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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8 (11 December 1980)
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Cite as: [1981] 2 WLR 45, [1980] UKHL 8, [1981] 1 All ER 161, [1981] AC 675

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    Parliamentary Archives,
    HL/PO/JU/18/240

    Die Jovis 11° Decembris 1980

    Upon Report from the Appellate Committee to whom
    was referred the Cause National Carriers Limited against
    Panalpina (Northern) Limited, That the Committee had
    heard Counsel as well on Monday the 6th as on Tuesday
    the 7th and Wednesday the 8th days of October last upon
    the Petition and Appeal of Panalpina (Northern) Limited
    of 5 Westgate, Bradford, Yorkshire praying that the
    matter of the Order set forth in the Schedule thereto,
    namely an Order of the Queen's Bench Division of Her
    Majesty's High Court of Justice of the 16th day of
    October 1979 might be reviewed before Her Majesty
    the Queen in Her Court of Parliament and that the said
    Order might be reversed, varied or altered or that the
    Petitioners might have such other relief in the premises
    as to Her Majesty the Queen in Her Court of Parliament
    might seem meet; as also upon the Case of National
    Carriers Limited lodged in answer to the said Appeal;
    and due consideration had this day of what was offered
    on either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual
    and Temporal in the Court of Parliament of Her
    Majesty the Queen assembled, That the said Order of
    the Queen's Bench Division of Her Majesty's High Court
    of Justice of the 16th day of October 1979 complained
    of in the said Appeal be, and the same is hereby,
    Affirmed and that the said Petition and Appeal be, and
    the same is hereby, dismissed this House: And it is
    further Ordered, That the Appellants do pay or cause
    to be paid to the said Respondents the Costs incurred by
    them in respect of the said Appeal, the amount thereof
    to be certified by the Clerk of the Parliaments if not
    agreed between the parties.


    HOUSE OF LORDS

    NATIONAL CARRIERS LIMITED
    (RESPONDENTS)

    v.

    PANALPINA (NORTHERN) LIMITED
    (APPELLANTS)

    Lord Chancellor
    Lord Wilberforce
    Lord Simon of Glaisdale
    Lord Russell of Killowen
    Lord Roskill


    Lord Hailsham of St. Marylebone

    my lords,

    We are all agreed that this appeal from decisions of Master Waldman
    and Sheen J. refusing leave to defend under RSC 0.14 fails on the facts
    for the reasons given by my noble and learned friends to which personally
    I have nothing to add. The appellants have failed to raise a triable issue.

    Nevertheless, though they arrive in your Lordships' House by an unusual
    route, the proceedings do raise an interesting and important general question
    of principle relating to the extent and nature of the law of frustration
    which has long been debated and which, since the matter has reached this
    stage and has been fully argued, should now be decided by your
    Lordships' House.

    This question is the applicability of the law of frustration to leases and
    agreements for a lease. The question is discussed at length in Cricklewood
    Property and Investment Trust Ltd.
    v. Leightons Investment Trust Ltd.
    [1945] A.C. 221 by the decision of which in the Court of Appeal, Master
    Waldman and Sheen J. rightly considered themselves bound, with the
    result that, in dismissing the appeal from Master Waldman, Sheen J. gave
    his certificate under section 12 of the Administration of Justice Act 1969,
    and so, for the first time in my experience, an Order 14 summons bypasses
    the Court of Appeal and " leapfrogs " directly to the Appellate Committee
    of the House of Lords.

    Before I reach a discussion of the point of law it is necessary that I fill in
    the factual background. This illustrates the curious and sometimes
    unexpected results which can ensue from the present vogue of listing
    industrial buildings as part of our national heritage. Kingston Street, Hull
    is a continuation of English Street (of which, originally it may have been
    part) and terminates by running perpendicularly into a T junction with
    Railway Street. Before it reaches this end, it crosses more or less at right
    angles an intersection with Commercial Road and Manor House Street.
    Hereinafter, when I speak of Kingston Street, I shall be referring solely
    to that section of it between this intersection and the T junction with
    Railway Street. Although it is now, it would seem, a public highway for
    all types of traffic, it may well be that at one time it was the private
    property of a railway company, since otherwise it is difficult to explain
    the " demise " (sic) of a private right of way along it by the lessors of the
    property about to be described.

    Kingston Street is bounded on both sides by warehouses and on part
    of one side by a railway shed. At one side of it, at the point nearest the
    intersection, is a derelict and ruinous Victorian warehouse which at some
    time has become, under the laws for the conservation of our national
    heritage, a " listed building " which means that it cannot be demolished
    without the consent of the Secretary of State for the Environment, and that,
    if the demolition is objected to by local conservationists (as in fact
    happened), this consent will not be granted without the holding of a public
    local enquiry. Even assuming a result favourable to demolition the total
    process is likely to last a year. In the events which have happened, the
    process is not yet complete, but, on the material before us, is likely to be
    concluded by the end of December 1980 or the beginning of January 1981.
    By that time, it will have lasted about 20 months.


    2

    Since, in course of time, the Victorian warehouse became dangerous
    as well as derelict it evidently presented problems of safety to the City
    Council of Hull. In 1978 they placed a restriction order on Kingston Street,
    and on the 16th May 1979 they closed it altogether to vehicular traffic.
    It was not made altogether clear to us under what powers they acted, but
    the closure was subsequently confirmed and continued by the Secretary of
    State, and, at the present, access to Kingston Street is not merely prohibited
    to vehicles, but rendered physically impossible, by the erection across it by
    the local authority of a fenced barrier. This will not be removed until
    the demolition process is completed at the end of the current year or the
    beginning of next.

    Opposite the ruinous listed building, there is another warehouse, more
    or less triangular in shape, the only access to which (except perhaps on
    foot) is via a loading bay in Kingston Street. The consequence of the
    application for demolition, and the subsequent proceedings, has been that,
    from the 16th May 1979 until the time when the barriers are finally removed
    and the prohibition order lifted, this triangular warehouse has been
    rendered totally useless for the one purpose, that of a commercial
    warehouse, for which alone it is fitted, and for which alone, by the terms
    of the contract between the parties, it may be lawfully used.

    In 1974 the triangular warehouse had become the subject of a demise
    between the plaintiffs/respondents to these proceedings, the lessors, and
    the defendants/appellants. This demise was contained in a lease dated
    the 12th July 1974 and was expressed to run for 10 years from the 1st
    January 1974. The terms of the lease, most of which are not unusual
    in documents of this kind, contained inter alia a covenant to pay an
    annual rent (£6,500 for the first five years, and for the second five years
    subsequently increased by agreement in accordance with a formula
    contained in clause 4(1) of the lease to £13,300) payable in advance by four
    quarterly instalments. The present proceedings, commenced by writ dated
    the 9th July 1979, are for the payment of £5,115.38 being the two quarterly
    instalments due on the 1st April, and the 1st July 1979. There is no
    dispute between the parties as to the amount of this sum, nor, subject
    to the defence of frustration hereinafter to be mentioned, of the liability of
    the defendants/appellants to pay it.

    The lease also contained obligations by the tenants to pay rates, to repair,
    to pay a rateable proportion of the expense of cleaning and maintaining the
    sewers, roads etc., to insure at full value in the joint names of landlord and
    tenant, to paint, to yield up in good and substantial repair at the end of
    the tenancy, not to assign or sublet, alter, or to utilise otherwise than for
    the purpose of a warehouse without the written consent of the landlord, and
    other matters. The landlord's covenants included an express covenant of
    quiet enjoyment. There were special provisions for the suspension of the
    obligation to pay rent and for the termination of the tenancy at the option
    of the landlord in case of destruction by fire, and provisions for re-entry
    by the landlord in case of breach of covenant, or on six months notice, if
    the premises were required for the proper operation of British Railways
    (with whom the plaintiffs are associated).

    The sole defence raised by the defendants/appellants to their obligation
    to pay rent was that, by reason of the events described above the lease had
    become frustrated and was therefore wholly at an end. By their printed
    case each party raised two questions for your Lordships' decision. The
    first is the broad question of principle, viz. whether the doctrine of frustration
    can ever apply to determine a lease, and the second, of particular application,
    whether even if the doctrine can on occasion apply, there is here a triable
    issue as to whether it does apply to the lease between the parties in the
    circumstances described. In the event of both questions being determined
    in favour of the appellants, your Lordships, if allowing the appeal, would
    have no option but to return the case for trial at first instance, with the
    possible result that, after a lapse of two years, it might reappear in your
    Lordships' list for a second hearing. In any event, unless some guidance is
    given on the first issue, sooner or later argument would have to be directed

    3

    to it in some later proceeding. It is therefore perhaps as well that, although
    dismissing the appeal on the second question, we thought it right to hear
    the first fully argued on both sides. We are doubly indebted to counsel
    for the appellants, who, though aware that he had not succeeded,
    nevertheless stayed to deliver an admirably concise reply to the forceful
    arguments on the point of principle helpfully presented on behalf of the
    respondents.

    The doctrine of frustration is of comparatively recent development. The
    general rule of common law, laid down as early as 1647 in Paradine v. Jane
    (Aleyn 26) is that the performance of absolute promises is not excused by
    supervening impossibility of performance. Paradine v. Jane itself, a case
    arising out of the civil war, was like the present, an action of debt based on
    a covenant to pay rent contained in a lease. But, since the doctrine of
    frustration had not at that stage come into existence, the argument turned
    solely on the absolute and unconditional nature of the promise to pay the
    rent, and the applicability to the estate in land created by the demise of
    any such doctrine did not arise.

    It is generally accepted that the doctrine of frustration has its roots in
    the decision of the court of Queen's Bench given by Blackburn J. in Taylor
    v. Caldwell (1863) 3 B & S 826. In that case, the parties to the contract
    had used terms appropriate to the relationship of landlord and tenant
    describing the money payment as " rent" and the transaction as a
    " letting". But, after analysing the facts, Blackburn J. decided that the
    true nature of the transaction was not one of landlord and tenant but
    one of licensor and licensee. He then added, cryptically, the words:
    " Nothing, however, in our opinion depends on this ". I am inclined to
    think that by these words he was in effect taking the view which I myself
    am about to express, but, as counsel for the respondents firmly pointed
    out when I put the point to him in argument, they are capable of a more
    neutral meaning, viz., that since the question of demise did not arise in
    the case before the court, it did not call for decision. I am content to
    assume, though I am inclined to the contrary view, that this is right.

    At least five theories of the basis of the doctrine of frustration have been
    put forward at various times, and, since the theoretical basis of the
    doctrine is clearly relevant to the point under discussion, I enumerate them
    here. The first is the " implied term ", or " implied condition " theory on
    which Blackburn J. plainly relied in Taylor v. Caldwell, as applying to
    the facts of the case before him. To these it is admirably suited. The
    weakness, it seems to me, of the implied term theory is that it raises once
    more the spectral figure of the officious bystander intruding on the parties at
    the moment of agreement. In the present case, had the officious bystander
    pointed out to the parties in July 1974 the danger of carrying on the
    business of a commercial warehouse opposite a listed building of doubtful
    stability and asked them what they would do in the event of a temporary
    closure of Kingston Street pending a public local inquiry into a proposal
    for demolition after the lease had been running for over five years, I have
    not the least idea what they would have said, or whether either would
    have entered into the lease at all. In Embiricos v. Sydney Reid & Co. [1914]
    3 K.B. 45 at 54 Scrutton J. appears to make the estimate of what
    constitutes a frustrating event something to be ascertained only at the time
    when the parties to a contract are called on to make up their minds, and
    this I would think, to be right, both as to the inconclusiveness of hindsight
    which Scrutton J. had primarily in mind and as to the inappropriateness of
    the intrusion of an officious bystander immediately prior to the conclusion of
    the agreement.

    Counsel for the respondent sought to argue that Taylor v. Caldwell could
    have as easily been decided on the basis of a total failure of consideration.
    This is the second of the five theories. But Taylor v. Caldwell was clearly
    not so decided, and in any event many, if not most, cases of frustration
    which have followed Taylor v. Caldwell have occurred during the currency
    of a contract partly executed on both sides, when no question of total
    failure of consideration can possibly arise.


