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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Fried Krupp Aktiengessellschaft v. Orconera Iron Ore Co., Ltd [1919] UKHL 638 (31 January 1919)
URL: http://www.bailii.org/uk/cases/UKHL/1919/56SLR0638.html
Cite as: [1919] UKHL 638, 56 ScotLR 638
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SCOTTISH_SLR_House_of_Lords
Page: 638↓
House of Lords.
(On Appeal from the Court of Appeal in England.)
(Before the
v.
Subject_Contract — Validity — Alien Enemy — Executory Contract with an Alien Enemy — Suspension or Dissolution.
Facts:
The respondent company was incorporated in England in 1873, the entire share capital being contributed by four ironmasters, one of them now represented by the appellant company. As part of the arrangement made at that time, contracts were entered into by the respondent to supply for a term of ninety-nine years specified amounts of ore at a specified rate to the promoters. The contract provided for its suspension during any period “in which an unavoidable cause shall exist preventing the company from delivering.” The appellant claimed that by this clause the contract though suspended was preserved. Held that on the outbreak of war the contract was dissolved, not suspended.
Eitel, Bieber, & Company v. Rio Tinto Company, [1918] A.C. 260, 50 S.L.R. 784, applied.
Decision of the Court of Appeal, 118 L.T.R. 237, affirmed.
Appeal from an order of the Court of Appeal ( Swinfen Eady and Bankes, L.JJ., and Eve, J.).
The respondents were the plaintiffs in the action, and the appellants and the Public Trustee were the defendants.
The plaintiffs claimed a declaration that an agreement dated the 15th August 1873, made between the plaintiff company and one Alfred Krupp, the predecessor in business of the defendant company, steel and munition manufacturers of Essen, was dissolved by the outbreak of war between Great Britain and Germany on the 4th August 1914, except in respect of the liability of the defendant company to pay for goods already delivered under the agreement.
By the agreement it was provided, inter alia, as follows:—Clause 15—“If by reason of war or civil disturbance the company shall be obstructed or hindered in the raising, getting, or leading away or transport of ore, or the export of ore or its carriage by sea shall be obstructed or hindered so that the company shall be unable in any year calculated until the completion of the railway, from the vesting of the mines and the railway in the company, and calculated after the completion of the railway therefrom, to deliver to Fried Krupp his full and proper quantity of ore according to the arrangement then in force, then (subject to the provisions of art. 6 of these presents) Fried Krupp shall be entitled to receive, and the company shall deliver to him at the full price per ton payable at the time of delivery during the five years next succeeding the cessation of such war or civil disturbance, the amount of ore by which the quantity of ore actually delivered fell short of the full and proper quantity, subject nevertheless to the proviso respecting the making good short deliveries contained in art. 11.” Clause 18—“These presents and everything herein contained (except this present article and art. 23), and all provisions necessary for the settlement of accounts between and the payment and receipt of moneys due to or by the company by or to Fried Krupp, shall cease to have any force during any period of time in which an unavoidable cause shall exist preventing the company from delivering or Fried Krupp from receiving ore, but shall revive and be in full force on the cessation or removal of such cause.”
As it has been presented this is in my judgment a clear case. Four groups of persons interested in iron, of whom the appellants' predecessors in title, a German firm, were one, promoted a company which was incorporated in England in 1873. The objects of the company were, inter alia, to acquire the benefits of two contracts, conveniently known in this litigation as the mines contract and the railway contract. The first of these contracts is concerned with the property in certain mines near Bilbao in Spain; the second with a concession
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The sole question which has been argued before your Lordships is whether the effect of the outbreak of war was to dissolve this contract of the 15th August 1873 or merely to suspend its operation. The question was fairly open to argument until the decision of your Lordships in Eitel, Bieber, & Company v. Rio Tinto Company ( 1918 A.C. 260, 50 S.L.R. 784). Even then, however, it was a noteworthy circumstance that in the books there is no trace of the doctrine that contracts with alien persons who subsequently became enemy are merely suspended and not disrupted by the outbreak of was, and in view of that decision, and of the limited nature of the submissions made to-day, only a single question, in my judgment, remains—Are the appellants able to distinguish the present case on the admitted facts from the ambit of the decision in Eitel, Bieber, & Company v. Rio Tinto Company.
