being the two quarterly
instalments due on the 1st April, and the 1st July 1979. There is no
dispute between the parties as to the amount of this sum, nor, subject
to the defence of frustration hereinafter to be mentioned, of the liability of
the defendants/appellants to pay it.
The lease also contained obligations by the tenants to pay rates, to repair,
to pay a rateable proportion of the expense of cleaning and maintaining the
sewers, roads etc., to insure at full value in the joint names of landlord and
tenant, to paint, to yield up in good and substantial repair at the end of
the tenancy, not to assign or sublet, alter, or to utilise otherwise than for
the purpose of a warehouse without the written consent of the landlord, and
other matters. The landlord’s covenants included an express covenant of
quiet enjoyment. There were special provisions for the suspension of the
obligation to pay rent and for the termination of the tenancy at the option
of the landlord in case of destruction by fire, and provisions for re-entry
by the landlord in case of breach of covenant, or on six months notice, if
the premises were required for the proper operation of British Railways
(with whom the plaintiffs are associated).
The sole defence raised by the defendants/appellants to their obligation
to pay rent was that, by reason of the events described above the lease had
become frustrated and was therefore wholly at an end. By their printed
case each party raised two questions for your Lordships’ decision. The
first is the broad question of principle, viz. whether the doctrine of frustration
can ever apply to determine a lease, and the second, of particular application,
whether even if the doctrine can on occasion apply, there is here a triable
issue as to whether it does apply to the lease between the parties in the
circumstances described. In the event of both questions being determined
in favour of the appellants, your Lordships, if allowing the appeal, would
have no option but to return the case for trial at first instance, with the
possible result that, after a lapse of two years, it might reappear in your
Lordships’ list for a second hearing. In any event, unless some guidance is
given on the first issue, sooner or later argument would have to be directed
3
to it in some later proceeding. It is therefore perhaps as well that, although
dismissing the appeal on the second question, we thought it right to hear
the first fully argued on both sides. We are doubly indebted to counsel
for the appellants, who, though aware that he had not succeeded,
nevertheless stayed to deliver an admirably concise reply to the forceful
arguments on the point of principle helpfully presented on behalf of the
respondents.
The doctrine of frustration is of comparatively recent development. The
general rule of common law, laid down as early as 1647 in Paradine v. Jane
(Aleyn 26) is that the performance of absolute promises is not excused by
supervening impossibility of performance. Paradine v. Jane itself, a case
arising out of the civil war, was like the present, an action of debt based on
a covenant to pay rent contained in a lease. But, since the doctrine of
frustration had not at that stage come into existence, the argument turned
solely on the absolute and unconditional nature of the promise to pay the
rent, and the applicability to the estate in land created by the demise of
any such doctrine did not arise.
It is generally accepted that the doctrine of frustration has its roots in
the decision of the court of Queen’s Bench given by Blackburn J. in Taylor
v. Caldwell (1863) 3 B & S 826. In that case, the parties to the contract
had used terms appropriate to the relationship of landlord and tenant
describing the money payment as ” rent” and the transaction as a
” letting”. But, after analysing the facts, Blackburn J. decided that the
true nature of the transaction was not one of landlord and tenant but
one of licensor and licensee. He then added, cryptically, the words:
” Nothing, however, in our opinion depends on this “. I am inclined to
think that by these words he was in effect taking the view which I myself
am about to express, but, as counsel for the respondents firmly pointed
out when I put the point to him in argument, they are capable of a more
neutral meaning, viz., that since the question of demise did not arise in
the case before the court, it did not call for decision. I am content to
assume, though I am inclined to the contrary view, that this is right.
At least five theories of the basis of the doctrine of frustration have been
put forward at various times, and, since the theoretical basis of the
doctrine is clearly relevant to the point under discussion, I enumerate them
here. The first is the ” implied term “, or ” implied condition ” theory on
which Blackburn J. plainly relied in Taylor v. Caldwell, as applying to
the facts of the case before him. To these it is admirably suited. The
weakness, it seems to me, of the implied term theory is that it raises once
more the spectral figure of the officious bystander intruding on the parties at
the moment of agreement. In the present case, had the officious bystander
pointed out to the parties in July 1974 the danger of carrying on the
business of a commercial warehouse opposite a listed building of doubtful
stability and asked them what they would do in the event of a temporary
closure of Kingston Street pending a public local inquiry into a proposal
for demolition after the lease had been running for over five years, I have
not the least idea what they would have said, or whether either would
have entered into the lease at all. In Embiricos v. Sydney Reid & Co. [1914]
3 K.B. 45 at 54 Scrutton J. appears to make the estimate of what
constitutes a frustrating event something to be ascertained only at the time
when the parties to a contract are called on to make up their minds, and
this I would think, to be right, both as to the inconclusiveness of hindsight
which Scrutton J. had primarily in mind and as to the inappropriateness of
the intrusion of an officious bystander immediately prior to the conclusion of
the agreement.
Counsel for the respondent sought to argue that Taylor v. Caldwell could
have as easily been decided on the basis of a total failure of consideration.
This is the second of the five theories. But Taylor v. Caldwell was clearly
not so decided, and in any event many, if not most, cases of frustration
which have followed Taylor v. Caldwell have occurred during the currency
of a contract partly executed on both sides, when no question of total
failure of consideration can possibly arise.
4
In Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510
Lord Sumner seems to have formulated the doctrine as a ” device (sic) by
” which the rules as to absolute contracts are reconciled with a special
” exception which justice demands ” and Lord Wright in Denny, Mott &
Dickson Ltd. v. James B. Fraser & Co. Ltd. [1944] AC 265 at 275 seems
to prefer this formulation to the implied condition view. The weakness of
the formulation, however, if the implied condition theory, with which Lord
Sumner coupled it, be rejected is that, though it admirably expresses the
purpose of the doctrine, it does not provide it with any theoretical basis at all.
Hirji Mulji v. Cheong Yue Steamship Co. Ltd. is, it seems to me, really
an example of the more sophisticated theory of” frustration of the adventure ”
or ” foundation of the contract” formulation, said to have originated with
Jackson v. Union Marine Insurance Co. Ltd. (1874) L.R. 10 C.P. 125, cf.
also e.g. per Goddard J. in W. J. Tatem Ltd. v. Gamboa [1939] 1 K.B. 132
at 138. This, of course, leaves open the question of what is, in any given
case the foundation of the contract or what is ” fundamental ” to it, or what
is the ” adventure “. Another theory, of which the parent may have been
Lord Loreburn in Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum
Co. [1916] 2 A.C. 397, is that the doctrine is based on the answer to the
question: ” What in fact is the true meaning of the contract? ” See Tamplin
Steamship Co. Ltd. v. Anglo Mexican Petroleum Co. [1916] 2 A.C. 397, 404).
This is the ” construction theory “. In Davis Contractors Ltd. v. Fareham
U.D.C. [1956] AC 696 at 729 Lord Radcliffe put the matter thus, and it
is the formulation I personally prefer:
” 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 “.
Incidentally, it may be partly because I look at frustration from this point
of view, that I find myself so much in agreement with my noble and learned
friends that the appellants here have failed to raise any triable issue as to
frustration by the purely temporary, though prolonged, and in 1979,
indefinite, interruption, then expected to last about a year, in the access to
the demised premises. In all fairness however, I must say that my approach
to the question involves me in the view that whether a supervening event
is a frustrating event or not is, in a wide variety of cases, a question of
degree, and therefore to some extent at least of fact, whereas in your
Lordships’ House in Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H.
[1962] A.C. 93 the question is treated as one at least involving a question
of law, or, at best, a question of mixed law and fact. For a discussion of
the apparent inconsistency of this view with the verdict of the jury in Jackson
v. Union Marine Insurance Co. Ltd. (1874) L.R. 10 C.P. 125 see Professor
Treitel’s treatise on Contracts 5th Edition at p.671 when the author suggests
that the reconciliation may lie in the distinction between primary and
secondary facts now developing as the result of the disappearance of the
civil jury.
This discussion brings me to the central point at issue in this case which,
in my view, is whether or not there is anything in the nature of an executed
lease which prevents the doctrine of frustration, however formulated,
applying to the subsisting relationship between the parties. That the point
is open in this House is clear from the difference of opinion expressed in
the Cricklewood case (supra) between the second Lord Russell of Killowen
and Lord Goddard on the one hand, who answered the question affirmatively,
and Viscount Simon and Lord Wright on the other, who answered it
negatively, with Lord Porter reserving his opinion until the point arose
definitively for consideration. The point, though one of principle, is a
narrow one. It is the difference immortalised in H.M.S. Pinafore between
“never” and “hardly ever”, since both Lords Simon and Wright clearly
conceded that, though they thought the doctrine applicable in principle to
leases, the cases in which it could properly be applied must be extremely rare.
5
With the view of Viscount Simon and Lord Wright I respectfully agree.
It is clear from what I have said already that, with Lord Radcliffe in the
passage I have cited, I regard these cases as a subspecies of the class of
case which comes so regularly before the courts, as to which of two
innocent parties must bear the loss as the result of circumstances for which
neither is at all to blame. Apart from the statute of 1943, the doctrine of
frustration brings the whole contract to an end, and in the present case,
apart from any adjustment under that Act and any statutory right to
compensation under the closure order, the effect of frustration, had it been
applicable, would have been to throw the whole burden of interruption
for 20 months on the landlord, deprived as he would be of all his rent, and
imposed, as he would have, upon his shoulders the whole danger of
destruction by fire and the burden of reletting after the interruption. As it
is, with the same qualification as to possible compensation, the tenant has
to pay the entire rent during the period of interruption without any part of
the premises being usable at all, together with the burden (such as it may
be) of the performance of the other tenant’s covenants which include
covenants to insure and repair. These are no light matters.
I approach the question first via the authorities, mainly catalogued in the
report of the Cricklewood case at first instance and in the Court of Appeal.
I need not analyse these in detail, but, your Lordships having done so in
the course of argument, I must say that, although they all tend in that
direction, they did not and they never did afford the court compelling
authority for the proposition advanced. The point was not argued at all
in front of Asquith J., and in the very short judgment of the Court of
Appeal, the three cases cited London & Northern Estates Co. v. Schlesinger
[1916] 1 K.B. 20, Whitehall Court Ltd. v. Ettlinger [1920] 1 K.B. 680,
and Matthey v. Curling [1922] 2 A.C. 180 do not, I believe, on analysis
constitute authority for the proposition. The most that can be said is that,
as Lord Goddard said, the view that frustration did not apply to leases
was widely held in the profession at the time and that Lord Atkinson in
Matthey v. Curling [1922] 2 A.C. 180 at pp.233, 237 gave expression to
the view that Whitehall Court v. Ettlinger (supra) was rightly decided. I
agree here with what Lord Simon said on this at p.231 of the Cricklewood
case (supra), and I would add that what was decided both in Whitehall
Court (supra) and London and Northern Estates (supra) was no more than
that the legal estate created by a lease that was not destroyed by wartime
requisition and such requisition was not an eviction by title paramount.
