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James B. Fraser and Co. Vs. Denny, Mott and Dickson - Court Judgment

LegalCrystal Citation
CourtHouse of Lords
Decided On
Case Number[1944] UKHL 3
AppellantJames B. Fraser and Co.
RespondentDenny, Mott and Dickson
lord chancellor(viscount simon).—this appeal raises once again the question, which has been so often discussed and decided in the "frustration" cases arising out of the last war and now also out of the present war, whether a particular contract, entered into before the war, has been brought to a premature conclusion by war regulations which render illegal, and therefore prevent, the due performance of some of the obligations or the due enjoyment of some of the rights under the contract. the decision in the present case depends on the application of principles already well settled, and in my view, the conclusion reached by the majority of the inner house, reversing that of the late lord robertson, is correct. of the various opinions of the majority, that of lord wark expresses with.....

LORD CHANCELLOR(Viscount Simon).—This appeal raises once again the question, which has been so often discussed and decided in the "frustration" cases arising out of the last war and now also out of the present war, whether a particular contract, entered into before the war, has been brought to a premature conclusion by war regulations which render illegal, and therefore prevent, the due performance of some of the obligations or the due enjoyment of some of the rights under the contract. The decision in the present case depends on the application of principles already well settled, and in my view, the conclusion reached by the majority of the Inner House, reversing that of the late Lord Robertson, is correct. Of the various opinions of the majority, that of Lord Wark expresses with great clarity the course of reasoning which has led me to the view that that appeal should be dismissed. [His Lordship gave the narrative of facts quoted supra, and continued]—

The question is whether, in the circumstances that have happened, the appellants can by these means acquire the timber yard and make it their own property. The conclusion of the majority of the Second Division (the Lord Justice-Clerk, Lord Mackay and Lord Wark, Lord Jamieson dissenting) was that they could not, and I entirely agree with that view.

The option of purchase conferred by clause 8 on the appellants only arises "in the event of the foregoing trading agreement being terminated by either party as aforesaid" (i.e., by notice under clause 5). If, therefore, the agreement had already been terminated by intervening events such as the war regulations above referred to, and its further performance had been frustrated by supervening illegality, the basis upon which the option might have been exercised by the appellants had ceased to exist. The termination by either party to which clause 8 refers is the termination of the agreement when it is alive and operative, but the notice of termination in the appellants' letter of 17th July refers to an agreement which has already been brought to an end by supervening events.

This view of the case really concludes the matter; but I should mention two arguments which have been urged by the appellants against the inevitable result. The first is that the contract is, as the Lord Ordinary described it, "of a composite character," with the result that the part dealing with the sale and purchase of timber might be terminated by frustration without the part dealing with the option to buy the land being brought to an end. This contention breaks down upon an examination of the terms of the agreement. It is one agreement, and, as already pointed out, the exercise of the option as to the land depends upon the termination of the purchase agreement arising by notice from either party. The other contention was that the substantial purpose of the whole agreement was to provide the option, and that the trading clauses were quite subsidiary, so that the contract survived as a whole, and advantage could still be taken of the option clause. It is, undoubtedly, true that the principles upon which frustration depends require the contract to be examined as a whole, and it may be that the supervening impossibility of fulfilling some minute provision may not be regarded as going to the length of preventing substantial performance of the contract as a whole. If Leiston Gas Co. v. Leiston-cum-Sizewell Urban District Council was rightly decided, that case would furnish an instance. But, on the facts of the present case, there is no room for the application of such an argument. The preamble of the contract indicates, and the language of most of its clauses shows, that the trading in timber was the main object of the contract. This trading was frustrated, and the opportunity for exercising the option thereupon lapsed.

I move that the decision of the Court of Session be affirmed, and that the appeal be dismissed with costs.

