Taylor v Caldwell (1863) and Krell v Henry (1903)

These are the two English cases that created the doctrine of frustration; the third, Herne Bay, shows where its boundary lies. Between them they cover the doctrine's two branches:

• Destruction of the subject matter (Taylor v Caldwell): the thing on whose continued existence the contract depends is destroyed without either party's fault.
• Non-occurrence of the foundation of the contract (Krell v Henry): performance remains possible, but the event that was the whole point of the contract does not happen, so the performance is worthless.

Herne Bay is the counterpoint: on facts almost indistinguishable from Krell, arising out of the same royal illness in the same summer, before a court including the same judge, the contract was not discharged. Explaining why is one of the commonest questions on this topic.

For Indian purposes, fix this at the outset: none of these cases is authority in India. Section 56 covers the field, and Satyabrata Ghose v Mugneeram Bangur & Co (1954) held that it is a positive rule of law which does not leave the matter to the intention of the parties. The English cases survive as persuasive illustrations of when a foundation has been destroyed, and nothing more.

Taylor v Caldwell. In the spring of 1861 Caldwell and Bishop were the proprietors of the Surrey Gardens and Music Hall at Newington — a pleasure ground with a large hall, of the kind Victorian London used for concerts and public entertainments. By an agreement dated 27 May 1861 they agreed to let Taylor and Lewis, who were promoters, have the use of the Hall and Gardens on four specified days — 17 June, 15 July, 5 August and 19 August — for a series of grand concerts and day and night fêtes, at £100 for each day.

The agreement was elaborate about the incidentals: gardens, hall, gas lighting, an orchestra, a variety of attractions. It was drawn as an agreement for use, not as a lease. What it did not do — the hinge of the case — was say anything about what should happen if the Hall ceased to exist.

The promoters advertised and spent money on printing, placards and the arrangements a promoter must make in advance. Then, on 11 June 1861, before the first of the four days, the Music Hall was destroyed by fire. The fire was accidental and neither party was at fault. The gardens survived, but without the Hall the concerts could not be given. Taylor sued for his wasted preparations and advertising, claiming the proprietors were in breach of their promise.

Krell v Henry. In the summer of 1902 London prepared for the coronation of Edward VII. The processions were to pass along a fixed route on 26 and 27 June, and the owners of every window on that route saw an opportunity. Paul Krell owned a flat at 56A Pall Mall, directly overlooking the route; his housekeeper put up an announcement offering windows to let for viewing the processions.

C. S. Henry saw the announcement and took the rooms by correspondence. He was to have the use of the flat for the daytime of 26 and 27 June — not the nights — for £75, of which £25 was paid at once as a deposit and £50 was due on 24 June. Here is the detail that makes the case famous: the written contract said nothing about the coronation. On its face it was an agreement for the daytime use of a Pall Mall flat for two days at a substantial rent.

The King fell ill and was operated on, and the processions were cancelled. Henry, having no use for two days in an empty flat, refused to pay the £50. Krell sued for it; Henry counterclaimed for his £25.

Herne Bay Steam Boat Co v Hutton. The same coronation was to be marked by a naval review at Spithead, with the fleet assembled for the King to inspect. Hutton chartered the steamship Cynthia for 26 and 27 June for £250, of which £50 was paid. The charter said in terms that it was "for the purpose of viewing the naval review and for a day's cruise round the fleet". He intended to sell tickets to paying passengers.

The King's illness caused the review to be cancelled. But the fleet stayed where it was at Spithead, and a cruise round it remained entirely possible. Hutton did not take the vessel; the owners used her themselves, made some profit, and sued for the balance of the hire.

1. Where the contract is silent, is a promisor absolutely bound, so that the destruction of the subject matter is no excuse? (Taylor)
2. Can a contract be discharged where performance remains physically possible but the event that gave it its value does not occur? (Krell)
3. If so, how does a court identify the "foundation" of the contract, and whose purpose counts? (Krell against Herne Bay)
4. On what basis, in India, are these questions answered?

