Shipping – Charterparty Voyage - Explosion on ship without evidence of cause – Frustration of Voyage Charter - Liability of shipowners - Onus of proof.

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Cases referring to this case:

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154

For education purposes only

In August 1936, the appellants, who were the owners of a steamship the Kingswood, chartered the ship to the respondents for a voyage with a cargo of ores and concentrates from Port Pirie in South Australia to Europe. On January 3, 1937 while she was anchored in the roads at Port Pirie, and before she became ‘an arrived ship’, there was an explosion of extreme violence in the neighbourhood of her auxiliary boiler, which caused significant damage to the steamer. Following this accident the appellants gave notice to the respondents to the effect that she could not perform the charterparty. The respondents claim damages from the appellants under allegation that the latter have broken the charterparty by failing to load a cargo. The appellants soutght the defence in that the contract was ‘frustrated’ by the destructive consequences of the explosion on the Kingswood.

The respondents, contended in reply, that this frustration does not suffice to excuse the appellants from having to pay damages for non- performance unless the appellants establish affirmatively that the explosion occurred without any fault on their part. The appellants, on the other hand, contend that, once the frustrating event is proved, the onus is on the respondents to establish such default on the part of the appellants as would deprive the latter of their right to rely upon it.

The learned arbitrator has made an interim award in the form of a special case. He concluded that he was not satisfied that any of the servants of the appellants were guilty of negligence nor was he satisfied that negligence on the part of the servants of the appellants did not cause or contribute to the disaster. In the High Court Atkinson J. decided that the present appellants succeeded but the Court of Appeal reversed Atkinson J.’s decision. Scott L.J. delivered the first judgment, with which the Master of the Rolls and Goddard L.J. agreed.

In the House of Lords, before Viscount Simon L.C., Viscount Maugham, Lord Russell of Killowen, Lord Wright and Lord Porter. 1941 Feb. 20, 21; May 9.

Viscount Simon L.C. at p.161, 163-164:

The question here is where the onus of proof lies; i.e. whether, when a supervening event has been proved which would, apart from the defendant’s "default" put an end to the contract, and when at the end of the case no inference of "default" exists and the evidence is equally consistent with either view, the defence fails because the defendant has not established affirmatively that the supervening event was not due to his default. … In this connection it is well to emphasize that when "frustration" in the legal sense occurs, it does not merely provide one party with a defence in an action brought by the other. It kills the contract itself and discharges both parties automatically.

The doctrine of discharge from liability by frustration has been explained in various ways - sometimes by speaking of the disappearance of a foundation which the parties assumed to be at the basis of their contract, sometimes as deduced from a rule arising from impossibility of performance, and sometimes as flowing from the inference of an implied term. Whichever way it is put, the legal consequence is the same. The most satisfactory basis, I think, on which the doctrine can be put is that it depends on an implied term in the contract of the parties. … It has the advantage of bringing out the distinction that there can be no discharge by supervening impossibility if the express terms of the contract bind the parties to performance notwithstanding that the supervening event may occur. Discharge by supervening impossibility is not a common law rule of general application, like discharge by supervening illegality; whether the contract is terminated or not depends on its terms and the surrounding circumstances in each case. Moreover, it seems to me that the explanation of supervening impossibility is at once too broad and too narrow. Some kinds of impossibility may in some circumstances not discharge the contract at all. On the other hand, impossibility is too stiff a test in other cases - for example, if the coronation cases, such as Krell v Henry, are to be regarded as rightly decided on their facts, the explanation of such contracts coming to an end is not to be classed as due to impossibility, for the seats let remained available and the actions in those cases were brought for the payment or return of money. Every case in this branch of the law can be stated as turning on the question whether from the express terms of the particular contract a further term should be implied which, when its conditions are fulfilled, puts an end to the contract.

Viscount Maugham at p.169-170:

The doctrine of frustration has been considered in more than fifty reported cases, the references to which will be found in the article on Contracts (for which a very eminent author is responsible) in Halsbury’s Laws of England, 2nd ed., vol. vii., p. 215 et seq., and one would have thought that there was nothing in principle left to be determined by the courts. It is a singular circumstance that there is not, so far as counsel could ascertain, a single case in which the question of onus appears to have been distinctly raised till the present case. The importance of the matter, therefore, can easily be exaggerated. However, your Lordships have now to decide the point, and it is fortunately one of considerable interest.
A consideration of the reported cases, and in particular of those decided in this House, leads me to state four propositions which I think bear upon the problem:

First, whether or not the doctrine rests simply on a term or condition to be implied in the contract itself as a matter of its true construction, or whether it is otherwise to be explained (e.g., by a legal presumption) it is clear that it is based on the presumed common intention of the parties. The consequences of the application of the doctrine are the same in either case. The present question can, therefore, be tested by asking what term or condition as to onus of proof ought to be implied here in relation to the destruction of the vessel.

