Scottish Court of Session Decisions

The Dampskibsaktieselskapet Aurdal, of Fjosanger, Norway, and others, pursuers, brought an action against the Compania de Navegacion la Estrella, Bilbao, defenders, to have the defenders ordained (1) to implement a contract for the sale to the pursuers of the s.s. “Elorrio” by delivering, in exchange for the purchase price of £54,000, ( a) to them a legal bill of sale so that they could procure themselves registered as owners of the said ship, or ( b) to Blas de Otero, San Sebastian, Spain, a legal bill of sale so that he could procure himself registered as owner of said ship, and to pay the pursuers £30,000, or alternatively to pay the pursuers £65,000.

The pursuers pleaded—1. The defenders having contracted and agreed to sell the steamer in question to the pursuers, are bound to implement their contract, and decree should be pronounced in terms of the conclusion of the summons for implement and damages. 2. Failing implement, the pursuers are entitled to decree in terms of the alternative conclusion of the summons. 3. The averments of the defenders as to the impossibility of implementing the contract on account of the terms of the royal decree referred to being irrelevant, ought not to be remitted to probation.” The defenders pleaded, inter alia—“2. The fulfilment of the contract with the pursuers having become impossible by reason of a supervening law of Spain which the defenders are bound to obey, the defenders should be assoilzied from the conclusions of

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the summons. 3. The carrying out of the said contract having become impossible without the fault of the defenders they are entitled to absolvitor. 4. The pursuers not having suffered any damage through the fault of the defenders, the defenders should be assoilzied from the conclusions of the summons for damages.”

The following averment is referred to in the opinions—“(Cond. 3) … Since this action was raised the pursuers have re-sold the ‘Elorrio’ to Blas de Otero, shipowner, San Sebastian, Spain, for £83,000. The said Blas de Otero is a Spanish subject. The pursuers have called on the defenders to execute a bill of sale of the ‘Elorrio’ in favour of the said Blas de Otero. The said decree would in no way prevent the defenders executing such a bill of sale, but they decline to do so.”

The facts are given in the opinion of the Lord Ordinary ( Dewar), who on 21st June 1916 pronounced this interlocutor—“Sustains the third plea-in-law for the pursuers, and decerns against the defenders in terms of the alternative conclusion ( b) of the summons; quoad ultra allows to the pursuers a proof of the averments of damages. …”

Opinion.—“The pursuers are shipowners in Norway, and they bring this action against the defenders—a firm of Spanish shipowners—for delivery of the s.s. ‘Elorrio,’ and for damages for failure to deliver in terms of a contract entered into between parties on 17th November 1915. The defenders admit the contract, but they say that the fulfilment of it has been rendered impossible by a supervening law of Spain, which prohibited the sale of Spanish vessels to foreigners, and that they are accordingly discharged from their obligation to deliver, and are not liable in damages.

The material facts are as follows—The contract was made in London on 17th November 1915. It provides that defenders' vessel ‘Elorrio,’ which was then on a voyage to Naples, should be brought back from Naples to the United Kingdom when she had discharged her cargo, for docking and delivery to the pursuers. The purchase price was £54,000, to be paid in cash in London within seven days of the date when the steamer was ready for delivery in exchange for documents in London, The pursuers agreed to deposit, and did deposit, 10 per cent. of the purchase price in joint names when the contract was signed. After discharging her cargo at Naples the ‘Elorrio’ arrived at Troon on 26th January 1916. She was docked and surveyed by Lloyds' surveyors and deemed ready for delivery. The pursuers then deposited the whole balance of the price, and asked the defenders to execute a bill of sale in their favour in terms of the contract. The defenders professed to be anxious to do so, but explained that on 7th January 1916 His Majesty the King of Spain had issued a royal decree prohibiting the sale of Spanish vessels to foreigners. They said that they were bound to obey this decree, and asked the pursuers to relieve them from their contract. The pursuers declined. They explained that on the faith of the contract they had chartered the vessel to a firm of Glasgow coal exporters, and, besides, the ‘Elorrio’ had enormously increased in value since the date of the contract, and to cancel the bargain would involve them in very serious loss. The defenders did not dispute that the vessel had largely increased in value, but they adhered to their contention that they were bound to obey the royal decree, and they declined to deliver. The pursuers then raised this action to have the question determined, and used arrestments to found jurisdiction. Originally the summons concluded only for delivery of the ‘Elorrio’ to the pursuers, and for damages. But to meet the difficulty which the defenders had raised about transferring to a foreigner, the pursuers endeavoured to find a Spanish purchaser, and they succeeded. On they re-sold the ‘Elorrio’ to Blas de Otero, shipowner, San Sebastian, Spain, for the sum of £83,000. As he is a Spanish subject carrying on business in Spain, and the royal decree does not forbid the sale of a vessel to a Spanish subject, the pursuers asked the defenders to transfer the vessel to him, but they declined. The pursuers then, on 23rd May 1916, asked and obtained the leave of the Court to amend their summons by adding an alternative conclusion ( b) to the eifect that the defenders were bound to deliver to the said Blas de Otero a legal bill of sale duly executed by them in exchange for the said deposited purchase price, and they now ask for decree in terms of this conclusion, and for a proof of their averments of damages for failure to deliver in terms of the contract.