LORD THANKERTON.—I agree with the opinion of my noble and learned friend on the Woolsack, and I have little to add. Counsel for the appellants found himself unable to support the view taken by the Lord Ordinary, that there were in substance two separable agreements. Counsel was rightly impressed by the opening words of clause 8 of the agreement, which makes the termination of the trading agreement under clause 5 a condition precedent to the arising of the option to purchase the timber yard, but it seems to me that it is equally difficult—for the same reason—for the appellants to maintain that the provisions of clauses 8 and 9 were not ancillary to the trading agreement. If so, it only remains to consider whether, in the words of Lord Loreburn in F. A. Tamplin Steamship Co. v. Anglo-Mexican Petroleum Products Co., the discontinuance of the trading agreement admittedly caused in the present case was such as to upset altogether the purpose of the trading agreement, and I agree with my noble and learned friend that the purpose of the trading agreement was so upset, and that the opportunity for exercising the option lapsed. I agree with the proposed motion. I may add that it is not necessary in this appeal to consider the consequences arising out of the defeat of the contract, as to which it may be suggested that the law of Scotland and the law of England are not identical.

LORD MACMILLAN.—The principle of contract law which has come to be known as the doctrine of frustration, and which has recently in England been accorded statutory recognition, is common to the jurisprudence alike of Scotland and of England, although the leading cases are to be found in the English law reports. It is a principle so inherently just as inevitably to find a place in any civilised system of law. The manner in which it has developed in order to meet the problems arising from the disturbances of business due to world wars is a tribute to the progressive adaptability of the common law. In the works of the Scottish institutional writers, the matter receives only rudimentary treatment. In Bell's Principles of the Law of Scotland, it is not until after the death of the original author that, in the editions which we owe to Sheriff Guthrie, the doctrine begins to assume its modern shape, and is well stated as follows:

"When by the nature of the contract its performance depends on the existence of a particular thing or state of things, the failure or destruction of that thing or state of things, without default on either side, liberates both parties"

(10th ed., section 29). The earlier cases, both in England and in Scotland, are mostly concerned with the consequences of the perishing of the thing on whose continued existence the contract depended for its fulfilment, but many of the recent cases have arisen from the supervention of emergency legislation rendering the implement of the contract illegal. It is plain that a contract to do what it has become illegal to do cannot be legally enforceable. There cannot be default in not doing what the law forbids to be done.

The present case belongs to the latter category. It seems to me a very clear one for the application of the principle I have just enunciated. Here is an agreement between two parties for carrying on dealings in imported timber. By emergency legislation the importation of timber has been rendered illegal. Neither party can be said to be in default. The further fulfilment of their mutual obligations has been brought to an abrupt stop by an irresistible extraneous cause for which neither party is responsible. But it has been suggested, and the Lord Ordinary and Lord Jamieson have taken the view, that one of the stipulations of the contract is severable from the rest and remains enforceable, inasmuch as its fulfilment would involve no illegality. This contention is, in my opinion untenable. It is true that the respondents could, without infringing the emergency legislation, sell or let their Grangemouth timber yard to the appellants on the terms stated in the agreement, but the right to require such a sale or lease is conferred upon the appellants only as a consequence of one or other of the parties having voluntarily taken advantage of the right to terminate the agreement on notice. The operation of the agreement having been compulsorily terminated, neither party can thereafter terminate it voluntarily. You cannot slay the slain.

I would only add that, in judging whether a contract has been frustrated, the contract must be looked at as a whole. The question is whether its purpose as gathered from its terms has been defeated. A contract whose purpose has been defeated may contain subsidiary stipulations which it would still be possible and lawful to fulfil, but to segregate and enforce such a stipulation would be to do something which the parties never intended. It cannot be suggested with any reason in the present case that the respondents would have conferred on the appellants an option to purchase or take on lease the respondents' timber yard independently of the trading arrangements into which they had agreed to enter. The consideration for the option was the fulfilment of those arrangements and there was no severable consideration. The House is not concerned in this appeal with any question as to the reliefs consequent on frustration as to which the law of Scotland may differ from the law of England. I agree with your Lordships that the appeal should be dismissed and the interlocutor of the Second Division affirmed.