In the Court of Appeal I do not find that Bankes L.J. (at p. 185) or Younger
L.J. (at p.210) were unequivocal on the present point at issue, and I note
that Younger L.J. committed himself to the now untenable proposition
that the doctrine of frustration was not to be extended. Atkin L.J. (who
dissented) gave, at pp.199 and 200 important reasons for rejecting the
” never ” principle and in Cricklewood at p.230 Viscount Simon expressly
approved the crucial paragraph in Atkin L.J.’s judgment in support of the
” hardly ever ” doctrine. Before us there was some discussion in argument
of American cases, especially the liquor saloon cases based on prohibition,
in some of which at least the frustration doctrine was applied to leases.
We were also referred to the opinions of Laskin J. in Canada in Highway
Properties Ltd. v. Kelly, Douglas & Co. Ltd. (1971) 17 D.L.R. (3d) 710,
at p.721, and that of Isaacs J. in the Australian case of Firth v. Halloran
(1926) 38 C.L.R. at p.269 (where, however, he appears to have differed
from his colleagues), all of which favour the ” hardly ever” doctrine.
Reference was also made to text book authority. Megarry & Wade (4th
edition) tend to the ” never ” view, but run into fairly heavy weather when
they discuss the possible destruction of a flat on the higher floors of a
tenement building (see p.675). Professor Treitel, after referring to Cusack-
Smith v. London Corporation [1956] 1 W.L.R. at 1368 which in turn relied
on Denman v. Brise [1949] 1 K.B. p.22 esp. at p.26 (the only case where
frustration appears to have been advanced on behalf of a landlord) comes
to the conclusion that the ” never ” position is only open to review at the
level of the House of Lords but concludes that the ” hardly ever ” view
6
is intrinsically preferable. This also appears to be the opinion of the
American writers Williston and Corbin and in England of Cheshire and
Fifoot.
I conclude that the matter is not decided by authority and that the
question is open to your Lordships to decide on principle. In my view
your Lordships ought now so to decide it. Is there anything in principle
which ought to prevent a lease from ever being frustrated? I think there is
not. In favour of the opposite opinion, the difference in principle between
real and chattel property was strongly urged. But I find it difficult to accept
this, once it has been decided, as has long been the case, that time and
demise charters even of the largest ships and of considerable duration can
in principle be frustrated. This was sufficiently well established by 1943
to make these charters worthy of an express exception upon an exception
in the Law Reform (Frustrated Contracts) Act 1943 section 2(5), and since
then the Suez cases have supervened. There would be something anomalous
in the light of what has been going on recently in the Shatt el Arab to
draw a distinction between a leased oil tanker and a demise-chartered oil
tanker. Other anomalies would follow if the absolute principle were to be
applied to leases. Golf J. appears to have found no difficulty in applying
frustration to an agreement for a lease (which creates an equitable estate
in the land capable of being specifically enforced and thereby converted
into a legal estate operating as from the beginning of the equitable interest).
See Rom Securities Ltd. v. Rogers (Holdings) Ltd. (1968) 205 Estates Gazette
427. Personally I find the absurdities postulated by Megarry and Wade
in the case of the destruction by fire of the upper flat of a tenement
building (already referred to) unacceptable if the ” never ” doctrine were
rigidly applied, and I am attracted by Professor Treitel’s argument (at
p.669 of the current edition of his work on contracts) of the inequitable
contrast between a contract for the provision of holiday accommodation
which amounted to a licence, and thus subject to the rule in Taylor v.
Caldwell and a similar contract amounting to a short lease. Clearly the
contrast would be accentuated if Goff J.’s view be accepted as to the
applicability of the doctrine to agreements for a lease (see above).
I accept of course that systems of developed land law draw a vital
distinction between land, which is relatively permanent and other types
of property which are relatively perishable. But one can overdo the
contrast. Coastal erosion as well as the ” vast convulsion of nature”
postulated by Viscount Simon in Cricklewood (at p.229) can, even in this
island, cause houses, gardens, even villages and their churches to fall into
the North Sea, and, although the law of property in Scotland is different,
as may be seen from Tay Salmon Fisheries Co. Ltd. v. Speedie 1929 S.C.
593, whole estates can there, as Lord President Clyde points out at p.600,
be overblown with sand for centuries and so fall subject to the rei interitus
doctrine of the civil law. In Taylor v. Caldwell itself Blackburn J., after
referring to the Digest on the subject of ” obligatio de certo corpore ” on
which in part he founds his new doctrine, expressly says: (at p. 834)
” No doubt the propriety, one might almost say the necessity, of
” the implied condition is more obvious when the contract relates to
” a living animal, whether man or brute, than when it relates to some
” inanimate thing (such as in the present case a theatre) [emphasis
” mine] the existence of which is not so obviously precarious as that
” of the live animal, but the principle is adopted in the civil law as
” applicable to every obligation of which the subject is a certain
” thing “.
He then refers to Pothier, Traite des Obligations partie 3. chap. 6. art. 3
in support of his contention.
No doubt a long lease, say for example one for 999 years, is almost
exactly identical with the freehold for this purpose, and therefore subject
to the ordinary law regarding the incidence of risk (recognised as regards
chattels in section 7 of the former Sale of Goods Act 1893). But there
is no difference between chattels in this respect and real property except
7
in degree. Long term speculations and investments are in general less
easily frustrated than short term adventures and a lease for 999 years
must be in the longer class. I find myself persuaded by the argument
presented by Atkin L.J. in his dissenting judgment in Matthey v. Curling
at p.200 and quoted with approval by Viscount Simon in Cricklewood at
p.230. In that passage Atkin L.J. said:
” It does not appear to me conclusive against the application to a
” lease of the doctrine of frustration that the lease, in addition to
” containing contractual terms, grants a term of years. Seeing that
” the instrument as a rule expressly provides for the lease being
” determined at the option of the lessor upon the happening of certain
” specified events, I see no logical absurdity in implying a term that
” it shall be determined absolutely on the happening of other events
” namely, those which in an ordinary contract work a frustration.”
I pause here only to observe that, in the instant case, the lease gave the
lessor a contingent right of determination in case of destruction by fire or
in case of a need for the use of the premises in connection with the railways,
and to point out that in the War Damage Acts the lessee was given a
statutory right, albeit different in kind from the doctrine of frustration, to
disclaim a current lease on the happening of other events as the result of
enemy action.
In the result, I come down on the side of the ” hardly ever ” school of
thought. No doubt the circumstances in which the doctrine can apply to
leases are, to quote Viscount Simon in Cricklewood at p.231, ” exceedingly
” rare “. Lord Wright appears to have thought the same, whilst adhering
to the view that there are cases in which frustration can apply (ibid, p.241).
But, as he said in the same passage:
” The doctrine of frustration is modern and flexible and is not
subject to being constricted by an arbitrary formula “.
To this school of thought I respectfully adhere. Like Lord Wright, I am
struck by the fact that there appears to be no reported English case where
a lease has ever been held to have been frustrated. I hope this fact will
act as a suitable deterrent to the litigious, eager to make legal history by
being first in this field. But I am comforted by the reflexion of the
authority referred to in the Compleat Angler (pt. i, ch. 5) on the subject
of strawberries: ” Doubtless God could have made a better berry, but
doubtless God never did “. I only append to this observation of nature
the comment that it does not follow from these premises that He never
will, and if it does not follow, an assumption that He never will becomes
exceedingly rash.
In the event my opinion is that the appeal should be dismissed with costs.
Lord Wilberforce
My lords,
There are two questions for decision in this appeal: (a) whether the
doctrine of frustration can apply to a lease so as to bring it to an end if a
frustrating event occurs; (b) whether, if so, in the circumstances the existing
lease between the respondent and the appellant has been determined.
The lease was dated 12th July 1974. The respondent as landlord let to
the appellant as tenant a purpose-built warehouse in Hull for a term of ten
years from 1st January 1974. The rent was £6,500 a year during the first
five years, and for the remainder was to be the open-market rent of the
demised premises let as a warehouse. In fact this was fixed at £13,300.
There was a covenant by the tenant not without the landlord’s consent to
use the premises for any purpose than that of warehousing in connection
with the tenant’s business, or to assign, underlet, or part with possession.
8
There was only one access to the warehouse—along a street called
Kingston Street. This would appear to be a public highway, but the land-
lord purported to grant a right-of-way along it for all purposes connected
with the occupation of the premises. On 16th May 1979 the City Council
made an order under section 12(1) of the Road Traffic Regulation Act 1967
closing Kingston Street for use with or without a vehicle. This was done
because another warehouse, of the Victorian period and style, abutting on
the street was in a dangerous condition. Because it was a listed building
there were conservationist objections against its demolition. The order was,
it appears, renewed by the Secretary of State, under the same Act on 15th
August 1979 and again, purportedly, but with questionable validity, by the
Council’s Engineer under section 25 of the Public Health Act 1961. We
must assume, at this stage, that all these acts of closure were valid and legal.
I shall refer further to this matter when dealing with the second question.
Because of this closure, which made the warehouse unusable for the only
purpose for which it could be used under the lease, the appellant contended
that the lease was frustrated, so that rent ceased to be payable. In an action
for rent due, followed by a summons for summary judgment under
RSC.O.XIV the master, upheld by the judge, held that the defence of
frustration was not available as a matter of law. That the doctrine of
frustration was not available to determine a lease had in fact been decided
by the Court of Appeal in Leighton’s Investment Trust Ltd. v. Cricklewood
Property and Investment Trust Ltd. (the “Cricklewood” case) [1943]
K.B. 493. An appeal was brought to this House but, on the question of
law, their Lordships were divided, two Lords holding that the doctrine
could be applied, two that it could not, and the fifth expressing no opinion.
The House unanimously held, on the facts, that frustration had not occurred.
The point is therefore open for decision.
My Lords, the arguments for and against application of this doctrine are
fully and cogently put in the rival speeches in the Cricklewood case, for its
possible application by Viscount Simon L.C. and Lord Wright, against by
Lord Russell of Killowen and Lord Goddard. I can therefore give fairly
briefly the reasons which have persuaded me, on the whole, that the former
ought to be preferred.
-
-
-
The doctrine of frustration of contracts made its appearance in English
law in answer to the proposition, which since Paradine v. Jane (1647)
Aleyn 26 had held the field, that an obligation expressed in absolute and
unqualified terms, such as an obligation to pay rent, had to be performed
and could not be excused by supervening circumstances. Since Taylor v.
Caldwell (1863) 3 B & S 826, it has been applied generally over the whole
field of contract. -
Various theories have been expressed as to its justification in law: as
a device by which the rules as to absolute contracts are reconciled with a
special exception which justice demands, as an implied term, as a matter of
construction of the contract, as related to removal of the foundation of the
contract, as a total failure of consideration. It is not necessary to attempt
selection of any one of these as the true basis: my own view would be that
they shade into one another and that a choice between them is a choice of
what is most appropriate to the particular contract under consideration.
