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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Metropolitan Water Board v. Dick, Kerr, & Co., Ltd [1917] UKHL 537 (26 November 1917)
URL: http://www.bailii.org/uk/cases/UKHL/1917/55SLR0537.html
Cite as: 55 ScotLR 537, [1917] UKHL 537
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SCOTTISH_SLR_House_of_Lords
Page: 537↓
House of Lords.
(On Appeal From The Court of Appeal in England.)
(Before the
v.
Subject_Contract — War — Rescission — Impossibility of Fulfilment.
Facts:
In July 1914 the appellants contracted with the respondents, a firm of contractors, for the construction of a reservoir
Page: 538↓
which was to take six years to build. The work was started, but in February 1916 the Minister of Munitions ordered it to cease and requisitioned part of the plant. Work was accordingly stopped, but the appellants claimed that the contract subsisted, and this action was brought to determine the question. Held that the interruption was of such a character and duration as fundamentally to change the conditions of the contract, and could not have been in the contemplation of the parties to the contract when it was made. Accordingly the contract had ceased to be operative. Decision of the Court of Appeal ( 1917, 2 K.B. 1) affirmed.
At delivering judgment—
The action was begun by the Metropolitan Water Board by writ dated the 19th May 1916 against the contractors, and the statement of claim asked for a declaration that the contract is still in existence as a binding contract and had not been determined. The defence alleges that notice from the Ministry of Munitions, dated the 21st February 1916, was given in exercise of the powers conferred by the Defence of the Realm Acts and the regulations and orders made thereunder, and that the notice required the contractors to cease work on their contract and that they ceased work accordingly. The defence went on to allege that thereby the contract ceased to be binding.
The case was tried by Bray, J., who gave judgment for the Metropolitan Water Board, holding that the notice should have been dealt with under the terms of the contract by an extension of time for the completion of the contract, and that the contract was still in existence. On appeal, this decision was reversed by the Court of Appeal, consisting of Lord Cozens-Hardy, M.R., and Warrington and Scrutton, L.JJ. The appellants by the present appeal ask that the decision of Bray, J., should be restored.
The contract was one for the construction of extensive reservoirs and other works near Staines, the respondents' tender being accepted by the appellants on the 24th July 1914. The decision of Bray, J., in favour of the appellants was rested by him upon the thirty-second condition of the contract, which is in the following terms:—“The contractor shall complete and deliver up to the board the whole of the works necesary to allow the western reservoir to be filled and brought into use, and shall complete the removal of all temporary works, plant, and surplus material as may in the opinion of the engineer be necessary to enable this to be done, within a period of four years from the date of the engineer's written order to commence the works, and the contractors shall complete and deliver up to the board the whole of the works comprised in this contract and shall complete the removal of all temporary works, plant, and surplus material within a period of six years from the date of the engineer's written order to commence the works. The whole of the works to be delivered up complete in every respect in a clean and perfect condition. Provided always that if by reason of any additional works or enlargements of the works (which additions or enlargements the engineer is hereby authorised to make), or for any other just cause arising with the board or with the engineer, or in consequence of any unusual inclemency of the weather, or general or local strikes, or combination of workmen, or for want or deficiency of any orders, drawings, or directions, or by reason of any difficulties, impediments, obstructions, oppositions, doubts, disputes, or differences, whatsoever and howsoever occasioned, the contractor shall, in the opinion of the engineer (whose decision shall be final), have been unduly delayed or impeded in the completion of this contract, it shall be lawful for the engineer, if he shall so think fit, to grant from time to time, and at any time or times by writing under his hand, such extension of time either prospectively or retrospectively, and to assign such other day or days for or as for completion, as to him may seem reasonable, without thereby prejudicing or in any manner affecting the validity of the contract, or the adequacy of the contract price, or the adequacy of the sums or prices mentioned in the third schedule; and any and every such extension of time shall be deemed to be in full compensation and satisfaction for, and in respect of, any and every actual or probable loss or injury sustained or sustainable by the contractor in the premises, and shall in like manner exonerate him from any claim or demand on the part of the board for and in respect of the delay occasioned by the cause or causes in respect of which any and every such extension of time shall have been granted, but no further or otherwise, nor for or in respect of any delay continued beyond the time mentioned in such writing or writings respectively.”