LORD WRIGHT (READ BY LORD PORTER).—Frustration of a contract, which, though as an expression criticised in the past, has now received legislative sanction in a recent Act—the Law Reform (Frustrated Contracts) Act, 1943—has been described by Professor Winfield, at p. 235 in the 11th edition of Pollock on Contracts which he has edited, in the following terms:

"After the formation of a contract, certain sets of circumstances arise which, owing to the fault of neither party, render fulfilment of the contract by one or both of the parties impossible in any sense or mode contemplated by them. These sets of circumstances have been more or less defined by the Courts and are held by them to release both parties from any further obligation to fulfil the contract."

The rule has sometimes been described as an exception to the general principle that parties must perform their obligations or pay damages for breach of contract. I should prefer to describe it as a substantive and particular rule which the common law has evolved. Where it applies there is no breach of contract. What happens is that the contract is held on its true construction not to apply at all from the time when the frustrating circumstances supervene. From that moment there is no longer any obligation as to future performance, though up to that moment obligations which have accrued remain in force. The rule finds its simplest and earliest exemplification where a contract for personal service is frustrated by the death of the contractor during the period of convenanted service. For breaches of contract before his death his representatives may be held liable, but no one has ever heard of them being held liable in damages for the dead man's failure to perform his contract as from the date of his death. A rule of this character obviously admits of almost indefinite exemplifications, as numerous and diverse as are the possibilities of the performance of a contract being interrupted by a vital change of circumstances. The law, however, has examined a great variety of cases in which it has held, or refused to hold, that a contract is nullified as to its future by the impact of the frustrating event. The application of the general principle must depend on the circumstances of the particular case. No detailed absolute rules can be stated. A certain elasticity is essential. The topic has been repeatedly elucidated by numerous decisions of this House. Thus in 1919 in Bank Line v. Arthur Capel and Co., Lord Finaly, L.C., felt able to say that the law of the subject was well settled. He referred to the general principle, not particular applications.

It is now, I think, well settled that, where there is frustration, a dissolution of a contract occurs automatically. It does not depend, as does rescission of a contract on the ground of repudiation or breach, on the choice or election of either party. It depends on what actually has happened and its effect on the possibility of performing the contract. Where, as generally happens, and actually happened in the present case, one party claims that there has been frustration and the other party contests it, the Court decides the issue and decides it ex post facto on the actual circumstances of the case. The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and, on the other hand, the events which have occurred. It is the Court which has to decide what is the true position between the parties. The decision is, as Lord Summer said in Hirji Mulji v. Cheong Yue Steamship Co., Ltd., "irrespective of the individuals concerned, their temperaments and failings, their interest and circumstances." The Court has formulated the doctrine by virtue of its inherent jurisdiction, just as it has developed the rules of liability for negligence, or for the restitution or repayment of money where otherwise there would be unjust enrichment. I find the theory of the basis of the rule in Lord Summer's pregant statement (loc. cit.) that the doctrine of frustration is really a device by which the rules as to absolute contracts are reconciled with the special exceptions which justice demands. Though it has been constantly said by high authority, including Lord Summer, that the explanation of the rule is to be found in the theory that it depends on an implied condition of the contract, that is really no explanation. It only pushes back the problem a single stage. It leaves the question what is the reason for implying a term. Nor can I reconcile that theory with the view that the result does not depend on what the parties might, or would as hard bargainers, have agreed. The doctrine is invented by the Court in order to supplement the defects of the actual contract. The parties did not anticipate fully and completely, if at all, or provide for what actually happened. It is not possible, to my mind, to say that, if they had thought of it, they would have said:

"Well, if that happens, all is over between us."