Much of the argument with which the Court of Appeal was troubled has been abandoned before your Lordships, and I may be allowed to point out that had the abandonment been somewhat earlier in date some considerable economy might have been effected in the preparation of the record in this case.
Only a single contention is now before your Lordships. It is said by counsel for the appellants that the conjoint effect of the contract in question and of the memorandum and articles of association, particularly of art. 93, is that the appellants became entitled not merely to a money dividend, but to a dividend in kind—that is, in the language of Mr Compston, to an aliquot portion of the output of the mine. Mr Pollock varies the submission by adopting the metaphor of a partnership; and so it is argued that the contract, in my Lord Dunedin's phrase in the Bieber case, is a concomitant of the rights of property, and as such is not abrogated. I confess that I am wholly unimpressed by this argument. Nothing is gained by calling that a lease which is not a lease, or a partnership that which is not a partnership, and then reasoning from your metaphor as if it were an axiom; and even if this contract could be properly described as “a concomitant of property”—and in my view it cannot be so described—I do not read my Lord Dunedin's language in the Bieber case as I gather that counsel for the appellants desire to read it. Lord Dunedin in his judgment uses the following language—“Further, there are certain contracts, particularly those which are really the concomitants of rights of property, which even so far as executory are not abrogated.” In other words, my Lord points out that when you are dealing with contracts which are really the concomitants of rights of property, these even in so far as their operation lies in the future are not abrogated, but my Lord continues—“In other words, the executory contract which is abrogated must either involve intercourse, or its continued existence must be in some other way against public policy as that has been laid down in decided cases.” My Lord's language there is quite general, and it is used after examining in detail the cases of those contracts which my Lord has pronounced to be “the concomitants of rights of property.”
But it is not necessary to found my view upon this construction, right or wrong, of my Lord Dunedin's judgment, for the reason that in my view this contract is not a concomitant of the rights of property. In unscientific language any contract may be so described, but not in relation to terms which have acquired some degree of technical significance. If, contrary to my view, there were the slightest ambiguity in Lord Dunedin's language the illustration of Halsey v. Lowenfeld ( 1916, 2 K.B. 707) which my Lord adopted, made his meaning indisputably clear. The real truth is, as counsel was driven to admit, that no distinction can be drawn between this contract and any other contract in which the alien enemy before he became an enemy purchased, as naturally happens in business matters, rights for valuable consideration. This conclusion, in my judgment, becomes inevitable as soon as it is conceded that the appellants could have assigned their contractual rights, and that their assignees for consideration would have been able to maintain their contention before your Lordships.
Under these circumstances I confess that I myself should have felt a little doubt in relation to this matter if we approached it as a tabula rasa. But in view of the decision in Eitel, Bieber, & Company v. Rio Tinto Company the matter, in my judgment, as it has been argued before us does not admit of the slightest doubt. The appellants had a valuable contract; they had nothing more. We are not concerned with a precise appraisement of its value. The particular commercial shape which their financial arrangement adopted is in my view an irrelevant circumstance. Nor am I pressed by the contract between the probable duration of the war and the contemplated duration, had there been no war, of the contract. The law as I understand it says that in the facts that have arisen, and for the reasons amongst others given in Lord Dunedin's judgment in Bieber's case, this contract must be dissolved. I will remind your Lordships of the language used by Lord Dunedin in his judgment—language which to some extent was repeated or varied in the judgment of my Lord Sumner. Lord Dunedin says—“Let me now apply this rule to clause 15 on the hypothesis that it does suspend delivery during
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I must add that the answer which was made by Mr Compston to a question put to him by Lord Shaw illustrated very clearly the relevance of the passage which I have just read to the facts of the present case. Lord Shaw asked Mr Compston whether, supposing that the other non-alien parties to this scheme after the outbreak of war had had an opportunity by forward sales of disposing of the whole of the produce of this mine for twenty-five years, accepting the hypothesis of the suspension merely of the contract, their commitments to the appellants would have prevented them from entering into such a contract, and Mr Compston was driven to admit that if this contract was not disrupted but was merely suspended the consequence indicated to him by my Lord would arise. That answer in my judgment made it plain that the submissions of the appellants here must fail. I cannot conceive of an answer which made it more clear that in the language used by Lord Dunedin in the passage which I have just cited the trade of the British subject, and through him the resources of the kingdom, were being hampered and they would be hampered in time of war.