One could see, in relation to the present contract, that it could provisionally
be said to be appropriate to refer to an implied term, in view of the grant
of the right-of-way, or to removal of the foundation of the contract—viz. use
as a warehouse. In any event, the doctrine can now be stated generally as
part of the law of contract; as all judicially evolved doctrines it is, and ought
to be, flexible and capable of new applications.
-
-
3. In view of this generality, the onus, in my opinion, lies on those who
assert that the doctrine can never apply to leases. They have at once to face
the argument that it has been held to apply to demise charters of ships, (and
presumably by analogy could apply to hirings of other chattels), and to
licences for use (Krell v. Henry [1903] 2 K.B. 740 and other Coronation
cases). So why not to leases of land? To place leases of land beyond a firm
9
line of exclusion seems to involve anomalies, to invite fine distinctions, or at
least to produce perplexities. How, for example, is one to deal with agree-
ments for leases? Refusal ever to apply the doctrine to leases of land must
be based upon some firm legal principle which cannot be departed from:
(compare Art. 62 of the Vienna Convention on treaties which excludes
boundary disputes from the analogous doctrine in international law).
4. Two arguments only by way of principle have been suggested. The
first is that a lease is more than a contract: it conveys an estate in land.
This must be linked to the fact that the English law of frustration, unlike
its continental counterparts, requires, when it applies, not merely adjustment
of the contract, but its termination. But this argument, by itself, is
incomplete as a justification for denying that frustration is possible. The
argument must continue by a proposition that an estate in land once granted
cannot be divested—which, as Viscount Simon L.C. pointed out, begs the
whole question.
It was pointed out, however, by Atkin L.J. in Matthey v. Curling, in a
passage later approved by Viscount Simon, that as a lease can be determined,
according to its terms, upon the happening of certain specified events, there
is nothing illogical in implying a term that it should be determined on the
happening of other events—namely, those which in an ordinary contract
work a frustration ([1922] 2 A.C. 200). It has indeed been held, with
reference to an agreement for a lease, that this can be put an end to through
implication of a term (Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1967)
205 Estates Gazette 427, per Goff J.). So why, in the present case, for
example, should an actual lease not be determinable by implication of a
term? If so, it could hardly be suggested that a lease was not capable of
frustration even though the theory of frustration had shifted to another
basis.
In the second place, if the argument is to have any reality, it must be
possible to say that frustration of leases cannot occur because in any event
the tenant will have that which he bargained for, namely, the leasehold
estate. Certainly this may be so in many cases—let us say most cases.
Examples are London & Northern Estates Co. v. Schlesinger [1916] 1 K.B.
20, where what was frustrated (viz. the right of personal occupation) was
not at the root of the contract, and requisitioning cases, e.g. Whitehall Court
Ltd. v. Ettlinger [1920] 1 K.B. 680, where again the tenant was left with
something he could use. But there may also be cases where this is not so.
A man may desire possession and use of land or buildings for, and only
for, some purpose in view and mutually contemplated. Why is it an
answer, when he claims that this purpose is ” frustrated ” to say that he has
an estate if that estate is unusable and unsaleable? In such a case the
lease, or the conferring of an estate, is a subsidiary means to an end, not an
aim or end of itself. This possible situation is figured, in fact, by Viscount
Simon L.C. in Cricklewood.
The second argument of principle is that on a lease, the risk passes to the
lessee, as on a sale it passes to the purchaser (see per Lord Goddard hi
Cricklewood). But the two situations are not parallel. Whether the risk—
or any risk—passes to the lessee depends on the terms of the lease: it is not
uncommon indeed, for some risks—of fire or destruction—to be specifically
allocated. So in the case of unspecified risks, which may be thought to have
been mutually contemplated, or capable of being contemplated by reasonable
men, why should not the court decide on whom the risks are to lie? And
if it can do this and find that a particular risk falls upon the lessor, the
consequence may follow that upon the risk eventuating the lessee is released
from his obligation.
To provide examples, as of a 999-year lease during which a frustrating
event occurs, or of those in decided cases (see above), to show that in such
cases frustration will not occur is insufficient as argument. These examples
may be correct: they may cover most, at least most normal, cases. But the
proposition is that there can be no case outside them and that I am unable
to accept.
10
5. I find the experience in the United States of America instructive. It
is clear that in the common law jurisdictions of that country, the doctrine
of frustration has developed and is still developing. It has been applied
inter alia in connection with Prohibition and leases of liquor saloons, to
leases. Yet neither of the well-known commentators Williston, or Corbin,
sees any doctrinal objection to this. I quote one passage from Corbin:
” In modern cases, there has been a tendency to treat a lease as
” a contract instead of a conveyance, although in fact it is both at
” once. The older allocation of risks does not now always seem just.
” Many short-term leases have been made, in which the purpose of the
” lessee was to conduct a liquor saloon, a purpose known to the
” lessor and one which gave to the premises a large part of its rental
” value. There followed the enactment of a … prohibitory law
” preventing the use of the premises for the expected purpose. The
” prohibition law does not make it impossible or illegal for the lessee
” to keep his promise to pay the rent . . . but it frustrates his purpose
” of using the premises for a liquor saloon in the reasonable hope of
” pecuniary profit. If the terms of the lease are such that the lessee is
” restricted to this one use, it has been held in a considerable number
” of cases that his duty to pay rent is discharged.” (Corbin on
Contracts (1951) Vol. 6, para. 1356.)
Williston is to a similar effect, where it is pointed out that termination of
a lease by frustration is more difficult to establish than termination of a
mere contract (Williston on Contracts, 3rd Ed. (1978), para. 1955).
There is a similar indication in Canada. The Supreme Court had to
consider in 1971 the extent to which the contractual doctrine of wrongful
repudiation could be applied to a lease—the argument being that the
landlord was limited to remedies given by the law of property. In an
instructive judgment Laskin J. said:
” It is no longer sensible to pretend that a commercial lease, such
” as the one before this court, is simply a conveyance and not also
” a contract. It is equally untenable to persist in denying resort to
” the full armoury of remedies ordinarily available to redress
” repudiation of covenants, merely because the covenants may be
” associated with an estate in land.” Highway Properties Ltd. v. Kelly,
Douglas & Co., Ltd. (1971) 17 DLR, 3rd, 710, 721.
So, here is a route opened by common law jurisdictions, by which the
result of frustration of leases may be attained. This may be wide, or
narrow, or indeed very narrow: that we need not decide in advance. But
it would be wrong to erect a total barrier inscribed ” You shall not pass “.
6. I can deal briefly with the authorities: they are one way (against
application of the doctrine), they are partial. They decide that particular
sets of facts do not amount to frustrating events. A judgment often quoted
is that of Lush J. in Schlesinger’s case (u.s.) where a lessee was unable to
occupy the rented premises because he was an alien enemy:
” As the contract could be performed without his personal residence,
” the fact that his personal residence was prohibited by the Order did
” not make the performance of the contract impossible. But there is,
” I think, a further answer to the contention. It is not correct to
” speak of this tenancy agreement as a contract and nothing more.
” A term of years was created by it and vested in the appellant, and I
” can see no reason for saying that because this Order disqualified him
” from personally residing in the flat it affected the chattel interest which
” was vested in him by virtue of the agreement.” I.e. p.24.
There is nothing to disagree with here—the argument may indeed be
valid in many or most cases of leases. It is not expressed as one which
must apply to all.
The reasoning of this House in Matthey v. Curling [1922] 2 A.C. 180. is
not ” clear ” or any authority that the doctrine of frustration does not apply
to a lease (see per Lord Wright in Cricklewood 1.c. p.230). It was not
11
until Cricklewood that the argument was put on principle and fully explored.
The governing decision (of the Court of Appeal) was summary, unargued,
and based upon previous cases which will not bear the weight of a
generalisation. I think that the movement of the law of contract is away
from a rigid theory of autonomy towards the discovery—or I do not hesitate
to say imposition—by the courts of just solutions, which can be ascribed to
reasonable men in the position of the parties.
It is said that to admit the possibility of frustration of leases will lead
to increased litigation. Be it so, if that is the route to justice. But even
if the principle is admitted, hopeless claims can always be stopped at an
early stage, if the facts manifestly cannot support a case of frustration. The
present may be an example. In my opinion, therefore, though such cases
may be rare, the doctrine of frustration is capable of application to leases
of land. It must be so applied with proper regard to the fact that a lease
i.e. a grant of a legal estate is involved. The court must consider whether
any term is to be implied which would determine the lease in the event
which has happened and/or ascertain the foundation of the agreement
and decide whether this still exists in the light of the terms of the lease,
the surrounding circumstances and any special rules which apply to leases
or to the particular lease in question. If the ” frustrating event” occurs
during the currency of the lease it will be appropriate to consider the
Law Reform (Frustrated Contracts) Act 1943.
I now come to the second question which is whether on the facts of the
case the appellant should be given leave to defend the action: can it
establish that there is a triable issue? I have already summarised the terms
of the lease. At first sight, it would appear to my mind that the case
might be one for possible frustration. But examination of the facts leads
to a negative conclusion. The circumstances which it is claimed amount to
a frustrating event are proved by affidavit evidence supplemented and
brought up-to-date by other documents. They are as follows. The first
order closing Kingston Street was made on 16th May 1979 to take effect
from 18th May. The lease had then four years and six-and-a-half months to
run. In his affidavit sworn on 20th September 1979 the appellant’s solicitor
stated that it was likely that ” well over a year ” would have elapsed before
a decision could be made as regards the listed Victoria warehouse opposite
the appellant’s premises, the condition of which made the closure necessary.
The Town Clerk of the City of Kingston-upon-Hull had written on
7th August that it was probably unlikely that the matter could be resolved
” within the next year “. It appears that a local enquiry was held into the
future of the listed warehouse, and the Secretary of State on 20th March
1980 approved the Inspectors’ report and granted consent for its demolition.
On 30th September 1980 the Town Clerk informed the lessors that the
estimated date for completion of the demolition was ” sometime in late
December 1980 or early January 1981 “. I think it is accepted that the
re-opening of Kingston Street would immediately follow.
So the position is that the parties to the lease contemplated, when Kingston
Street was first closed, that the closure would probably last for a year or a
little longer. In fact it seems likely to have lasted for just over eighteen
months. Assuming that the street is re-opened in January 1981, the lease
will have three more years to run.
