The Coronation Cases - Frustration of Contract

The coronation cases and frustration of contract in Krell v Henry and Herne Bay Steam Boat Company v Hutton

To what extent would you describe the reasoning in Krell v Henry [1903] 2KB 740 and Herne Bay Steam Boat Company v Hutton [1903] 2 KB 683 as either compatible or incompatible?

We have two available answers to this question

Answer 1

Answer 2

Answer 1

Krell v Henry and Herne Bay Steam Boat Company v Hutton both belong to a string of cases from the early twentieth century that are known as the “Coronation Cases”. They are known by this name because they arose out of the situation that occurred when King Edward VII fell ill with appendicitis two days before the celebrations that were to take place following his coronation. The events were originally scheduled to take place in June of 1902, but had to be postponed until August. Many people had entered into contracts in advance of the celebrations, by hiring rooms to watch the procession, or boats to watch the accompanying naval review, and when the celebrations were postponed, they argued that the contracts had been frustrated, and that they should not be liable for the sums they had agreed to pay.

The doctrine of frustration in the law of England and Wales was, at that time, still in the early stages of development. English and Welsh law had for years maintained the concept of the absolute contract, which said that if an event should occur after the formation of the contract that prevented the performance of the contract, or rendered it possible only in a fundamentally different way from that which was originally contemplated, the parties still were liable for the contract unless they had expressly provided otherwise (Paradine v Jane (1647) Aleyn 26). The courts began to soften this harsh doctrine, however, in Taylor v Caldwell (1863) 3 B & S 826, some forty years before the Coronation Cases. Taylor had rented a music hall from Caldwell, intending to hold a series of concerts there. Before the concerts could be held, the music hall burned to the ground, through no fault of either of the parties. The parties had not put a specific clause into the agreement between them concerning this sort of event. The court held that the principle was that, in contracts where the performance depends on the continued existence of a given person or thing, a condition is implied that where it becomes impossible to perform the contract because the person or thing has perished, then the contract will be discharged, and the parties will not be liable for the performance of the contract. The court reasoned that even if the parties had not thought to put such a clause in the contract at the time of its formation, they must have at least had the continuing existence of the necessary person or thing in their minds as a foundation of the contract. In the immediate case, the court found that the continuing existence of the music hall at the time of the performances was essential to the contract, and that therefore such a condition was implied.

The reasoning of the court in this judgment, however, has come under severe scrutiny. McElroy and Williams, for example, have described it as being a “grave threat to the principle of the sanctity of the contract” (1941, p.243), because of the subjective element in the ruling. Krell v Henry and Herne Bay Steam Boat Company v Hutton were the next major cases in the development of the doctrine of frustration, and the court, in these two cases, attempted to bring out the more objective element of the ruling in Taylor – that around the change to the essential nature of the contract, rather than what may or may not have been in the contemplation of the contracting parties at the time of the formation of the contract.

At first glance, the reasoning in these two cases may not seem fully compatible. In Krell, a room was hired for two days overlooking the route of the processions, in order to have a comfortable view of the proceedings. In Herne Bay, an agreement was made that the respondent should have the use of a steamship to see the king’s naval review and to take a tour around the fleet. The judges found that the king’s illness in the first case did constitute a sufficient frustration to consider the contract discharged, but that that same illness was not sufficient to discharge the contract in the second case. A closer reading of the reasoning of the judges, however, will show that it is, indeed, compatible between the two cases.

The first point to consider is that these two cases were in fact considered only a few days apart, and by the same judges – Lord Justices Vaughan Williams, Stirling and Romer. On his retirement from the Court of Appeal in 1914, Lord Justice Vaughan Williams was described as “a judge of great distinction and sound learning” in the London Law Journal, quoted by the editor of The Green Bag (1914, p.276). It seems unlikely that the court would not have been very careful in their reasoning of these two cases.

The court in both cases was following the ruling in Taylor, and seem to have been trying to both approve that ruling in cases where there was a genuine frustration of the contract, but at the same time, limit the effect from the very open, subjective test that that case had set out.