On the contrary, they would almost certainly on the one side or the other have sought to introduce reservations or qualifications or compensations. As to that, the Court cannot guess. What it can say is that the contract either binds or does not bind. It is a separate matter whether some ancillary relief should be given, as for a failure of consideration consequent on the frustration, as was held to be proper in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Limited . To my mind, the theory of the implied condition is not really consistent with the true theory of frustration. It has never been acted on by the Court as a ground of decision, but is merely stated as a theoretical explanation. I only refer to the point here because it seems to me that the conclusions of both Lord Robertson and Lord Jamieson were affected to some extent by reflecting on what the parties as individuals might or would have decided if they had thought of the possible frustrating cause. I must admit that the view I have stated is somewhat heretical, but the general nature of the doctrine of frustration has given rise to many irreconcilable explanations. In the Bank Line case, Lord Summer made an interesting anthology of some of them. In Hirji Mulji's case, about seven years later, his analysis is more exact and penetrating, but he again emphasises that, when frustration occurs, it is automatic, and that its legal effect depends, not on the intention of the parties, or even on their knowledge as to the event, but on its occurrence in such circumstances as to show it to be inconsistent with the further prosecution of the adventure. I mention these two aspects of the principle here because they are important for the decision of the present case. The event is something which happens in the world of fact, and has to be found as a fact by the judge. Its effect on the contract depends on the meaning of the contract, which is matter of law. Whether there is frustration or not in any case depends on the view taken of the event and of its relation to the express contract by "informed and experienced minds." What the event was in the present case is not in controversy.

In order to ascertain its effect, examination must now be made of the contract. The contract was entered into in July 1929. It was to commence as from 28th May 1929. It is not a long document, but some of the provisions need to be examined precisely. Its main peculiarity is that one part of the contract, clause 1 to 6, provides for a continuous course of trading in timber which it was contemplated would be imported from the timber exporting regions on the east shores of the North Sea by the appellants, an important firm of timber importers and merchants, for their sale to the respondents, who were to satisfy their requirement as timber merchants by the timber so supplied by the appellants. But there was a complication which has led to this litigation. The respondents owned a timber yard at Grangemouth, the Drumalbyn Timber Yard, which was brought into the agreement. I can best explain the general scope of the agreement by quoting from the preamble:

"Whereas it has been arranged between the parties that the First Parties [the respondents] shall purchase all their supplies of red and white pine wood from the Second Parties [the appellants] and that the First Parties shall let to the Second Parties the timber yard at Grangemouth known as Drumalbyn Timber Yard with an option to the Second Parties to purchase or take on long lease the said timber yard upon certain terms and conditions."

It is thus possible to distinguish for some purposes at least three separate matters dealt with by the contract. First, the provisions of the agreement which deal with the trading in timber, that is, the purchase and sale of it; secondly, the provisions which deal with the letting of the yard while the trading is going on; and thirdly, the provisions which deal with the option to purchase the yard or take it on long lease which may come into effect when the trading operations cease. The stoppage of trading was in fact due to general orders of the Minister of Supply, acting under his powers under the Defence General Regulations, made after the outbreak of war. The judges in the Courts below have held (Lord Jamieson not dissenting) that these orders had the effect of rendering illegal and impossible for an indefinite time the further conduct of the trading operations. If, therefore, the provisions as to trading stood by themselves, it could scarcely have been questioned that the trading adventure was frustrated. Some objections to this conclusion were overruled in the Court below and were scarcely relied on before this House, but, assuming that the trading adventure was frustrated, there remained to be considered the effect of that on the provisions for the letting of the yard "to enable the trading agreement to be carried out." It was not difficult to conclude that this letting was to be concurrent with the trading operations which it was intended to enable and would fall with them when they were frustrated, but it was different with the option to purchase provided for by clause 8. That option was only to come into force when the trading operations were terminated, and only when they were terminated by the election of one party. In the words of the clause:—

"In the event of the foregoing trading agreement being terminated by either party as aforesaid"

[that is, under clause 5] "the second parties" [the appellants] "shall have the right as at the date of termination of said agreement to purchase the said ground and all buildings and erections thereon at a price of four thousand pounds." There was also in clause 9 an alternative option for the appellants to take "the said ground and buildings and railway sidings thereon at an annual rent of five hundred pounds" under clause 9 the lease was, in the first instance, to be for five years, but renewable up to the total period of ninety-nine years from 28th May 1929.