My Lords, no doubt, even with this limited interruption the appellant’s
business will have been severely dislocated. It will have had to move
goods from the warehouse before the closure and to acquire alternative
accommodation. After reopening the reverse process must take place. But
this does not approach the gravity of a frustrating event. Out of ten
years it will have lost under two years of use: there will be nearly three
years left after the interruption has ceased. This is a case, similar to others,
where the likely continuance of the term after the interruption makes it
impossible for the lessee to contend that the lease has been brought to an
end. The obligation to pay rent under the lease is unconditional, with a
sole exception for the case of fire, as to which the lease provides for a
12
suspension of the obligation. No provision is made for suspension in any
other case: the obligation remains. I am of opinion therefore that the lessee
has no defence to the action for rent, that leave to defend should not be
given and that the appeal must be dismissed.
Lord Simon of Glaisdale
my lords,
By a lease dated 12th July 1974 the respondents as landlord let to the
appellants (who carry on business of warehousing) as tenant premises which
were described in the lease as ” warehouse premises . . . comprising
warehouse no. 2 “. Included in the demise was ” a right of way for purposes
” connected with the occupation of the said premises . . . “: this was
along a road called Kingston Street, the only road giving access to the
premises. The lease was for 10 years as from 1st January 1974 at a
rent of £6,500 during the first 5 years of the term: as for the remainder,
a rent review clause provided that ” the yearly rent payable during the last
” 5 years of the said term . . . shall be the fair yearly rent of the said
” premises let in the open market for the purpose of a warehouse at the
” commencement of such period “, being determinable by arbitration in
default of agreement. The landlord’s reservation of services was subject
to compensation to the tenant for disturbance of the tenant’s business.
Amongst other tenant’s covenant’s (mostly common form) were the
following: —
” (5) To insure and keep insured the said premises to the full value
” thereof . . .in the joint names of the landlord and the tenant against
” loss or damage by fire and such other risks as may from time to time
” be required by the landlord . . .
” (13) Not to do or omit to do or suffer to be done or omitted to be
” done in or upon the said premises any act or thing which will render
” any increased or extra premium payable for the insurance of the
” said premises, or any adjoining property of the landlord . . . provided
” always that the tenant’s business of warehousing to be carried on
” upon the premises shall not constitute any such act or thing as is
” referred to in this clause and the tenant shall not be liable in respect
” of any increased premiums by virtue of activities in accordance with
” the ordinary course of such business.
” (15) Not without the consent in writing of the landlord to use the
” said premises or any part thereof or permit or suffer the same to be
” used for any other purpose than that of warehousing in connection
” with the tenant’s business and in particular that they shall not be used
” for residential purposes or for any person to sleep thereon or in any
” manner which would constitute a change of use under the Town and
” Country Planning Acts.
” (17) That no act or thing which shall or may be or become a
” nuisance [etc.] to the landlord or the landlord’s tenants [etc.] shall
” be done upon the said premises or any part thereof save that any
” activities properly carried on in the ordinary course of the tenant’s
” business shall not constitute a breech of this clause.
” (20) Not to use or permit or suffer to be used the said premises
” or any part thereof as a factory or workshop . . .”
By clause 3 the landlord covenanted in usual terms for the tenant’s
quiet enjoyment of the premises during the term.
Clause 4(1) is the rent review clause. Clause 4(2) deals with destruction
or damage by fire. It provides for abatement of the rent pending
reinstatement, and for the landlord’s right to determine the tenancy in the
event of complete destruction or substantial damage by fire of the demised
premises or the landlord’s adjoining property. Clause 4(3) provides for the
13
landlord’s right to determine in the event of the premises being ” required
” in connection with the proper operation of the British Railways undertaking
” and Part III of the Landlord and Tenant Act 1954 shall not apply.”
The rent review clause was in fact operated so that the yearly rent for the
last 5 years of the term was agreed to be £13,300.
The lease makes it clear that the parties contemplated that the demised
premises, which were purpose-built as a warehouse, should be used as such
throughout the term; rent was geared to this use; and no other use was
contemplated.
The demised warehouse has a loading bay and large doors at the
entrance from Kingston Street. Immediately opposite stood a large derelict
Victorian warehouse, a building listed by the Department of the Environment.
The Kingston upon Hull City Council believed that building to be a
dangerous structure; and they applied to the Secretary of State for the
Environment for listed-building consent to demolish it: this must have
been some time between April 1978 and July 1979. Demolition was
opposed by a number of conservation groups; and at the time the evidence
was filed (September 1979) the Secretary of State was to appoint a Public
Inquiry into the matter. In April 1978 the City Council made an order
under section 12(1) of the Road Traffic Regulation Act 1967, as amended,
restricting the passage of vehicular and pedestrian traffic in Kingston
Street. On the 16th May 1979 the City Council made a further order, this
time closing Kingston Street to all vehicular and pedestrian traffic from
18th May 1979. The order of 16th May 1979 was continued by order of
the Secretary of State for the Environment; and it was still effective when
the evidence was filed. No question turns on the vires of these orders.
There being no other form of access to the demised premises than along
Kingston Street, the closure of that street made it impossible for the
appellants to continue to use the demised premises as a warehouse; nor have
they used it for any other purpose.
An affidavit sworn on behalf of the appellants deposed the opinion that
in those circumstances well over a year would elapse between application
for listed-building consent and the ministerial decision. An exhibited letter
from the Town Clerk of 7th August 1979 stated that “it is probably
” unlikely that the matter can be resolved within the next year.” From
evidence placed before your Lordships it appears that a Public Inquiry had
been held in the meantime, that demolition of the derelict warehouse was
sanctioned and that on the 30th September 1980 the Town Clerk informed
the respondents that the estimated date for demolition was late December
1980 or early January 1981, The appellants apparently accept that
Kingston Street would thereupon be again open to all traffic.
The appellants ceased to pay rent to the respondents as from 18th May
1979, the date of total closure of the highway. By a writ issued on 9th July
1979 the respondents demanded the rent which would have been due under
the lease in the sum of £5,115.38. On 27th July 1979 the appellants filed
a defence claiming that by reason of the closure of Kingston Street the
lease had been frustrated on 18th May 1979, and they counterclaimed a
declaration that the lease had been discharged by frustration. On 20th
September 1979 Master Waldman heard the respondents’ summons for
summary judgment under RSC Order 14. He was bound by authority
(Cricklewood Investment Trust Limited v. Leighton’s Investment Trust
Limited [1943] 1 K.B. 493; Denman v. Brise [1949] 1 K.B. 22) to hold
that the submission that a lease could be discharged by frustration was not
open to the appellants to argue to any court below your Lordships’ House
(see Cricklewood Property v. Leighton’s Investment Trust Limited [1945]
A.C.221). The appellants appealed from the order of the learned
Master. Sheen J., being similarly bound by such authority, by consent
dismissed the appeal; and, since the Court of Appeal would also be similarly
bound, he granted the appellants a certificate under section 12 of the
Administration of Justice Act 1969 (leapfrogging). An Appeal Committee
of your Lordships’ House in due course gave leave to appeal.
14
The appeal raises three questions: —
-
-
-
Is the doctrine of frustration inherently incapable of application to
a lease? -
If not inherently and generally inapplicable to leases, is the doctrine
of frustration capable of applying to this lease in particular? -
If yes, have the appellants demonstrated a triable issue that this
lease has been discharged by frustration?
-
-
Unless the appellants can demonstrate that the answer to (1) is ‘No’, and
to (2) and (3) ‘ Yes’, the respondents are entitled to summary judgment,
and the appeal must be dismissed.
I. Frustration of a contract takes place when there supervenes an event
(without default of either party and for which the contract makes no
sufficient provision) which so significantly changes the nature (not merely
the expense or onerousness) of the outstanding contractual rights and/or
obligations from what the parties could reasonably have contemplated at
the time of its execution that it would be unjust to hold them to the literal
sense of its stipulations in the new circumstances; in such case the law
declares both parties to be discharged from further performance.
Whether the doctrine can apply to a lease is of more than academic
interest, considerable though that is. In the Cricklewood Property case
Viscount Simon, who favoured the extension of the doctrine to leaseholds,
nevertheless considered it likely to be limited to cases where “some vast
” convulsion of nature swallowed up the property altogether, or buried it
” in the depth of the sea ” (p.229). But I think this puts the matter too
catastrophically, even in the case of a long lease. There are several places
on the coast of England where sea-erosion has undermined a cliff causing
property on the top of the cliff to be totally lost for occupation: obviously
occupation of a dwelling house is something significantly different in nature
from its aqualung contemplation after it has suffered a sea-change. And
in the case of a short lease something other than such natural disaster—the
sort of occurrence, for example, that has been held to be the frustrating event
in a charter-party—might in practice have a similar effect on parties to a
lease. Take the case of a demise-chartered oil tanker lying alongside an oil
storage tank leased for a similar term, and an explosion destroying both
together.
The question is entirely open in your Lordships’ House, as was recognised
in the Cricklewood Property case. In my view a lease is not inherently
unsusceptible to the application of the doctrine of frustration.
In the first place, the doctrine has been developed by the law as an
expedient to escape from injustice where such would result from enforcement
of a contract in its literal terms after a significant change in circumstances.
As Lord Sumner said, giving the opinion of a strong Privy Council in
Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510:
” It is really a device, by which the rules as to absolute contracts are
” reconciled with a special exception which justice demands. “
Justice might make a similar demand as to the absolute terms of a lease.
Secondly, in the words of Lord Wright in the Cricklewood Property
case (p.241):
‘ The doctrine of frustration is modern and flexible and is not subject
” to being constricted by an arbitrary formula “.
It is therefore on the face of it apt to vindicate justice wherever owing to
relevant supervening circumstances the enforcement of any contractual
arrangement in its literal terms would produce injustice.
Thirdly, the law should if possible be founded on comprehensive
principles: compartmentalism, particularly if producing anomaly, leads to
the injustice of different results in fundamentally analogous circumstances.
To deny the extension of the doctrine of frustration to leaseholds produces
a number of undesirable anomalies. It is true that theoretically it would
15
create an anomalous distinction between the conveyance of a freehold
interest and of a leasehold of, say, 999 years. But it would be only in
exceptional circumstances that a lease for as long as 999 years would in fact
be susceptible of frustration. On the other hand, to deny the application of
the doctrine would create an anomalous distinction between the charter of
a ship by demise (see Blane Steamships Ltd. v. Minister of Transport [1951]
2 K.B. 965; Law Reform (Frustrated Contracts) Act 1943. section 2(5) (a))
and a demise of land: compare, for example, a short lease of an oil storage
tank and a demise charter for the same term of an oil tanker of a peculiar
class to serve such a storage tank, and a supervening event then frustrating
the demise charter and equally affecting the use of the oil storage tank.
Again, a time charter has much in common with a service tenancy of
furnished accommodation. Then there would be the distinction between a
lease and other chattel interests—say, under a hire-purchase agreement. But
most striking of all is the fact that the doctrine of frustration undoubtedly
applies to a licence to occupy land: see, e.g., Krell v. Henry [1903] 2 K.B.