Bray, J., held that this condition applied, and that the prohibition by the Minister of Munitions should have been dealt with by an extension of time under it. The Court of Appeal, on the other hand, held that the prohibition issued in consequence of the war rendered the prosecution of the works illegal for a period of indefinite duration, and must be treated as having put an end to the contract.
The date of commencement of the works was fixed by the engineer as being the 16th August 1914. The war broke out on the 4th August 1914, but the works under the contract proceeded. On the 10th May 1915 the nature of the works was varied and the amount of payment increased by a supplemental contract of that date. In spite of
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In my opinion the decision of the Court of Appeal was right.
It is admitted that the prosecution of the works became illegal in consequence of the action of the Minister of Munitions. It became illegal on the 21st February 1616 and remains illegal at the present time. This is not a case of a short and temporary stoppage, but of a prohibition in consequence of a war, which has already been in force for the greater part of two years, and will according to all appearances last as long as the war itself, as it was the result of the necessity of preventing the diversion to civil purposes of labour and material required for purposes immediately connected with the war. Condition 32 provides for cases in which the contracter has, in the opinion of the engineer, been unduly delayed or impeded in the completion of his contract by any of the causes therein enumerated or by any other causes, so that an extension of time was reasonable. Condition 32 does not cover the case in which the interruption is of such a character and duration as vitally and fundamentally to change the conditions of the contract, and which could not possibly have been in the contemplation of the parties to the contract when it was made.
It was not disputed, as I understand the arguments for the appellants, that in the case of a commercial contract, as for the sale of goods or agency, such a prohibition would have brought it to an end. It was sought to distinguish the present case on the ground that the contract was for the construction of works of a permanent character, which would last for a very long time, and that a delay, even of years, might be disregarded. This contention ignores the fact that though the works when constructed may last for centuries, the process of construction was to last for six years only. It is obvious that the whole character of such a contract for construction may be revolutionised by indefinite delay such as that which has occurred in the present case in consequence of the prohibition.
The House is greatly obliged to Mr P. O. Lawrence for his very able and exhaustive analysis of the authorities. I do not think it necessary to examine these authorities in detail, as the principle applicable in such cases has been often laid down and is well established. I will only refer to the judgment of the Queen's Bench delivered by Hannen, J., in Baily v. De Crespigny, (1869) L.R., 4 Q.B. 180, especially at pp. 185–186, and to the judgment of Rowlatt, J., in Distington Hematite Iron Company v. Possehl & Company, [1916] 1 K.B. 811. The contract in the present case was for the completion and handing over of these works within six years from the 16th August 1914. The effect of the prohibition may be that the works cannot be resumed until at all events the greater part of the six years has expired, and by that time all conditions as regards labour and materials may be absolutely different. This, in the words of Rowlatt, J., at p. 814, would be “not to maintain the original contract, but to substitute a different contract for it.” The difference of opinion in Horlock v. Beal, [1916] A.C. 486, 53 S.L.R. 795, and Tamplin Steamship Company, Limited v. Anglo-Mexican Petroleum Products Company, Limited, 1916, 2 A.C. 397, 54 S.L.R. 433, was not so much upon principle as in the application of the principle to the particular cases. The case of Hadley v. Clark, (1799) 8 T.R. 259, cannot be relied upon as an authority.
In my opinion this appeal should be dismissed with costs.
The general law on the subject of what supervening event will excuse the performance of a contract has been so recently dealt with in elaborate opinions in your Lordships' House in the cases of Horlock v. Beal, [1916] 1 A.C. 486, 53 S.L.R. 795, and Tamplin Steamship Company, Limited v. Anglo-Mexican Petroleum Products Company, Limited, [1916] 2 A.C. 397, 54 S.L.R. 433, that I think it would be useless again to review the past authorities in any detail. It is true that in Tamplin's case there was a narrow majority in favour of the judgment pronounced, but after a careful cousideration of the opinions delivered I have come to the conclusion that there was no difference in the opinions of the majority and of the minority in the principles of law applicable to such cases, those principles having already been expressed in Beal's case, but that the only difference lay in their application to the facts of the case then under consideration.