It is these last two clauses which have caused the difficulty in the case. The earlier clauses may be shortly summarised. Clause 1 provides that the respondents agreed to buy from the appellants all their supplies of red and white pine wood, with one exception, and the appellants bound themselves to supply the respondents with the wood so far as their stocks should permit, subject to all purchases being of fair specification of lengths as imported. The wood was to be available at the Drumalbyn Timber Yard or at the respondents' saw mills at Glasgow. Clause 2 contained a formula for ascertaining the price. It is enough to say that it was from time to time to be based on landed cost, with the addition of landing and other charges and with 2 ½ per cent added to the total cost as a guaranteed profit. Clause 5, after stating the date at which "This Agreement" was to commence, went on as follows:

"and may be terminated at the instance of the Second Parties by their giving at least twelve calendar months' notice in writing by registered letter prior to the date on which the termination shall take place, and the First Parties shall have the right to terminate the agreement at their instance on giving three years' notice of termination in writing by registered letter of the date on which the termination is to take place."

This is important because clause 8, to which I have already referred, defines its condition to be "in the event of the foregoing trading agreement being terminated by either party as aforesaid." This relates back to the provisions of clause 5, but there is a difference, which will be noticed later. Clauses 6 and 7 deal with the use and occupation of the respondents' yard during the working of the agreement:

"To enable the foresaid trading agreement to be carried out,"

The premises were to be "let" and that "let" was to "continue during the period of the foresaid trading agreement." Clause 7 detailed the consideration which was to be paid for the use and occupation granted to the appellants, which included the right to alter the railway line siding to suit their trade and to lay additional line sidings.

The events relied on as constituting frustration were the Control of Timber Orders made under the Defence Regulations and necessitated by the state of war. The agreement had been in operation for about ten years at the date of the earliest of the Orders, the Control of Timber (No. 4) Order, 1939, which came into force on 16th September 1939, and was replaced and continued thereafter by similar Orders. It was beyond controversy, and was indeed agreed, that the effect of these Orders was to prevent the current operation of the agreement so far as it related to the supply of timber by the appellants to the respondents. The appellants' stock of timber was exhausted about the end of September 1939, and from that date it was impossible to supply further timber to the respondents. In addition, the Orders would have made it illegal for the appellants, even if they had timber to supply, to supply it in accordance with the conditions of the agreement as to price and otherwise. It is true that the agreement was for an indefinite time, and that the war might end within a comparatively short period. The position must be determined as at the date when the parties came to know of the cause of the prevention and the probabilities of its length as they appeared at the date of the Order, but subsequent events ascertained at or before the trial may assist in showing what the probabilities really were (as Lord Sumner said in Bank Line, Ltd. v. Arthur Capel and Co.,). In addition, there is to be remembered the principle stated by Lush, J., in Geipel v. Smith, that "a state of war must be presumed to be likely to continue so long, and so to disturb the commerce of merchants, as to defeat and destroy the object of a commercial adventure." It is true that Lush, J., was there referring to a single definite adventure, not to a continuous trading, but the real principle which applies in cases of commercial responsibility is that business men must not be left in indefinite suspense. If there is a reasonable probability from the nature of the interruption that it will be of indefinite duration, they ought to be free to turn their assets, their plant and equipment and their business operations into activities which are open to them, and to be free from commitments which are struck with sterility for an uncertain future period. Lord Shaw emphasised this principle in the Bank Line case, and so did Lord Sumner. This, I think, is the true basis of the rule. It does not depend simply on the consideration that, when the interruption ceases, conditions of performance may be different, though that may also be worth dwelling on in certain cases, as in Metropolitan Water Board v. Dick, Kerr and Co., Ltd., where it was said that the interruption destroyed the identity of the performance contracted for. In the present case, the suspense has already lasted for more than five years, and it may be many years still before the Government controls are removed.