740 and the other Coronation cases. However, the distinction between a
licence and a lease is notoriously difficult to draw, and, when it comes to the
application of a doctrine imported to secure justice, even more difficult to
justify. The point is well put by Treitel, the Law of Contract, 5th edition
(1979) pp.669, 670. I am clearly of opinion that the balance of anomaly
indicates that the doctrine of frustration should be applied to a lease.
Moreover, I shall venture to refer later to the effect of an agreement to grant
a lease operating to create an equitable term of years: if, as would seem
to be the case, the doctrine of frustration applies to such an agreement, there
would be yet another anomaly.
Fourthly, a number of theories have been advanced to clothe the doctrine
of frustration in juristic respectability, the two most in favour being the
” implied term theory ” (which was potent in the development of the doctrine
and which still provides a satisfactory explanation of many cases) and the
” theory of a radical change in obligation ” or ” construction theory ” (which
appears to be the one most generally accepted today). My noble and learned
friends who have preceded me have enumerated the various theories; and
the matter is discussed in Chitty on Contracts, 23rd Edition (1968), volume 1,
pp. 585-592. Of all the theories put forward the only one, I think,
incompatible with the application of the doctrine to a lease is that which
explains it as based on a total failure of consideration. Though such may
be a feature of some cases of frustration, it is plainly inadequate as an
exhaustive explanation: there are many cases of frustration where the
contract has been partly executed. (I shall deal later with the argument
that ” the foundation of the contract” in a lease is the conveyance of the
term of years, which is accomplished once for all and can never be
destroyed.)
Fifthly, a lease may be prematurely determined in a considerable variety
of circumstances. Perhaps forfeiture by denial of title is the most relevant
(though now largely of historical interest), since it depended on a rule of law
extraneous to any term of the lease or to agreement of the parties whereby
the lease was prematurely discharged. I can see no reason why a rule of
law should not similarly declare that a lease is automatically discharged on
the happening of a frustrating event.
Sixthly, it seems that authorities in some other common law jurisdictions
have felt no inherent difficulty in applying the doctrine of frustration to a
lease. This appears especially in the American cases on the frustration of
leases of premises to sell liquor by the advent of constitutional Prohibition
(see Corbin on Contracts, 1951 ed., volume 6, pp.338 et seq. for a general
discussion and pp.388-390 for a discussion of the Prohibition cases in
particular). Corbin’s summary (p.391) has relevance to such a lease as is
under your Lordships’ instant consideration:
” If there was one principal use contemplated by the lessee, known
” to the lessor, and one that played a large part in fixing rental value,
” a governmental prohibition or prevention of that use has been held
16
” to discharge the lessee from his duty to pay the rent. It is otherwise
” if other substantial uses, permitted by the lease and in the
” contemplation of the parties, remain possible to the lessee. “
(See also the passage quoted by my noble and learned friend, Lord
Wilberforce). Then there is the judgment of Isaacs J. in Firth v. Halloran
(1926) 38 C.L.R. 261, 269. Less directly in point, but important and
relevant for its general reasoning, is the judgment of the Canadian Supreme
Court delivered by Laskin J. in Highway Properties Ltd. v. Kelly Douglas
& Co. Ltd. (1971) 17 D.L.R. 3rd 710, holding that the contractual doctrine
of repudiation, with its remedies independent of the landlord/tenant
relationship, is applicable to a lease.
Lastly, then, from Laskin J.’s judgment (p.721):
” It is no longer sensible to pretend that a commercial lease … is
” simply a conveyance and not also a contract.”
The doctrine of frustration, no less than the doctrine of repudiation, is
applicable to a contract. It must therefore be determined whether there is
anything in a lease-as-conveyance which repels the doctrine of frustration
inherent in the lease-as-contract—outweighing the demands of justice, of
consistency, of juristic theory accounting for the doctrine, of analogy and
of authoritative opinion in other common law jurisdictions.
I therefore turn to consider the arguments to the contrary. Counsel for
the respondents advanced six arguments of principle against the extension
of the doctrine of frustration to a lease. I shall not here set them out:
they will, I trust, appear when this appeal is fully reported. Several would,
it seems to me, apply equally to a licence to occupy land and/or to the
charter of a ship, both unquestionably susceptible of frustration. I shall
consider the others along with the arguments collected from the speeches
of Lord Russell of Killowen and Lord Goddard in the Cricklewood Property
case. The arguments are, I think, fourfold:
-
-
-
The lease itself is the “venture” or “undertaking” on which the
parties have embarked. In so far as the lease is contractual, the
” foundation ” of the contract is the transfer of the landlord’s possession
of the demised property for a term of years in return for rent; that happens
once for all on the execution of the lease; so that its contractual
” foundation ” is never destroyed. -
The lease is more than a contract: it creates a legal estate or interest
in land; and, added counsel for the respondents, it operates in rem. -
The contractual obligations in a lease are merely incidental to the
relationship of landlord and tenant. -
On the conveyance the ” risk ” of unforeseen events passes to the
lessee, as it does to the purchaser of land.
-
-
I presume to think that the third proposition adds nothing to the first
two, from which it necessarily follows if they are valid. As for the lease
itself being the ” venture ” or ” undertaking ” the same might be said of
a licence or of a demise charter. So, too, it may be said that the
” foundation ” of a demise charter is that the shipowner parts with his
possession of the demised property for a term of years in return for hire.
In truth, ” venture “, ” undertaking ” and ” foundation ” are picturesque
or metaphorical terms: though useful in illuminating the doctrine, they
are too vague to be safe for juristic analysis. The real questions, in my
respectful submission, are the second and fourth—namely, whether the fact
that a legal estate or interest in land has been created makes a lease
inherently unsusceptible of the application of the doctrine of frustration,
and that the risk of what might otherwise be a frustrating event passes
irrevocably to the lessee on execution of the lease.
As for the significance of the creation of a legal estate or interest in
land, it is convenient to note at this stage the case of an agreement to grant
17
a lease. This can operate to create an equitable term of years (Walsh v.
Lonsdale (1882) 21 Ch.D. 9). Cheshire’s Modern Law of Real Property,
12th ed. (1976), p.388, states specifically:
” An equitable term of years may pass to the person who holds
” under a contract for a lease.” (book’s italics.)
See also Megarry & Wade, The Law of Real Property, 4th ed. (1976),
pp.625 et seq. So take the case of an agreement to grant a lease of a
house on a clifftop which, before execution of any lease, collapses into
the sea. It was conceded that equity would not grant specific performance
at the suit of the prospective lessor, the subject-matter having disappeared.
Nor, since the subject-matter of the agreement cannot now be delivered,
could he recover damages for breach of contract. Nor could any obligation
to pay rent be enforced, since rent is payable under the lease, which will
not now be decreed. Faced with this situation, counsel for the respondents
gave two alternative answers: first, the doctrine of frustration is not
applicable to an agreement for a lease; and, secondly, if it is. it does not
apply after the conveyance. But in the postulated case no conveyance
follows; and in any case the second answer is a mere reiteration of the
general conclusion (which is in question) that the doctrine of frustration
does not apply to a lease. As for the first alternative, the situation involves
that the agreement for a lease has been frustrated de facto—it cannot be
further performed, and neither party has any obligation to or remedy
against the other. It would be ridiculous for the law to close its eyes to
the reality of this situation or to refuse it its proper name. Moreover, an
agreement to grant a lease is certainly an interest in land; it is registrable
as an estate contract Class C (iv): see Land Charges Act 1925, section 10;
Land Charges Act 1972, section 2(4). So here we have the case of an
agreement being effectually discharged by frustration notwithstanding that
it has created an estate or interest in land, albeit equitable. The rule can
hardly depend on whether the estate or interest in land is legal or equitable :
no one has so suggested; and it would create an even more absurd anomaly
than those to which I have ventured already to refer.
I cite Denny Mott & Dickson Ltd. v. James B. Fraser Ltd. [1944] A.C.
265 with some hesitation, since your Lordships did not have the benefit
of adversary argument on it. But it was a case where both a contract to
grant a lease (which may have operated as a lease) and an option to
purchase land were held to be frustrated. It is true that they were part
of a larger agreement including trading arrangements which had been
frustrated; but I do not think that this can affect the force of the decision
as regards the frustration of the contract for a lease of (or the lease) and
of the option. It is also true that it was a Scottish appeal; but Lord
Macmillan (p.272) stated that the incidence of the Scots doctrine of
frustration was the same as the English (though the consequences might
be different); and none of their Lordships indicated that the decision
depended on any peculiar rule of Scots land law.
Again, although Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1967)
205 Estates Gazette 427 was cited to your Lordships, no argument was
developed on it. Goff J. was faced with an agreement for a lease entered
into on the unexpressed assumption that relevant planning permission
would be granted, whereas in the event it was refused. Though the learned
judge ” was far from satisfied that the doctrine of frustration could not be
” applied to an agreement for a lease ” at least before entry into possession,
in fact he held that the agreement was discharged under an implied term
that this should be the effect if planning permission was refused—that is,
he applied a similar line of reasoning to that of Blackburn J., giving the
judgment of the Court of Queen’s Bench, in Taylor v. Caldwell (1863)
3 B. & S. 826, the fons et origo of the modern doctrine of frustration. In
my view Rom Securities was a case of frustration.
I can for myself see nothing about the fact of creation of an estate or
interest in land which repels the doctrine of frustration. It cannot be that
land, being relatively indestructible, is different from other subject-matter
18
of agreement: that would perhaps make a lease so much the less likely to be
frustrated in fact, but would not constitute inherent repugnance to the
doctrine. In any case, we are concerned with legal interests in the land
rather than the land itself. It cannot be because a lease operates in rem :
so, for example, does a contract for seamen’s wages, since that gives rise to
a maritime lien, yet can presumably like other contracts for personal
services be frustrated by ill-health or death. Moreover, the criterion of
operation in rem hardly matches counsel’s first submission on agreements
for a lease, which operate in personam. It cannot be because, once vested,
a lease cannot be divested except by agreement of the parties. That would
be to beg the question: if frustration applies, it can be so divested.
Moreover, as I have tried to demonstrate, quite apart from frustration it
can be so divested by operation of law in the doctrine of denial of title.
And, as my noble and learned friend, Lord Wilberforce, has pointed out,
there is nothing illogical in implying a term in a lease that it shall be
discharged on the occurrence of a frustrating event. Nor, finally, is it
realistic to argue that on execution of the lease the lessee got all that he
bargained for. The reality is that this lessee, for example, bargained, not
for a term of years, but for the use of a warehouse owned by the lessor—just
as a demise charterer bargains for the use of the ship.
I turn, then, to the second main contention—namely, that the risk of
unforeseen mischance passes irrevocably to the lessee at the moment of
conveyance. This, too, begs the question whether the doctrine of frustration
applies to leaseholds. If it does, such risk does not pass in all
circumstances. Moreover, the sale of land is a false analogy. A fully
executed contract cannot be frustrated; and a sale of land is characteristically
such a contract. But a lease is partly executory: rights and obligations
remain outstanding on both sides throughout its currency. Even a partly
executed contract is susceptible of frustration in so far as it remains
executory: there are many such cases in the books.
