Contract- Michael Tucker

A Series of Frustrating Events

By Michael Tucker

Frustration in the law of contract is largely concrete: if some form of intervening event occurs which makes satisfying the contract radically different to how it was supposed to be,1 or impossible,2 the contract can be said to be frustrated. However, there seems to be difficulty when analysing contractual frustration in the so called “coronation cases”, including Krell v Henry3 and Herne Bay Steam Boat Company v Hutton. 4 Many academics speak of “frustration of purpose”,5 but I will conclude that this is a mistaken term which does nothing but confuse principles of frustration. Existing principles, namely that of impossibility, would have sufficed in these cases to generate the same outcome, without the creation of the supposedly new class of frustration of purpose.

Krell v Henry

Krell v Henry was a case including the hiring of a flat in Pall Mall at the time of the coronation of King Edward VII. The flat was advertised as having a good view of the coronation, which was arranged to pass through Pall Mall. There was no express reference to the coronation in the contract. When the coronation was postponed, due to the King becoming ill, the hirer of the flat claimed there was a total failure of consideration. The court held that the contract was frustrated.

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Herne Bay v Hutton

Herne Bay was a case heard just days before Krell, concerning the same coronation postponement. Part of the proposed celebration for the coronation was to include a Royal Naval Review at Spithead, and so a contract between the claimant in the case and the defendant stipulated that the claimant’s

1 Davis Contractors v Fareham Urban District Council [1956] AC 696, 728 (Lord Radcliffe). 2 Taylor v Caldwell [1863] 3 B & S 826, (Blackburn J) 3 [1903] 2 KB 740 4 [1903] 2 KB 683 5 Morgan, J, Great Debates in Contract Law; McBride, N, Key ideas in contract law. 6 Krell v Henry [1903] 2 KB 740

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steamship should be “at the disposal” of the defendant for a day’s cruise round the fleet and the next day for similar purposes. When the review was cancelled, the claimant wrote to the defendants to let them know the boat was ready, but the defendants didn’t reply, not paying the agreed sum. The court found that the contract was not frustrated, and so the defendant was ordered to

pay.

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The Issue

The issue when looking at these cases is that they seem vastly similar in factual patterns, but opposite in responses from the court (days apart, with the same panel of judges). Factually, both the flat hire in Krell and the boat hire in Herne Bay were disrupted by the postponement of the coronation, so why was frustration found in Krell, but the contract in Herne Bay was left intact? There are a few interpretations, some closer than others to the court’s reasoning, but my interpretation is closest to the court’s reasoning, and minimises confusing labelling of contractual principles.

The Orthodox View

The orthodox view can be seen from Jonathan Morgan, who explains the outcome of Krell being based on the purpose of the contract being frustrated. He says the hiring of the flat was now worthless to the hirer, and so there was no point in fulfilling the contractual obligations. Morgan submits that the contract could have been fulfilled.8 Conversely, in Herne Bay, the purpose was not frustrated, because the purpose of the contract was not based on the coronation. Although the defendant’s purpose was to see the naval review, this was neither here nor there for the claimant- they didn’t care whether the naval review went ahead or not, they merely hired out the ship.

The issue with this interpretation is that it is artificial to suggest the court focused on the contract being “worthless” in the reasoning of Krell. After all, the flat owner wouldn’t have considered it to be worthless. Furthermore, Lord Justice Vaughan Williams, in his reasoning, uses the example of a cab contract, where the hirer hires the cab driver to drive them to Epsom on Derby Day at an enhanced price for the journey. If the race was cancelled, would we

7 Herne Bay Steam Boat Company v Hutton [1903] 2 KB 683 8 Morgan, J, Great Debates in Contract Law, p179.

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say the contract was frustrated? Vaughan Williams LJ says no, it would be intact. This doesn’t fit with Morgan’s interpretation. If it was enough to be worthless in Krell, surely it is the same in the Epsom Cab scenario. The cab trip was worthless to the hirer, like the flat hiring was worthless to the hirer in Krell. Morgan’s interpretation and attempt to reconcile Krell and Herne Bay, therefore, fails.

McBride’s Interpretation

Nicholas McBride provides an alternative interpretation to reconcile the cases in this area; he uses the “officious bystander” test from Shirlaw v Southern Foundries (1926) Ltd. 9 His test would ask: if an officious bystander asked A and B whether the contract would still be in force in the situation that has now arisen, would A and B have responded “of course it wouldn’t apply!”