In Taylor, the plaintiffs relied on Paradine v Jane (1647): a party who by his own contract creates a duty is bound to make it good, notwithstanding any accident by inevitable necessity, because he might have provided against it. The proprietors had promised the Hall; the Hall was not there; that was a breach, however blameless.

In Krell, the plaintiff's argument was pure text. The contract was for the use of rooms; the rooms existed and were available; there was nothing in the writing about the coronation; and a party cannot escape a contract because his private motive has evaporated. Henry answered that both sides knew perfectly well what the rooms were for — the price, the advertisement and the restriction to daytime hours all proved it — and that the procession was the foundation on which both had contracted.

In Herne Bay, Hutton argued as Henry had: the review was the object of the charter and was named in the contract itself, so its cancellation destroyed the adventure. The owners answered that they were shipowners hiring out a ship; whether Hutton's passengers had a review to look at was his commercial risk, not theirs; and in any event the fleet was still at Spithead and the cruise could have gone ahead.

Taylor v Caldwell — judgment for the defendants. Blackburn J held that the rule of absolute liability applies only where the contract is positive and absolute and not subject to any condition express or implied. Where performance depends on the continued existence of a given person or thing, there is an implied condition that the parties shall be excused if, before breach, performance becomes impossible from the perishing of the thing without default of the contractor. The Hall having perished, both were excused.

Krell v Henry — appeal dismissed; Krell could not recover the £50. The Court of Appeal (Vaughan Williams LJ, with Romer and Stirling LJJ) held that the coronation procession was the foundation of the contract as recognised by both parties, that its non-occurrence discharged both from further performance, and that the balance was not payable. Note the limit: Henry escaped the £50 not yet paid, but the £25 deposit already paid was not recovered. The loss lay where it fell.

Herne Bay v Hutton — appeal allowed; Hutton liable for the balance of the hire, less the profit the owners had made from the ship. Vaughan Williams LJ held that the naval review was not the foundation of the contract.

Taylor v Caldwell: In a contract whose performance depends on the continued existence of a specific person or thing, a condition is implied that the parties are excused if performance becomes impossible through the perishing of that person or thing without the default of either.

Krell v Henry: Where the occurrence of a particular state of things is, on the true construction of the contract in the light of the surrounding circumstances known to both parties, the foundation of the contract, its non-occurrence discharges both parties, even though literal performance remains possible.

Herne Bay v Hutton: A purpose known to both parties is not necessarily the foundation of the contract; where one party is simply supplying a thing and the other is using it for a venture of his own, the failure of that venture is the hirer's risk.

Vaughan Williams LJ's hypothetical in Krell — the cab hired at an enhanced price to take a passenger to Epsom on Derby Day, where the cabman knows the purpose but the races are cancelled, and the fare is still payable — is obiter, but it is the best short statement of the line and should be reproduced. He made the same point from the other side in Herne Bay: a man who engages a brake to take his party to Epsom to see the races is not relieved of his bargain merely because the races are postponed.

The implied term device. Blackburn J did not overthrow Paradine v Jane; he confined it. He built the excuse into the contract as a condition the parties must be taken to have intended, drawing on civil law and on English authorities about the death of a party to a contract of personal service. Where parties contract about a specific thing, they contract on the assumption that it exists, and cannot sensibly be supposed to have intended an absolute obligation regardless of its destruction.

The device is candidly a fiction, and has been attacked ever since. Had the parties actually thought about the fire they would have bargained about who bore the risk, and there is no reason to think they would have agreed to split it evenly by discharging both. The fiction nevertheless did the work for ninety years.

Why Krell was decided as it was. Vaughan Williams LJ asked what, on a construction of the contract in the light of the surrounding circumstances, was "the foundation of the contract", and then whether performance of that foundation had been prevented. Extrinsic evidence was admissible to identify the substance of the bargain — price, advertisement, restriction to daylight hours, all pointing one way. The rooms were not taken as rooms; they were taken as a viewing platform. Once the procession was off, what remained was not a diminished version of the bargain but a different thing entirely.