As for the authorities, I have had the advantage of reading in draft
the speeches of my noble and learned friends who have preceded me and
of my noble and learned friend, Lord Roskill. I agree with, and beg to
adopt, their analyses and conclusions. I would only add a comment on
Paradine v. Jane (1647) Aleyn 26, since that seems to be the starting point
of those who deny the applicability of the doctrine of frustration to leases.
But it did not turn at all on the fact that a leasehold was in question. It
went on the then prevalent rule of the law of contract that a party who
” by his own contract creates a duty or charge upon himself, he is
” bound to make it good, if he may, notwithstanding any accident by
” inevitable necessity, because he might have provided against it by his
” contract.”
A rule in such terms can hardly stand since the development of the doctrine
of frustration.
My conclusion on the first issue is therefore that the doctrine of frustration
is in principle applicable to leases.
II. Counsel for the appellants claimed that this was a ” commercial
” lease “, a class at any rate to which the doctrine of frustration is applicable.
In a sense every lease is commercial insofar as it is a matter of business
between landlord and tenant. On the other hand, a lease and its
subject-matter may be more or less closely connected with commerce, trade
or industry. The answer which I ventured to propose to the first issue
facing your Lordships indicates my view that there is no class of lease to
which the doctrine is inherently inapplicable. But, as with any other
agreement, the terms and subject-matter of a lease will affect the
circumstances in which it might be frustrated. The more commercial the
character of an agreement, the more various are the circumstances in which
it is liable to frustration.
In a lease, as in a licence or a demise charter, the length of the unexpired
term will be a potent factor. So too, as the American cases show, will be
any stipulations about, particularly restrictions on, user. In the instant
19
case the lease was for a short term/and had only about four-and-a-half
years to run at the time of the alleged frustrating event—the closure of
Kingston Street. The demised premises were a purpose-built warehouse, and
both parties contemplated its use as a warehouse throughout the term. This
use, in Corbin’s words, “played a large part in fixing rental value,” as
the rent review clause shows. After the closure of Kingston Street it could
no longer be used as a warehouse. No ” other substantial use, permitted
” by the lease and in the contemplation of the parties,” remained possible to
the lessee.
Therefore, although I do not think that there is any definable class of
lease which is specifically susceptible of frustration, the facts of the case
as I have summarised them in the previous paragraph indicate that this
lease is very much the sort that might be frustrated in the circumstances
that have occurred.
HI. The question therefore arises whether the appellants have
demonstrated a triable issue that the lease has been frustrated. The matter
must be considered as it appeared at the time when the frustrating event
is alleged to have happened. Commercial men must be entitled to act on
reasonable commercial probabilities at the time they are called upon to
make up their minds (Scrutton J. in Embiricos v. Sydney Reid & Co. [1914]
3 K.B. 45, 54). What we know has in fact happened is, however, available
as an aid to determine the reasonable probabilities at the time when decision
was called for (Lord Wright in Denny Mott & Dickson Ltd. v. James B.
Fraser & Co. Ltd. [1944] AC 265, 277, 278).
Favourably to the appellant’s case, the road would remain closed for
” well over a year” from application for listed-building consent to
demolition. Still more favourable is that it will in fact remain closed for
some twenty months.
The appellants were undoubtedly put to considerable expense and
inconvenience. But that is not enough. Whenever the performance of a
contract is interrupted by a supervening event, the initial judgment is
quantitative—what relation does the likely period of interruption bear to
the outstanding period for performance? But this must ultimately be
translated into qualitative terms: in the light of the quantitative
computation and of all other relevant factors (from which I would not
entirely exclude executed performance) would outstanding performance in
accordance with the literal terms of the contract differ so significantly from
what the parties reasonably contemplated at the time of execution that
it would be unjust to insist on compliance with those literal terms? In
the instant case, at the most favourable to the appellants’ contention, they
could, at the time the road was closed, look forward to pristine enjoyment
of the warehouse for about two-thirds of the remaining currency of the lease.
The interruption would be only one-sixth of the total term. Judging by
the drastic increase in rent under the rent review clause (more than doubled),
it seems likely that the appellants’ occupation towards the end of the first
quinquennium must have been on terms very favourable to them, as it
would probably be again at the end of the second. The parties can hardly
have contemplated that the expressly-provided-for fire risk was the only
possible source of interruption of the business of the warehouse—some
possible interruption from some cause or other cannot have been beyond the
reasonable contemplation of the parties. Weighing all the relevant factors,
I do not think that the appellants have demonstrated a triable issue that
the closure of the road so significantly changed the nature of the outstanding
rights and obligations under the lease from what the parties could
reasonably have contemplated at the time of its execution that it would be
unjust to hold them to the literal sense of its stipulations.
It follows that in my judgment the appellants fail on the third issue; and
I would therefore dismiss the appeal.
I would, however, presume to suggest that consideration should be given
to whether the English doctrine of frustration could be made more flexible
in relation to leases. The 1943 Act seems unlikely to vouchsafe justice in
20
all cases. As often as not there will be an all-or-nothing situation, the entire
loss caused by the frustrating event falling exclusively on one party, whereas
justice might require the burden to be shared. Nor is this situation
confined to leases.
Lord Russell of Killowen
MY LORDS,
I am prepared to accept that the termination of a lease may be involved
in the frustration of a commercial adventure when, as merely incidental
to the overall commercial adventure, and a subordinate factor, a lease
has been granted. To that extent at least I accept that there may be
frustration of a lease, and that the second answer of the Pinafore’s captain
on the subject of mal-de-mer is to be preferred to his first.
But the instant case is in no way such a case. It is simply a lease of the
land with the building on it. I cannot accept that it is to the point to say
that the use to which it was assumed and intended that the building on
the demised land was to be put was commercial. That does not bring the
lease into the field of a commercial adventure, so as for that reason to
bring it within the scope of frustration. The only adventure was the
granting and acceptance of a demise of the land, as in the case of any
lease, at a rent.
Land is of its nature different from a chattel, however small the plot
and however large the chattel. A leasehold interest is described as a
chattel real, but that distinction touched only on questions of descent and
inheritance. Originally perhaps sounding only in contract or covenant it
has long since come to man’s estate as a legal estate in land—indeed now
one of the only two.
Land has in general a quality of indestructibility lacking in any chattel.
Under a grant of the freehold estate in the fee simple the land passes as
to its surface and below its surface, and the airspace above, subject to
exclusions, e.g. of minerals: though ” flying” freeholds require special
consideration. Under the grant of the leasehold interest the land similarly
passes for its duration, subject to the ability to determine that duration by
either the lessor or the lessee according to the terms of the lease. And I
remark at this stage that I cannot see the force in the suggestion that,
because according to its terms the lease may in certain circumstances be
determined otherwise than by the expiry of its term, there can be no
objection to its determination by application of the doctrine of frustration.
Another distinction between the nature of land and of chattels is that in
certain situations—riparian or by the seashore—there may be accretion
to the land and therefore to the site comprised in the lease. A vessel
under a so-called time charter demise can only acquire barnacles.
It is my understanding of the law that the purchaser of land, whether
for a freehold or a leasehold interest, takes the risk that it may be or may
turn out to be less suitable or quite unsuitable for the purpose he has in
mind, unless the vendor or lessor has taken upon himself by warranty or
otherwise some liability in that event. A freehold purchaser cannot in
that event, after completion, return the land and ask for his money back:
though in an appropriate case he might be able to resist specific performance
while the contract remained outstanding. So also in the case of a lease
for which a premium has been paid in addition to rent: the lessee cannot
require repayment of the premium and refuse to pay the rent: nor where
there is no premium can he refuse to pay the covenanted rent.
Under the bargain between lessor and lessee the land for the term has
passed from the lessor to the lessee, with all its advantages and
disadvantages. In the instant case a disadvantage existed, or rather
supervened, in that access to the building preventing its use for any
purpose was blocked by administrative action which we must assume was
21
legally permitted, and for which we were not told that any compensation
could be claimed. If a principle of achieving justice be anywhere at the
root of the principle of frustration, I ask myself why should justice require
that a useless site be returned to the lessor rather than remain the property
of the lessee? (It is not suggested that a just solution can be achieved by
somehow sharing the bad luck between lessor and lessee by, for example,
a reduction of rent.)
I would reserve consideration of cases of physical destruction of flying
leaseholds: and of the total disappearance of the site comprised in the
lease into the sea so that it no longer existed in the form of a piece of
terra firma and could not be the subject of re-entry or forfeiture. In that
last case I would not need the intervention of any court to say that the
term of years could not outlast the disappearance of its subject matter:
the site would no longer have a freeholder lessor, and the obligation to
pay rent, which issues out of the land, could not survive its substitution
by the waves of the North Sea.
It will be sufficiently seen from what I have said that I am not able to
go so far as do your Lordships on the potential applicability of the doctrine
of frustration to leases, and would with minor qualification adhere to the
views expressed in the Cricklewood case in this House by Lord Russell of
Killowen and Lord Goddard. These views expressed, as Lord Goddard
said, the general view taken of the law by the profession, and there has
been some statutory recognition of that view in giving relief to lessees
where war damage had made the building on the leased site useless for its
purpose as a dwelling house. In the instant case I would have denied a
case of frustration even if the closing of the access to the site had followed
only a year after the commencement of the lease and were to last for the
whole of its remaining duration.
Having regard to the powerful expressions of opinion of the others of
your Lordships, I do not think that any useful purpose would be served
by elaboration on my part
I am, on the assumption that in general your Lordships are correct,
entirely in agreement with the view that on the facts of this case, as now
known, the appellant does not establish a triable issue of frustration, and
accordingly I concur in the view that this appeal must be dismissed. I
trust that those advising lessees will mark well the ” hardly ever ” approach,
and that litigation will be little encouraged by this cautious departure from
what may previously have been thought to be the law.
Lord Roskill
MY LORDS,
The appellants are the lessees of a warehouse in Kingston Street, Hull, of
which the respondents are the lessors. Their lease was dated the 12th July
1974 and its term was 10 years from the 1st January 1974. It therefore expires
on the 31st December 1983. It is beyond question that since the 18th
May 1979 the appellants have been deprived of the beneficial use of the
warehouse by the closure of Kingston Street both for vehicles and pedestrians,
but their possession of the warehouse under the demise from the respondents
has in no way been disturbed. It is not necessary in this appeal to consider
precisely the powers under which the closure order was finally made, upon
which the information before your Lordships’ House was regrettably sparse.
It can be assumed that that order was lawfully made and is still in force.