Lord Robertson and the judges in the Second Division, Lord Jamieson not dissenting on that point, have held that, qua trading and the ancillary use and occupation of the yard for the purpose of trading, the contract was frustrated, but there still remained the crucial question, what effect that frustration had on the option to purchase the yard which was the subject of clause 8. The language of the clause was very precise and specific. It was to operate in the event of the trading agreement being terminated by either party by the notice specified in clause 5. Lord Robertson was not unconscious that this raised a difficulty in the way of the appellants' claim that they were entitled to exercise the option to purchase, and had, in fact, duly exercised the option by their notice of 17th July 1941, but he decided in their favour on the ground that, notwithstanding the precise language of the clause conferring the option, what the parties would have agreed, if their minds had been directed to the point, would have been that the event of a frustration of the trading agreement would not have cancelled the option, but have opened the door to its exercise. He treated the "purchase agreement," as he called it, as a separate and self-subsistent agreement, standing on its own legs and remaining in force though the legs were cut from under the trading agreement, but the learned judge failed to observe that, even so, the right of exercising the option to purchase was expressly dependent on the single event of the trading agreement being terminated by notice. That being the condition precedent, the right could not arise if it was not fulfilled. The Lord Justice-Clerk, in his cogent judgment, rejected the appellants' contention. A notice to terminate must imply that there is something to terminate. According to the conditions expressed in clause 8, the right to exercise the option to purchase never arose and cannot now arise if, as the fact is, the trading agreement was terminated by frustration.

The learned counsel for the appellants, faced with this difficulty, based his contentions before this House on a different ground. He argued that the whole agreement was one and indivisible, of which the trading agreement and the option to purchase formed integral parts, and that the impossibility of fulfilling the trading agreement did not destroy the contract as a whole because clause 8 remained in effect. It was still capable of fulfilment, and remained open to the appellants, unless and until they thought fit to give notice of termination of the trading agreement, which they did by their letter of 17th July 1941, in accordance with clause 5. Thereupon they became entitled to exercise the option to purchase, and did exercise it by the letter. The result of this view would be that the appellants could postpone indefinitely giving notice of termination and thus keep alive for an indefinite time their right of election and so retain their hold upon the yard. This would be an unreasonable and inequitable position, but I do not think that the contention is sound. I do not question that the right to exercise the option, whatever it may be, is part of the consideration for the entire agreement. Nor do I doubt the possibility that there might be cases in which the contract provides for various matters to be performed in such a way that the impossibility of performing some of the stipulations might not frustrate the contract as a whole. Such a case may be illustrated by the decision of the Court of Appeal in Leiston Gas Co. v. Leiston-cum-Sizewell Urban District Council . The contract there was for the supply of gas and lighting, and for the repair and maintenance of the lighting system. In January 1915, lighting regulations, by reason of the war, prohibited the lighting of the lamps. The case was heard before the law had been settled and elucidated, as it has since been, by the three decisions already referred to, Metropolitan Water Board v. Dick, Kerr and Co., Ltd., Bank Line, Ltd., v. Arthur Capel and Co., Hirji Mulji v. Cheong Yue Steamship Co., Ltd., and much that was said by the Court of Appeal in Leiston's case would not have been said at all, or would have been said differently, if the Court had had the advantage of the views of this House. Scrutton, J., however, does state the issue to be whether the failure to supply was "of such lengthy and permanent character as substantially to alter the mode of performance" so as to terminate the contract. He decided that it was not, treating it as a question of fact and degree. I am not clear that the same decision would be given to-day. But questions of applying the doctrine may always be difficult to solve. So far as principle goes, the decision is important, in so far as it directs attention to the test, which is, What is the substantial contract, and is that frustrated? Looking at this contract and to the frustrating event, I think it would be unreasonable not to regard the trading agreement as the substantial matter, so that when that is frustrated, so is the contract as a whole. It would not be possible, in my opinion, to regard the whole contract as surviving when the trading agreement became frustrated. I need not consider another possible view, namely, that clauses 8 and 9 survived as a separate agreement, in the way that the arbitration clause in Heyman v. Darwins, Limited, was, in the opinion of the Lord Chancellor, capable of surviving as an independent clause 8, for whatever reason, is quite plain and specific, as I have already said, in the limited and grudging terms in which it grants the option to purchase. The option does not derive from the general character of the contract, but from the specific words of clause 8. When the trading ceased, the free use of the yard would revert to its owners in the absence of a new and special grant. The stringent and limited character of the express condition of the option under clause 8 must receive effect from the Court. The condition was not, and in the events could not be, complied with by the appellants. The question whether Scots law would give any or what restitution to the appellants for alterations and improvements effected upon the yard during the period of their occupation is not before the House. I would dismiss the appeal.

