Scottish Court of Session Decisions

The Cantiere San Rocco, S.A. (Shipbuilding Company) at Trieste, and E. Radonicich, shipowner, Glasgow, their mandatory, pursuers, brought an action against the Clyde Shipbuilding and Engineering Company, Limited, defenders, in which the conclusions were for declarator that a contract entered into between the parties, dated 4th May 1914, was abrogated and avoided and dissolved by the existence of a state of war between Great Britain and Austria on 12th August 1914, that the pursuers were entitled to payment of the sum of £2310 paid by the pursuers to the defenders under the said contract, and for decree for payment of the said sum.

The following narrative of the facts of the case is taken from the opinion of Lord Hunter (Ordinary)—“The pursuers in this action are a shipbuilding company carrying on business at Trieste, formerly in Austria, now in Italy. The defenders are a company carrying on the business of shipbuilders and engineers at Port-Glasgow. [ His Lordship then narrated the conclusions of the action.] By a contract embodied in an agreement and specification, dated 4th May 1914, entered into between the defenders of the one part and the pursuers the Cantiere San Rocco, S.A., of the other part, the defenders agreed to supply and deliver f.o.b. Port-Glasgow, and the said pursuers agreed to purchase, one set of triple expansion surface condensing screw marine engines with cylinders 26 in., 42 in., and 70 in. diameter by 48 in. stroke. In terms of the said contract (article 9) the price payable by the pursuers the Cantiere San Rocco, S.A., to the defenders for the said engines was £11,550, and was to be paid as follows 20 per cent. thereof in London on the signing of the contract, 20 per cent. when the cylinders were cast and the boiler plates were in the defenders' premises, 20 per cent. when the boilers were tested and the engines assembled, 30 per cent. net cash in London in exchange for signed bills of lading and policies to cover insurance, and the balance of 10 per cent. after the reception of the engine and boilers and satisfactory trials. The engines were to be completed and delivered at Port-Glasgow by 4th May 1915. By article 7 of the contract it was provided that the whole of the work which from time to time might be in hand under the contract should become the absolute property of the pursuers, subject only to the lien which the defenders might have upon it for unpaid money. On 20th

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May 1914 the pursuers paid to the defenders in terms of the contract the sum of £2310. Between the date of the contract and the declaration of war it appears that the defenders carried out a certain amount of preparatory work required by the contract. On 12th August 1914 Great Britain declared war against Austria, and it is admitted that the pursuers then became alien enemies, and that the contract became eo ipso abrogated and avoided and dissolved on that date.”

The pursuers pleaded—“1. The said contract having been abrogated and avoided and dissolved as condescended on, and the pursuers the Cantiere San Rocco, S. A., being no longer alien enemies, decree should be pronounced in terms of the conclusions of the summons. 2. The said contract having become incapable of fulfilment as condescended on, the pursuers are entitled to repetition of the instalment paid by them in terms thereof, and decree should be pronounced in terms of the petitory conclusions of the summons. 3. The defenders having been unable to complete and deliver the said engines in terms of the contract as condescended on, they are bound to pay the pursuers the Cantiere San Rocco, S.A., the sum sued for, and decree should be pronounced in terms of the petitory conclusions of the summons. 4. The defenders not having rendered to the pursuers any services in return for the sum paid by the pursuers, the pursuers are entitled to decree in terms of the petitory conclusions of the summons.”

The defenders pleaded, inter alia—“3. The pursuers' averments being irrelevant, the action should be dismissed. 4. The defenders not being due and resting-owing to the pursuers the sum sued for or any sum, they should be assoilzied. 6. The said contract having been dissolved solely by the declaration of war between Great Britain and Austria-Hungary, the defenders should be assoilzied. 7. The sum sued for having been paid by the pursuers to the defenders in terms of the contract between the parties, the defenders should be assoilzied. 8. The defenders having duly proceeded with the work required by the contract between its date and that of the outbreak of war, and/or the pursuers having received and accepted the services of the defenders in terms of the said contract, and restitutio in integrum being impossible, the defenders should be assoilzied.”

On 7th July 1921 the Lord Ordinary (HUNTER), after hearing counsel in the procedure roll, found and declared that the contract entered into between the parties prior to the war was abrogated and avoided and dissolved by the existence of a state of war between Great Britain and Austria on 12th August 1914, and that the pursuers were entitled to payment of the sum of £2310 paid by the pursuers to the defenders subject to such counter-claim as might be afterwards established, and quoad ultra continued the cause.