I shall content myself with one quotation from the opinion of one of the majority. Earl Loreburn points out that in all cases it must be said that there is an implied term of the contract which excuses the party, in the circumstances, from performing the contract, and then continues—“It is in my opinion the true principle, for the Court can have no absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted.” He further points out that the particular ratio decidendi in various cases is sometimes put thus, that performance has become impossible, and that the party concerned did not promise to perform an impossibility; sometimes it is put thus, that the parties contemplated a certain state of things which fell out otherwise.
Now a subsequent law may be the cause of an impossibility, whether by actually forbidding an act undertaken in the contract—which is the direct meaning of illegality—or whether by means of taking away something from the control of the party, as to which thing he had contracted to do or not to do something else. An example of
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But to make what I may call a clean case of illegality the illegality must be permanent. The appellants here say that the illegality of working on the reservoir is only temporary and will some day be withdrawn, and they seek to liken it to the interruption of the contract of affreightment in Tamplin's case, which they say was held by the majority to be only temporary, or at least not proved to be permanent. I shall revert to Tamplin's case, but I should like first to point out that I think the appellants rather mistake the effect of the force of legislation in the present case. The order pronounced under the Defence of the Realm Act not only debarred the respondents from proceeding with the contract, but also compulsorily dispersed and sold the plant. It is admitted that an interruption may be so long as to destroy the identity of the work or service when resumed with the work or service when interrupted. But quite apart from mere delay it seems to me that the action as to the plant prevents this contract ever being the same as it was. Express the effect by a clause. If the Water Board had, when the contract was being settled, proposed a clause which allowed them at any time during the contract to take and sell off the whole plant, to interrupt the work for a period no longer than that for which the work has actually been interrupted, and then bound the contractor to furnish himself with new plant and recommence the work, does anyone suppose that Dick, Kerr, & Company or any other contractor would have accepted such a clause? And the reason why they would not have accepted it would have been that the contract when resumed would be a contract under different conditions from those which existed when the contract was begun. It may be said that it is possible that plant may be cheaper after the war. But no one knows, and the contractor is not bound to submit to an aleatory bargain, to which he has not agreed. It will also be kept in mind that the contract was a measure and value contract. The difference between the new contract and the old is quite as great as the difference between the two voyages in the case of Jackson v. Union Insurance Company, L.R., 10 C.P. 125.
I return to Tamplin's case, to show that the views of the majority (for obviously I need not deal with those of the minority) were based upon circumstances which find no proper analogy in the circumstances here. In the first place the person who wanted the contract declared at an end was the owner. The charterer, notwithstanding what had happened, was content to go on paying the hire and to refrain during the period while the Government were in possession of the ship, from demanding any services from the owners. Under the contract, as Lord Parker put it, “The owners are not concerned in the charterers doing any specific thing beyond the payment of the freight as it falls due.” That payment the charterers, as I have already said, were ready to make. The reason no doubt was that they had already got or thought they would get from the Government a larger sum of money than they had to pay to the owners. So that one view that I think ran through the opinions of the majority was this—no one was hurt by the continuance of the charter, and if the Government relinquished the ship there was no reason why the charter should not be effective for the remaining period of its duration, which might be considerable. But suppose the facts had been slightly different. Suppose the Government had taken the ship and had said they would pay nothing—a proceeding within their powers—and then suppose that the owner had sued the charterer for the hire during the period while the Government kept the ship. What then? I may be wrong, but it seems to me it would have fallen within the lines of Horlock v. Beal.
There was another ground of judgment in Tamplin's case, and as I read it this was the real ground of Lord Parker's opinion, in which the Lord Chancellor concurred. There was a special exemption clause which contained, inter alia, “restraint of princes.” The facts fell within that description, and then, said Lord Parker, you cannot have an implied condition which will contradict an express condition. The same argument was attempted here. The appellants appealed to section 32, which has been already quoted. It is enough for me to say that the words “or by reason of any difficulties, impediments, obstructions, oppositions, doubts, disputes, or differences whatsoever and howsoever occasioned” only deal in my view with more or less temporary difficulties and do not cover a set of occurrences which would make the contract when resumed a really different contract from the contract when broken off. The argument from Tamplin's case therefore in my opinion fails in application.