Secondly, if the doctrine is held applicable, the legal result is that the event in question frustrated the commercial adventure and ‘brought the contract to an end forthwith and automatically’.

Thirdly, ‘whatever the consequences of the frustration may be upon the conduct of the parties, its legal effect does not depend on their intention or their opinions or even knowledge as to the event.’ Its mere occurrence is taken to show that further prosecution of the adventure under the contract is impossible. In both these propositions I am citing the words used by Lord Sumner in Hirji Mulji v Cheong Yue Steamship Co., Ld. [1926] A. C. 497, 505, 507, 509.
Fourthly, each party is left in the position he was in when the event occurred, and legal rights already accrued under the contract are unaffected.

… My Lords, if the principle of frustration is that the contract automatically comes to an end irrespective of the wishes of either party, provided only that the event is "caused by something for which neither party was responsible" (see Maritime National Fish, Ld. v Ocean Trawlers, Ld. [1935] A. C. 524, 531) I can see no firm ground for the proposition that the party relying on frustration in an action or in arbitration proceedings must establish affirmatively that "the cause was not brought into operation by his default." (I am quoting from the judgment of Scott L.J. in the present case.) Such a proposition seems to me to be equivalent to laying down that the determination of the contract by frustration is not the automatic result of the event, but is dependent on the option of the parties, for neither party can be compelled to call evidence to prove affirmatively that the cause was not due to his default. Such a view is not, in my opinion, reconcilable with the judgment in Hirji Mulji v Cheong Yue Steamship Co., Ld. [1926] A. C. 497.

Lord Wright at pp.183-186:

I must briefly explain my conception of what is meant in this context by impossibility of performance, which is the phrase used by Blackburn J. In more recent days the phrase more commonly used is "frustration of the contract" or more shortly "frustration." But "frustration of the contract" is an elliptical expression. The fuller and more accurate phrase is "frustration of the adventure or of the commercial or practical purpose of the contract." This change in language corresponds to a wider conception of impossibility, which has extended the rule beyond contracts [1]which depend on the existence, at the relevant time, of a specific object, as in the instances given by Blackburn J., to cases [2]where the essential object does indeed exist, but its condition has by some casualty been so changed as to be not available for the purposes of the contract either at the contract date, or, if no date is fixed, within any time consistent with the commercial or practical adventure. For the purposes of the contract the object is as good as lost. [3]Another case, often described as frustration, is where by State interference or similar overriding intervention the performance of the contract has been interrupted for so long a time as to make it unreasonable for the parties to be required to go on with it. [4]Yet another illustration is where the actual object still exists and is available, but the object of the contract as contemplated by both parties was its employment for a particular purpose, which has become impossible, as in the coronation cases. In these and similar cases, where there is not in the strict sense impossibility by some casual happening, there has been so vital a change in the circumstances as to defeat the contract. What Willes J. described as substantial performance is no longer possible. The common object of the parties is frustrated. The contract has perished, quoad any rights or liabilities subsequent to the change. [5]The same is true where there has been a vital change of the law, either statutory or common law, operating on the circumstances, as, for instance, where the outbreak of war destroys a contract legally made before war, but which, when war breaks out, could not be performed without trading with the enemy.

It is thus seen that the court is not claiming to exercise a dispensing power, or to modify or alter contracts. The parties did not express the qualification because they did not think of the possibility of the occurrence, but as Lord Watson said in Dahl v Nelson, Donkin & Co. (1881) 6 A. C. 38, 59:

When one or other of these possibilities becomes a fact, the meaning of the contract must be taken to be not what the parties did intend (for they had neither thought nor intention regarding it) but that which the parties, as fair and reasonable men, would presumably have agreed upon, if having such possibility in view they had made express provision as to their several rights and liabilities in the event of its occurrence.