Opinion.—[ After the foregoing narrative]—“The pursuers maintain that in consequence of the contract having become incapable of fulfilment they are entitled to recover the money paid by them to the defenders in terms of said contract. The defenders, however, contend that rights acquired under the contract cannot be disturbed by the termination of the contract owing to a cause for which neither is responsible, and that they are therefore entitled to retain the payment made to them. A point of law of interest and importance the solution of which is attended with difficulty is thus raised between the parties.

In support of their contention the defenders rely upon a number of English cases. In Anglo-Egyptian Navigation Company v. Rennie and Another ( L.R., 1875, 10 C.P. 271) a firm of shipbuilders had contracted to repair a ship with materials partly new and partly old. The price of the work was to be £5800, to be paid in three instalments as the work progressed. The ship was lost after one of the instalments had been paid and after the new machinery contracted for was ready to be fixed on board. A second instalment was subsequently paid. The plaintiffs in the action claimed delivery of the machinery, and as this was refused brought an action for the detention of the same or for recovery of the £4000 which they had paid. It was held that the contract was an entire and indivisible one for work to be done upon the plaintiffs' ship for a certain price, from further performance of which both parties were released by the loss of the ship, that the property in the articles manufactured was not intended to pass until they were fixed on board the ship, and that consequently the plaintiffs were not entitled to the boilers and machinery, nor to recover the £4000 paid as upon a failure of consideration.

The doctrine upon which the defenders rely is more clearly illustrated in the series of cases which may be described as the Coronation cases. Contracts were entered into under which high prices were agreed to be paid for the temporary use of premises from which the Coronation procession might be seen. On the postponement of the Coronation owing to the King's illness a number of legal questions arising out of these contracts came before the English Courts for decision. It was held that the taking place of the processions on the date originally fixed along the proclaimed route was regarded by both contracting parties as the foundation of the contract, and that the non-existence of this state of things going to the root of the matter and essential to the performance of the contract excused both parties from further fulfilment of the contract.

Where, however, money had been paid prior to the postponement of the Coronation it was held that it could not be recovered back. In Blakeley v. Muller & Company, decided by a Divisional Court in England, and reported in a foot-note at page 760 of L.R., 1903, 2K.B., Mr J. Channell, said—‘All that can be said is that when the procession was abandoned the contract was off, not that anything done under the contract was void. The loss must remain where it was at the time of the abandonment.

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It is like the case of a charter-party where the freight is payable in advance and the voyage is not completed, and the freight therefore not earned. Where the non-completion arose through impossibility of performance the freight could not be recovered back.’

In Chandler v. Webster ( 1904, 1 K. B. 493, at p. 501) Romer, L.J., stated the law in general terms—‘Where there is an agreement which is based on the assumption by both parties that a certain event will in the future take place, and that event is the foundation of the contract, and through no fault by either party, and owing to circumstances which were not in the contemplation of the parties when the agreement was made, it happens that before the time fixed for that event it is ascertained that it cannot take place, the parties thenceforth are both free from any subsequent obligation cast upon them by the agreement; but except in cases where the contract can be treated as rescinded ab initio any payment previously made, and any legal right previously accrued according to the terms of the agreement, will not be disturbed.’

In my opinion the reasoning in the cases to which I have referred goes far to support the defenders' contention, although the circumstances of the present case are different from those in any of the cited cases. The same result, however, would not necessarily have been reached in Scotland, where a claim for restitution on account of failure of consideration would probably have been maintainable. In Ersk. iii, 1, 10, there is this passage—‘From this duty of restitution it ariseth that things given in the special view of a certain event, ex gr., in the contemplation of marriage, must, if the event in the view of which they were given shall not afterwards exist, be restored by the grantee, who may be sued for restitution by personal action, styled in the Roman law condictio causa data, causa non secuta.’ In the present case the contract was for marine engines, and the payment was made upon the footing that the engines would subsequently be delivered. Delivery having become impossible in consequence of the outbreak of war the consideration in respect of which payment was made failed, and a claim for repetition of the money paid would appear to arise giving the defenders, it may be, a right to a deduction in respect of work done or outlays incurred by them.