It had been clear from the parol evidence in Krell that the rooms had been let specifically for the purpose of viewing the royal coronation procession, as the plaintiff had put up a sign at his premises, advertising windows from which to view the procession, and when the defendant had applied to the housekeeper concerning the rooms, she told him that the owner was only willing to let the suite of rooms for the days, but not the nights, that the procession took place (June 26 and June 27). Lord Justice Vaughan Williams therefore found that the basis of the contract was that the rooms were hired for the purpose of seeing the procession. The postponement of the procession due to the King’s illness meant then that the whole purpose of the contract was frustrated and the contract was discharged.

In Herne Bay on the other hand, as Lord Justice Stirling pointed out, the king’s naval review was not the sole purpose of the contract: “the object of the voyage is not limited to the naval review, but also extends to a cruise round the fleet” (p. 692). Since the cruise around the fleet could still take place, despite the king’s illness necessitating the cancellation of the naval review, the purpose was not wholly frustrated, but only partially frustrated. Therefore the contract was not discharged.

This distinction between a contract being wholly frustrated and partially frustrated has remained a theme in the doctrine of frustration. For example, in the very recent case of Planet Kids Ltd v Auckland Council, ²⁰¹⁴ 3 LRC 222,the New Zealand Supreme Court (relying heavily on cases from English and Welsh law) said that “partial performance and a remaining ability to perform further parts of a contract in the future are relevant to frustration” (at 245). This is different from the situation in the closely related doctrine of impossibility. As Treitel has remarked, “in cases of partial impossibility, a contract can be discharged if its main purpose can no longer be achieved; but in cases of frustration of purpose the courts have applied the more rigorous test of asking whether any part of the contractual purpose (other than a part which was wholly trivial) could still be achieved: if so, they have refused to apply the doctrine of discharge” (2004, para 7.014).

Treitel has also suggested that another difference between the two cases is that the common purpose of both parties had been frustrated in Krell – both intended the room to be used for viewing the procession, as evidenced in the quote from the case above, where it was said by the housekeeper that the room was only available during the day – whereas in Herne Bay, the owner of the steamship simply intended to hire out his ship; he was not interested in how the ship was used.

Brownsword (1993, pp. 246-247) has suggested an interesting analysis of these two cases. He suggests that the difference lies in the fact that the respondent was in effect a ‘consumer’ in Krell, whereas the respondent in Herne Bay intended to sell tickets to allow people to accompany him on his cruise, and to earn a profit. The court would then be very reluctant in a commercial contract to allow the respondent to use the doctrine of frustration to escape his obligations in such a manner. As Lord Roskill has said in Pioneer Shipping Ltd v BTP Tioxide Ltd, The Nema ¹⁹⁸² AC 724 at 752, the doctrine of frustration is “not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains”.

Furmston (2012, p. 721) has suggested that, of all these theories, the one concerning the whole purpose of the contract being frustrated rather than only part of the purpose seems to be where the distinction lies between these two cases. This seems to be the most likely of the explanations.

To sum up, then, the cases of Krell v Henry and Herne Bay Steam Boat Company v Hutton were fundamental to the development of the doctrine of frustration. The doctrine remains a restrictive one. As has been said in the later case of Davis Contractors Ltd v Fareham UDC ¹⁹⁵⁶ AC 696 at 715, 727, since the effect of frustration is to allow a contract to be discharged, and the parties to escape any further liability, it must therefore not be lightly invoked but be kept within very narrow limits, and it ought not to be extended any further. The two cases under consideration in this essay, by elaborating on the judgment given in Taylor v Caldwell and restricting that ruling to only coming into effect when the purpose of a contract has been fully frustrated but not when it has only been partially frustrated has done much to further this aim. The reasoning of the judges in these two cases, whichever theory one subscribes to, whether it be that of the purposes of the contract being wholly frustrated in the first case and only partially in the second, or that the common purpose of both parties was frustrated in the first contract, and only the purpose of one of the parties in the second case, or even if Brownsword is correct, and the court was protecting a consumer in the one case, but allowing a commercial contract to stand in the second, the reasoning is compatible, and the two cases are distinguishable.