    4

    In Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510
    Lord Sumner seems to have formulated the doctrine as a " device (sic) by
    " which the rules as to absolute contracts are reconciled with a special
    " exception which justice demands " and Lord Wright in Denny, Mott &
    Dickson Ltd.
    v. James B. Fraser & Co. Ltd. [1944] AC 265 at 275 seems
    to prefer this formulation to the implied condition view. The weakness of
    the formulation, however, if the implied condition theory, with which Lord
    Sumner coupled it, be rejected is that, though it admirably expresses the
    purpose of the doctrine, it does not provide it with any theoretical basis at all.

    Hirji Mulji v. Cheong Yue Steamship Co. Ltd. is, it seems to me, really
    an example of the more sophisticated theory of" frustration of the adventure "
    or " foundation of the contract" formulation, said to have originated with
    Jackson v. Union Marine Insurance Co. Ltd. (1874) L.R. 10 C.P. 125, cf.
    also e.g. per Goddard J. in W. J. Tatem Ltd. v. Gamboa [1939] 1 K.B. 132
    at 138. This, of course, leaves open the question of what is, in any given
    case the foundation of the contract or what is " fundamental " to it, or what
    is the " adventure ". Another theory, of which the parent may have been
    Lord Loreburn in Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum
    Co.
    [1916] 2 A.C. 397, is that the doctrine is based on the answer to the
    question: " What in fact is the true meaning of the contract? " See Tamplin
    Steamship Co. Ltd.
    v. Anglo Mexican Petroleum Co. [1916] 2 A.C. 397, 404).
    This is the " construction theory ". In Davis Contractors Ltd. v. Fareham
    U.D.C.
    [1956] AC 696 at 729 Lord Radcliffe put the matter thus, and it
    is the formulation I personally prefer:

    " 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. Non haec in foedera veni. It was
    " not this that I promised to do ".

    Incidentally, it may be partly because I look at frustration from this point
    of view, that I find myself so much in agreement with my noble and learned
    friends that the appellants here have failed to raise any triable issue as to
    frustration by the purely temporary, though prolonged, and in 1979,
    indefinite, interruption, then expected to last about a year, in the access to
    the demised premises. In all fairness however, I must say that my approach
    to the question involves me in the view that whether a supervening event
    is a frustrating event or not is, in a wide variety of cases, a question of
    degree, and therefore to some extent at least of fact, whereas in your
    Lordships' House in Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H.
    [1962] A.C. 93 the question is treated as one at least involving a question
    of law, or, at best, a question of mixed law and fact. For a discussion of
    the apparent inconsistency of this view with the verdict of the jury in Jackson
    v. Union Marine Insurance Co. Ltd. (1874) L.R. 10 C.P. 125 see Professor
    Treitel's treatise on Contracts 5th Edition at p.671 when the author suggests
    that the reconciliation may lie in the distinction between primary and
    secondary facts now developing as the result of the disappearance of the
    civil jury.

    This discussion brings me to the central point at issue in this case which,
    in my view, is whether or not there is anything in the nature of an executed
    lease which prevents the doctrine of frustration, however formulated,
    applying to the subsisting relationship between the parties. That the point
    is open in this House is clear from the difference of opinion expressed in
    the Cricklewood case (supra) between the second Lord Russell of Killowen
    and Lord Goddard on the one hand, who answered the question affirmatively,
    and Viscount Simon and Lord Wright on the other, who answered it
    negatively, with Lord Porter reserving his opinion until the point arose
    definitively for consideration. The point, though one of principle, is a
    narrow one. It is the difference immortalised in H.M.S. Pinafore between
    "never" and "hardly ever", since both Lords Simon and Wright clearly
    conceded that, though they thought the doctrine applicable in principle to
    leases, the cases in which it could properly be applied must be extremely rare.

    5

    With the view of Viscount Simon and Lord Wright I respectfully agree.
    It is clear from what I have said already that, with Lord Radcliffe in the
    passage I have cited, I regard these cases as a subspecies of the class of
    case which comes so regularly before the courts, as to which of two
    innocent parties must bear the loss as the result of circumstances for which
    neither is at all to blame. Apart from the statute of 1943, the doctrine of
    frustration brings the whole contract to an end, and in the present case,
    apart from any adjustment under that Act and any statutory right to
    compensation under the closure order, the effect of frustration, had it been
    applicable, would have been to throw the whole burden of interruption
    for 20 months on the landlord, deprived as he would be of all his rent, and
    imposed, as he would have, upon his shoulders the whole danger of
    destruction by fire and the burden of reletting after the interruption. As it
    is, with the same qualification as to possible compensation, the tenant has
    to pay the entire rent during the period of interruption without any part of
    the premises being usable at all, together with the burden (such as it may
    be) of the performance of the other tenant's covenants which include
    covenants to insure and repair. These are no light matters.

    I approach the question first via the authorities, mainly catalogued in the
    report of the Cricklewood case at first instance and in the Court of Appeal.
    I need not analyse these in detail, but, your Lordships having done so in
    the course of argument, I must say that, although they all tend in that
    direction, they did not and they never did afford the court compelling
    authority for the proposition advanced. The point was not argued at all
    in front of Asquith J., and in the very short judgment of the Court of
    Appeal, the three cases cited London & Northern Estates Co. v. Schlesinger
    [1916] 1 K.B. 20, Whitehall Court Ltd. v. Ettlinger [1920] 1 K.B. 680,
    and Matthey v. Curling [1922] 2 A.C. 180 do not, I believe, on analysis
    constitute authority for the proposition. The most that can be said is that,
    as Lord Goddard said, the view that frustration did not apply to leases
    was widely held in the profession at the time and that Lord Atkinson in
    Matthey v. Curling [1922] 2 A.C. 180 at pp.233, 237 gave expression to
    the view that Whitehall Court v. Ettlinger (supra) was rightly decided. I
    agree here with what Lord Simon said on this at p.231 of the Cricklewood
    case (supra), and I would add that what was decided both in Whitehall
    Court (supra)
    and London and Northern Estates (supra) was no more than
    that the legal estate created by a lease that was not destroyed by wartime
    requisition and such requisition was not an eviction by title paramount.
    In the Court of Appeal I do not find that Bankes L.J. (at p. 185) or Younger
    L.J. (at p.210) were unequivocal on the present point at issue, and I note
    that Younger L.J. committed himself to the now untenable proposition
    that the doctrine of frustration was not to be extended. Atkin L.J. (who
    dissented) gave, at pp.199 and 200 important reasons for rejecting the
    " never " principle and in Cricklewood at p.230 Viscount Simon expressly
    approved the crucial paragraph in Atkin L.J.'s judgment in support of the
    " hardly ever " doctrine. Before us there was some discussion in argument
    of American cases, especially the liquor saloon cases based on prohibition,
    in some of which at least the frustration doctrine was applied to leases.
    We were also referred to the opinions of Laskin J. in Canada in Highway
    Properties Ltd.
    v. Kelly, Douglas & Co. Ltd. (1971) 17 D.L.R. (3d) 710,
    at p.721, and that of Isaacs J. in the Australian case of Firth v. Halloran
    (1926) 38 C.L.R. at p.269 (where, however, he appears to have differed
    from his colleagues), all of which favour the " hardly ever" doctrine.
    Reference was also made to text book authority. Megarry & Wade (4th
    edition) tend to the " never " view, but run into fairly heavy weather when
    they discuss the possible destruction of a flat on the higher floors of a
    tenement building (see p.675). Professor Treitel, after referring to Cusack-
    Smith
    v. London Corporation [1956] 1 W.L.R. at 1368 which in turn relied
    on Denman v. Brise [1949] 1 K.B. p.22 esp. at p.26 (the only case where
    frustration appears to have been advanced on behalf of a landlord) comes
    to the conclusion that the " never " position is only open to review at the
    level of the House of Lords but concludes that the " hardly ever " view

    6

    is intrinsically preferable. This also appears to be the opinion of the
    American writers Williston and Corbin and in England of Cheshire and
    Fifoot.

    I conclude that the matter is not decided by authority and that the
    question is open to your Lordships to decide on principle. In my view
    your Lordships ought now so to decide it. Is there anything in principle
    which ought to prevent a lease from ever being frustrated? I think there is
    not. In favour of the opposite opinion, the difference in principle between
    real and chattel property was strongly urged. But I find it difficult to accept
    this, once it has been decided, as has long been the case, that time and
    demise charters even of the largest ships and of considerable duration can
    in principle be frustrated. This was sufficiently well established by 1943
    to make these charters worthy of an express exception upon an exception
    in the Law Reform (Frustrated Contracts) Act 1943 section 2(5), and since
    then the Suez cases have supervened. There would be something anomalous
    in the light of what has been going on recently in the Shatt el Arab to
    draw a distinction between a leased oil tanker and a demise-chartered oil
    tanker. Other anomalies would follow if the absolute principle were to be
    applied to leases. Golf J. appears to have found no difficulty in applying
    frustration to an agreement for a lease (which creates an equitable estate
    in the land capable of being specifically enforced and thereby converted
    into a legal estate operating as from the beginning of the equitable interest).
    See Rom Securities Ltd. v. Rogers (Holdings) Ltd. (1968) 205 Estates Gazette
    427. Personally I find the absurdities postulated by Megarry and Wade
    in the case of the destruction by fire of the upper flat of a tenement
    building (already referred to) unacceptable if the " never " doctrine were
    rigidly applied, and I am attracted by Professor Treitel's argument (at
    p.669 of the current edition of his work on contracts) of the inequitable
    contrast between a contract for the provision of holiday accommodation
    which amounted to a licence, and thus subject to the rule in Taylor v.
    Caldwell and a similar contract amounting to a short lease. Clearly the
    contrast would be accentuated if Goff J.'s view be accepted as to the
    applicability of the doctrine to agreements for a lease (see above).

    I accept of course that systems of developed land law draw a vital
    distinction between land, which is relatively permanent and other types
    of property which are relatively perishable. But one can overdo the
    contrast. Coastal erosion as well as the " vast convulsion of nature"
    postulated by Viscount Simon in Cricklewood (at p.229) can, even in this
    island, cause houses, gardens, even villages and their churches to fall into
    the North Sea, and, although the law of property in Scotland is different,
    as may be seen from Tay Salmon Fisheries Co. Ltd. v. Speedie 1929 S.C.
    593, whole estates can there, as Lord President Clyde points out at p.600,
    be overblown with sand for centuries and so fall subject to the rei interitus
    doctrine of the civil law. In Taylor v. Caldwell itself Blackburn J., after
    referring to the Digest on the subject of " obligatio de certo corpore " on
    which in part he founds his new doctrine, expressly says: (at p. 834)

    " No doubt the propriety, one might almost say the necessity, of
    " the implied condition is more obvious when the contract relates to
    " a living animal, whether man or brute, than when it relates to some
    " inanimate thing (such as in the present case a theatre) [emphasis
    " mine] the existence of which is not so obviously precarious as that
    " of the live animal, but the principle is adopted in the civil law as
    " applicable to every obligation of which the subject is a certain
    " thing ".

    He then refers to Pothier, Traite des Obligations partie 3. chap. 6. art. 3
    in support of his contention.

    No doubt a long lease, say for example one for 999 years, is almost
    exactly identical with the freehold for this purpose, and therefore subject
    to the ordinary law regarding the incidence of risk (recognised as regards
    chattels in section 7 of the former Sale of Goods Act 1893). But there
    is no difference between chattels in this respect and real property except

    7

    in degree. Long term speculations and investments are in general less
    easily frustrated than short term adventures and a lease for 999 years
    must be in the longer class. I find myself persuaded by the argument
    presented by Atkin L.J. in his dissenting judgment in Matthey v. Curling
    at p.200 and quoted with approval by Viscount Simon in Cricklewood at
    p.230. In that passage Atkin L.J. said:

    " It does not appear to me conclusive against the application to a
    " lease of the doctrine of frustration that the lease, in addition to
    " containing contractual terms, grants a term of years. Seeing that
    " the instrument as a rule expressly provides for the lease being
    " determined at the option of the lessor upon the happening of certain
    " specified events, I see no logical absurdity in implying a term that
    " it shall be determined absolutely on the happening of other events
    " namely, those which in an ordinary contract work a frustration."