In Watson & Company v. Shankland and Others ( 1871, 10 Macph. 142) Lord President Inglis said (p. 152)—‘There is no rule of the civil law, as adopted into all modern municipal codes and systems, better understood than this, that if money is advanced by one party to a mutual contract, on the condition and stipulation that something shall be afterwards paid or performed by the other party, and the latter party fails in performing his part of the contract, the former is entitled to repayment of his advance on the ground of failure of consideration. In the Roman system the demand for repayment took the form of a condictio causa data, causa non secuta, or a condictio sine causa, or a condictio indebiti according to the particular circumstances. In our own practice these remedies are represented by the action of restitution and the action of repetition; and in all systems of jurisprudence there must be similar remedies, for the rule which they are intended to enforce is of universal application in mutual contracts.

If a person contract to build me a house, and stipulate that I shall advance him a certain portion of the price before he begins to bring his materials to the ground or to perform any part of the work, the money so advanced may certainly be recovered back if he never performs any part or any available part of his contract. No doubt, if he perform a part and then fail in completing the contract, I shall be bound in equity to allow him credit to the extent to which I am lucratus by his materials and labour but no further; and if I am not lucratus at all I shall be entitled to repetition of the whole advance, however great his expenditure and consequent loss may have been.’

The question in that case was whether an advance by charterers to account of freight could be recovered where the vessel and cargo were lost. In the particular circumstances of the case it was held by a majority of seven judges that it could not be recovered, but the view was expressed by the Court, as stated in the rubric, ‘that an advance by the charterers of a ship to account of freight is, on the loss of ship and cargo, recoverable from the shipowners, where the charter-party contains no stipulation to the contrary, express or clearly implied, the law of Scotland upon this point, although contrary to that of England, being in conformity with the law merchant of every other trading community.’ The decision reached by the Court of Session was approved by the House of Lords, 11 Macph.(H.L.) 51, though the Lord Chancellor and the other judges in that tribunal did not consider it necessary to express a view upon the Lord President's statement of the general law upon the subject. I do not, however, find that any doubt was expressed about the soundness of the Lord President's statement as to the right of restitution or repetition where the consideration in respect of which a payment of money has been made has failed. That statement appears to me to be in accordance with the rule of law as stated by Erskine. In Stair, i, 7, 7, occurs this passage—‘The duty of restitution extendeth to those things, quæcadnnt in non causam, which coming war rantably to our hands, and without any paction of restitution, yet if the cause cease by which they become ours, there superveneth the obligation of restitution of them. Whence are the condictions in law, sine causa, and causa data, causa non secuta, which have this natural ground, and of which there are innumerable instances.’

In Davis & Primrose Limited v. The Clyde Shipbuilding and Engineering Company, Limited and Others, 1917, 1 S.L.T. 297, Lord Dewar gave effect to Lord President Inglis's expression of the law as to the obligation of restitution in a case similar to

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the present, and his interlocutor does not appear to have been reclaimed against.

In Penney v. The Clyde Shipbuilding and Engineering Company, Limited, 1919, S.C. 363; 1920, S.C. (H.L.) 68, the Clyde Shipbuilding and Engineering Company (who are also defenders in the present action) had contracted to build a ship for Austrian shipowners. At the outbreak of war a number of instalments, amounting to £79,732, had been paid in respect of the vessel which was nearing completion. The Admiralty requisitioned the vessel on 17th February 1915, as she then stood at the price of £86,000, but this price was not paid until 30th July 1917, and it was then paid without interest. On 1st December 1917 the Board of Trade pronounced an Order vesting the £79,732 with interest from the date of receipt of the instalments in the Custodian for Scotland under the Trading with the Enemy Amendment Act 1911. The Custodian brought an action against the builders, who resisted payment on the ground that in the event which had occurred the ship had been forfeited to them. Alternatively the builders stated two connter claims against the fund. In the Court of Session the pursuer got decree for the amount sued for, reserving all the counter claims of the defenders. In the House of Lords the judgment in favour of the pursuer was affirmed, but decree was given under deduction of such sum, if any, as the defenders could prove to represent loss sustained by them under their first counter claim, i.e. loss caused by the ship occupying a berth in the defenders' yard after the stipulated date of delivery.

The case of Penney is distinguishable from the present inasmuch as the property in the vessel was held under the contract to have passed to the purchasers, but if I am right in the view which I have expressed, the right to repetition equally exists in the present case. The defenders may, however, wish to alter their averments as to their claim, which do not appear to me to be precise. Meantime I shall pronounce an interlocutor in terms of the declaratory conclusions of the summons, continue the cause, and grant leave to reclaim.”