References

Furmston, M. P. (2012)Cheshire, Fifoot & Furmston’s Law of Contract(16thedition, Oxford University Press)

Koffman L. and Macdonald E. (2010)The Law of Contract(7thedition, Oxford University Press)

McElroy R.G. and Williams, G, ‘The Coronation Cases’, Modern Law Review, Vol. 4, No. 4 (Apr., 1941)

Price, J (1989) ‘The Doctrine of Frustration and Leases’, Journal of Legal History, 10:1, 90-109

Treitel, G. (2004)Frustration and Force Majeure(2ndedition, Sweet & Maxwell)

Brownsword, R. (1993) ‘Towards a rational law of contract’, in Willhelmson, T. (ed),Perspectives of Critical Contract Law(Aldershot: Dartmouth)

Cases

Davis ContractorsLtdv Fareham Urban District Council¹⁹⁵⁶ UKHL 3

Herne Bay Steamboat Co v Hutton¹⁹⁰³ 2 KB 683

Krell v Henry¹⁹⁰³ 2 KB 740

Paradine v Jane (1647) Aleyn 26

Pioneer Shipping Ltd v BTP Tioxide Ltd, The Nema ¹⁹⁸² AC 724

Planet Kids Ltd v Auckland Council, ²⁰¹⁴ 3 LRC 222

Taylor v Caldwell¹⁸⁶³ EWHC QB J1

Answer 2

The cases of Krell v Henry¹ and Herne Bay Steam Boat Company v Hutton² concern the law of frustration: whether or not a contract should be frustrated if the purpose for its existence is no longer present, due to an intervening event. Before discussing the compatibility of the judges’ reasoning in these cases in detail, it is necessary to outline the doctrine of frustration more generally.

When a contract is formed, obligations agreed between the parties are required to be performed. Sometimes, however, there may be an unforeseen incident that is outside the control of the parties and as such, renders contractual performance impossible. In order to impose a fair solution³, the doctrine of frustration developed. Where a party is unable to fulfil a contractual obligation due to an intervening and unforeseeable event, they are excused from performance, as was established in the case of Taylor v Caldwell⁴.

The cases of Krell and Herne Bay considered whether the principle determined in Taylor should be extended beyond impossibility of performance, to apply to situations where the reasoning or purpose for a contract no longer exists, due to an intervening event. Both cases arose from contractual arrangements entered into regarding the coronation celebrations due to take place in June 1902. The coronation did not take place on the planned date due to the King’s illness (the intervening event) and these judgements considered whether or not the contracts were frustrated due to this. The same three judges gave the judgements on both cases and together, they refined the law of frustration.  It was arguably their intention to refine the law in a compatible way, but whether or not they did so will hereafter be discussed.

In Krell, the defendant contracted to hire a flat in Pall Mall over the period when the coronation processions were due to take place in view from the flat windows, however “the contract contained no express reference to the coronation processions”⁵. As stated above, the doctrine of frustration had previously only applied where performance became impossible, as would have been the case if the flat had burnt down. This case extended the doctrine to apply where the purpose of the contract no longer existed. The reasoning given for this was that the coronation processions were clearly known by both parties (due to the flat being specifically advertised for that purpose), went “to the root of the contract” and were, therefore, “essential to its performance”⁶. The parties did not contemplate the chance of the procession not happening when they formed the contract and so the flat owner was not entitled to claim the rent monies. The contract was held to be frustrated, even though the flat could have still been rented for another purpose.

The outcome of this case contrasts with the outcome in Herne Bay, but that is not to say that their reasoning is incompatible.

Herne Bay concerned a written agreement to hire a vessel “for the purpose of viewing the naval review and for a day’s cruise round the fleet” and further, it was stated in the contact that the vessel should be “at the disposal” of the person hiring⁷. It was determined that the contract was not frustrated, as the vessel could still have been used for the cruise around the fleet and therefore, there was not a “total destruction of the subject matter of the contract”⁸. As has been interpreted by Koffman and Macdonald, the common purpose of both parties was not totally defeated⁹.