    I pause here only to observe that, in the instant case, the lease gave the
    lessor a contingent right of determination in case of destruction by fire or
    in case of a need for the use of the premises in connection with the railways,
    and to point out that in the War Damage Acts the lessee was given a
    statutory right, albeit different in kind from the doctrine of frustration, to
    disclaim a current lease on the happening of other events as the result of
    enemy action.

    In the result, I come down on the side of the " hardly ever " school of
    thought. No doubt the circumstances in which the doctrine can apply to
    leases are, to quote Viscount Simon in Cricklewood at p.231, " exceedingly
    " rare ". Lord Wright appears to have thought the same, whilst adhering
    to the view that there are cases in which frustration can apply (ibid, p.241).
    But, as he said in the same passage:

    " The doctrine of frustration is modern and flexible and is not
    subject to being constricted by an arbitrary formula ".

    To this school of thought I respectfully adhere. Like Lord Wright, I am
    struck by the fact that there appears to be no reported English case where
    a lease has ever been held to have been frustrated. I hope this fact will
    act as a suitable deterrent to the litigious, eager to make legal history by
    being first in this field. But I am comforted by the reflexion of the
    authority referred to in the Compleat Angler (pt. i, ch. 5) on the subject
    of strawberries: " Doubtless God could have made a better berry, but
    doubtless God never did ". I only append to this observation of nature
    the comment that it does not follow from these premises that He never
    will, and if it does not follow, an assumption that He never will becomes
    exceedingly rash.

    In the event my opinion is that the appeal should be dismissed with costs.

    Lord Wilberforce

    My lords,

    There are two questions for decision in this appeal: (a) whether the
    doctrine of frustration can apply to a lease so as to bring it to an end if a
    frustrating event occurs; (b) whether, if so, in the circumstances the existing
    lease between the respondent and the appellant has been determined.

    The lease was dated 12th July 1974. The respondent as landlord let to
    the appellant as tenant a purpose-built warehouse in Hull for a term of ten
    years from 1st January 1974. The rent was £6,500 a year during the first
    five years, and for the remainder was to be the open-market rent of the
    demised premises let as a warehouse. In fact this was fixed at £13,300.

    There was a covenant by the tenant not without the landlord's consent to
    use the premises for any purpose than that of warehousing in connection
    with the tenant's business, or to assign, underlet, or part with possession.


    8

    There was only one access to the warehouse—along a street called
    Kingston Street. This would appear to be a public highway, but the land-
    lord purported to grant a right-of-way along it for all purposes connected
    with the occupation of the premises. On 16th May 1979 the City Council
    made an order under section 12(1) of the Road Traffic Regulation Act 1967
    closing Kingston Street for use with or without a vehicle. This was done
    because another warehouse, of the Victorian period and style, abutting on
    the street was in a dangerous condition. Because it was a listed building
    there were conservationist objections against its demolition. The order was,
    it appears, renewed by the Secretary of State, under the same Act on 15th
    August 1979 and again, purportedly, but with questionable validity, by the
    Council's Engineer under section 25 of the Public Health Act 1961. We
    must assume, at this stage, that all these acts of closure were valid and legal.
    I shall refer further to this matter when dealing with the second question.

    Because of this closure, which made the warehouse unusable for the only
    purpose for which it could be used under the lease, the appellant contended
    that the lease was frustrated, so that rent ceased to be payable. In an action
    for rent due, followed by a summons for summary judgment under
    RSC.O.XIV the master, upheld by the judge, held that the defence of
    frustration was not available as a matter of law. That the doctrine of
    frustration was not available to determine a lease had in fact been decided
    by the Court of Appeal in Leighton's Investment Trust Ltd. v. Cricklewood
    Property and Investment Trust Ltd.
    (the "Cricklewood" case) [1943]
    K.B. 493. An appeal was brought to this House but, on the question of
    law, their Lordships were divided, two Lords holding that the doctrine
    could be applied, two that it could not, and the fifth expressing no opinion.
    The House unanimously held, on the facts, that frustration had not occurred.
    The point is therefore open for decision.

    My Lords, the arguments for and against application of this doctrine are
    fully and cogently put in the rival speeches in the Cricklewood case, for its
    possible application by Viscount Simon L.C. and Lord Wright, against by
    Lord Russell of Killowen and Lord Goddard. I can therefore give fairly
    briefly the reasons which have persuaded me, on the whole, that the former
    ought to be preferred.

    1. The doctrine of frustration of contracts made its appearance in English
      law in answer to the proposition, which since Paradine v. Jane (1647)
      Aleyn 26 had held the field, that an obligation expressed in absolute and
      unqualified terms, such as an obligation to pay rent, had to be performed
      and could not be excused by supervening circumstances. Since Taylor v.
      Caldwell (1863) 3 B & S 826, it has been applied generally over the whole
      field of contract.

    2. Various theories have been expressed as to its justification in law: as
      a device by which the rules as to absolute contracts are reconciled with a
      special exception which justice demands, as an implied term, as a matter of
      construction of the contract, as related to removal of the foundation of the
      contract, as a total failure of consideration. It is not necessary to attempt
      selection of any one of these as the true basis: my own view would be that
      they shade into one another and that a choice between them is a choice of
      what is most appropriate to the particular contract under consideration.
      One could see, in relation to the present contract, that it could provisionally
      be said to be appropriate to refer to an implied term, in view of the grant
      of the right-of-way, or to removal of the foundation of the contract—viz. use
      as a warehouse. In any event, the doctrine can now be stated generally as
      part of the law of contract; as all judicially evolved doctrines it is, and ought
      to be, flexible and capable of new applications.

    3. In view of this generality, the onus, in my opinion, lies on those who
    assert that the doctrine can never apply to leases. They have at once to face
    the argument that it has been held to apply to demise charters of ships, (and
    presumably by analogy could apply to hirings of other chattels), and to
    licences for use (Krell v. Henry [1903] 2 K.B. 740 and other Coronation
    cases). So why not to leases of land? To place leases of land beyond a firm

    9

    line of exclusion seems to involve anomalies, to invite fine distinctions, or at
    least to produce perplexities. How, for example, is one to deal with agree-
    ments for leases? Refusal ever to apply the doctrine to leases of land must
    be based upon some firm legal principle which cannot be departed from:
    (compare Art. 62 of the Vienna Convention on treaties which excludes
    boundary disputes from the analogous doctrine in international law).

    4. Two arguments only by way of principle have been suggested. The
    first is that a lease is more than a contract: it conveys an estate in land.
    This must be linked to the fact that the English law of frustration, unlike
    its continental counterparts, requires, when it applies, not merely adjustment
    of the contract, but its termination. But this argument, by itself, is
    incomplete as a justification for denying that frustration is possible. The
    argument must continue by a proposition that an estate in land once granted
    cannot be divested—which, as Viscount Simon L.C. pointed out, begs the
    whole question.

    It was pointed out, however, by Atkin L.J. in Matthey v. Curling, in a
    passage later approved by Viscount Simon, that as a lease can be determined,
    according to its terms, upon the happening of certain specified events, there
    is nothing illogical in implying a term that it should be determined on the
    happening of other events—namely, those which in an ordinary contract
    work a frustration ([1922] 2 A.C. 200). It has indeed been held, with
    reference to an agreement for a lease, that this can be put an end to through
    implication of a term (Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1967)
    205 Estates Gazette 427, per Goff J.). So why, in the present case, for
    example, should an actual lease not be determinable by implication of a
    term? If so, it could hardly be suggested that a lease was not capable of
    frustration even though the theory of frustration had shifted to another
    basis.

    In the second place, if the argument is to have any reality, it must be
    possible to say that frustration of leases cannot occur because in any event
    the tenant will have that which he bargained for, namely, the leasehold
    estate. Certainly this may be so in many cases—let us say most cases.
    Examples are London & Northern Estates Co. v. Schlesinger [1916] 1 K.B.
    20, where what was frustrated (viz. the right of personal occupation) was
    not at the root of the contract, and requisitioning cases, e.g. Whitehall Court
    Ltd.
    v. Ettlinger [1920] 1 K.B. 680, where again the tenant was left with
    something he could use. But there may also be cases where this is not so.
    A man may desire possession and use of land or buildings for, and only
    for, some purpose in view and mutually contemplated. Why is it an
    answer, when he claims that this purpose is " frustrated " to say that he has
    an estate if that estate is unusable and unsaleable? In such a case the
    lease, or the conferring of an estate, is a subsidiary means to an end, not an
    aim or end of itself. This possible situation is figured, in fact, by Viscount
    Simon L.C. in Cricklewood.

    The second argument of principle is that on a lease, the risk passes to the
    lessee, as on a sale it passes to the purchaser (see per Lord Goddard hi
    Cricklewood). But the two situations are not parallel. Whether the risk—
    or any risk—passes to the lessee depends on the terms of the lease: it is not
    uncommon indeed, for some risks—of fire or destruction—to be specifically
    allocated. So in the case of unspecified risks, which may be thought to have
    been mutually contemplated, or capable of being contemplated by reasonable
    men, why should not the court decide on whom the risks are to lie? And
    if it can do this and find that a particular risk falls upon the lessor, the
    consequence may follow that upon the risk eventuating the lessee is released
    from his obligation.

    To provide examples, as of a 999-year lease during which a frustrating
    event occurs, or of those in decided cases (see above), to show that in such
    cases frustration will not occur is insufficient as argument. These examples
    may be correct: they may cover most, at least most normal, cases. But the
    proposition is that there can be no case outside them and that I am unable
    to accept.

    10

    5. I find the experience in the United States of America instructive. It
    is clear that in the common law jurisdictions of that country, the doctrine
    of frustration has developed and is still developing. It has been applied
    inter alia in connection with Prohibition and leases of liquor saloons, to
    leases. Yet neither of the well-known commentators Williston, or Corbin,
    sees any doctrinal objection to this. I quote one passage from Corbin:

    " In modern cases, there has been a tendency to treat a lease as
    " a contract instead of a conveyance, although in fact it is both at
    " once. The older allocation of risks does not now always seem just.
    " Many short-term leases have been made, in which the purpose of the
    " lessee was to conduct a liquor saloon, a purpose known to the
    " lessor and one which gave to the premises a large part of its rental
    " value. There followed the enactment of a ... prohibitory law
    " preventing the use of the premises for the expected purpose. The
    " prohibition law does not make it impossible or illegal for the lessee
    " to keep his promise to pay the rent . . . but it frustrates his purpose
    " of using the premises for a liquor saloon in the reasonable hope of
    " pecuniary profit. If the terms of the lease are such that the lessee is
    " restricted to this one use, it has been held in a considerable number
    " of cases that his duty to pay rent is discharged." (Corbin on
    Contracts (1951) Vol. 6, para. 1356.)

    Williston is to a similar effect, where it is pointed out that termination of
    a lease by frustration is more difficult to establish than termination of a
    mere contract (Williston on Contracts, 3rd Ed. (1978), para. 1955).

    There is a similar indication in Canada. The Supreme Court had to
    consider in 1971 the extent to which the contractual doctrine of wrongful
    repudiation could be applied to a lease—the argument being that the
    landlord was limited to remedies given by the law of property. In an
    instructive judgment Laskin J. said:

    " It is no longer sensible to pretend that a commercial lease, such
    " as the one before this court, is simply a conveyance and not also
    " a contract. It is equally untenable to persist in denying resort to
    " the full armoury of remedies ordinarily available to redress
    " repudiation of covenants, merely because the covenants may be
    " associated with an estate in land." Highway Properties Ltd. v. Kelly,
    Douglas & Co., Ltd.
    (1971) 17 DLR, 3rd, 710, 721.

    So, here is a route opened by common law jurisdictions, by which the
    result of frustration of leases may be attained. This may be wide, or
    narrow, or indeed very narrow: that we need not decide in advance. But
    it would be wrong to erect a total barrier inscribed " You shall not pass ".