The defenders reclaimed, and argued—It was agreed that the contract was abrogated by the outbreak of war, but this did not mean that the pursuers were entitled to obtain repayment of the instalment. They could only succeed in doing so if the contract had been rendered null ab initio and restitution was possible. The abrogation, however, had merely made performance legally impossible and discharged the parties from further performance. All rights vested or accrued prior to the outbreak of war were valid. The defenders therefore were entitled to retain the instalment, It had been paid on the signing of the contract and partly as a consideration therefor, and the right to it had then vested in defenders— Anglo-Egyptian Navigation Company v. Rennie, (1875) L.R. 10 C.P. 271; Blakeley v. Muller & Company, [1903] 2 K.B. 760, note; Civil Service Co-operative Society. Limited v. General Steam Navigation Company, [1903] 2 KB 756; Krell v. Henry, [1903] 2 KB 740; Chandler v. Webster, [1904] 1 KB 493; Elliott v. Crutchley, [1904] 1 KB 565, [1906] AC 7; Ertel Bieber & Company v. Rio Tinto Company, Limited, [1918] A.C. 260, 55 S.L.R. 784; Penney v. Clyde Shipbuilding and Engineering Company, Limited, 1919 S.C. 363, 56 S.L.R. 258, 1920 S.C. (H.L.) 68, 57 S.L.R. 342. This contention was also supported by Ersk. iii, 1, 10, dealing with the case where the impossibility would not be imputed to the receiver, and by Bell's Dictionary, s.v. condictio causa data causa non secuta. The present case was like Leitch v. Wilson, 1868, 7 Macph. 150, 6 S.L.R. 138. If the instalment here had not been paid the defenders could have sued for it. Leitch v. Wilson was approved in principle and distinguished in Watson v. Shankland, 1871, 10 Macph. 142, 9 S.L.R. 114, per Lord President at 10 Macph. 152, 153, 9 S.L.R. 118, 119. Davis & Primrose, Limited v. The Clyde Shipbuilding and Engineering Company, Limited, 1917, 1 S.L.T. (O.H.) 297, was not an authority in the present case, and the circumstances in Allison v. The Bristol Marine Insurance Company, Limited, (1876) 1 App. Cas. 209, relied on by pursuers, were special. The dictum in Stair, i, 7, 7, upon which the pursuers' case was based, could not be accepted without qualification. It was contrary to the rule periculum rei venditœ nondum traditœ est emptoris—Stair, i, 14, 7, under which, if the loss of the article sold was due to unavoidable accident, the purchaser had to pay the price—Bell's Comm., vol. i, p. 179; Bell's Prin., sec. 87, but the engagement to deliver was discharged. This was contrary to the pursuers' argument. Detached passages from the digest did not help the pursuers; nor did the cases on apprenticeship. This was a very different class of contract and the decisions were not all one way— Shepherd v. Innes, 1760, M. 589; Rule v. Reid's Representatives, 1707, M. 6364. Further, the pursuers could not succeed unless they could show that there was no consideration. On this matter the defenders had been allowed a proof.

Argued for the pursuers—The principle upon which the defenders founded had never been applied in a contract of sale. Here the contract was an agreement to sell specific future goods in terms of the Sale of Goods Act 1893 (56 and 57 Vict. cap. 71), secs. 1 (3), 5 (3), 10 (1), 20, and 62 (1). The underlying principle of sale was the exchange of price for the goods. Every part of the price was part of the purchase price, and no part of the price paid beforehand could be retained if the goods were destroyed before the property had passed to the purchaser. Conditions as to time of payment and delivery were subordinate and could not be presumed to give the seller a right to the price unless he performed his part of the contract. This, however, was what the defenders were claiming. The goods had perished, in respect that they had never been produced, before the property had passed. The pursuers' contention was in accordance with the civil law, which had been closely followed in Scotland. Under that system the contract