If the law, rightly construed, required the conclusion which I have indicated on grounds which naturally have little relation to the interests of the enemy alien, the duration and value of the contract to the alien enemy become an irrelevant consideration. In this connection, and without thinking it necessary to read them, I refer to the informing judgments of Lord Atkinson and Lord Sumner.
I need only add one further observation in relation to the case of Andrew Millar & Company, Limited v. Taylor & Company, Limited ( 1916, 1 K.B. 402), which was much relied upon by Mr Compston.
It is a familiar principle of English law that the outbreak of war effects no confiscation or forfeiture of enemy property, and it naturally follows from that conclusion that if the property of an enemy be retained and used by a British subject after the outbreak of war, although indeed the reckoning is postponed, the profits which arise from the use of the property of the alien enemy, whatever be the nature of that property, are retained for his benefit although the period at which the benefit can be made effective for him is naturally postponed until the conclusion of peace.
I have carefully read Millar's case, and I can draw little from it which goes further than the doctrine which in general terms I have indicated, and I doubt whether your Lordships will derive much guidance from that case on the present facts.
For these reasons I am of opinion that this appeal should be dismissed, with costs.
The question that arises is whether or no, if this contract be executory in fact as it is in form, it is exempted from the operation of the law as declared in the case of Eitel, Bieber, & Company v. Rio Tinto Company ( 1918 A.C. 260, 50 S.L.R. 784) by reason of the circumstances to which I have made reference.
I find it impossible to understand how those circumstances can affect the principles which lie at the root of that decision. It is perfectly true that in this case money has been spent; it is perfectly true that the declaration of the invalidity of this contract may cause money to be wasted. I think there can be no doubt that whatever happens loss must fall upon the appellants in this case if this contract be declared invalid, which will not be shared by the other three participators in the original adventure. But
Page: 641↓
My Lord Dunedin in expressing the opinion of the House in the case of Eitel, Bieber, & Company v. Rio Tinto Company said this—“…That a state of war between this kingdom and another country abrogates and puts an end to all executory contracts which for their further performance require, as it is often phrased, commercial intercourse between the one contracting party subject of the King and the other contracting party, an alien enemy.…” Lord Atkinson says that the illegality of any transaction as amounting to trading with the enemy does not at all depend upon whether it is profitable or not; and Lord Sumner says that the discharge operates by reason of the common characteristics of international intercourse.
If those are the principles which underlie the opinions in that case—and I hardly think that it was suggested on behalf of the appellants that they are not—then it only remains to be considered whether there is in this contract anything that will require, provided it were unaffected, the continuance of commercial intercourse, and whether there be any foundation in the argument that the contract and all the other documents taken together would effect the equivalent of a partnership and not an ordinary trading bargain.
As to the first point, there can, I think, be no doubt whatever that if the contract be left unaffected commercial intercourse is expressly contemplated, because among other clauses I find by clause 19 that there is provision for the company to keep the usual books of account for the ascertainment of the price of the ore. They are to produce them when called upon; they are to permit any person nominated by Fried Krupp to take extracts and copies; give any explanation which may be required in relation thereto; and in all other respects give every or any other reasonable facility to Fried Krupp and to any person or persons whom he may appoint to ascertain all necessary particulars respecting the ore and the price per ton to be paid by him; and that of course would affect both the ore delivered before the war as any other subsequent deliveries which he might be able to obtain.