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Putting this interpretation into effect, in Herne Bay,

11 although the defendant would say the contract wouldn’t apply, the claimant ship owner would likely say the contract would still be in force. This is because, McBride argues, the claimant would happily have hired out the ship to someone else on the same day at the same time.12 Therefore, there is no frustration. In the cab trip to Epsom example, the taxi driver would likely say the contract is intact, after all, they would have just driven someone else to somewhere else- the contract did not rest on the events of the race at Epsom, and therefore no case of frustration is made out. In the Krell case,13 neither the owner nor the hirer would say the contract is still intact in the event that the coronation didn’t go ahead, so frustration is made out. Although the results of McBride’s interpretation fit with the conclusions made by the Court of Appeal, it doesn’t truly explain why the parties would consider the contract to be made out or frustrated. Why did the contract in Krell instinctively make out that it would be frustrated in the event of a postponement, but the contracts in the cab trip and the hiring of the steam ship were left intact? What reasoning is this based on? McBride calls these cases

9 [1939] 2 KB 206, 227 (Mackinnon LJ) 10 McBride, N, Key ideas in contract law, p42.

11 [1903] 2 KB 683

12 13 McBride, N, Key ideas in contract law, p42. [1903] 2 KB 740

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“frustration of purpose” cases, so does this mean the officious bystander is looking at the purpose of the cases?

My Interpretation

McBride’s interpretation is close to the optimal reasoning for reconciling these cases, but it requires changes in order to fix the confusion around this area in the law of contractual frustration. My submission is that we should stop talking about purpose, and instead focus on the already established concept in this area of the law of contract: impossibility of meeting the foundation of the contract. This was discussed in Davis Contractors v Fareham Urban District Council. 14 A building contract was created at the end of World War One to build houses for a fixed price, but within a short period, the builders realised it would be much more expensive due to the economic conditions at the time (rations, restrictions on labour, etc). The House of Lords found that the contract was not frustrated; it had just become more onerous and expensive. Lord Radcliffe commented, at [728], that “frustration occurs whenever… 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”.15 Here, therefore, because the contractual obligations could still be performed, frustration wasn’t shown.

This can also be seen in Taylor v Caldwell. 16

This case concerned the hire of a music hall and gardens for a concert, which subsequently burned down. The court found that there was an implied condition in the contract that the core item continued to exist, which, as the music hall burned down, and that is core to being able to have concerts, meant the contract was frustrated. In other words, it was impossible to fulfil the core terms of the contract, by the event of the burning down.

Applying these cases to the coronation cases, in Herne Bay,

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the foundation of the contract was clearly nothing to do with the naval review: the hirer wanted the ship for that reason, but the ship owner merely let out the ship, with no real concern for what exactly it was used for. In this way, the

14 [1956] AC 696 15 Ibid, 728 16 [1863] 3 B&S 826 17 [1903] 2 KB 683

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motivation of one party did not form the foundation of the contract; it was therefore possible to fulfil the core obligations, and so there could be no frustration. In Krell, 18 despite the express contract not mentioning the coronation, the advertisement for the room explicitly noted its use for overseeing the coronation. As well as this, the room hiring was for the days, not the nights, which is when the coronation proceedings would occur, and the price of the room was matched to the value taking into consideration the coronation. As McBride writes, this room would not have been booked out had the coronation not been planned, at all.19 In this way, the foundation of the contract was a license to use the room to see the coronation. It was impossible to fulfil this obligation without the coronation, and so the contract was frustrated.

The difference between Krell and Herne Bay, therefore, is what the parties determined the foundation of the contract to be. This is close to McBride’s interpretation, but he continued calling it frustration of purpose, and didn’t explain what was going on in the minds of the parties, whereas this interpretation fits the cases into existing doctrines. Frustration of purpose has only ever been used in Krell, and no subsequent cases since. This, it is submitted, is a demonstration of the fact that frustration of purpose isn’t the best description- naming it impossibility means it is put alongside other frustration cases, and streamlines the law on contractual frustration, as well as explaining the difference in treatment between Krell and Herne Bay. This interpretation is also closer to judicial explanation in the Krell case. Lord Justice Vaughan Williams notes that “it is sufficient [for frustration] if a state of things or condition expressed in the contract and essential to its performance perishes or fails to be in existence at that time. In the present case the condition which fails and prevents the achievement of that which was, in the contemplation of both parties, the foundation of the contract.”20

Lord Justice Vaughan Williams has therefore assessed, in Krell, that because the foundation of the contract was impossible to fulfil, frustration must ensue. This is compatible with both Davis Contractors and Taylor v Caldwell and is therefore better for consistency within the law of frustration in contract.

18 [1903] 2 KB 740 19 McBride, N, Key ideas in contract law, p42. 20 [1903] 2 KB 740, 754 (Vaughan Williams L.J)

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