The cause of the closure was the unsafe condition of a derelict Victorian
warehouse opposite. That warehouse is now being demolished with
permission and the recent correspondence placed before your Lordships
shows that that demolition should be complete by the end of this year or
the beginning of next. If this prediction proves accurate, the appellants
will once again have the necessary access to their warehouse and its
beneficial use will once again be available to them. Upon the basis of
22
those dates the appellants will have lost their beneficial use for about
20 months. There was at the time of the first closure order just over
4 1/2 years of the term of 10 years unexpired and there will be some 3 years
remaining when the beneficial use is likely to be restored.
The respondents have claimed rent throughout the period of closure.
The obligation to pay rent is, it is said, absolute and unqualified and the
risk of loss of beneficial use falls on the lessees. The appellants refused
to pay. They claimed that their obligation to pay rent had come to an
end because of frustration brought about by the closure of Kingston Street
and the denial to them of the beneficial use of the warehouse. The
respondents issued a writ on the 9th July 1979 in respect of rent due on
the 1st April and 1st July 1979. Your Lordships were told that there was
no dispute on figures and if the appellants are liable the sum due is that
claimed. I would only observe that on any view of this case I find it difficult
to see what defence there could be to the claim for rent due on the 1st April
1979 since the event relied upon for excusing liability, namely the street
closure order, did not take effect until the 18th May 1979 and under the
lease rent was payable in advance. But if the appellants be right they
would have a defence to the claim for rent for the quarter beginning the
1st July 1979.
The respondents sought judgment under Order 14. The learned master
gave judgment for the amount claimed. The appellants appealed to the
judge in chambers, Sheen J. That learned judge rightly dismissed the appeal
on the 16th October 1979. Your Lordships were told that he did so
without giving a reasoned judgment because he was bound by the decision
of the Court of Appeal in Cricklewood Property & Investment Trust Ltd.
v. Leighton’s Investment Trust Ltd. [1943] K.B. 493 that as a matter of law
the doctrine of frustration could not apply to a lease. Accordingly there
could be no defence to the respondents’ claim. The learned judge was
clearly bound by that decision as the Court of Appeal would have been
had the present appeal first proceeded to that court.
The learned judge then certified under section 12 of the Administration
of Justice Act 1969 that a point of law of general public importance was
involved in respect of which he was bound by a decision of the Court of
Appeal and accordingly gave the appellants a certificate for leave to present
a petition of appeal to your Lordships’ House. That petition your Lordships
subsequently granted. The course so adopted, very naturally in the
circumstances, has had the result that this important and long debated
question of law—can a lease ever be frustrated—comes before your
Lordships for decision in Order 14 proceedings without your Lordships
having the benefit of judgments of the trial judge or of the Court of Appeal
and on facts the supply of which has certainly been economical.
My Lords, this question was last before your Lordships’ House some 35
years ago on appeal in the Cricklewood case [1945] A.C. 221. There
were then sitting in your Lordships’ House Viscount Simon L.C., the
second Lord Russell of Killowen, Lord Wright, Lord Porter and Lord
Goddard. All their lordships were agreed that if the doctrine of frustration
could apply to a lease it did not apply to the building lease in question. But
upon the issue now before your Lordships there was a sharp division of
opinion, Viscount Simon L.C. and Lord Wright taking the view that the
doctrine could apply to a lease, albeit extremely rarely, and the second
Lord Russell of Killowen and Lord Goddard emphatically taking the view
that it could never apply to a lease. Lord Porter declined to express a view,
leaving the point to be decided when it arose for decision. My Lords,
some 35 years later the point does arise for decision. In the interval there
has been much debate and much learning which view should prevail.
One thing at least is plain. This question has never yet been the subject
of direct decision in your Lordships’ House. My Lords, what is now
called the doctrine of frustration was first evolved during the nineteenth
century when notwithstanding the express language in which the parties
had concluded their bargain the courts declined in the event which
23
occurred to hold them to the strict letter of that bargain. Taylor v. Caldwell
(1863) 3 B & S 826; 122 ER 309 is perhaps the most famous mid-nineteenth
century case, in which the relevant principle was laid down by Blackburn J.
(as he then was) giving the judgment of the Court of Queen’s Bench. The
dispute in that case arose under a document which was expressed in the
language of the lease but which was held to be a licence. There was no
demise of the premises. But the licensee was relieved of his obligation to
pay ” rent” because of the fire which destroyed the premises and so made
performance impossible. One can find what might be called anticipatory
traces of the doctrine enunciated in Taylor v. Caldwell in some of the earlier
nineteenth century cases, principally in relation to contracts of personal
service made impossible of performance by death or illness, but no useful
purpose would be presently served by reviewing them. What is important
is not what happened before Taylor v. Caldwell but what happened
thereafter.
The doctrine evolved slowly especially in the field of commercial law.
It was invoked in the Coronation cases. As late as Matthey v. Curling
[1922] 2 A.C. 180, Younger L.J. (as he then was) said in the Court of Appeal
at p.210 of the report that the doctrine of frustration was not one to be
extended, a view much falsified in the event. It is interesting to observe,
in view of the respondents’ insistence that the doctrine had no application
to a lease, that for a while it was thought that the doctrine had no application
to the ordinary form of time charter party under which no possession passes
to the time charterer. In Admiral Shipping Co. Ltd. v. Weidner Hopkins
& Co. [1916] 1 K.B. 429 as experienced a judge as Bailhache J. expressed
the view that this was so and some support for his view can be found in
the speech of Lord Parker of Waddington in Tamplin’s case [1916] 2 A.C.
397 at pages 424/5. But your Lordships’ House in Bank Line Ltd. v.
Arthur Capel & Co. [1919] AC 435 determined the law beyond all
doubt—that such a time charter-party could be determined by frustration if
the facts of the particular case justified that conclusion. That decision did
not, however, expressly at least, embrace a charter by demise where
possession passes to the demise charterer and Mr. Godfrey Q.C. for the
respondents was able to show that as recently as Blane Steamships Ltd. v.
Minister of Transport [1951] 2 K.B. 965 counsel for the appellants were
able—see page 975 of the report—on the strength of the Cricklewood case
to argue (albeit wholly unsuccessfully) that the doctrine had no application
to a charter by demise. It is now clear beyond question that the doctrine
applies to time charters by demise as well as to other forms of time or
voyage charter-parties.
My Lords, I mention these matters for three purposes, first to show how
gradually but also how extensively the doctrine has developed; secondly
to show how, whenever attempts have been made to exclude the application
of the doctrine to particular classes of contract, such attempts, though
sometimes initially successful, have in the end uniformly failed and thirdly,
albeit I hope without unnecessary reference to a mass of decided
cases—many in your Lordships’ House—the doctrine has at any rate in the
last half century and indeed during and since the first World War been
flexible, to be applied whenever the inherent justice of a particular case
requires its application. The extension in recent years of Government
interference in ordinary business affairs, inflation, sudden outbreaks of war
in different parts of the world, are all recent examples of circumstances in
which the doctrine has been invoked, sometimes with success, sometimes
without. Indeed the doctrine has been described as a ” device ” for doing
justice between the parties when they themselves have failed either wholly
or sufficiently to provide for the particular event or events which have
happened. The doctrine is principally concerned with the incidence of
risk—who must take the risk of the happening of a particular event
especially when the parties have not made any or any sufficient provision
for the happening of that event. When the doctrine is successfully invoked
it is because in the event which has happened the law imposes a solution,
casting the incidence of that risk on one party or the other as the
circumstances of the particular case may require, having regard to the express
24
provisions of the contract into which the parties have entered. The doctrine
is no arbitrary dispensing power to be exercised at the subjective whim of
the judge by whom the issue has to be determined. Frustration if it
occurs operates automatically. Its operation does not depend on the
action or inaction of the parties. It is to be invoked or not to be invoked
by reference only to the particular contract before the court and the facts
of the particular case said to justify the invocation of the doctrine.
My Lords, I think it can at the present time be safely said that, leases and
tenancy agreements apart, there is no class of contract in relation to which
the doctrine could not be successfully invoked if the particular case justified
its implication, however slow and however hesitant the common law may
have been in developing the doctrine thus far. Clearly it is likely to be
able to be more successfully invoked in some classes of case than others,
for example, where the requisition of a ship under time charter which is
likely to outlast the remaining period of the charter—e.g. Bank Line Ltd.
v. Capel & Co. (supra), though not if the requisition is likely to be short in
its duration—Port Line Ltd. v. Ben Line Steamers Ltd. [1958] 2 Q.B. 146.
It will not often (if at all) be able to be successfully invoked by a seller of
goods who is likely to invoke it on a rising market merely because the mode
of performance contemplated when the contract was made proves impossible
but some other and, according to the tribunal of fact, not fundamentally
different but more expensive mode of performance remains available—
Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H. [1962] A.C. 93 and the
other Suez cases.
If, therefore, this doctrine, developed as it has pragmatically and
empirically, has advanced thus far by the last quarter of the twentieth
century, I ask what the reasons are in principle why it should not now be
held capable of embracing leases and tenancy agreements? Some of the
reasons are certainly formidable and have undoubtedly attracted weighty
support hi your Lordships’ House from, the second Lord Russell of
Killowen and Lord Goddard. First, it is said that the lessee has secured full
consideration for his covenant to pay rent, namely the conveyance of the
leasehold interest for the relevant term of years with all the attendant
benefits and burdens. Then it is said that it is a basic principle of land: law
not now to be disturbed hi your Lordships’ House which has prevailed both
in relation to the conveyance of freeholds and leases—that the incidence of the
risk of accidents passes to the purchaser or lessee. Then it is said, quite
correctly, that a lease creates an estate in land and third parties may acquire
rights thereunder so that to apply the doctrine of frustration would or might
destroy the interests of third parties against their wishes. It is also said that
it is the lease and therefore the estate in land which is the adventure and that
the attached contractual conditions are but ancillary provisions to that
estate in land.
But there are also formidable arguments the other way. The law should
not be compartmentalised. In principle a common law doctrine ought not
to be held capable of applying only in one field of contract but not hi
another. To preserve the dichotomy between leases on the one hand and
other types of contract on the other can undoubtedly create anomalies. Thus
if a ship is demise-chartered for the purpose of storing oil and explodes
without fault of either party, the demise charter would clearly be frustrated.
If the same demise charterer also leases an adjacent shore installation for the
same purpose and the same explosion destroys that installation along with
the demise-chartered ship, rent for that storage installation would remain
payable in full for the unexpired period of the lease though liability for
demise charter hire had ceased upon the frustration of the demise charter
party.