Why Herne Bay went the other way. Three distinctions are usually drawn.

1. Whose venture was it? In Krell the viewing of the procession was the shared foundation: Krell had nothing to sell except a view, and Henry had nothing to buy except a view. In Herne Bay the owners were in the business of hiring out ships. The passenger-carrying venture was Hutton's own commercial speculation, and its success or failure was his risk. A supplier does not underwrite his customer's business plan merely by knowing what it is.
2. Was performance still substantially possible? The fleet was still assembled at Spithead. The contract had two stated purposes — viewing the review and a day's cruise round the fleet — and the second remained perfectly capable of performance. In Krell nothing of value remained at all.
3. Was the event a foundation or a motive? This is the doctrinal formulation. In Krell the procession was the basis on which both parties contracted. In Herne Bay the review was Hutton's reason for hiring, which is a motive. A motive that fails does not discharge a contract; a foundation that fails does.

The line is thin, and the two cases are notoriously difficult to reconcile at the level of pure logic. Most commentators treat Krell as correct on its extreme facts and as a case that will rarely be applied — English law has never extended it.

The move away from the implied term: Davis Contractors Ltd v Fareham UDC (1956). The contractors agreed to build 78 houses for the council for a fixed price of about £94,000, to be completed in eight months. Shortages of skilled labour and bad weather meant the work took twenty-two months and cost about £115,000. They claimed the contract was frustrated and that they should be paid on a quantum meruit. The House of Lords held it was not.

Lord Radcliffe replaced the implied term with an objective test. Frustration occurs whenever the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. The court is not looking for a term the parties would have agreed; it compares the obligation as undertaken with the obligation as it now stands and asks whether the difference is one of degree or of kind. In substance: it was not this that I promised to do.

The other half of the speech matters as much. It is not hardship, inconvenience or material loss that calls the principle into play; there must be a change in the significance of the obligation itself. Delay, cost overrun and difficulty, however severe, are not enough. Since 1956 the radical-change test has been the English test, and the implied term explanation survives as history rather than doctrine, though the result in Taylor is unquestioned.

In England. The doctrine expanded to cover supervening illegality, requisition and prolonged interruption (Metropolitan Water Board v Dick, Kerr & Co (1918), where a wartime prohibition on work on a reservoir made the resumed contract a different contract) and death or incapacity in contracts of personal performance (Robinson v Davison (1871)); self-induced frustration was excluded (Maritime National Fish Ltd v Ocean Trawlers Ltd (1935), where the charterer chose to allocate his three licences to other trawlers). The financial consequences, left unsatisfactory by the coronation cases, were dealt with by the Law Reform (Frustrated Contracts) Act 1943.

In India. The reception is governed by Satyabrata Ghose v Mugneeram Bangur & Co (1954). Mukherjea J held that the differences between the competing English theories do not concern Indian courts, because India has a statutory provision: the only doctrine to go by is supervening impossibility or illegality as laid down in s. 56, taking "impossible" in its practical and not its literal sense; and s. 56 lays down a rule of positive law, not a matter to be determined by the intention of the parties. In practice:

• Both branches — destruction of subject matter and failure of the foundation — fall within s. 56. So the results in Taylor and Krell would both be reached in India, but by the statute.
• The implied term theory has no place. Illustration (e) to s. 56 makes the point: A contracts to act at a theatre for six months; on several occasions he is too ill; the contract to act on those occasions becomes void — stated flatly, without inquiry into intention.
• Because s. 56 is a rule of law, frustration is automatic and does not depend on election or repudiation.
• Where the contract itself provides for the event — a force majeure clause — s. 56 does not apply; the case falls under s. 32. Confirmed in Energy Watchdog v CERC (2017) and dominant in the COVID-19 litigation.
• Financial consequences are governed by s. 65 — restoration of any advantage received — not by anything like the 1943 Act. So the Krell outcome on the deposit (loss lies where it falls) would not necessarily be reproduced here: a deposit received is an advantage received.