I have considered the arguments presented on behalf of both parties, and I am of opinion that the pursuers' contention is well founded and that their motion ought to be granted.

The case which was presented on behalf of the defenders was that they were anxious to implement their obligation under the contract, but unfortunately the royal decree prevented them doing so. They did not deny that this would result in a serious loss to the pursuers and a corresponding gain to themselves. But they said that they had asked the Spanish Ministry for authority to transfer the vessel to the pursuers and authority had been refused. Accordingly, as loyal subjects of the King of Spain they must obey the royal decree, and it was suggested that the consequences might be serious if, in the face of the decree, they transferred the vessel to a foreigner.

But they are not asked to transfer to a foreigner. They were asked to transfer to a Spanish subject resident in Spain. They do not say that they ever asked the permission of the Spanish Ministry to transfer to Blas de Otero. Permission, indeed, does not appear to be necessary. The royal decree does not forbid such a transference. It was designed to prevent the loss of the services of Spanish vessels to the Spanish nation at a time when tonnage is scarce and valuable. By the transference which the pursuers ask the services of the ‘Elorrio’ will in fact be retained to Spain. There is therefore no conflict between the defenders' duty to the pursuers and loyalty to their

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own law. They can implement their obligation with perfect loyalty, and I think they ought to do so without delay. A transference to Blas de Otero will place her services at the disposal of the Spanish nation. If the defenders are really anxious to obey the royal decree, an immediate transference will show obedience to its spirit and will be strictly in accordance with the letter. It will also show that they are prepared to recognise the pursuers' rights under the contract. The ‘Elorrio’ is admittedly worth £29,000 more than at the date of the sale. That sum really belongs to the pursuers. The defenders do not offer to pay it. On the contrary they propose by retaining the vessel to keep it to themselves. I cannot sanction such a proposal. It appears to me to be fundamentally unjust.

I am accordingly of opinion that the pursuers are entitled to decree in terms of the alternative conclusion ( b) of the summons.

I am also of opinion that they are entitled to proof of their averments of damages. In my view the defenders should have transferred the vessel to the pursuers when she was surveyed and ready for delivery. I do not think that their plea that the contract became impossible of fulfilment by reason of a supervening law of Spain is well founded. So far as I can see there was no supervening law of Spain which affected the contract in any way.

The royal decree was issued on 7th January 1916. By the first article it provides that ‘the sale is prohibited to all foreigners of whatever description they may be of all merchant vessels …’ &c. That is to say, it prohibits the sale of vessels from and after the date of issue, viz.—7th January 1916. But by that time the ‘Elorrio’ had already been sold, and the royal decree did not cancel the sale. It clearly could not do so without grave injustice to the purchasers. Every legislature must be presumed to intend to regulate the rights of its own subjects and not to affect or interfere with the rights of foreigners. Hence the royal decree prohibited Spanish citizens from selling vessels from and after a specified date. It did not profess or intend to prevent delivery of vessels already sold. To do so would have been to deprive foreigners of rights which they had lawfully acquired. If it be true, as the defenders say, that the Spanish Minister of Public Works refused to sanction the transfer, it must have been because the true position of matters was not fully explained to him. In any event it is for this Court to determine the true meaning of the contract, and whether it was rendered impossible of fulfilment by reason of a supervening law. I am clearly of opinion that it was not.

I am therefore of opinion that the ‘Elorrio’ ought to have been transferred when she had been surveyed and was ready for delivery, and that the pursuers are entitled to recover damages for any loss they can prove they have sustained through failure to deliver in terms of the contract.