    6. I can deal briefly with the authorities: they are one way (against
    application of the doctrine), they are partial. They decide that particular
    sets of facts do not amount to frustrating events. A judgment often quoted
    is that of Lush J. in Schlesinger's case (u.s.) where a lessee was unable to
    occupy the rented premises because he was an alien enemy:

    " As the contract could be performed without his personal residence,
    " the fact that his personal residence was prohibited by the Order did
    " not make the performance of the contract impossible. But there is,
    " I think, a further answer to the contention. It is not correct to
    " speak of this tenancy agreement as a contract and nothing more.
    " A term of years was created by it and vested in the appellant, and I
    " can see no reason for saying that because this Order disqualified him
    " from personally residing in the flat it affected the chattel interest which
    " was vested in him by virtue of the agreement." I.e. p.24.

    There is nothing to disagree with here—the argument may indeed be
    valid in many or most cases of leases. It is not expressed as one which
    must apply to all.

    The reasoning of this House in Matthey v. Curling [1922] 2 A.C. 180. is
    not " clear " or any authority that the doctrine of frustration does not apply
    to a lease (see per Lord Wright in Cricklewood 1.c. p.230). It was not

    11

    until Cricklewood that the argument was put on principle and fully explored.
    The governing decision (of the Court of Appeal) was summary, unargued,
    and based upon previous cases which will not bear the weight of a
    generalisation. I think that the movement of the law of contract is away
    from a rigid theory of autonomy towards the discovery—or I do not hesitate
    to say imposition—by the courts of just solutions, which can be ascribed to
    reasonable men in the position of the parties.

    It is said that to admit the possibility of frustration of leases will lead
    to increased litigation. Be it so, if that is the route to justice. But even
    if the principle is admitted, hopeless claims can always be stopped at an
    early stage, if the facts manifestly cannot support a case of frustration. The
    present may be an example. In my opinion, therefore, though such cases
    may be rare, the doctrine of frustration is capable of application to leases
    of land. It must be so applied with proper regard to the fact that a lease
    i.e. a grant of a legal estate is involved. The court must consider whether
    any term is to be implied which would determine the lease in the event
    which has happened and/or ascertain the foundation of the agreement
    and decide whether this still exists in the light of the terms of the lease,
    the surrounding circumstances and any special rules which apply to leases
    or to the particular lease in question. If the " frustrating event" occurs
    during the currency of the lease it will be appropriate to consider the
    Law Reform (Frustrated Contracts) Act 1943.

    I now come to the second question which is whether on the facts of the
    case the appellant should be given leave to defend the action: can it
    establish that there is a triable issue? I have already summarised the terms
    of the lease. At first sight, it would appear to my mind that the case
    might be one for possible frustration. But examination of the facts leads
    to a negative conclusion. The circumstances which it is claimed amount to
    a frustrating event are proved by affidavit evidence supplemented and
    brought up-to-date by other documents. They are as follows. The first
    order closing Kingston Street was made on 16th May 1979 to take effect
    from 18th May. The lease had then four years and six-and-a-half months to
    run. In his affidavit sworn on 20th September 1979 the appellant's solicitor
    stated that it was likely that " well over a year " would have elapsed before
    a decision could be made as regards the listed Victoria warehouse opposite
    the appellant's premises, the condition of which made the closure necessary.
    The Town Clerk of the City of Kingston-upon-Hull had written on
    7th August that it was probably unlikely that the matter could be resolved
    " within the next year ". It appears that a local enquiry was held into the
    future of the listed warehouse, and the Secretary of State on 20th March
    1980 approved the Inspectors' report and granted consent for its demolition.
    On 30th September 1980 the Town Clerk informed the lessors that the
    estimated date for completion of the demolition was " sometime in late
    December 1980 or early January 1981 ". I think it is accepted that the
    re-opening of Kingston Street would immediately follow.

    So the position is that the parties to the lease contemplated, when Kingston
    Street was first closed, that the closure would probably last for a year or a
    little longer. In fact it seems likely to have lasted for just over eighteen
    months. Assuming that the street is re-opened in January 1981, the lease
    will have three more years to run.

    My Lords, no doubt, even with this limited interruption the appellant's
    business will have been severely dislocated. It will have had to move
    goods from the warehouse before the closure and to acquire alternative
    accommodation. After reopening the reverse process must take place. But
    this does not approach the gravity of a frustrating event. Out of ten
    years it will have lost under two years of use: there will be nearly three
    years left after the interruption has ceased. This is a case, similar to others,
    where the likely continuance of the term after the interruption makes it
    impossible for the lessee to contend that the lease has been brought to an
    end. The obligation to pay rent under the lease is unconditional, with a
    sole exception for the case of fire, as to which the lease provides for a

    12

    suspension of the obligation. No provision is made for suspension in any
    other case: the obligation remains. I am of opinion therefore that the lessee
    has no defence to the action for rent, that leave to defend should not be
    given and that the appeal must be dismissed.

    Lord Simon of Glaisdale

    my lords,

    By a lease dated 12th July 1974 the respondents as landlord let to the
    appellants (who carry on business of warehousing) as tenant premises which
    were described in the lease as " warehouse premises . . . comprising
    warehouse no. 2 ". Included in the demise was " a right of way for purposes
    " connected with the occupation of the said premises . . . ": this was
    along a road called Kingston Street, the only road giving access to the
    premises. The lease was for 10 years as from 1st January 1974 at a
    rent of £6,500 during the first 5 years of the term: as for the remainder,
    a rent review clause provided that " the yearly rent payable during the last
    " 5 years of the said term . . . shall be the fair yearly rent of the said
    " premises let in the open market for the purpose of a warehouse at the
    " commencement of such period ", being determinable by arbitration in
    default of agreement. The landlord's reservation of services was subject
    to compensation to the tenant for disturbance of the tenant's business.
    Amongst other tenant's covenant's (mostly common form) were the
    following: —

    " (5) To insure and keep insured the said premises to the full value
    " thereof . . .in the joint names of the landlord and the tenant against
    " loss or damage by fire and such other risks as may from time to time
    " be required by the landlord . . .

    " (13) Not to do or omit to do or suffer to be done or omitted to be
    " done in or upon the said premises any act or thing which will render
    " any increased or extra premium payable for the insurance of the
    " said premises, or any adjoining property of the landlord . . . provided
    " always that the tenant's business of warehousing to be carried on
    " upon the premises shall not constitute any such act or thing as is
    " referred to in this clause and the tenant shall not be liable in respect
    " of any increased premiums by virtue of activities in accordance with
    " the ordinary course of such business.

    " (15) Not without the consent in writing of the landlord to use the
    " said premises or any part thereof or permit or suffer the same to be
    " used for any other purpose than that of warehousing in connection
    " with the tenant's business and in particular that they shall not be used
    " for residential purposes or for any person to sleep thereon or in any
    " manner which would constitute a change of use under the Town and
    " Country Planning Acts.

    " (17) That no act or thing which shall or may be or become a
    " nuisance [etc.] to the landlord or the landlord's tenants [etc.] shall
    " be done upon the said premises or any part thereof save that any
    " activities properly carried on in the ordinary course of the tenant's
    " business shall not constitute a breech of this clause.

    " (20) Not to use or permit or suffer to be used the said premises
    " or any part thereof as a factory or workshop . . ."

    By clause 3 the landlord covenanted in usual terms for the tenant's
    quiet enjoyment of the premises during the term.

    Clause 4(1) is the rent review clause. Clause 4(2) deals with destruction
    or damage by fire. It provides for abatement of the rent pending
    reinstatement, and for the landlord's right to determine the tenancy in the
    event of complete destruction or substantial damage by fire of the demised
    premises or the landlord's adjoining property. Clause 4(3) provides for the

    13

    landlord's right to determine in the event of the premises being " required
    " in connection with the proper operation of the British Railways undertaking
    " and Part III of the Landlord and Tenant Act 1954 shall not apply."

    The rent review clause was in fact operated so that the yearly rent for the
    last 5 years of the term was agreed to be £13,300.

    The lease makes it clear that the parties contemplated that the demised
    premises, which were purpose-built as a warehouse, should be used as such
    throughout the term; rent was geared to this use; and no other use was
    contemplated.

    The demised warehouse has a loading bay and large doors at the
    entrance from Kingston Street. Immediately opposite stood a large derelict
    Victorian warehouse, a building listed by the Department of the Environment.
    The Kingston upon Hull City Council believed that building to be a
    dangerous structure; and they applied to the Secretary of State for the
    Environment for listed-building consent to demolish it: this must have
    been some time between April 1978 and July 1979. Demolition was
    opposed by a number of conservation groups; and at the time the evidence
    was filed (September 1979) the Secretary of State was to appoint a Public
    Inquiry into the matter. In April 1978 the City Council made an order
    under section 12(1) of the Road Traffic Regulation Act 1967, as amended,
    restricting the passage of vehicular and pedestrian traffic in Kingston
    Street. On the 16th May 1979 the City Council made a further order, this
    time closing Kingston Street to all vehicular and pedestrian traffic from
    18th May 1979. The order of 16th May 1979 was continued by order of
    the Secretary of State for the Environment; and it was still effective when
    the evidence was filed. No question turns on the vires of these orders.
    There being no other form of access to the demised premises than along
    Kingston Street, the closure of that street made it impossible for the
    appellants to continue to use the demised premises as a warehouse; nor have
    they used it for any other purpose.

    An affidavit sworn on behalf of the appellants deposed the opinion that
    in those circumstances well over a year would elapse between application
    for listed-building consent and the ministerial decision. An exhibited letter
    from the Town Clerk of 7th August 1979 stated that "it is probably
    " unlikely that the matter can be resolved within the next year." From
    evidence placed before your Lordships it appears that a Public Inquiry had
    been held in the meantime, that demolition of the derelict warehouse was
    sanctioned and that on the 30th September 1980 the Town Clerk informed
    the respondents that the estimated date for demolition was late December
    1980 or early January 1981, The appellants apparently accept that
    Kingston Street would thereupon be again open to all traffic.

    The appellants ceased to pay rent to the respondents as from 18th May
    1979, the date of total closure of the highway. By a writ issued on 9th July
    1979 the respondents demanded the rent which would have been due under
    the lease in the sum of £5,115.38. On 27th July 1979 the appellants filed
    a defence claiming that by reason of the closure of Kingston Street the
    lease had been frustrated on 18th May 1979, and they counterclaimed a
    declaration that the lease had been discharged by frustration. On 20th
    September 1979 Master Waldman heard the respondents' summons for
    summary judgment under RSC Order 14. He was bound by authority
    (Cricklewood Investment Trust Limited v. Leighton's Investment Trust
    Limited
    [1943] 1 K.B. 493; Denman v. Brise [1949] 1 K.B. 22) to hold
    that the submission that a lease could be discharged by frustration was not
    open to the appellants to argue to any court below your Lordships' House
    (see Cricklewood Property v. Leighton's Investment Trust Limited [1945]
    A.C.221). The appellants appealed from the order of the learned
    Master. Sheen J., being similarly bound by such authority, by consent
    dismissed the appeal; and, since the Court of Appeal would also be similarly
    bound, he granted the appellants a certificate under section 12 of the
    Administration of Justice Act 1969 (leapfrogging). An Appeal Committee
    of your Lordships' House in due course gave leave to appeal.


    14

    The appeal raises three questions: —

    1. Is the doctrine of frustration inherently incapable of application to
      a lease?

    2. If not inherently and generally inapplicable to leases, is the doctrine
      of frustration capable of applying to this lease in particular?

    3. If yes, have the appellants demonstrated a triable issue that this
      lease has been discharged by frustration?

    Unless the appellants can demonstrate that the answer to (1) is 'No', and
    to (2) and (3) ' Yes', the respondents are entitled to summary judgment,
    and the appeal must be dismissed.

    I. Frustration of a contract takes place when there supervenes an event
    (without default of either party and for which the contract makes no
    sufficient provision) which so significantly changes the nature (not merely
    the expense or onerousness) of the outstanding contractual rights and/or
    obligations from what the parties could reasonably have contemplated at
    the time of its execution that it would be unjust to hold them to the literal
    sense of its stipulations in the new circumstances; in such case the law
    declares both parties to be discharged from further performance.

