Maritime National Fish Ltd v Ocean Trawlers Ltd (1935)

Frustration, as the law understands it, is something that happens to the parties, not something one of them chooses. This is the decision which put that proposition beyond argument. Lord Wright's sentence — that the essence of frustration is that it should not be due to the act or election of the party — is the sentence every answer on self-induced frustration is built around.

Note the court carefully. This is the Judicial Committee of the Privy Council hearing a Canadian appeal, not an English court and not an Indian one. It is persuasive authority in India, and Indian courts applying s. 56 have consistently treated the requirement of an event beyond the promisor's control as part of the statutory scheme, since s. 56 speaks of an act becoming impossible "by reason of some event which the promisor could not prevent".

The respondents owned, and the appellants chartered, a steam trawler called the St. Cuthbert. She was fitted with, and could only operate as a trawler with, an otter trawl. The charterparty, dated 25 October 1928, had originally been made with another company and was later taken over by the appellants; it was expressly agreed that the trawler should be employed in the fishing industry only, and the charterers had an option to purchase.

By letters of 6 and 8 July 1932 the charter was renewed for one year from 25 October 1932 at a monthly hire 25 per cent lower than before, namely $590.97 per month.

When the parties made that new agreement they were well aware of the Canadian legislation: s. 69A of the Fisheries Act, added on 14 June 1929, made it a punishable offence to leave any port in Canada with intent to fish with a vessel using an otter trawl except under licence from the Minister, the number of vessels eligible to be licensed being left to the Minister. Regulations had been published on 14 August 1931.

The appellants operated five trawlers in all, every one of them fitted with otter trawling gear. On 11 March 1933 they applied to the Minister of Fisheries for licences for the trawlers they were operating, complying with all the requirements of the Regulations. On 5 April 1933 the Acting Minister replied that licences would be granted to only three of the five, and asked the appellants to advise the Department which three they desired.

The appellants named three trawlers other than the St. Cuthbert. Licences issued for those three; none for the St. Cuthbert. From 30 April 1933 it was no longer lawful for the appellants to employ her as a trawler. On 1 May 1933 they gave notice that she was available for re-delivery and claimed to be no longer bound by the charter.

The owners sued on 19 June 1933 for the hire of $590.97 for the month ending 25 May 1933, it being agreed that if that claim were good, hire at the same rate was recoverable for the following five months as well.

The defence pleaded was that through no fault, act or omission on the appellants' part the contract had become impossible of performance on and after 30 April 1933, so that they were wholly discharged, hire included.

That defence succeeded before the trial judge, Doull J., who thought there had been a change in the law which completely altered the basis on which the parties had contracted, and that it was "not unreasonable to imply a condition to the effect that if the law prohibits the operation of this boat as a trawler the obligation to pay hire will cease." Their Lordships pointed out the flaw: the judge appeared to have proceeded on the footing that the change of law came after the contract, whereas it was in fact anterior to the 1932 agreement.

The Supreme Court of Nova Scotia En Banco unanimously reversed him, and gave two reasons: that the charterers, knowing of the legislation and renewing at a reduced rate without inserting any protecting clause, must be deemed to have taken the risk that a licence would not be granted; and that any frustration resulted from their own deliberate act in selecting the three trawlers.

Their Lordships approved the Supreme Court's statement of principle that discharge by frustration "follows automatically when the relevant event happens and does not depend on the volition or election of either party."

The charterers had relied on Bank Line Ltd v Arthur Capel & Co. Lord Wright distinguished it on the facts: there the vessel had actually been taken from the shipowners' control for a period defeating the adventure. Here the St. Cuthbert "was not requisitioned: it remained in the respondents' control, who were able and willing to place it at the appellants' disposal: what happened was that the appellants could not employ the St. Cuthbert for trawling with an otter trawl." The owners had not warranted the continued availability of the vessel for that employment, nor was payment of hire made dependent on it.

The case was said to be more analogous to Krell v Henry, the Coronation window case, where the window was available but the hirer could not use it for his purpose. Lord Wright recorded that the correctness of that decision has been questioned, citing Lord Finlay L.C. in Larrinaga v Société Franco-Americaine des Phosphates: it may be that "the parties contracted in the expectation that a particular event would happen, each taking his chance, but that the actual happening of the event was not made the basis of the contract."

His own verdict on Krell is the line to carry into an answer: "The authority is certainly not one to be extended" It is particularly difficult to apply, he said, where the very possibility relied on as frustrating the adventure "was known to both parties when the contract was made, but the contract entered into was absolute in terms so far as concerned that known possibility." Quoting Lord Sumner's description of frustration in Hirji Mulji v Cheong Yue Steamship Co. as "a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands" he doubted whether a court should imply a resolutive condition where the parties "might have inserted an express condition to that effect but did not do so"

Their Lordships did not finally decide the case on that ground, expressing no dissent from it but preferring the simpler one.

The decisive reasoning is short. The appellants were free to select any three of the five trawlers and "could, had they willed, have selected the St. Cuthbert as one," in which event a licence would have been granted to her It was immaterial to speculate why they preferred the others. "What matters is that they could have got a licence for the St. Cuthbert if they had so minded." If she was removed from the category of privileged trawlers, "it was by the appellants' hand that she was so removed, because it was their hand that guided the hand of the Minister in placing the licences where he did and thereby excluding the St. Cuthbert."

Then the governing sentence: "The essence of 'frustration' is that it should not be due to the act or election of the party."

Lord Wright acknowledged there was no authority decided directly on the point, and drew on Lord Sumner's aside in Bank Line, where the shipowners had similarly named three ships to the Admiralty and indicated a preference: "I think it is now well settled that the principle of frustration of an adventure assumes that the frustration arises without blame or fault on either side. Reliance cannot be placed on a self-induced frustration; indeed, such conduct might give the other party the option to treat the contract as repudiated." In Bank Line the point had not been pursued; here it arose directly.

Two older tests were applied and both failed the charterers: Lord Blackburn's description in Dahl v Nelson, Donkin & Co. of frustration as a matter "caused by something for which neither party was responsible" and Brett J.'s condition that it be "without any default of either party." On either test the withholding of the licence was not something for which the appellants were not responsible. "In truth, it happened in consequence of their election." Assuming performance depended on a licence, "it was that election which prevented performance, and on that assumption it was the appellants' own default which frustrated the adventure: the appellants cannot rely on their own default to excuse them from liability under the contract."

The appeal was dismissed with costs, their Lordships humbly so advising His Majesty, and the judgment of the Supreme Court of Nova Scotia was affirmed. There was no frustration of the charterparty, because the absence of a licence was due to the election of the charterers, who accordingly remained liable for the hire.