On the whole matter I think that the action of the Government, which is forced on the contractor as a vis major, has by its consequences made the contract if resumed a work under different conditions from those of the work when interrupted. I have already pointed out the effect as to the plant, and the contract being a measure and value contract the whole range of prices might be different. It would in my judgment amount if resumed to a new contract, and as the respondents are only bound to carry out the old contract and cannot do so owing to supervenient legislation they are entitled to succeed in their defence to this action.
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He says that an examination of the authorities confirmed him in the view that where the courts have held innocent contracting parties absolved from further performance of their promises it has been on the ground that there was an implied term in the contract which entitled them to be absolved; that sometimes it was put that the performance was impossible or impracticable; sometimes that the parties contemplated a certain state of things which fell out otherwise; that in most of the cases it was said that there was an implied condition in the contract which operated to release the parties from performing it; that in all of them this last-named was, he thought, the principle on which the courts proceeded; and that it was in his opinion the true principle, it being left to the Court not to absolve but to infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was the foundation upon which the parties contracted.
Lord Loreburn proceeded to say that where the question arose in regard to commercial contracts, as happened in the three cases he named, the principle was the same, and the language used as to “frustration of the adventure” merely adapted it to the cases in hand; that in these three cases it was held, to use the language of Lord Blackburn, “that a delay in carrying out a charter-party, caused by something for which neither party was responsible, if so great and long as to make it unreasonable to require the parties to go on with the adventure entitled them, at least while the contract was executory, to consider it at an end;” that this, however, was only another way of saying that from the nature of the contract it could not be supposed the parties, as reasonable men, intended it to be binding on them under such unreasonable conditions. So far, I think, there is no substantial conflict between this judgment and the judgments of the minority as to the principle of law applicable to the case. Lord Loreburn then examines the facts, and said that if the interruption could be pronounced, in the language of Lord Blackburn so great and long as to make it unreasonable to require the parties to go on, then it would be different. Both of them must have contracted on the footing that such an interruption as that would not take place, and that he would imply a condition to that effect, but that, taking into account all that had happened, he could not infer that the interruption either had been or would be in that case such as made it unreasonable to require the parties to go on. He added that there might be many months during which the ship would be available for commercial purposes before the five years expired. He says the question to be answered is—“Ought we to imply a condition in the contract that an interruption such as this excuses the parties from further performance of it? I think not. I think they took their chance of lesser interruptions, and the condition I should imply goes no further than that; they should be excused if substantially the whole contract became impossible or, in other words, impracticable by some cause for which neither was responsible.” It will be observed that Lord Loreburn does not say or, I think, suggest, that there is any difficulty in applying the principle he lays down to a time charter, while the only reference he apparently makes to the clause in the charter-party in referring “to the restraint of princes” is contained in the expression “I think they took their chance of lesser interruptions.”
Lord Parker does not, I think, in his judgment differ as to the general principle. He says—“The principle is one of contract law depending on some term or condition to be implied in the contract itself and not something entirely dehors the contract which brings the contract to an end. It is, of course, impossible to imply in a contract any term or condition inconsistent with its express provisions or with the intention of the parties as gathered from those provisions.”
However, he quotes the twentieth condition of the charter-party, referring to the restraint of princes, and says that he has no doubt that the requisitioning of the steamship by His Majesty's Government was “a restraint of princes” within the meaning of that condition, and proceeds—“The parties therefore have expressly contracted that for the period during which by reason of such restraint the owners are unable to keep the ship at the disposition of the charterers the freight is to continue payable and the owners are to be free from liability. This period might be long or short. It may be certain or indefinite. It may occur towards the beginning or the end of the term of the charter-party. The result is to be the same, unless indeed the circumstances are such that the ship could be said to be lost within the meaning of condition 19.” He added—“Moreover (and it seemed to him the vital point), the charter-party does not contemplate any definite adventure or object to be performed or carried out within reasonable limits of time so as to justify a distinction being drawn between delays which may render such adventure impossible and delays which may not.”