    Whether the doctrine can apply to a lease is of more than academic
    interest, considerable though that is. In the Cricklewood Property case
    Viscount Simon, who favoured the extension of the doctrine to leaseholds,
    nevertheless considered it likely to be limited to cases where "some vast
    " convulsion of nature swallowed up the property altogether, or buried it
    " in the depth of the sea " (p.229). But I think this puts the matter too
    catastrophically, even in the case of a long lease. There are several places
    on the coast of England where sea-erosion has undermined a cliff causing
    property on the top of the cliff to be totally lost for occupation: obviously
    occupation of a dwelling house is something significantly different in nature
    from its aqualung contemplation after it has suffered a sea-change. And
    in the case of a short lease something other than such natural disaster—the
    sort of occurrence, for example, that has been held to be the frustrating event
    in a charter-party—might in practice have a similar effect on parties to a
    lease. Take the case of a demise-chartered oil tanker lying alongside an oil
    storage tank leased for a similar term, and an explosion destroying both
    together.

    The question is entirely open in your Lordships' House, as was recognised
    in the Cricklewood Property case. In my view a lease is not inherently
    unsusceptible to the application of the doctrine of frustration.

    In the first place, the doctrine has been developed by the law as an
    expedient to escape from injustice where such would result from enforcement
    of a contract in its literal terms after a significant change in circumstances.
    As Lord Sumner said, giving the opinion of a strong Privy Council in
    Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510:

    " It is really a device, by which the rules as to absolute contracts are
    " reconciled with a special exception which justice demands. "

    Justice might make a similar demand as to the absolute terms of a lease.

    Secondly, in the words of Lord Wright in the Cricklewood Property
    case (p.241):

    ' The doctrine of frustration is modern and flexible and is not subject
    " to being constricted by an arbitrary formula ".

    It is therefore on the face of it apt to vindicate justice wherever owing to
    relevant supervening circumstances the enforcement of any contractual
    arrangement in its literal terms would produce injustice.

    Thirdly, the law should if possible be founded on comprehensive
    principles: compartmentalism, particularly if producing anomaly, leads to
    the injustice of different results in fundamentally analogous circumstances.
    To deny the extension of the doctrine of frustration to leaseholds produces
    a number of undesirable anomalies. It is true that theoretically it would


    15

    create an anomalous distinction between the conveyance of a freehold
    interest and of a leasehold of, say, 999 years. But it would be only in
    exceptional circumstances that a lease for as long as 999 years would in fact
    be susceptible of frustration. On the other hand, to deny the application of
    the doctrine would create an anomalous distinction between the charter of
    a ship by demise (see Blane Steamships Ltd. v. Minister of Transport [1951]
    2 K.B. 965; Law Reform (Frustrated Contracts) Act 1943. section 2(5) (a))
    and a demise of land: compare, for example, a short lease of an oil storage
    tank and a demise charter for the same term of an oil tanker of a peculiar
    class to serve such a storage tank, and a supervening event then frustrating
    the demise charter and equally affecting the use of the oil storage tank.
    Again, a time charter has much in common with a service tenancy of
    furnished accommodation. Then there would be the distinction between a
    lease and other chattel interests—say, under a hire-purchase agreement. But
    most striking of all is the fact that the doctrine of frustration undoubtedly
    applies to a licence to occupy land: see, e.g., Krell v. Henry [1903] 2 K.B.
    740 and the other Coronation cases. However, the distinction between a
    licence and a lease is notoriously difficult to draw, and, when it comes to the
    application of a doctrine imported to secure justice, even more difficult to
    justify. The point is well put by Treitel, the Law of Contract, 5th edition
    (1979) pp.669, 670. I am clearly of opinion that the balance of anomaly
    indicates that the doctrine of frustration should be applied to a lease.
    Moreover, I shall venture to refer later to the effect of an agreement to grant
    a lease operating to create an equitable term of years: if, as would seem
    to be the case, the doctrine of frustration applies to such an agreement, there
    would be yet another anomaly.

    Fourthly, a number of theories have been advanced to clothe the doctrine
    of frustration in juristic respectability, the two most in favour being the
    " implied term theory " (which was potent in the development of the doctrine
    and which still provides a satisfactory explanation of many cases) and the
    " theory of a radical change in obligation " or " construction theory " (which
    appears to be the one most generally accepted today). My noble and learned
    friends who have preceded me have enumerated the various theories; and
    the matter is discussed in Chitty on Contracts, 23rd Edition (1968), volume 1,
    pp. 585-592. Of all the theories put forward the only one, I think,
    incompatible with the application of the doctrine to a lease is that which
    explains it as based on a total failure of consideration. Though such may
    be a feature of some cases of frustration, it is plainly inadequate as an
    exhaustive explanation: there are many cases of frustration where the
    contract has been partly executed. (I shall deal later with the argument
    that " the foundation of the contract" in a lease is the conveyance of the
    term of years, which is accomplished once for all and can never be
    destroyed.)

    Fifthly, a lease may be prematurely determined in a considerable variety
    of circumstances. Perhaps forfeiture by denial of title is the most relevant
    (though now largely of historical interest), since it depended on a rule of law
    extraneous to any term of the lease or to agreement of the parties whereby
    the lease was prematurely discharged. I can see no reason why a rule of
    law should not similarly declare that a lease is automatically discharged on
    the happening of a frustrating event.

    Sixthly, it seems that authorities in some other common law jurisdictions
    have felt no inherent difficulty in applying the doctrine of frustration to a
    lease. This appears especially in the American cases on the frustration of
    leases of premises to sell liquor by the advent of constitutional Prohibition
    (see Corbin on Contracts, 1951 ed., volume 6, pp.338 et seq. for a general
    discussion and pp.388-390 for a discussion of the Prohibition cases in
    particular). Corbin's summary (p.391) has relevance to such a lease as is
    under your Lordships' instant consideration:

    " If there was one principal use contemplated by the lessee, known
    " to the lessor, and one that played a large part in fixing rental value,
    " a governmental prohibition or prevention of that use has been held

    16

    " to discharge the lessee from his duty to pay the rent. It is otherwise
    " if other substantial uses, permitted by the lease and in the
    " contemplation of the parties, remain possible to the lessee. "

    (See also the passage quoted by my noble and learned friend, Lord
    Wilberforce). Then there is the judgment of Isaacs J. in Firth v. Halloran
    (1926) 38 C.L.R. 261, 269. Less directly in point, but important and
    relevant for its general reasoning, is the judgment of the Canadian Supreme
    Court delivered by Laskin J. in Highway Properties Ltd. v. Kelly Douglas
    & Co. Ltd.
    (1971) 17 D.L.R. 3rd 710, holding that the contractual doctrine
    of repudiation, with its remedies independent of the landlord/tenant
    relationship, is applicable to a lease.

    Lastly, then, from Laskin J.'s judgment (p.721):

    " It is no longer sensible to pretend that a commercial lease ... is
    " simply a conveyance and not also a contract."

    The doctrine of frustration, no less than the doctrine of repudiation, is
    applicable to a contract. It must therefore be determined whether there is
    anything in a lease-as-conveyance which repels the doctrine of frustration
    inherent in the lease-as-contract—outweighing the demands of justice, of
    consistency, of juristic theory accounting for the doctrine, of analogy and
    of authoritative opinion in other common law jurisdictions.

    I therefore turn to consider the arguments to the contrary. Counsel for
    the respondents advanced six arguments of principle against the extension
    of the doctrine of frustration to a lease. I shall not here set them out:
    they will, I trust, appear when this appeal is fully reported. Several would,
    it seems to me, apply equally to a licence to occupy land and/or to the
    charter of a ship, both unquestionably susceptible of frustration. I shall
    consider the others along with the arguments collected from the speeches
    of Lord Russell of Killowen and Lord Goddard in the Cricklewood Property
    case. The arguments are, I think, fourfold:

    1. The lease itself is the "venture" or "undertaking" on which the
      parties have embarked. In so far as the lease is contractual, the
      " foundation " of the contract is the transfer of the landlord's possession
      of the demised property for a term of years in return for rent; that happens
      once for all on the execution of the lease; so that its contractual
      " foundation " is never destroyed.

    2. The lease is more than a contract: it creates a legal estate or interest
      in land; and, added counsel for the respondents, it operates in rem.

    3. The contractual obligations in a lease are merely incidental to the
      relationship of landlord and tenant.

    4. On the conveyance the " risk " of unforeseen events passes to the
      lessee, as it does to the purchaser of land.

    I presume to think that the third proposition adds nothing to the first
    two, from which it necessarily follows if they are valid. As for the lease
    itself being the " venture " or " undertaking " the same might be said of
    a licence or of a demise charter. So, too, it may be said that the
    " foundation " of a demise charter is that the shipowner parts with his
    possession of the demised property for a term of years in return for hire.
    In truth, " venture ", " undertaking " and " foundation " are picturesque
    or metaphorical terms: though useful in illuminating the doctrine, they
    are too vague to be safe for juristic analysis. The real questions, in my
    respectful submission, are the second and fourth—namely, whether the fact
    that a legal estate or interest in land has been created makes a lease
    inherently unsusceptible of the application of the doctrine of frustration,
    and that the risk of what might otherwise be a frustrating event passes
    irrevocably to the lessee on execution of the lease.

    As for the significance of the creation of a legal estate or interest in
    land, it is convenient to note at this stage the case of an agreement to grant

    17

    a lease. This can operate to create an equitable term of years (Walsh v.
    Lonsdale (1882) 21 Ch.D. 9). Cheshire's Modern Law of Real Property,
    12th ed. (1976), p.388, states specifically:

    " An equitable term of years may pass to the person who holds
    " under a contract for a lease." (book's italics.)

    See also Megarry & Wade, The Law of Real Property, 4th ed. (1976),
    pp.625 et seq. So take the case of an agreement to grant a lease of a
    house on a clifftop which, before execution of any lease, collapses into
    the sea. It was conceded that equity would not grant specific performance
    at the suit of the prospective lessor, the subject-matter having disappeared.
    Nor, since the subject-matter of the agreement cannot now be delivered,
    could he recover damages for breach of contract. Nor could any obligation
    to pay rent be enforced, since rent is payable under the lease, which will
    not now be decreed. Faced with this situation, counsel for the respondents
    gave two alternative answers: first, the doctrine of frustration is not
    applicable to an agreement for a lease; and, secondly, if it is. it does not
    apply after the conveyance. But in the postulated case no conveyance
    follows; and in any case the second answer is a mere reiteration of the
    general conclusion (which is in question) that the doctrine of frustration
    does not apply to a lease. As for the first alternative, the situation involves
    that the agreement for a lease has been frustrated de facto—it cannot be
    further performed, and neither party has any obligation to or remedy
    against the other. It would be ridiculous for the law to close its eyes to
    the reality of this situation or to refuse it its proper name. Moreover, an
    agreement to grant a lease is certainly an interest in land; it is registrable
    as an estate contract Class C (iv): see Land Charges Act 1925, section 10;
    Land Charges Act 1972, section 2(4). So here we have the case of an
    agreement being effectually discharged by frustration notwithstanding that
    it has created an estate or interest in land, albeit equitable. The rule can
    hardly depend on whether the estate or interest in land is legal or equitable :
    no one has so suggested; and it would create an even more absurd anomaly
    than those to which I have ventured already to refer.

    I cite Denny Mott & Dickson Ltd. v. James B. Fraser Ltd. [1944] A.C.
    265 with some hesitation, since your Lordships did not have the benefit
    of adversary argument on it. But it was a case where both a contract to
    grant a lease (which may have operated as a lease) and an option to
    purchase land were held to be frustrated. It is true that they were part
    of a larger agreement including trading arrangements which had been
    frustrated; but I do not think that this can affect the force of the decision
    as regards the frustration of the contract for a lease of (or the lease) and
    of the option. It is also true that it was a Scottish appeal; but Lord
    Macmillan (p.272) stated that the incidence of the Scots doctrine of
    frustration was the same as the English (though the consequences might
    be different); and none of their Lordships indicated that the decision
    depended on any peculiar rule of Scots land law.

