#6804 - Fibrosa Spolka V. Fairbairn - Restitution of Unjust Enrichment BCL

Fibrosa Spolka v. Fairbairn

Facts

By a contract in writing dated July 12, 1939, the respondents, an English company, agreed to sell and the appellants, a Polish company, agreed to purchase machinery for 4800l. of which one-third was to be paid with the order. Delivery was to be three to four months from settlement of final details and the goods were to be packed and delivered c.i.f. Gdynia, Poland. The sale was made subject to certain conditions and cl. 7 was as follows: "Should dispatch be hindered or delayed .... by any cause whatsoever beyond our reasonable control, including .... war .... a reasonable extension of time shall be granted." Only 1000l. out of the sum of 1600l. to be paid with the order was in fact paid. On September 1, 1939, war broke out between Germany and Poland and on September 3 Great Britain declared war on Germany. The appellants claimed that the contract had been frustrated and that they were not under an obligation to return the 1000l.

Issue

Whether, when this contract became frustrated, the appellants could, in the circumstances of the present case, claim back from the respondents the 1000l. which they had paid when placing the order.

Holding

Viscount Simon

Court of Appeal had taken the view that having regard to the principle in Chandler v. Webster, the claim of the appellants must fail. This alleged principle is to the effect that where a contract has been frustrated by such a supervening event as releases from further performance, "the loss lies where it falls," with the result that sums paid or rights accrued before that event are not to be surrendered, but all obligations falling due for performance after that event are discharged.

The rule is subject to contractual terms: If we are to approach this problem anew, it must be premised that the first matter to be considered is always the terms of the particular contract. If, for example, the contract is "divisible" in the sense that a sum is to be paid over in respect of completion of a defined portion of the work, it may well be that the sum is not returnable if completion of the whole work is frustrated. If the contract itself on its true construction stipulates for a particular result which is to follow in regard to money already paid, should frustration afterwards occur, this governs the matter. The ancient and firmly established rule that freight paid in advance is not returned if the completion of the voyage is frustrated: should, I think, be regarded as a stipulation introduced into such contracts by custom, and not as the result of applying some abstract principle.

The question now to be determined is whether, in the absence of a term in the contract dealing with the matter, the rule which is commonly called the rule in Chandler v. Webster should be affirmed.

Rule in the absence of a contract

Rule in Chandler v. Webster: The locus classicus for the view which has hitherto prevailed is to be found in the judgment of Collins M.R. in Chandler v. Webster. The court in that case held:

“The principle on which it has been dealt with is that which was applied in Taylor v. Caldwell - namely, that where, from causes outside the volition of the parties, something which was the basis of, or essential to the fulfilment of, the contract has become impossible, so that, from the time when the fact of that impossibility has been ascertained, the contract can no further be performed by either party, it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done, but the parties are both discharged from further performance of it. If the effect were that the contract were wiped out altogether, no doubt the result would be that money paid under it would have to be repaid as on a failure of consideration. But that is not the effect of the doctrine; it only releases the parties from further performance of the contract. Therefore the doctrine of failure of consideration does not apply.”

Criticisms of the rule in Chandler v. Webster:

1. The claim of a party, who has paid money under a contract, to get the money back, on the ground that the consideration for which he paid it has totally failed, is not based on any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because in the circumstances that have happened the money must be regarded as received to the plaintiff's use. It is true that the effect of frustration is that, while the contract can no further be performed, "it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done," but it by no means follows that the situation existing at the moment of frustration is one which leaves the party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of money paid on the ground of total failure of consideration is not to vary the terms of the contract in any way. The claim arises not because the right to be repaid is one of the stipulated conditions of the contract, but because, in the circumstances that have happened, the law gives the remedy. It is the failure to distinguish between (1.) the action of assumpsit for money had and received in a case where the consideration has wholly failed, and (2.) an action on the contract itself, which explains the mistake which I think has been made in...