It was argued, though indeed I think faintly, on behalf of the appellants that the fact that this mine was in Spain might make some difference. If it made any difference, it would, I think, make a difference adverse to the appellants. It is quite plain that if commercial intercourse is to be carried on, and the focus of the business is to be the centre where the intercourse will take place, it might be much more readily effected when that centre of business was in a neutral country than if it happened to be in one of the countries that were engaged in war.
The other question as to whether or no this contract and all these transactions can be taken to result in there being a partnership the mine, so that there is some interest in property apart from the interest which the contract itself confers, is a matter the argument on which I confess I find it very difficult indeed to appreciate.
It might have been that these parties had they chosen could have so associated themselves with this mine that the interest which each person derived from his expenditure would have resulted in the acquisition of property which this country would certainly not confiscate by reason of war, but they have deliberately selected a form of procedure which has put the ownership of the mines into one separate and distinct legal entity, and has conferred on each of the people who joined together to promote the company nothing except a share interest in the company, which subject to the discretion of the directors in refusing transfers they are at liberty to deal with, and the interest in the contract, which subject to difficulties in assigning a contract of this character they are at liberty to assign.
For these reasons I think this contract is indistinguishable from the contract that arose for consideration in the case of Eitel, Bieber, & Company v. Rio Tinto Company.
I feel that in this decision there may be involved the sacrifice of great pecuniary interests in the case of the appellants. That certainly is not the purpose or intent of any such decision as has been given in these cases, and it has been said again and again that this country does not confiscate enemy property in this country owing to a state of war, but that all the courts engage to the best of their power in administering justice, equal and even handed, both as between subject and subject and as between subject and foe.
The question that might have remained for consideration was whether, having regard to the nature of this very special contract which has a duration for ninety-nine years, the fact that its performance could not take place so long as the war lasted put an end to the contract altogether. Now I should, I confess, have desired to hear that question argued, but the learned counsel for the appellant took the view that the point was not open to him, having been decided against him by Eitel, Bieber, & Company v. Rio Tinto Company, 1918 A. C. 260, 50 S. L. R. 784. I do not think that that case either decided or could have decided anything of the kind. In Bieber's case all the contracts were short commercial contracts, and it is perfectly obvious that to prevent performance of such a contract during the existence of the war would have totally altered its nature. Where there is a contract for three or five years, as I think were the periods in Bieber's case, it is perfectly obvious that if war breaks out and you say, and say as you must say, that
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The only other matter I should like to add is that the comments of the Master of the Rolls on the meaning of certain expressions used by me in my speech in Bieber's case are entirely in accordance with what I intended to convey.
Now I think that this case is covered by Bieber's case. I had the honour of being a party to that decision, and dealt with some of the matters in the judgment which I delivered. I deny altogether that my noble friend Lord Dunedin ever said that every executory contract should be declared void; on the contrary, he went on to point out that some executory contracts are not to be declared void at all for the very good reason that they may neither involve communication with the enemy nor trading with the enemy.
But it is sought to defend this contract by bringing it within the principle of Hugh Stevenson & Sons v. Aktiengessellschaft fiir Cartonnagen-Industrie ( 1918 A.C. 239), where it was decided that if an alien has property in this country, that property and the fruits which may arise from it are not to be confiscated but preserved for him until the end of the war, and it is said that the interest and status which the Messrs Krupp have acquired in this company, and the interest of the shareholders, is property of an analogous kind, and that the fruit of that property is these contracts, and therefore the property and that fruit must be preserved for them till after the war. I do not think that these contracts that he is enabled to make and has the right to make by reason of his interest in the corporation and his status in it can be at all considered to be the fruits of property within the meaning of Stevenson's case and of the other cases dealt with; but I go further and say that in my humble judgment if they are the fruits of his property, inasmuch as they are executory contracts to be carried out by sending goods to a firm which has become an enemy alien, fruit of that kind is vicious fruit which cannot be preserved till the end of the war for any enemy alien. That is my humble opinion. I therefore think the judgment in this case was perfectly right and should be upheld.