    Again, although Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1967)
    205 Estates Gazette 427 was cited to your Lordships, no argument was
    developed on it. Goff J. was faced with an agreement for a lease entered
    into on the unexpressed assumption that relevant planning permission
    would be granted, whereas in the event it was refused. Though the learned
    judge " was far from satisfied that the doctrine of frustration could not be
    " applied to an agreement for a lease " at least before entry into possession,
    in fact he held that the agreement was discharged under an implied term
    that this should be the effect if planning permission was refused—that is,
    he applied a similar line of reasoning to that of Blackburn J., giving the
    judgment of the Court of Queen's Bench, in Taylor v. Caldwell (1863)
    3 B. & S. 826, the fons et origo of the modern doctrine of frustration. In
    my view Rom Securities was a case of frustration.

    I can for myself see nothing about the fact of creation of an estate or
    interest in land which repels the doctrine of frustration. It cannot be that
    land, being relatively indestructible, is different from other subject-matter

    18

    of agreement: that would perhaps make a lease so much the less likely to be
    frustrated in fact, but would not constitute inherent repugnance to the
    doctrine. In any case, we are concerned with legal interests in the land
    rather than the land itself. It cannot be because a lease operates in rem :
    so, for example, does a contract for seamen's wages, since that gives rise to
    a maritime lien, yet can presumably like other contracts for personal
    services be frustrated by ill-health or death. Moreover, the criterion of
    operation in rem hardly matches counsel's first submission on agreements
    for a lease, which operate in personam. It cannot be because, once vested,
    a lease cannot be divested except by agreement of the parties. That would
    be to beg the question: if frustration applies, it can be so divested.
    Moreover, as I have tried to demonstrate, quite apart from frustration it
    can be so divested by operation of law in the doctrine of denial of title.
    And, as my noble and learned friend, Lord Wilberforce, has pointed out,
    there is nothing illogical in implying a term in a lease that it shall be
    discharged on the occurrence of a frustrating event. Nor, finally, is it
    realistic to argue that on execution of the lease the lessee got all that he
    bargained for. The reality is that this lessee, for example, bargained, not
    for a term of years, but for the use of a warehouse owned by the lessor—just
    as a demise charterer bargains for the use of the ship.

    I turn, then, to the second main contention—namely, that the risk of
    unforeseen mischance passes irrevocably to the lessee at the moment of
    conveyance. This, too, begs the question whether the doctrine of frustration
    applies to leaseholds. If it does, such risk does not pass in all
    circumstances. Moreover, the sale of land is a false analogy. A fully
    executed contract cannot be frustrated; and a sale of land is characteristically
    such a contract. But a lease is partly executory: rights and obligations
    remain outstanding on both sides throughout its currency. Even a partly
    executed contract is susceptible of frustration in so far as it remains
    executory: there are many such cases in the books.

    As for the authorities, I have had the advantage of reading in draft
    the speeches of my noble and learned friends who have preceded me and
    of my noble and learned friend, Lord Roskill. I agree with, and beg to
    adopt, their analyses and conclusions. I would only add a comment on
    Paradine v. Jane (1647) Aleyn 26, since that seems to be the starting point
    of those who deny the applicability of the doctrine of frustration to leases.
    But it did not turn at all on the fact that a leasehold was in question. It
    went on the then prevalent rule of the law of contract that a party who

    " by his own contract creates a duty or charge upon himself, he is
    " bound to make it good, if he may, notwithstanding any accident by
    " inevitable necessity, because he might have provided against it by his
    " contract."

    A rule in such terms can hardly stand since the development of the doctrine
    of frustration.

    My conclusion on the first issue is therefore that the doctrine of frustration
    is in principle applicable to leases.

    II. Counsel for the appellants claimed that this was a " commercial
    " lease ", a class at any rate to which the doctrine of frustration is applicable.
    In a sense every lease is commercial insofar as it is a matter of business
    between landlord and tenant. On the other hand, a lease and its
    subject-matter may be more or less closely connected with commerce, trade
    or industry. The answer which I ventured to propose to the first issue
    facing your Lordships indicates my view that there is no class of lease to
    which the doctrine is inherently inapplicable. But, as with any other
    agreement, the terms and subject-matter of a lease will affect the
    circumstances in which it might be frustrated. The more commercial the
    character of an agreement, the more various are the circumstances in which
    it is liable to frustration.

    In a lease, as in a licence or a demise charter, the length of the unexpired
    term will be a potent factor. So too, as the American cases show, will be
    any stipulations about, particularly restrictions on, user. In the instant

    19

    case the lease was for a short term/and had only about four-and-a-half
    years to run at the time of the alleged frustrating event—the closure of
    Kingston Street. The demised premises were a purpose-built warehouse, and
    both parties contemplated its use as a warehouse throughout the term. This
    use, in Corbin's words, "played a large part in fixing rental value," as
    the rent review clause shows. After the closure of Kingston Street it could
    no longer be used as a warehouse. No " other substantial use, permitted
    " by the lease and in the contemplation of the parties," remained possible to
    the lessee.

    Therefore, although I do not think that there is any definable class of
    lease which is specifically susceptible of frustration, the facts of the case
    as I have summarised them in the previous paragraph indicate that this
    lease is very much the sort that might be frustrated in the circumstances
    that have occurred.

    HI. The question therefore arises whether the appellants have
    demonstrated a triable issue that the lease has been frustrated. The matter
    must be considered as it appeared at the time when the frustrating event
    is alleged to have happened. Commercial men must be entitled to act on
    reasonable commercial probabilities at the time they are called upon to
    make up their minds (Scrutton J. in Embiricos v. Sydney Reid & Co. [1914]
    3 K.B. 45, 54). What we know has in fact happened is, however, available
    as an aid to determine the reasonable probabilities at the time when decision
    was called for (Lord Wright in Denny Mott & Dickson Ltd. v. James B.
    Fraser & Co. Ltd.
    [1944] AC 265, 277, 278).

    Favourably to the appellant's case, the road would remain closed for
    " well over a year" from application for listed-building consent to
    demolition. Still more favourable is that it will in fact remain closed for
    some twenty months.

    The appellants were undoubtedly put to considerable expense and
    inconvenience. But that is not enough. Whenever the performance of a
    contract is interrupted by a supervening event, the initial judgment is
    quantitative—what relation does the likely period of interruption bear to
    the outstanding period for performance? But this must ultimately be
    translated into qualitative terms: in the light of the quantitative
    computation and of all other relevant factors (from which I would not
    entirely exclude executed performance) would outstanding performance in
    accordance with the literal terms of the contract differ so significantly from
    what the parties reasonably contemplated at the time of execution that
    it would be unjust to insist on compliance with those literal terms? In
    the instant case, at the most favourable to the appellants' contention, they
    could, at the time the road was closed, look forward to pristine enjoyment
    of the warehouse for about two-thirds of the remaining currency of the lease.
    The interruption would be only one-sixth of the total term. Judging by
    the drastic increase in rent under the rent review clause (more than doubled),
    it seems likely that the appellants' occupation towards the end of the first
    quinquennium must have been on terms very favourable to them, as it
    would probably be again at the end of the second. The parties can hardly
    have contemplated that the expressly-provided-for fire risk was the only
    possible source of interruption of the business of the warehouse—some
    possible interruption from some cause or other cannot have been beyond the
    reasonable contemplation of the parties. Weighing all the relevant factors,
    I do not think that the appellants have demonstrated a triable issue that
    the closure of the road so significantly changed the nature of the outstanding
    rights and obligations under the lease from what the parties could
    reasonably have contemplated at the time of its execution that it would be
    unjust to hold them to the literal sense of its stipulations.

    It follows that in my judgment the appellants fail on the third issue; and
    I would therefore dismiss the appeal.

    I would, however, presume to suggest that consideration should be given
    to whether the English doctrine of frustration could be made more flexible
    in relation to leases. The 1943 Act seems unlikely to vouchsafe justice in

    20

    all cases. As often as not there will be an all-or-nothing situation, the entire
    loss caused by the frustrating event falling exclusively on one party, whereas
    justice might require the burden to be shared. Nor is this situation
    confined to leases.

    Lord Russell of Killowen

    MY LORDS,

    I am prepared to accept that the termination of a lease may be involved
    in the frustration of a commercial adventure when, as merely incidental
    to the overall commercial adventure, and a subordinate factor, a lease
    has been granted. To that extent at least I accept that there may be
    frustration of a lease, and that the second answer of the Pinafore's captain
    on the subject of mal-de-mer is to be preferred to his first.

    But the instant case is in no way such a case. It is simply a lease of the
    land with the building on it. I cannot accept that it is to the point to say
    that the use to which it was assumed and intended that the building on
    the demised land was to be put was commercial. That does not bring the
    lease into the field of a commercial adventure, so as for that reason to
    bring it within the scope of frustration. The only adventure was the
    granting and acceptance of a demise of the land, as in the case of any
    lease, at a rent.

    Land is of its nature different from a chattel, however small the plot
    and however large the chattel. A leasehold interest is described as a
    chattel real, but that distinction touched only on questions of descent and
    inheritance. Originally perhaps sounding only in contract or covenant it
    has long since come to man's estate as a legal estate in land—indeed now
    one of the only two.

    Land has in general a quality of indestructibility lacking in any chattel.
    Under a grant of the freehold estate in the fee simple the land passes as
    to its surface and below its surface, and the airspace above, subject to
    exclusions, e.g. of minerals: though " flying" freeholds require special
    consideration. Under the grant of the leasehold interest the land similarly
    passes for its duration, subject to the ability to determine that duration by
    either the lessor or the lessee according to the terms of the lease. And I
    remark at this stage that I cannot see the force in the suggestion that,
    because according to its terms the lease may in certain circumstances be
    determined otherwise than by the expiry of its term, there can be no
    objection to its determination by application of the doctrine of frustration.

    Another distinction between the nature of land and of chattels is that in
    certain situations—riparian or by the seashore—there may be accretion
    to the land and therefore to the site comprised in the lease. A vessel
    under a so-called time charter demise can only acquire barnacles.

    It is my understanding of the law that the purchaser of land, whether
    for a freehold or a leasehold interest, takes the risk that it may be or may
    turn out to be less suitable or quite unsuitable for the purpose he has in
    mind, unless the vendor or lessor has taken upon himself by warranty or
    otherwise some liability in that event. A freehold purchaser cannot in
    that event, after completion, return the land and ask for his money back:
    though in an appropriate case he might be able to resist specific performance
    while the contract remained outstanding. So also in the case of a lease
    for which a premium has been paid in addition to rent: the lessee cannot
    require repayment of the premium and refuse to pay the rent: nor where
    there is no premium can he refuse to pay the covenanted rent.

    Under the bargain between lessor and lessee the land for the term has
    passed from the lessor to the lessee, with all its advantages and
    disadvantages. In the instant case a disadvantage existed, or rather
    supervened, in that access to the building preventing its use for any
    purpose was blocked by administrative action which we must assume was

    21

    legally permitted, and for which we were not told that any compensation
    could be claimed. If a principle of achieving justice be anywhere at the
    root of the principle of frustration, I ask myself why should justice require
    that a useless site be returned to the lessor rather than remain the property
    of the lessee? (It is not suggested that a just solution can be achieved by
    somehow sharing the bad luck between lessor and lessee by, for example,
    a reduction of rent.)

    I would reserve consideration of cases of physical destruction of flying
    leaseholds: and of the total disappearance of the site comprised in the
    lease into the sea so that it no longer existed in the form of a piece of
    terra firma and could not be the subject of re-entry or forfeiture. In that
    last case I would not need the intervention of any court to say that the
    term of years could not outlast the disappearance of its subject matter:
    the site would no longer have a freeholder lessor, and the obligation to
    pay rent, which issues out of the land, could not survive its substitution
    by the waves of the North Sea.

    It will be sufficiently seen from what I have said that I am not able to
    go so far as do your Lordships on the potential applicability of the doctrine
    of frustration to leases, and would with minor qualification adhere to the
    views expressed in the Cricklewood case in this House by Lord Russell of
    Killowen and Lord Goddard. These views expressed, as Lord Goddard
    said, the general view taken of the law by the profession, and there has
    been some statutory recognition of that view in giving relief to lessees
    where war damage had made the building on the leased site useless for its
    purpose as a dwelling house. In the instant case I would have denied a
    case of frustration even if the closing of the access to the site had followed
    only a year after the commencement of the lease and were to last for the
    whole of its remaining duration.