The main differences between the decisions concern whether the whole basis for the contracts were destroyed due to the intervening event. In Krell, it was held that the entirety of the purpose of the contract had been destroyed, whereas in Herne Bay, it had not. The reasoning for the voyage was not limited “to the naval review, but also extends to a cruise round the fleet”¹⁰. Only part of the basis for the contract had been destroyed and the naval review on its own was not the root of the contract. Arguably, if the only test for frustration that arose from these two cases was to ascertain whether or not the whole of the common purpose of the contract was destroyed or not, then their reasoning would be wholly compatible. However, the judges’ reasoning went further than this. Both judgements referred to an analogy of a cab driver being contracted to take someone to Epsom for the Derby.

In Krell, Vaughan Williams LJ stated that if a particular race was cancelled and the cab-man refused to take the hirer to Epsom, he would be in “breach of contract” as going to see a particular race was not the “foundation of the contract”. In using this scenario, it was stated that the cab had “no special qualifications for the purpose which led to ^its selection…for this particular occasion”, whereas, the flat did: the “position of the rooms” to view the procession gave it that special requirement¹¹. In applying this scenario to Herne Bay, Romer LJ stated that the ship had “nothing to do with the review of the fleet, except as a convenient carrier of passengers” and another vessel would have “done equally as well”, the same as a “hire of a cab” would¹². This sits compatibly with the reasoning in Krell, as the ship had no “special qualifications for the purpose which led to ^its selection”, whereas the flat did.

Whilst this analogy is used compatibly between the two cases, it is not necessarily congruent with the other reasoning given in the cases. As has been discussed, it was held that the cancellation of the coronation led to a complete loss of contractual purpose in Krell, whereas in Herne Bay, there was only a partial loss of purpose and so the contract was not frustrated. Yet, when the cab analogy is applied and we consider the lack of “special qualifications” in the ship’s selection, then even if both the naval review and the review of the fleet had not been possible (arguably a complete loss of contractual purpose given the judges’ comments referred to above), the ship still had no “special qualifications” leading to its selection and this would mean that the contract would not be frustrated. The weight given in Herne Bay to there being no frustration, due to only a partial loss of contractual purpose is arguably incompatible when considered in conjunction with their cab driver analogy. Interestingly, Vaughan Williams LJ stated in Herne Bay, that there was no “advantage to be gained by ^defining what are the circumstances which might or might not constitute the happening of a particular contingency as the foundation of a contract”¹³. This is difficult to align with Krell, where he stated that it should be asked “whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things”¹⁴.

As was stated in Metropolitan Water Board ¹⁵, Krell looked at “the continued existence of a state of things” which was not the contractual subject-matter, nor “essential for its performance” (as the flat could still be used), but was the reason the contract was entered into and therefore an “implied condition of the continuance of the contract”. The judge in this case specifically highlighted the difficulties when applying this principle to Herne Bay, suggesting that the reasoning given in Krell and Herne Bay are not that easily aligned. Scrutton LJ did note, however, that the principle in both cases is the same – “Did the parties contemplate, in the events that happened, that the contract would remain good, or do those events make such a different set of circumstances that the parties did not contract with regard to it?”¹⁶ It is this principle which illustrates that the overall reasoning in Krell and Herne Bay is compatible, rather than the judge’s use of the cab driver analogy.

From another angle, there is a potential incompatibility due to the lack of express contractual reference to the coronation precessions in Krell, compared to the apparent express reference to the Naval Review in Herne Bay. Perhaps the willingness to look beyond the express contract in Krell, does not sit that comfortably with the disregard of the express reference to the naval review in the Herne Bay contract. It is submitted, however, that this issue was satisfactorily dealt with when noted in Herne Bay that the particulars often set out the objects of the planned voyage and “this does not justify saying that the owner had these objects as much in view as the hirer”¹⁷. This is, therefore, compatible with the reasoning in Krell where it was known that both parties had the processions in mind when contracting.