If I am right in this view it is sufficient for the disposal of the case. But even if it were held that the royal decree did prevent performance I do not think that would excuse the defenders. It appears to be settled that when the performance of a positive contract becomes impracticable by reason of its being forbidden by a foreign law, it is deemed to become impossible not in law but in fact, and the contractor is not excused but must perform his obligation or pay damages— Barker v. Hodgson, 3 M. & S. 267; Sjoerd v. Luscombe, 16 East 201; Jacobs, L.R., 12 QBD 589; Spence v. Chodwick, 10 Q.B. 517. The defenders referred me to Taylor v. Caldwell, 1862, 2 B. & S. 886; Krell v. Henry, [1903] 2 KB 740; The ‘August,’ [1891] P 328; The ‘Teutonia,’ 4 P.C. 171. I have read all these cases, but they do not appear to me to bear on the present question, and I do not therefore think it necessary to examine them in detail.

This branch of the law has recently been considered in the House of Lords in the case of Horlock v. Beal, [1916] A.C. 486, and the principle which underlies all the authorities was stated by Lord Wrenbury at page 525 thus:—‘When a contract has been entered into, and by a supervening cause beyond the control of either party its performance becomes impossible, I take the law to be as follows:—If a party has expressly contracted to do a lawful act come what will—if in other words he has taken upon himself the risk of a supervening cause—he is liable if it occurs, because by the very hypothesis he has contracted to be liable. But if he has not expressly so contracted, and from the nature of the contract it appears that the parties from the first must have known that its fulfilment would become impossible if such a supervening cause occurred, then upon such a cause occurring both parties are excused from performance. In that case a condition is implied that if performance becomes impossible the contract shall not remain binding.’

It is not always easy to apply that principle and to determine on which side a particular case ought to fall. But I do not think that there is difficulty in this case. This is a British contract. It was made in London and was to be performed in this country. The vessel was taken to British waters to be surveyed and delivered, and the contract price was deposited in London. In these circumstances parties must be presumed to have intended that their rights and obligations under the contract were to be regulated by the laws of this country. I do not think that it can be said that they must have known that its fulfilment would become impossible if a Spanish royal decree were issued. They presumably agreed that the law of this country should govern the contract just to avoid any difficulty which might arise under their own laws. They looked to British law alone for the regulation of their rights, and if any other law were applied it would give a meaning to the contract which parties did not intend.

On the whole matter I am of opinion that the pursuers are right on all points. I

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accordingly sustain their third plea-in-law; grant decree in terms of the alternative conclusion of the summons ( b); and quoad ultra allow a proof of their averments of damage.”

The defenders reclaimed, and argued—The defenders had no contract with Otero; and the pursuers had no right which they could transfer to him, and accordingly Otero had none. For the defenders had only to transfer the ship according to the contract, and if A sold to B he was not bound to transfer to C. Otero, further, was not a party to this action. A legal bill of sale was a condition-precedent to the pursuers' transferring, so was delivery and payment of the price. The contract here was merely personal, as in the case of Granfeldt, 1 R. 782, 11 S.L.R. 337, per Lord Árdmillan. According to the Spanish decree also no legal bill of sale could be granted by the pursuers. But the contract was dissolved through supervening impossibility of performance— Horlock v. Beal, [1916] 1 A.C. 486, per Lord Shaw at 503; Krell v. Henry, [1903] 2 KB 740; Pollock on Contracts, p. 442. The ship was on the Spanish register, and could not be taken off that register without a bill of sale— vide Lord Ardmillan in Granfeldt at p. 786—and a foreign ship would not be registered in the British Register unless the entry in the foreign register had been cancelled. A legal bill of sale was one effective under the law of the country whence it emanated— i.e., in this case Spain. By the Spanish decree a legal bill of sale could not be issued. There was no contract to deliver to Otero, and if the pursuers could not demand specific implement to themselves owing to the Spanish decree they could not transmit such a right to Otero. If they did have something to give to Otero, then it was for Otero to sue. The defenders in any event were entitled to have proof of a sale by the pursuers to Otero. The mere fact of the contract having become exceedingly onerous had nothing to do with the matter. Legislation did not take away foreigners' existing rights, but it could interfere with acquired rights unless the statute excepted them. The Spanish decree could not be construed except as interfering with such rights. The plea of impossibility covered different kinds of impossibility. Impossibility was one of the modes of discharging a contract. There were certain forms of impossibility not in a contract which neither party may reasonably have contemplated— Caledonian Railway Company v. Mathieson, (1901) 3 F. 865, 38 S.L.R. 691; Bailey, (1809) L.R., 4 Q.B. 180. In all cases where personal services were the subject of contract death or illness discharged the contract. There was a third class of cases—that of change of circumstances. They had to be such as could not have reasonably entered into consideration at the time of the contract—Sale of Goods Act 1893 (56 and 57 Vict. cap. 71), sec. 11; Taylor v. Caldwell, 1862, 3 B. & S. 826. This contract could not be construed apart from Spanish law any more than a contract as to land in Spain could be so construed. A ship was different from other moveables. It carried the national flag, and an attack on a Spanish ship was different from an invasion of rights quoad moveables. There were two theories—( a) the ship was part of Spain, or ( b) it was assumed that Spain s jurisdiction still continued over the ship, otherwise there would be no jurisdiction. Quoad rights and protection, a ship had, unlike other moveables, the flavour of nationality— Granfeldt ( cit.); Hooper v. Gumm, (1867) L.R., 2 Chancery Appeals 282, at pp. 289 and 290, per L.J. Turner; The “Copenhagen,” (1799) 1 Robinson 289; The “Sistem,” (1804) 5 Robinson 155; Schultz v. Robinson, (1861) 24 D. 120. The bill of sale had to be granted by the owner in Spain, and he was subject to the laws of his country. As the ship and owner were Spanish it did not matter that the contract was English. This case was essentially one where the obligation was not absolute. The “Teutonia,” (1872) 4 P.C. 171; Gillespie v. Howden, 1885 12 R. 800, 22 S.L.R. 527; Thom, (1876) L.R., 1 A.C. 120; Brown on Sale of Goods, in introduction on difference between sale and contract of sale; Anson on Contract, p. 353, were referred to.