In short, in ascertaining the meaning of the contract and its application to the actual occurrences, the court has to decide, not what the parties actually intended, but what as reasonable men they should have intended. The court personifies for this purpose the reasonable man. In Lord Sumner’s words in Hirji Mulji v Cheong Yue Steamship Co., Ld. [1926] A. C. 497, 507: An event occurs, not contemplated by the parties and therefore not expressly dealt with in their contract, which when it happens frustrates their object. Evidently it is their common object that has to be frustrated not merely the individual advantage which one party or the other might have gained from the contract. If so, what the law provides must be a common relief from this common disappointment and an immediate termination of the obligation as regards future performance. This is necessary, because otherwise the parties would be bound to a contract, which is one that they did not really make.

At pp.187-188:

The essential feature of the rule is that the court construes the contract, having regard both to its language, its nature and the circumstances, as meaning that it depended for its operation on the existence or occurrence of a particular object or state of things, as its basis or foundation. If that is gone, the life of the contract in law goes with it, at least as regards future performance. The contract remains only to enforce accrued rights…. Frustration operates automatically. It does not depend on the choice or election of the parties to the contract. If the court holds that the meaning of the contract is such that its life is dependent on the existence or continuance in existence of a thing or state of things, and then finds in fact that the frustrating circumstance has come to pass because the thing or state of things has not existed at the date of the contract or has ceased to exist at some later material date, it follows by operation of law that the contract was either void to begin with or has become avoided, to use the language of ss. 5 and 6 of the Sale of Goods Act. This position must, accordingly, be distinguished from a somewhat analogous, but really quite different, position, which arises when a contract is terminated by the injured party, who rescinds it on the ground of a fundamental breach by the other party and who further claims damages for the breach while treating it as no longer binding for the future. Such a procedure involves a choice or option by the party who rescinds. But in the case of frustration the contract is ended and dead, simply by the frustrating event. If the parties choose to go on with it, that is in truth entering into a new contract. This is clearly stated by Lord Sumner in the passage I have quoted from Hirji’s case [1926] A. C. 497. The position of the parties ought to be determined at once, and an indefinite suspense avoided. But this result is just what the decision of the Court of Appeal would prevent, because, according to the decision, it cannot be known whether there has been frustration in a legal sense unless and until it is proved affirmatively by one party or the other that the frustration was not brought into operation by his default.

At pp.192-193:

The appeal can, I think, be decided according to the generally accepted view that frustration involves as one of its elements absence of fault, by applying the ordinary rules as to onus of proof. If frustration is viewed (as I think it can be) as analogous to an exception, since it is generally relied on as a defence to a claim for failure to perform a contract, the same rule will properly be applied to it as to the ordinary type of exceptions. The defence may be rebutted by proof of fault, but the onus of proving fault will rest on the plaintiff. This is merely to apply the familiar rule which is applied, for instance, where a carrier by sea relies on the exception of perils of the seas. If the goods owner then desires to rebut that prima facie defence on the ground of negligence or other fault on the part of the shipowner, it rests on the goods owner to establish the negligence or fault.

Thus, on the view most favourable to the conclusion of the Court of Appeal I still reject it. In addition, the ordinary rule is that a man is not held guilty of fault unless fault is established and found by the court. This rule, which is sometimes described as the presumption of innocence, is no doubt peculiarly important in criminal cases or matters, but it is also true in civil disputes. Thus it was said in Thomas v Thomas (1855) 2 K. & J. 79 by Wood V.-C., ‘possession is never considered adverse if it can be referred to a legal title.’ I need not multiply citations for a principle familiar to lawyers. There is, for example, no presumption of fraud. It must be alleged and proved. So, also, of other wrongful acts or breaches of contract. If it is necessary, in order to defend a claim, to prove that it was a case of felo de se and not merely innocent suicide while of unsound mind, the full fact must be affirmatively proved. An illustration, perhaps more germane, is afforded by the rules as to the onus of proof in cases of unseaworthiness. If at the end of the case it is not ascertainable on the evidence that the real cause of the loss was unseaworthiness, the defence must fail. The maxim "respice finem" applies, though there may be provisional presumptions, shifting the onus of proof from time to time during the progress of the case. This is well illustrated in Ajum Goolam Hossen & Co. v Union Marine Insurance Co., Ld. [1901] A. C. 362, an action on a marine insurance policy for the loss of a ship which had sunk through causes not explained. The defence was that the ship was unseaworthy. The underwriters showed facts which raised a presumption in favour of unseaworthiness, and shifted at that stage the onus of proof, but at the end the court held that the real cause of the loss was unknown, that unseaworthiness was not proved and that the defence failed. In the same way, if negligence is alleged to override the defence of excepted perils, it must be alleged and proved affirmatively. If the matter is left in doubt when all the evidence has been heard, the party who takes on himself to affirm fault must fail.



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