Another point to consider is that the Herne Bay reasoning preserves the deep-rooted contractual principle of sanctity of contract, whereas the reasoning in Krell does not, highlighting another potential incompatibility. As was stated in the case of Blackburn Bobbin Company¹⁸, it is of great importance to the commercial world that “vendors should be held to their business contracts”¹⁹. The later case of Tsakrioglou²⁰ re-iterated that a bad bargain does not by itself lead to frustration of contract. Furthermore, some foreign courts have adopted much narrower versions of frustration of purpose²¹ than set out in Krell. Yet Krell does set a high threshold, given the requirement for complete loss of contractual purpose, and some commentary states that it is an “exceptional case”²². Perhaps putting sanctity of contract aside was necessary because there was no commercial gain, whereas Herne Bay, Blackburn Bobbin Company and Tsakiroglou all concerned commercial contracts. Regardless of this, both Krell and Herne Bay can be applied to Tsakiroglou, where the contract was not frustrated²³, as despite the intervening event, goods could still be shipped (the purpose of the contract), albeit via a different route²⁴. Therefore, the contractual purpose was not wholly destroyed.

It has been suggested that the reasoning in Krell and Herne Bay looks to the “justice of the case”²⁵ and that the differences between them essentially relate to Krell being a consumer contract and Herne Bay being a commercial contract²⁶. Whilst this is not directly stated in either judgment, it has resulted in a fairer approach which the courts have since harmonised. In CTI Group Inc²⁷ it was considered whether an intervening event would make performance “fundamentally different” from what was expected when the contract was formed. In Krell, performance would have been “fundamentally different” as there would not have been a need for that specific flat. Whereas in Herne Bay, there would not have been a fundamental difference as the ship could still have been used for a trip and as a way to make profit. The fact that both Krell and Herne Bay work within this framework, emphasises the compatibility of the judges’ reasoning.

Although Krell and Herne Bay have different outcomes, and whilst some of the minutia within the reasoning may be difficult to align, together they represent a compatible move to a fairer system. Furthermore, as the same judges sat on both cases, it cannot be considered that they intended to muddy the waters. Their fair extension of the Taylor principle has also since been applied, albeit clarified, in case law such as CTI Group Inc and it is of note that such cases have not overridden these judgements, implying that the reasoning within them is fundamentally compatible.

Footnotes

¹[1903] 2 KB 740

²[1903] 2KB 683

³Macdonald & Atkins, Koffman & Macdonald’s Law of Contract (8th Edition Oxford University Press) 471 and Jackueline Martin & Chris Turner, Law for A2 (4th Edition Hodder Education)

⁴[1863] 3 B & S 826 [833]

⁵ibid footnote 1

⁶ibid footnote 1[748](Vaughan Williams LJ)

⁷[1903] 2KB 683

⁸ibid [691](Romer LJ)

⁹Macdonald & Atkins, Koffman & Macdonald’s Law of Contract (8th Edition Oxford University Press) 473

¹⁰[1903] 2KB 683 [692](Romer LJ)

¹¹[1903] 2 KB 740 [751] (Vaughan Williams LJ)

¹²[1903] 2KB 683 [691](Romer LJ)

¹³[1903] 2KB 683 [689] (Vaughan Williams LJ)

¹⁴[1903] 2 KB 740 [749] (Vaughan Williams LJ)

¹⁵Metropolitan Water Board v Dick, Kerr & Co [1917] 2 KB 1 [30]

¹⁶ibid

¹⁷[1903] 2KB 683 [690]

¹⁸Blackburn Bobbin Company, Limited v T. W. Allen & Sons, Limited [1918] 1 K.B. 540

¹⁹ibid [552]

²⁰Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

²¹George Bundy Smith, Thomas J Hall, “The Frustration of Purpose Doctrine is Alive and Well” New York Law Journal 2011, 246, Vol. 78

²²Arun Katya, Paul Cairns, “It’s just not cricket” Entertainment Law Review 1998 [196]

²³Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

²⁴Baker, “How Frustrating was the Closure of the Suez Canal?” Arbitration 1960 [101]

²⁵Adrian Chandler, James Devenney and Jill Poole, “Common mistake: theoretical justification and remedial inflexibility” J.B.L. 2004 Jan 34-58

²⁶Brownsword, R. (1993) ‘Towards a rational law of contract’, in Willhelmson, T. (ed), Perspectives of Critical Contract Law (Aldershot: Dartmouth) (pp246-247)

²⁷CTI Group Inc v Transclear SA (The Mary Nour) (2008) EWCA Civ 856