Argued for the respondents—It was not enough to plead impossibility of carrying out of contract to absolve one therefrom; one had to plead cancellation of contract. This was clearly an English contract. There might have been half-a-dozen bills of sale between the respondents and Otero, and yet the registration would not have been changed until the final bill of sale had been executed. Registration was a matter entirely for the purchaser. A contract might become dissolved on supervening impossibility ( a) if it did so in fact, and ( b) if it were such an impossibility as to dissolve the contract in the eye of the law. There was no physical impossibility in this case. If it was one's own law which forbade a thing the Court here would not allow one to do that thing, but when it was a foreign law then the contract must be implemented or damages paid. In the latter case the contract was not dissolved. The Spanish courts might have held so, but the British ones would not—Merchant Shipping Act 1894 (57 and 58 Vict. cap. 60), secs. 4 and 8 to 11; section 24 et seq. dealing with transfers; Barker v. Hodgson, 1814, 3 M. & S. 267, per Lord Ellenborough at p. 207; Sjoerds v. Luscombe, 1812, 16 East 201; Jacobs, (1884) L.R., 12 QBD 589; Taylor v. Caldwell ( cit.); Krellv. Henry ( cit.); The “August,” [1891] P 328; Horlock v. Beal ( cit.), per Lord Loreburn at p. 492 and p. 501, Lord Shaw at p. 512, Lord Parmoor ( diss.) at p. 519, Lord Wrenbury at p. 525 and 526 and 528. The Lord Ordinary was right in construing the Spanish decree as not being restrospective. It was maintained that (1) the Spanish decree did not de facto prevent the defenders from signing the bill of sale. (2) Even if it did do so, it did not prevent them signing it in favour of the pursuers' nominee Otero. (3) Even if the Spanish decree prevented them from signing the bill of sale either in favour of the pursuers or their nominee they had to pay damages. The sale was absolute. The deposit was

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made. The United Kingdom was the locus of the contract. The money was deposited there, the ship was to be delivered there, the purchase price was to be paid there, and any dispute would be arbitrated there. A legal bill of sale was a bill of sale good by the law of the place of sale, i.e., in this case English law— The “ Teutonia” ( cit.), per L. J. Mellish; Sir Frederick Pollock on Contract (8th ed.), pp. 419–420, as to contracts void for impossibility, not void merely because impossible in fact, and p. 431 as to impossibility by intervention of foreign law. They asked for a finding instead of the Lord Ordinary's decree, and also for a limited proof as to the following three points—( a) the subsale to Otero, ( b) Otero's nationality, ( c) the Spanish decree.

At advising—