My Lords, another consideration is surely this. There are many reported
cases in recent years, especially in connection with attempts to avoid the
operation of the Rent Acts, where disputes have arisen whether a particular
agreement is a lease or tenancy agreement on the one hand or a licence on
the other. Such cases often turn on narrow distinctions. But it is difficult
to justify a state of the law which would uphold the application of the
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doctrine of frustration where the agreement is held to be a licence but would
deny the application of that doctrine where the agreement is held to be a
lease or tenancy agreement In so stating I have not lost sight of the contrary
anomaly to which my noble and learned friend Lord Russell of Killowen
drew attention during the argument and which could in theory arise if the
appellants’ submissions are allowed to prevail; for their submission would
deny the invocation of the doctrine where the conveyance was of a freehold
but would allow its invocation, at least in legal theory if not in reality, if the
conveyance were only of a lease for 999 years. Yet another consideration
which is relevant is this. However much weight one may give to the fact
that a lease creates an estate in land in favour of the lessee, in truth it is by
no means always in that estate in land in which the lessee is interested. In
many cases he is interested only in the accompanying contractual right to use
that which is demised to him by the lease and the estate in land which he
acquires has little or no meaning for him. In Professor Treitel’s book on
Contract (5th edition at pages 669-70) the learned author mentions the case
of a cottage leased for a period as a holiday home. In many such cases the
holiday maker’s rights are not only a licence to use but include a demise
with the concomitant right to exclusive possession. The holiday maker
acquires an estate in land. But that, my Lords, has little meaning for him.
He acquires that estate in land, it is true, but only in order to enjoy for a
while that exclusive right to the demised premises for his holiday. I find it
difficult to see why in principle such a lease should be incapable of being
frustrated if the facts justify that result, especially as the doctrine would
clearly be applicable had the holiday maker’s rights derived from a licence
and not from a lease.
My Lords, if your Lordships are now to say that a lease can never be
frustrated, it must be for some reason of policy. I unreservedly accept that
hitherto whenever the argument that a lease can be frustrated has been
advanced, that argument has failed. In passing it is interesting to note
that, although all members of your Lordships’ House thought otherwise,
Asquith J. (as he then was), the trial judge in the Cricklewood case, would
have held the building lease there in question to be frustrated had he felt
free to hold that the doctrine was capable of application to leases.
My Lords, in a matter of this kind while it is right for your Lordships
to look back to the past, it is surely more important to look forward and
consider what rule of law should henceforth prevail. Historic considerations
alone cannot justify the preservation of a rule if that rule has ceased to
serve any useful purpose and is unlikely to serve any useful purpose in
the years immediately ahead.
One submission in favour of preserving the old rule was that to hold
that the doctrine is applicable to leases would encourage unmeritorious
litigation by lessees denying liability for rent which was plainly due. This
is the not unfamiliar ” floodgates ” argument invariably advanced whenever
it is suggested that the law might be changed. My Lords, such an
argument should have little appeal. If a defence of frustration be plainly
unarguable, it will always be open to the master or judge in chambers so
to hold and to give summary judgment for the lessors on the ground that
the lessees have failed to show any arguable defence. I respectfully agree
with Viscount Simon L.C. and Lord Wright in the Cricklewood case that
the cases in which the doctrine will be able to be successfully invoked are
likely to be rare, most frequently though not necessarily exclusively where
the alleged frustrating event is of a catastrophic character. If that be so
the ” floodgates ” argument ceases to have any weight.
Your Lordships were referred to a decision of Goff J. (as he then was)
in Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1968) 205 Estates
Gazette 427, in which that learned judge expressed himself as far from
satisfied that the doctrine of frustration could not be applied to an agree-
ment for a lease. My Lords, if that view be right, as I think it is, and the
doctrine is applicable to an agreement for a lease, I find it difficult to see
26
why a different view should apply in the case of a lease because in the
latter case there has been a demise whereas in the former there has not;
equity presumes that to have been done which should be done.
Thus far, my Lords, I have sought to examine the crucial question on
principle and without detailed regard to the many authorities to which
your Lordships have referred. The three principal English cases relied
upon by the respondents are London and Northern Estates Co. Ltd. v.
Schlesinger [1916] 1 K.B. 20, Whitehall Court Ltd. v. Ettlinger [1920]
1 K.B. 680, and Matthey v. Curling [1922] 2 A.C. 180. In the first of
these cases Lush J. at page 24 stated as a ground for denying the
applicability of the doctrine that a term of years has been created by the
agreement in question, but the decision was plainly right upon the true
construction of the lease and the facts of that case. The lease properly
construed did not contemplate only personal residence by the defendant.
Similarly Whitehall Court Ltd. v. Ettlinger was rightly decided on the true
construction of the lease and the particular facts of that case. Like Lord
Wright in the Cricklewood case I do not regard the passage in the judgment
of Lord Reading C.J.—be it noted that it was an extempore judgment—
at page 685 as holding that a lease Is incapable of frustration.
My Lords, I think Mr. Godfrey Q.C. was right in saying that the genesis
of the suggestion that a lease is capable of frustration lies in the dissenting
judgment of Atkin L.J. (as he then was) in the Court of Appeal in Matthey
v. Curling [1922] A.C. at 119/200. I have read and re-read the speeches
in your Lordships’ House. I am clearly of the view that the majority of
your Lordships’ House though disagreeing with that dissenting judgment
were deciding that case (a singularly harsh decision from the tenant’s point
of view) by reference to the particular lease and the particular facts of the
case. I do not think that decision in any way assists the determination of
the present question. Nor, with respect, is any assistance to be gained
from the Scottish case of Tay Salmon Fisheries Co. Ltd. v. Speedie 1929
S.C. 593 which was decided under a system of law different in the crucial
respect from that applicable to Matthey v. Curling. In my judgment the
Court of Appeal in the Cricklewood case was wrong in asserting
categorically that those three English cases to which I have referred were
decisive in favour of the proposition that the doctrine of frustration had
no application to a lease, even though in the first there is a dictum to that
effect. I find myself in respectful agreement with what Viscount Simon
L.C. and Lord Wright said with regard to those three cases.
Your Lordships were referred to certain United States authorities collected
in Williston on Contracts (3rd Edition 1978), volume 18, paragraph 1955.
Clearly there are United States decisions —none it seems of the highest
authority—both ways. Many of these cases arose from the Eighteenth
Amendment and its effect upon leases of premises entered into solely for
the sale of liquor. I respectfully doubt whether much help is to be gained
from such decisions. It is however interesting to observe that Professor
Corbin in his work on Contracts (1951 Edition), volume 6, paragraph 1356,
takes the view at page 387 that the argument in favour of the non-
applicability of the doctrine of frustration based upon the view that the
lessee had assumed the risk ” has long since ceased to be convincing”
adding ” Whether the frustration of the tenant’s purposes operates in
” discharge of his duty depends upon all the circumstances, especially upon
” the extent of that frustration and the prevailing practices of men in like
” cases.”
Your Lordships were helpfully referred to one Canadian and one
Australian decision, the former of the Supreme Court of Canada, the latter
of the High Court of Australia. In the former, Highway Properties Ltd. v.
Kelly, Douglas & Co. Ltd. (1971) 17 D.L.R. (3d) 710 Laskin J. (as he then
was) delivering the judgment of the Supreme Court, said:
” There are some general considerations that support the view that
” I would take. It is no longer sensible to pretend that a commercial
” lease, such as the one before this court, is simply a conveyance and
27
” not also a contract. It is equally untenable to persist in denying resort
” to the full armoury of remedies ordinarily available to redress
” repudiation of covenants, merely because the covenants may be
” associated with an estate in land. “
In the latter case, Firth v. Halloran (1926) 38 C.L.R. 261, Isaacs J. (as he
then was), though agreeing with other members of the court in holding
that in a particular case there was no frustration, said at page 269:
” I do not agree that, because the contractual obligation relied on by
” the plaintiff is created by an instrument of lease, the doctrine of
” frustration is necessarily excluded. The nature of the relation of
” landlord and tenant, the history of the doctrine of frustration, its
” inherent meaning and the judicial determination of relevant cases
” would lead me to reject so sweeping a rule. Nor do I think the
” consequences of terminating the relation of landlord and tenant any
” more extraordinary than that of terminating any other legal relation
” which by hypothesis is expressly and impliedly created on a mutual
” and fundamental basis of existence or continuance which fails at
” a given point. . . .”
It is, however, right to say that he alone of the members of the High
Court of Australia took that view and certainly two other members of that
court agreed with the court below in holding that the doctrine had no
application to a lease.
My Lords, I do not find anything in these writings and decisions which
affords a compelling reason for maintaining the view that the doctrine is
inapplicable to leases. The inclination of these writings and decisions is to
my mind the other way. The learned authors of Megarry & Wade’s Law of
Real Property (4th edition) at page 674, not surprisingly in view of the
difference of opinion in the Cricklewood case, treat the question as open.
My Lords, I do not find it necessary to examine in detail the
jurisprudential foundation upon which the doctrine of frustration supposedly
rests. At least five theories have been advanced at different times: see
the speech of my noble and learned friend Lord Wilberforce in Liverpool
City Council v. Irwin [1977] AC 239 at pages 253/4. At one time without
doubt the implied term theory found most favour, and there is high
authority in its support. But weighty judicial opinion has since moved
away from that view. What is sometimes called the construction theory
has found greater favour. But my Lords, if I may respectfully say so, I
think the most satisfactory explanation of the doctrine is that given by
Lord Radcliffe in Davis Contractors v. Fareham U.D.C. [1956] AC 696 at
page 728. There must have been by reason of some supervening event
some such fundamental change of circumstances as to enable the court to
say—” this was not the bargain which these parties made and their bargain
” must be treated as at an end ” —a view which Lord Radcliffe himself
tersely summarised in a quotation of five words from the Aeneid ” non haec
” in foedera veni”. Since in such a case the crucial question must be
answered as one of law—see the decision of your Lordships’ House in the
Tsakiroglou case—by reference to the particular contract which the parties
made and to the particular facts of the case in question, there is, I venture to
think, little difference between Lord Radcliffe’s view and the so-called
construction theory.
My Lords, it follows that on the question of principle, I find it impossible
to justify compartmentalisation of the law or to agree that the doctrine of
frustration applies to every type of contract save a lease. I can see no
logical difference between frustration of a demise charterparty and
frustration of a lease. In principle the doctrine should be equally capable
of universal application in all contractual arrangements. I therefore find
myself in respectful agreement with the reasoning of Viscount Simon L.C.
and Lord Wright and in respectful disagreement with the views of the
second Lord Russell of Killowen and Lord Goddard in the Cricklewood
case.
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But to hold that the doctrine is capable of applying to leases does not
mean that it should be readily applied. Viscount Simon L.C. and Lord
Wright both indicated in the Cricklewood case some of the limitations to
which the invocation of the doctrine would be subject. I respectfully agree
with what was there said but I do not think any useful purpose would
presently be served by attempting to categorise those cases where the
doctrine might be successfully invoked and those where it might not.
Circumstances must always vary infinitely. I am, however, clearly of the
view in common with all your Lordships that the doctrine cannot possibly
be invoked in the present case for the reasons given by my noble and learned
friend Lord Wilberforce. I would therefore dismiss this appeal with costs.
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