LORD PORTER.—The dispute which has arisen in this case requires for its solution the determination whether a contract between the parties, dated 10th and 25th July 1929, has or has not been discharged by supervening impossibility of performance or—to use the current but inelegant phraseology—whether its future performance has been frustrated. The respondents maintain that it has, the appellants contend that it has not. The vital terms have been set out, and it is not necessary that I should do so again, though I must refer to some of the provisions in order to explain my conclusions.

The principles on which it will now be held that a contract has been frustrated are well established. Probably they have nowhere been more succinctly stated than by Earl Loreburn in F. A. Tamplin Steamship Co., Ltd., v. Anglo-Mexican Petroleum Products Co., Ltd., :

"A court can and ought to examine the contract and the circumstances in which it was made, not of course to vary, but only to explain it, in order to see whether or not from the nature of it the parties must have made their bargain on the footing that a particular thing or state of things would continue to exist. And if they must have done so, then a term to that effect will be implied, though it be not expressed in the contract.… No court has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which is not expressed was a foundation on which the parties contracted."

Whether this result follows from a true construction of the contract, or whether it is necessary to imply a term, or whether again it is more accurate to say that the result follows because the basis of the contract is overthrown, it is not necessary to decide. The principle is well established, but it is the contract as a whole which has to be considered, not a part only. As is said in the latest (11th) edition of Pollock on Contracts, edited by Professor Winfield, at p. 255:

"Further, it is to be observed that the disturbing cause must go to the extent of substantially preventing the performance of the whole contract. Interference leaving a considerable part capable of performance will not be an excuse."

For this proposition, London and Northern Estates Co. v. Schlesinger is quoted, and I think Leiston Gas Co. v. Leiston-cum-Sizewell Urban District Council, if it be rightly decided, might have been added. I would willingly adopt this view, except that I should prefer the expression "contract as a whole" instead of "the whole contract."

The dispute, however, as in so many of these cases, centres not on the principles to be applied, but on their application to the facts of the individual case. The contract under consideration stated in its preamble that it had been arranged between the parties that the respondents should purchase all their supplies of red and white pine wood from the appellants, and should let to them without rent, but on payment of the feu-duties, a certain timber yard, with an option of purchase or long lease on certain terms and conditions which it was right and proper to reduce to writing. After this preamble, the first seven clauses deal with the purchase and sale of the wood and the letting without rent. Three of these clauses were much relied upon by the appellants. Clause 2 fixes the price of the timber on a sliding scale dependent upon the landed cost to, and expenses of, the appellants. It was said that this showed an intention that the contract should be a long-term one, and that even a considerable interruption in possibility of supply would not bring it to an end. Clause 4, after placing an obligation on the respondents to use their best endeavours to sell the wood, declares that they shall have no control over the buying or selling of the appellants, that the contract shall in no way limit the appellants' right to sell to others, and that nothing in the agreement should override or otherwise affect any arrangements entered or to be entered into by the appellants, or any conditions imposed on them as to price or otherwise in regard to the purchase or disposal thereof. This provision was said to deal with the very matter under consideration, and to be an express term arranging that no governmental control should defeat or frustrate the contract. Finally, it was said that the right given by clause to the appellants to alter the railway lines to suit the trade and to lay additional lines showed an intention that the option to purchase should not readily be terminated. It was also urged in general support of the appellants' case that there was no provision in the contract compelling the appellants to use the yard for the purpose of their trade with the respondents. On the contrary, by clause 1, they were expressly entitled to deliver the timber at Phoenix Saw Mills, and from this it was deduced that the terms of sale and purchase of the timber were independent of those dealing with the lease or sale of the land. It is not until clause 8 is reached that the agreement giving the right of purchase or long lease is set out, but it is urged that a purchase outright or a long lease extending up to ninety-nine years from the ending of the agreement is an important and far-reaching term of the contract, at least as important as the sale and purchase of the timber, and might of itself be said to be the basis or one of the bases of the contract.