Lord Parker then proceeds to say that it was difficult, if not impossible, to frame any condition by virtue of which the contract of the parties would be at an end without contradicting the express provisions of the contract and defeating the intention of the parties as disclosed by those provisions. He said the nearest he could get to it would be by a proviso to condition 20, which he sketched, but that even this contradicted the provisions of condition 20. He then winds up by saying that, having
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That being so, I have no doubt that it was the manifest intention of both parties to this contract that they should, without any default on their respective parts, be left substantially free to exercise the rights and discharge the obligations the contract conferred and imposed upon them; that the continued existence of that freedom of action till the contract was performed must have been in their contemplation as the very foundation of it at the time they entered into it; and that to give effect to that intention a condition should by implication be read into the contract to the effect that the obligation to perform it should cease if by vis major—such as the action of the Executive Government of this country—they should be deprived to a very substantial extent of their freedom of action. Well, the respondents have been for a considerable time deprived of all freedom of action. The Executive Government, acting no doubt legally and within their powers, have for objects of State made it illegal and impossible for the respondents to do that which, in the belief that their freedom of action would not be invaded, they promised to do. No one can tell how long it may continue to be invaded. In my opinion they are entitled to be absolved
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The respondents proceeded with the work under both contracts until the 21st February 1916. On that date a letter was sent to both parties that the Minister of Munitions had found it necessary to give directions for the cessation of the work. In accordance with this letter the work ceased to be carried on, and subsequently the plant employed was largely removed to government works on the instruction of the Ministry of Munitions. The contention of the appellants is that the order of the Ministry did not affect the validity of the contract, and on the 19th May 1916 they issued a writ claiming a declaration that the contract was still in existence as a binding contract between the parties. At the trial Bray, J., holding that the delays and impediments created by the stoppage of the work were not so great as to render the completion of the contract physically impossible or commercially impracticable, and that the order of the Ministry fell within the proviso of clause 32 of the conditions of the contract, made a declaration that the contract had not been abrogated or determined, and further granted an injunction restraining the respondents from removing any of the plant, tools, or materials on the site at the date of the said judgment, or from receiving the proceeds either of such as had been removed or which might thereafter be removed. This order was discharged in the Court of Appeal without prejudice to any question between the parties not raised by the pleadings in this action. It is against this order that the appeal has been brought to your Lordships House.
The question of principle involved in the consideration of this appeal has been recently considered in your Lordships' House in the cases of Horlock v. Beal, and Tamplin Steamship Company v. Anglo-Mexican Petroleum Products Company, Limited. The difficulty arises not so much in the statement of principle as in its application to particular cases. It is under this head that some difference of opinion has arisen. The question is one of contract law, and the decision in each case depends on the ascertainment of the true meaning of the bargain between the parties. If the parties have provided by apt words in the contracts for their mutual rights or liabilities in the event of the contract works being stopped or indefinitely hindered by the operation of a subsequent law, and such provision is not contrary to public policy, then it would be the duty of any court to give effect to such provision. If, on the other hand, the contract contains no provision for such a contingency as the interference of the Legislature, then the court must determine whether this contingency is of such a character that it can reasonably be implied to have been in the contemplation of the parties at the date when the contract was made. Care must always be taken not to imply a condition which would be inconsistent with the expressed intention of the parties. In the present case the judgment of Bray, J., largely depends on his opinion that the parties expressly provided for the contingency which has occurred under sec. 32 of the original contract. I am unable to assent to this construction. The contract is one substantially in common form where works of this character are to be carried out in a fixed time, subject to payment on the basis of measure and value. It is usual in such a contract to authorise the engineer at his discretion in certain events to grant by writing under his hand such extension of time as to him may seem reasonable without thereby prejudicing or in any way affecting the validity of the contract. In the present contract the engineer has authority to give extension of time if in his opinion the completion of the contract has been unduly delayed or impeded “by reason of any additional works or enlargements of the works (which additions or enlargements the engineer is hereby authorised to make), or for any other just cause arising with the board or with the engineer, or in consequence of any unusual inclemency of the weather, or general or local strikes or combination of workmen, or for want or deficiency of any orders, drawings, or directions, or by reason of any difficulties, impediments, obstructions, oppositions, doubts, disputes, or differences, whatsoever or howsoever occasioned.” This language is no doubt wide, and the general words may be large enough to include the contingency of legislative interference stopping the works or postponing their erection