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here was an emptio rei speratœ, which was conditional on the thing corning into existence. If it did not there was no right to retain any part of a price paid beforehand—Macintosh, “Roman Law of Sale” pp. 24, 44, and 74; Digest, de contrahenda emptione, xviii, 1, 8, 20, and 35; de periculo et commodo rei venditœ, xviii, 6, 8; locati conducti, xix, 2, 30, 37, 39, and 59; de condictione sine causa, xii, 7, 1, 2, and 4; de condictione causa data causa non secuta, xii, 4, 3, 4, and 5; Pothier Pandectes, vol. 5, 350. The passage in Ersk. iii, 1, 10, relied on by defenders was founded on Roman law which did not apply to a contract such as the present. The law in Scotland as to the passing of property and risk in instalment contracts was illustrated in Seath & Company v. Moore, 1886, 13 R. (H.L.) 57, 23 S.L.R. 495; Reid v. Macbeth & Gray, 1904, 6 F. (H.L.) 25, 41 S.L.R. 369; Barclay, Curie, & Company v. Laing & sons, 1908 S.C. 82, 45 S.L.R. 87. If the subject perished accidentally before the property had passed, there was an obligation of restitution, in respect of advances, based upon failure of consideration—Stair, i, 7, 7; Bell's Prin., sec. 530; Gloag “Contract,” 70, 71. What had accrued was subject to the condition of the contract being performed. Similarly in the contract of locatio conductio operis the maxim res perit domino applied, and so far as the property had passed before the subject perished the contractor would be entitled to payment—Gloag “Contract,” pp. 638, 639; M'Intyre v. Clow, 1875, 2 R. 278, 12 S.L.R. 196; Richardson v. Dumfriesshire Road Trustees, 1890, 17 R. 805, 27 S.L.R. 650. So in the case of freight advances could be recovered if the loss of the vessel was due to excepted risks— Watson & Company v. Shankland, 1871, 10 Macph. 142, 1873, 11 Macph. (H.L.) 51, 9 S.L.R. 114, 10 S.L.R. 450. In England a different rule had developed based on an implied condition that impossibility of performance due to rei interitus excused parties from further performance— Taylor v. Caldwell, 1863, 3 B. & S. 826; Appleby v. Myers, 1867 L. R., 2 C.P. 651; Anglo-Egyptian Navigation Company v. Rennie, 1875 L.R., 10 C.P. 271; Harrison v. Holland, [1922] 1 K.B. 211; Krell v. Henry, [1903] 2 KB 740; Howell v. Coupland, 1876, 1 Q.B.D. 258; Civil Service Co-operative Society, Limited v. General Steam Navigation Company, [1903] 2 KB 756; Blakeley v. Muller & Company, ibid., note, p. 760; Ertel Bieber & Company v. Rio Tinto Company, Limited, [1918] A.C. 260, 55 S.L.R. 784. The contract was good up to the time when the impossibility occurred, and the parties could not go back on what had been previously done or accrued in pursuance of it. This was an arbitrary rule— Chander v. Webster, [1904] 1 KB 493, per Collins. M.R., at p. 499—and was subject to exceptions depending on the circumstances of each case— F. A. Tamplin Steamship Company, Limited v. Anglo-Mexican Petroleum Products Company, Limited, [1916] 2 A.C. 397, 54 S.L.R. 433; Leake on Contracts, 7th ed., p. 518. The earlier English case of Rugg v. Minett, 1809, 11 East 209, in which it was held that past payments could only be retained where the property had passed was in accordance with our law. The difference in the laws in the two countries on this point was also illustrated in cases relating to apprenticeship— Cutler v. Littleton, 1711 M. 583; Ogilvy v. Hume, 1683, 2 Brown's Supplement 34; Ferns v. Carr, 1885, 28 Ch. D. 409. The case of Penney v. Clyde Shipbuilding and Engineering Company, Limited, 1919 S.C. 363, 56 S.L.R. 258, was decided on the ground that the money was a surrogatum in the hands of the sellers for the goods, the property in which had passed, and never raised the point of the present case. The English decisions upon which the defenders relied were not in accordance with the law in Scotland and could not be followed. On the Scotch authorities whatever had accrued had done so subject to the condition that the contract was performed, and the pursuers were therefore entitled to repayment of the instalment as they would have been if the contract had been annulled ab initio. The following cases were also referred to— Duke of Hamilton's Trustees v. Fleming, 1870, 9 Macph 329; Bayne v. Walker, 1815, 3 Dow 233; Stevenson & Sons, Limited v. Aktiengesellschaft fur Cartonnagen-lndustrie, [1918] A.G. 239; Allison v. Bristol Marine Insurance Company, Limited, 1876, 1 App. Cas. 209.

At advising—