I have set out the provisions of the contract somewhat fully, because, as is indicated above, the question for your Lordships' determination, as I see it, is not a question of principle but of the interpretation of a particular contract. Before, however, I express a view on this point, I ought to state that originally it was argued on behalf of the appellants that the contract could in reality be divided into two parts, one being a contract for the sale and purchase of timber and the other dealing with the land. It was said that, if this were so, the former might be frustrated, whereas the latter would not. This argument appears to have prevailed with the Lord Ordinary, and would be formidable were it not for the express terms of clause 8, which do not seem to have been brought to the notice of the learned judge. It was eventually abandoned by counsel for the appellants, and, as I believe all your Lordships think, rightly so. It is true that the contract itself does refer in more than one place to "the trading agreement," as distinguished from the rest of the contract, but the contract itself is a single one and so interrelated in its parts as to make it difficult completely to separate some from the others. Moreover, the right of purchasing or leasing the land is not given upon the termination of "the trading agreement" simpliciter, but, by clause 8, on termination of the trading agreement "as aforesaid" i.e., by notice from either party. Unless, then, the trading agreement survived at the time when notice was given by the appellants, the termination had not taken place in that particular way, and a condition precedent to the right to purchase or lease was missing. Recognising this difficulty, the appellants' counsel argued alternatively that the contract as a whole survived, that one of its more important provisions had not been affected by the governmental restrictions upon the importation of timber, and that, though one of the objects of the contract, viz., the sale and purchase of timber, was prevented, yet that prevention was only a temporary interference with the fulfilment of the contract, which could still be fulfilled so far as concerned the transfer of the land, and, therefore, survived as a whole, none the less that the trading agreement, if it had stood alone, would have been frustrated. So far as concerns the specific clauses on which reliance was placed, I think they can all be explained as intended to deal with a normal state of affairs, and having no reference to a complete cessation of the timber supply by governmental interference, and it is a commonplace of this class of case that a provision meant to deal with a temporary interference will not be construed to have application to a complete prevention of the underlying object of the contract. In this connection, it is enough to quote the Tamplin case, where there was an exception of restraint of princes, and Metropolitan Water Board v. Dick, Kerr and Co., Ltd., which contained express terms dealing with the effect of delay by reason of the contract being impeded. As to the basis or underlying object of the contract, I cannot doubt but that, throughout, it was the carrying out of the contract to supply and to take the timber contracted for. The agreement to let the yard with the option of purchase appears to have had for its object the provision of space which could be used either for the delivery of timber under this contract or to fulfil other contracts if timber for this contract was supplied at the Phoenix Saw Mills. No doubt both parties contemplated, as part of the scheme, that a long series of transactions and a long period of dealing might induce the appellants to alter the railway lines and otherwise accommodate the yard to their own use, and that for this reason they should be given the option, but, to my mind, this was part of the timber selling scheme, and in itself neither formed a basis of the contract nor would have been thought of had not the relation of buyer and seller of timber been entered into.

As in many questions where the law has to be applied to the facts, I recognise that the weight to be attributed to the different considerations will affect different minds in different ways. Indeed, in the present case Lord Jamieson took the view that, having regard to the importance of the provisions in reference to selling or leasing the land, the contract was not frustrated. The conclusion must depend on a question of proportion: How much importance one attaches to the disposition of the land in relation to the timber contract. With all respect to the opinion of that learned judge, and though I feel the force of his arguments, I find myself in agreement with the majority of the Second Division of the Court of Session in thinking that the contract as a whole was frustrated at some time before the notice to terminate was given, and accordingly I would dismiss the appeal.

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