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It is necessary, therefore, for your Lordships to consider what is to be implied as the intention of the parties to the bargain, having regard to the terms of the contract and the nature of the work to which the contract applies. It is not necessary to go through the terms of the contract in any detail. No special provision was called to the attention of your Lordships which would in principle differentiate this contract from an ordinary measure and value contract, in which a definite time is fixed for completion, subject to a clause allowing extension of time in certain events at the discretion of the engineer. What is the real meaning and purport of such a contract? It is that works shall be carried out at prices fixed with reference to the then outlook for cost of labour, plant, and material, spread over a defined limit of time, which could not fail to affect materially the figures inserted by any contractor in sending in his tender. The same considerations would affect the appellants in coming to a determination whether a tender should or should not be accepted. During the execution of such a contract a contingency arises by the intervention of the Legislature, or of a department authorised by the Legislature, which renders the further continuance of the execution of the works illegal for a substantial and indefinite time, and which causes the removal of a large portion of the plant employed to Government works or for Government purpose. I use the word “indefinite,” since there is no certainty of the time of the duration of the war of which judicial cognisance can be taken. Can it be said that a risk of this kind was in the contemplation of either party at the date of the contracts? The necessary implication appears to me to be that it is a risk which no contractor would contemplate to be a risk under his contract, and which no public body, controlling public funds, could have regarded as a possibility affecting their liability in the absence of express provision. It is not necessary to say that the works are not physically possible or could not practically be carried out as a business adventure at a subsequent date. I agree that the probability of hardship on one side or the other is not a matter of material consideration, but it is quite a different matter when there is an indefinite and indeterminate liability which might impose on either party an unforeseen burden totally foreign to the ordinary incidents in a contract of this character, or which might not improbably eventuate in a loss to both parties without any compensating advantages. In my opinion the original contracts have ceased to be operative. It may well be that at some future period the various works will be executed, but it will be under a different contract based on changed considerations. All the prices will have to be fixed in reference to different conditions, and the time over which the work will be carried on will be wholly different. It is no answer that the engineer has certain powers over prices and time. These powers are incident to the original contracts, and were never intended to give the engineer a power to make new contracts binding either on the respondents or the appellants. I would desire in this connection to quote a passage from the opinion of Lord Atkinson in the Tamplin case—“There is here involved such a substantial invasion of that freedom of both parties to exercise the rights and discharge the obligations secured to and imposed upon them by the charter, the continued existence of which must necessarily have been in their contemplation as to the foundations of their contract when they entered into it, that in the events which have happened each of them is now entitled to treat it as at an end.” This passage is applicable to a case like the present, where the continued erection of the contract works has been rendered illegal and the freedom of both parties has been directly invaded by the operation of law.
Many cases were called to the attention of your Lordships during the hearing of the appeal, but I think it is only necessary to refer to one of these in a case depending on illegality. I refer to the case of Baily v. De Crespigny, L.R., 4 Q.B. 180, a leading case in the principles applicable where land is taken for public purposes under a private Act of Parliament. In this case it was held that the defendant was discharged from a covenant by a subsequent Act of Parliament which compelled him to assign to a railway company, and so put it out of his power to perform the covenant on the principle that lex non cogit ad impossibilia. I think that the reasoning contained in the judgment of Hannen, J., is applicable to the present case, and that the law will not enforce the fulfilment of a contract where the Legislature has introduced substantial and indefinite limitations which the parties cannot be held to have contemplated when making the contract. “There can be no doubt that a man may, by an absolute contract, bind himself to perform things which subsequently become impossible, or to pay damages for the non-performance, and this construction is to be put upon an unqualified undertaking where the event which causes the impossibility was or might have been anticipated and guarded against in the contract, or when the impossibility arises from the act or default of the promissor. But where the event is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, they will not be held bound by general words which
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In my opinion the appeal fails and should be dismissed with costs.
Their Lordships dismissed the appeal with expenses.
Counsel for the Appellants— Lawrence, K.C.— Gregory, K.C.— Goodland. Agent— Walter Moon, Solicitor.
Counsel for the Respondents— Upjohn, K.C.— Hon. F. Russell, K.C.— Sir E. Pollock, K.C.— Hogg, K.C. Agents— Linklater, Addison, & Brown, Solicitors.