    Having regard to the powerful expressions of opinion of the others of
    your Lordships, I do not think that any useful purpose would be served
    by elaboration on my part

    I am, on the assumption that in general your Lordships are correct,
    entirely in agreement with the view that on the facts of this case, as now
    known, the appellant does not establish a triable issue of frustration, and
    accordingly I concur in the view that this appeal must be dismissed. I
    trust that those advising lessees will mark well the " hardly ever " approach,
    and that litigation will be little encouraged by this cautious departure from
    what may previously have been thought to be the law.

    Lord Roskill

    MY LORDS,

    The appellants are the lessees of a warehouse in Kingston Street, Hull, of
    which the respondents are the lessors. Their lease was dated the 12th July
    1974 and its term was 10 years from the 1st January 1974. It therefore expires
    on the 31st December 1983. It is beyond question that since the 18th
    May 1979 the appellants have been deprived of the beneficial use of the
    warehouse by the closure of Kingston Street both for vehicles and pedestrians,
    but their possession of the warehouse under the demise from the respondents
    has in no way been disturbed. It is not necessary in this appeal to consider
    precisely the powers under which the closure order was finally made, upon
    which the information before your Lordships' House was regrettably sparse.
    It can be assumed that that order was lawfully made and is still in force.
    The cause of the closure was the unsafe condition of a derelict Victorian
    warehouse opposite. That warehouse is now being demolished with
    permission and the recent correspondence placed before your Lordships
    shows that that demolition should be complete by the end of this year or
    the beginning of next. If this prediction proves accurate, the appellants
    will once again have the necessary access to their warehouse and its
    beneficial use will once again be available to them. Upon the basis of

    22

    those dates the appellants will have lost their beneficial use for about
    20 months. There was at the time of the first closure order just over
    4 1/2 years of the term of 10 years unexpired and there will be some 3 years
    remaining when the beneficial use is likely to be restored.

    The respondents have claimed rent throughout the period of closure.
    The obligation to pay rent is, it is said, absolute and unqualified and the
    risk of loss of beneficial use falls on the lessees. The appellants refused
    to pay. They claimed that their obligation to pay rent had come to an
    end because of frustration brought about by the closure of Kingston Street
    and the denial to them of the beneficial use of the warehouse. The
    respondents issued a writ on the 9th July 1979 in respect of rent due on
    the 1st April and 1st July 1979. Your Lordships were told that there was
    no dispute on figures and if the appellants are liable the sum due is that
    claimed. I would only observe that on any view of this case I find it difficult
    to see what defence there could be to the claim for rent due on the 1st April
    1979 since the event relied upon for excusing liability, namely the street
    closure order, did not take effect until the 18th May 1979 and under the
    lease rent was payable in advance. But if the appellants be right they
    would have a defence to the claim for rent for the quarter beginning the
    1st July 1979.

    The respondents sought judgment under Order 14. The learned master
    gave judgment for the amount claimed. The appellants appealed to the
    judge in chambers, Sheen J. That learned judge rightly dismissed the appeal
    on the 16th October 1979. Your Lordships were told that he did so
    without giving a reasoned judgment because he was bound by the decision
    of the Court of Appeal in Cricklewood Property & Investment Trust Ltd.
    v. Leighton's Investment Trust Ltd. [1943] K.B. 493 that as a matter of law
    the doctrine of frustration could not apply to a lease. Accordingly there
    could be no defence to the respondents' claim. The learned judge was
    clearly bound by that decision as the Court of Appeal would have been
    had the present appeal first proceeded to that court.

    The learned judge then certified under section 12 of the Administration
    of Justice Act 1969 that a point of law of general public importance was
    involved in respect of which he was bound by a decision of the Court of
    Appeal and accordingly gave the appellants a certificate for leave to present
    a petition of appeal to your Lordships' House. That petition your Lordships
    subsequently granted. The course so adopted, very naturally in the
    circumstances, has had the result that this important and long debated
    question of law—can a lease ever be frustrated—comes before your
    Lordships for decision in Order 14 proceedings without your Lordships
    having the benefit of judgments of the trial judge or of the Court of Appeal
    and on facts the supply of which has certainly been economical.

    My Lords, this question was last before your Lordships' House some 35
    years ago on appeal in the Cricklewood case [1945] A.C. 221. There
    were then sitting in your Lordships' House Viscount Simon L.C., the
    second Lord Russell of Killowen, Lord Wright, Lord Porter and Lord
    Goddard. All their lordships were agreed that if the doctrine of frustration
    could apply to a lease it did not apply to the building lease in question. But
    upon the issue now before your Lordships there was a sharp division of
    opinion, Viscount Simon L.C. and Lord Wright taking the view that the
    doctrine could apply to a lease, albeit extremely rarely, and the second
    Lord Russell of Killowen and Lord Goddard emphatically taking the view
    that it could never apply to a lease. Lord Porter declined to express a view,
    leaving the point to be decided when it arose for decision. My Lords,
    some 35 years later the point does arise for decision. In the interval there
    has been much debate and much learning which view should prevail.

    One thing at least is plain. This question has never yet been the subject
    of direct decision in your Lordships' House. My Lords, what is now
    called the doctrine of frustration was first evolved during the nineteenth
    century when notwithstanding the express language in which the parties
    had concluded their bargain the courts declined in the event which

    23

    occurred to hold them to the strict letter of that bargain. Taylor v. Caldwell
    (1863) 3 B & S 826; 122 ER 309 is perhaps the most famous mid-nineteenth
    century case, in which the relevant principle was laid down by Blackburn J.
    (as he then was) giving the judgment of the Court of Queen's Bench. The
    dispute in that case arose under a document which was expressed in the
    language of the lease but which was held to be a licence. There was no
    demise of the premises. But the licensee was relieved of his obligation to
    pay " rent" because of the fire which destroyed the premises and so made
    performance impossible. One can find what might be called anticipatory
    traces of the doctrine enunciated in Taylor v. Caldwell in some of the earlier
    nineteenth century cases, principally in relation to contracts of personal
    service made impossible of performance by death or illness, but no useful
    purpose would be presently served by reviewing them. What is important
    is not what happened before Taylor v. Caldwell but what happened
    thereafter.

    The doctrine evolved slowly especially in the field of commercial law.
    It was invoked in the Coronation cases. As late as Matthey v. Curling
    [1922] 2 A.C. 180, Younger L.J. (as he then was) said in the Court of Appeal
    at p.210 of the report that the doctrine of frustration was not one to be
    extended, a view much falsified in the event. It is interesting to observe,
    in view of the respondents' insistence that the doctrine had no application
    to a lease, that for a while it was thought that the doctrine had no application
    to the ordinary form of time charter party under which no possession passes
    to the time charterer. In Admiral Shipping Co. Ltd. v. Weidner Hopkins
    & Co.
    [1916] 1 K.B. 429 as experienced a judge as Bailhache J. expressed
    the view that this was so and some support for his view can be found in
    the speech of Lord Parker of Waddington in Tamplin's case [1916] 2 A.C.
    397 at pages 424/5. But your Lordships' House in Bank Line Ltd. v.
    Arthur Capel & Co. [1919] AC 435 determined the law beyond all
    doubt—that such a time charter-party could be determined by frustration if
    the facts of the particular case justified that conclusion. That decision did
    not, however, expressly at least, embrace a charter by demise where
    possession passes to the demise charterer and Mr. Godfrey Q.C. for the
    respondents was able to show that as recently as Blane Steamships Ltd. v.
    Minister of Transport [1951] 2 K.B. 965 counsel for the appellants were
    able—see page 975 of the report—on the strength of the Cricklewood case
    to argue (albeit wholly unsuccessfully) that the doctrine had no application
    to a charter by demise. It is now clear beyond question that the doctrine
    applies to time charters by demise as well as to other forms of time or
    voyage charter-parties.

    My Lords, I mention these matters for three purposes, first to show how
    gradually but also how extensively the doctrine has developed; secondly
    to show how, whenever attempts have been made to exclude the application
    of the doctrine to particular classes of contract, such attempts, though
    sometimes initially successful, have in the end uniformly failed and thirdly,
    albeit I hope without unnecessary reference to a mass of decided
    cases—many in your Lordships' House—the doctrine has at any rate in the
    last half century and indeed during and since the first World War been
    flexible, to be applied whenever the inherent justice of a particular case
    requires its application. The extension in recent years of Government
    interference in ordinary business affairs, inflation, sudden outbreaks of war
    in different parts of the world, are all recent examples of circumstances in
    which the doctrine has been invoked, sometimes with success, sometimes
    without. Indeed the doctrine has been described as a " device " for doing
    justice between the parties when they themselves have failed either wholly
    or sufficiently to provide for the particular event or events which have
    happened. The doctrine is principally concerned with the incidence of
    risk—who must take the risk of the happening of a particular event
    especially when the parties have not made any or any sufficient provision
    for the happening of that event. When the doctrine is successfully invoked
    it is because in the event which has happened the law imposes a solution,
    casting the incidence of that risk on one party or the other as the
    circumstances of the particular case may require, having regard to the express

    24

    provisions of the contract into which the parties have entered. The doctrine
    is no arbitrary dispensing power to be exercised at the subjective whim of
    the judge by whom the issue has to be determined. Frustration if it
    occurs operates automatically. Its operation does not depend on the
    action or inaction of the parties. It is to be invoked or not to be invoked
    by reference only to the particular contract before the court and the facts
    of the particular case said to justify the invocation of the doctrine.

    My Lords, I think it can at the present time be safely said that, leases and
    tenancy agreements apart, there is no class of contract in relation to which
    the doctrine could not be successfully invoked if the particular case justified
    its implication, however slow and however hesitant the common law may
    have been in developing the doctrine thus far. Clearly it is likely to be
    able to be more successfully invoked in some classes of case than others,
    for example, where the requisition of a ship under time charter which is
    likely to outlast the remaining period of the charter—e.g. Bank Line Ltd.
    v. Capel & Co. (supra), though not if the requisition is likely to be short in
    its duration—Port Line Ltd. v. Ben Line Steamers Ltd. [1958] 2 Q.B. 146.
    It will not often (if at all) be able to be successfully invoked by a seller of
    goods who is likely to invoke it on a rising market merely because the mode
    of performance contemplated when the contract was made proves impossible
    but some other and, according to the tribunal of fact, not fundamentally
    different but more expensive mode of performance remains available—
    Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H. [1962] A.C. 93 and the
    other Suez cases.

    If, therefore, this doctrine, developed as it has pragmatically and
    empirically, has advanced thus far by the last quarter of the twentieth
    century, I ask what the reasons are in principle why it should not now be
    held capable of embracing leases and tenancy agreements? Some of the
    reasons are certainly formidable and have undoubtedly attracted weighty
    support hi your Lordships' House from, the second Lord Russell of
    Killowen and Lord Goddard. First, it is said that the lessee has secured full
    consideration for his covenant to pay rent, namely the conveyance of the
    leasehold interest for the relevant term of years with all the attendant
    benefits and burdens. Then it is said that it is a basic principle of land: law
    not now to be disturbed hi your Lordships' House which has prevailed both
    in relation to the conveyance of freeholds and leases—that the incidence of the
    risk of accidents passes to the purchaser or lessee. Then it is said, quite
    correctly, that a lease creates an estate in land and third parties may acquire
    rights thereunder so that to apply the doctrine of frustration would or might
    destroy the interests of third parties against their wishes. It is also said that
    it is the lease and therefore the estate in land which is the adventure and that
    the attached contractual conditions are but ancillary provisions to that
    estate in land.

    But there are also formidable arguments the other way. The law should
    not be compartmentalised. In principle a common law doctrine ought not
    to be held capable of applying only in one field of contract but not hi
    another. To preserve the dichotomy between leases on the one hand and
    other types of contract on the other can undoubtedly create anomalies. Thus
    if a ship is demise-chartered for the purpose of storing oil and explodes
    without fault of either party, the demise charter would clearly be frustrated.
    If the same demise charterer also leases an adjacent shore installation for the
    same purpose and the same explosion destroys that installation along with
    the demise-chartered ship, rent for that storage installation would remain
    payable in full for the unexpired period of the lease though liability for
    demise charter hire had ceased upon the frustration of the demise charter
    party.