I am of opinion that the whole of this question of suspension has been already sufficiently dealt with in this House in
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Then what did the argument come to? Here is an executory contract. Under this executory contract the firm of Krupp obtains a certain right to a certain quantity of the product of a mine at Bilbao. The terms of that contract are that it shall, using only one of the arithmetical figures quoted, pay the costs of extraction of the ore, and the other incidental costs of management, and 1s. 9d. per ton over and above. Compared with the prices realisable since the war began, or presumably realisable in the ordinary commercial market, Messrs Krupp thus obtained an advantage of £45,000 a-year. I now ask with regard to this commercial contract, what did it come to in reference to the proposition that was put forward, that this advantage of Messrs Krupp was in some respects allied in nature to property? There are two meanings of the argument presented; there is a proper meaning and an improper meaning. The proper meaning of such an argument with regard to property is that alluded to by my noble and learned friend opposite, Lord Buckmaster; it is a meaning which repudiates as any part of the jurisprudence of this country the approbation of confiscation of property. That meaning may be expressed thus—that at the end of the war the property of a partner who happened to be an enemy alien, with the accrued profits on his share in a partnership, shall be restored to him if the conditions of peace between the enemy powers do not forbid that transaction and do not interfere by a specific and different arrangement with that result. That seems to be perfectly sound and I assent to it; but the other and dangerous, and as I think wrong, proposition is this—it may mean that at the end of the war, under this appeal to “property,” the contractual arrangement between the parties as to, inter alia, the property, or yield of property, belonging to the adventure shall be resumed, and so in this way the enemy alien's post-war advantage shall, roughly, be the same as his prewar advantage. Taken in the concrete, that would, accordingly, result after the war in the Messrs Krupp being put in this position, that notwithstanding high prices ruling in the markets of the world for this Spanish iron ore, they could found upon this executory contract which had been disrupted for a long and indefinite period by the war, and found upon it to their advantage as if it had been resumed afresh by the parties to the contract. In commerce that could not work. Your Lordship on the Woolsack has been good enough to allude to the illustration which was given. This business of selling iron ore to the advantage of all the partners, including Messrs Krupp, must be continued; it turns out from our experience within the covers of this record that long leases, and long advantages in point of time, may be given with regard to price; and I therefore assume a forward contract price, say for a period of twenty years. In such a case it is perfectly clear that during the currency of the war—and that is an important consideration—the hands of the remanent and British members of this firm would be tied by this embarrassing consideration producing a commercial impossibility, that by making a forward contract they would interrupt—so the argument would seem to be—the rights which would de jure arise at the conclusion of the war to Messrs Krupp, and so an impasse of a commercial character, difficult to describe, difficult to foreshadow, but making commerce almost impossible, would be produced. There is that consideration.
There is this further consideration, that if this valuable asset, capable of again springing into being, exist on the part of Messrs Krupp, it is not an inconceivable thing that the enemy alien would during the war receive the greatest advantage. Any banker in Amsterdam, upon an assignment of that prospective and eventual interest, might have advanced millions of money on this contract, and the advantage of Germany would thus have been that under the doctrine now contended for there would during the currency of the war itself have been produced financial advantage to the very enemies against whom the rule with regard to enemies is directed.
I have thought it right separately to make these observations because of one thing. I was not a party to the decision in Bieber's case, but the separate consideration, and that separate route which I have trod, seem
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I express my concurrence with my noble friends Lord Dunedin, Lord Atkinson, and the other noble Lords, and I put in particular this consideration before the House, that now this case has been decided it shall not be open hereafter to challenge the expansive and general authority of the Bieber case, defended, as in my view it is, by those other considerations with which I have ventured to trouble the House.
Appeal dismissed with costs.
Counsel for the Appellants— Compston, K. C.— Dighton Pollock. Agents— Nicholson, Graham, & Jones, Solicitors.
Counsel for the Respondents— L. Scott. K.C.— H. G. Wright. Agents— Bircham & Company, Solicitors.
Counsel for the Public Trustee— Austen-Cartmell. Agents— Coward & Hawksley, Sons, & Chance, Solicitors.