    My Lords, another consideration is surely this. There are many reported
    cases in recent years, especially in connection with attempts to avoid the
    operation of the Rent Acts, where disputes have arisen whether a particular
    agreement is a lease or tenancy agreement on the one hand or a licence on
    the other. Such cases often turn on narrow distinctions. But it is difficult
    to justify a state of the law which would uphold the application of the

    25

    doctrine of frustration where the agreement is held to be a licence but would
    deny the application of that doctrine where the agreement is held to be a
    lease or tenancy agreement In so stating I have not lost sight of the contrary
    anomaly to which my noble and learned friend Lord Russell of Killowen
    drew attention during the argument and which could in theory arise if the
    appellants' submissions are allowed to prevail; for their submission would
    deny the invocation of the doctrine where the conveyance was of a freehold
    but would allow its invocation, at least in legal theory if not in reality, if the
    conveyance were only of a lease for 999 years. Yet another consideration
    which is relevant is this. However much weight one may give to the fact
    that a lease creates an estate in land in favour of the lessee, in truth it is by
    no means always in that estate in land in which the lessee is interested. In
    many cases he is interested only in the accompanying contractual right to use
    that which is demised to him by the lease and the estate in land which he
    acquires has little or no meaning for him. In Professor Treitel's book on
    Contract (5th edition at pages 669-70) the learned author mentions the case
    of a cottage leased for a period as a holiday home. In many such cases the
    holiday maker's rights are not only a licence to use but include a demise
    with the concomitant right to exclusive possession. The holiday maker
    acquires an estate in land. But that, my Lords, has little meaning for him.
    He acquires that estate in land, it is true, but only in order to enjoy for a
    while that exclusive right to the demised premises for his holiday. I find it
    difficult to see why in principle such a lease should be incapable of being
    frustrated if the facts justify that result, especially as the doctrine would
    clearly be applicable had the holiday maker's rights derived from a licence
    and not from a lease.

    My Lords, if your Lordships are now to say that a lease can never be
    frustrated, it must be for some reason of policy. I unreservedly accept that
    hitherto whenever the argument that a lease can be frustrated has been
    advanced, that argument has failed. In passing it is interesting to note
    that, although all members of your Lordships' House thought otherwise,
    Asquith J. (as he then was), the trial judge in the Cricklewood case, would
    have held the building lease there in question to be frustrated had he felt
    free to hold that the doctrine was capable of application to leases.

    My Lords, in a matter of this kind while it is right for your Lordships
    to look back to the past, it is surely more important to look forward and
    consider what rule of law should henceforth prevail. Historic considerations
    alone cannot justify the preservation of a rule if that rule has ceased to
    serve any useful purpose and is unlikely to serve any useful purpose in
    the years immediately ahead.

    One submission in favour of preserving the old rule was that to hold
    that the doctrine is applicable to leases would encourage unmeritorious
    litigation by lessees denying liability for rent which was plainly due. This
    is the not unfamiliar " floodgates " argument invariably advanced whenever
    it is suggested that the law might be changed. My Lords, such an
    argument should have little appeal. If a defence of frustration be plainly
    unarguable, it will always be open to the master or judge in chambers so
    to hold and to give summary judgment for the lessors on the ground that
    the lessees have failed to show any arguable defence. I respectfully agree
    with Viscount Simon L.C. and Lord Wright in the Cricklewood case that
    the cases in which the doctrine will be able to be successfully invoked are
    likely to be rare, most frequently though not necessarily exclusively where
    the alleged frustrating event is of a catastrophic character. If that be so
    the " floodgates " argument ceases to have any weight.

    Your Lordships were referred to a decision of Goff J. (as he then was)
    in Rom Securities, Ltd. v. Rogers (Holdings) Ltd. (1968) 205 Estates
    Gazette 427, in which that learned judge expressed himself as far from
    satisfied that the doctrine of frustration could not be applied to an agree-
    ment for a lease. My Lords, if that view be right, as I think it is, and the
    doctrine is applicable to an agreement for a lease, I find it difficult to see

    26

    why a different view should apply in the case of a lease because in the
    latter case there has been a demise whereas in the former there has not;
    equity presumes that to have been done which should be done.

    Thus far, my Lords, I have sought to examine the crucial question on
    principle and without detailed regard to the many authorities to which
    your Lordships have referred. The three principal English cases relied
    upon by the respondents are London and Northern Estates Co. Ltd. v.
    Schlesinger
    [1916] 1 K.B. 20, Whitehall Court Ltd. v. Ettlinger [1920]
    1 K.B. 680, and Matthey v. Curling [1922] 2 A.C. 180. In the first of
    these cases Lush J. at page 24 stated as a ground for denying the
    applicability of the doctrine that a term of years has been created by the
    agreement in question, but the decision was plainly right upon the true
    construction of the lease and the facts of that case. The lease properly
    construed did not contemplate only personal residence by the defendant.
    Similarly Whitehall Court Ltd. v. Ettlinger was rightly decided on the true
    construction of the lease and the particular facts of that case. Like Lord
    Wright in the Cricklewood case I do not regard the passage in the judgment
    of Lord Reading C.J.—be it noted that it was an extempore judgment—
    at page 685 as holding that a lease Is incapable of frustration.

    My Lords, I think Mr. Godfrey Q.C. was right in saying that the genesis
    of the suggestion that a lease is capable of frustration lies in the dissenting
    judgment of Atkin L.J. (as he then was) in the Court of Appeal in Matthey
    v. Curling
    [1922] A.C. at 119/200. I have read and re-read the speeches
    in your Lordships' House. I am clearly of the view that the majority of
    your Lordships' House though disagreeing with that dissenting judgment
    were deciding that case (a singularly harsh decision from the tenant's point
    of view) by reference to the particular lease and the particular facts of the
    case. I do not think that decision in any way assists the determination of
    the present question. Nor, with respect, is any assistance to be gained
    from the Scottish case of Tay Salmon Fisheries Co. Ltd. v. Speedie 1929
    S.C. 593 which was decided under a system of law different in the crucial
    respect from that applicable to Matthey v. Curling. In my judgment the
    Court of Appeal in the Cricklewood case was wrong in asserting
    categorically that those three English cases to which I have referred were
    decisive in favour of the proposition that the doctrine of frustration had
    no application to a lease, even though in the first there is a dictum to that
    effect. I find myself in respectful agreement with what Viscount Simon
    L.C. and Lord Wright said with regard to those three cases.

    Your Lordships were referred to certain United States authorities collected
    in Williston on Contracts (3rd Edition 1978), volume 18, paragraph 1955.
    Clearly there are United States decisions —none it seems of the highest
    authority—both ways. Many of these cases arose from the Eighteenth
    Amendment and its effect upon leases of premises entered into solely for
    the sale of liquor. I respectfully doubt whether much help is to be gained
    from such decisions. It is however interesting to observe that Professor
    Corbin in his work on Contracts (1951 Edition), volume 6, paragraph 1356,
    takes the view at page 387 that the argument in favour of the non-
    applicability of the doctrine of frustration based upon the view that the
    lessee had assumed the risk " has long since ceased to be convincing"
    adding " Whether the frustration of the tenant's purposes operates in
    " discharge of his duty depends upon all the circumstances, especially upon
    " the extent of that frustration and the prevailing practices of men in like
    " cases."

    Your Lordships were helpfully referred to one Canadian and one
    Australian decision, the former of the Supreme Court of Canada, the latter
    of the High Court of Australia. In the former, Highway Properties Ltd. v.
    Kelly, Douglas & Co. Ltd. (1971) 17 D.L.R. (3d) 710 Laskin J. (as he then
    was) delivering the judgment of the Supreme Court, said:

    " There are some general considerations that support the view that
    " I would take. It is no longer sensible to pretend that a commercial
    " lease, such as the one before this court, is simply a conveyance and

    27

    " not also a contract. It is equally untenable to persist in denying resort
    " to the full armoury of remedies ordinarily available to redress
    " repudiation of covenants, merely because the covenants may be
    " associated with an estate in land. "

    In the latter case, Firth v. Halloran (1926) 38 C.L.R. 261, Isaacs J. (as he
    then was), though agreeing with other members of the court in holding
    that in a particular case there was no frustration, said at page 269:

    " I do not agree that, because the contractual obligation relied on by
    " the plaintiff is created by an instrument of lease, the doctrine of
    " frustration is necessarily excluded. The nature of the relation of
    " landlord and tenant, the history of the doctrine of frustration, its
    " inherent meaning and the judicial determination of relevant cases
    " would lead me to reject so sweeping a rule. Nor do I think the
    " consequences of terminating the relation of landlord and tenant any
    " more extraordinary than that of terminating any other legal relation
    " which by hypothesis is expressly and impliedly created on a mutual
    " and fundamental basis of existence or continuance which fails at
    " a given point. . . ."

    It is, however, right to say that he alone of the members of the High
    Court of Australia took that view and certainly two other members of that
    court agreed with the court below in holding that the doctrine had no
    application to a lease.

    My Lords, I do not find anything in these writings and decisions which
    affords a compelling reason for maintaining the view that the doctrine is
    inapplicable to leases. The inclination of these writings and decisions is to
    my mind the other way. The learned authors of Megarry & Wade's Law of
    Real Property
    (4th edition) at page 674, not surprisingly in view of the
    difference of opinion in the Cricklewood case, treat the question as open.

    My Lords, I do not find it necessary to examine in detail the
    jurisprudential foundation upon which the doctrine of frustration supposedly
    rests. At least five theories have been advanced at different times: see
    the speech of my noble and learned friend Lord Wilberforce in Liverpool
    City Council
    v. Irwin [1977] AC 239 at pages 253/4. At one time without
    doubt the implied term theory found most favour, and there is high
    authority in its support. But weighty judicial opinion has since moved
    away from that view. What is sometimes called the construction theory
    has found greater favour. But my Lords, if I may respectfully say so, I
    think the most satisfactory explanation of the doctrine is that given by
    Lord Radcliffe in Davis Contractors v. Fareham U.D.C. [1956] AC 696 at
    page 728. There must have been by reason of some supervening event
    some such fundamental change of circumstances as to enable the court to
    say—" this was not the bargain which these parties made and their bargain
    " must be treated as at an end " —a view which Lord Radcliffe himself
    tersely summarised in a quotation of five words from the Aeneid " non haec
    " in foedera veni".
    Since in such a case the crucial question must be
    answered as one of law—see the decision of your Lordships' House in the
    Tsakiroglou case—by reference to the particular contract which the parties
    made and to the particular facts of the case in question, there is, I venture to
    think, little difference between Lord Radcliffe's view and the so-called
    construction theory.

    My Lords, it follows that on the question of principle, I find it impossible
    to justify compartmentalisation of the law or to agree that the doctrine of
    frustration applies to every type of contract save a lease. I can see no
    logical difference between frustration of a demise charterparty and
    frustration of a lease. In principle the doctrine should be equally capable
    of universal application in all contractual arrangements. I therefore find
    myself in respectful agreement with the reasoning of Viscount Simon L.C.
    and Lord Wright and in respectful disagreement with the views of the
    second Lord Russell of Killowen and Lord Goddard in the Cricklewood
    case.

    28

    But to hold that the doctrine is capable of applying to leases does not
    mean that it should be readily applied. Viscount Simon L.C. and Lord
    Wright both indicated in the Cricklewood case some of the limitations to
    which the invocation of the doctrine would be subject. I respectfully agree
    with what was there said but I do not think any useful purpose would
    presently be served by attempting to categorise those cases where the
    doctrine might be successfully invoked and those where it might not.
    Circumstances must always vary infinitely. I am, however, clearly of the
    view in common with all your Lordships that the doctrine cannot possibly
    be invoked in the present case for the reasons given by my noble and learned
    friend Lord Wilberforce. I would therefore dismiss this appeal with costs.

    312948 Dd 8013619 170 12/80



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