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National Carriers v Panalpina

[1981] 1 All ER 161

Case summary last updated at 02/01/2020 17:52 by the Oxbridge Notes in-house law team.

Judgement for the case National Carriers v Panalpina

P rented a warehouse to D for 10 years, but the council close a street for works for 20 months preventing access to the warehouse. D stopped paying rent on the basis that the contract had been frustrated, and P sued for unpaid rent. HL allowed P’s claim and said that frustration did not apply on the facts. 

Lord Hailsham: He agrees with Lord Radcliffe’s formulation of frustration rather than the implied terms approach (above). He says that frustration can “hardly ever” apply to leases.  There are ways other than that of Lord Radcliffe of conceptualising frustration: Implied terms (not as good), exceptions to absolute liability “where justice demands”, total absence of consideration etc. 

Lord Wilberforce: It doesn’t matter which approach to frustration is used- it should simply be the one most approapriate in the circumstances. In principle a lease is capable of frustration: when a contract fails to so provide, the court can decide on whom it is most appropriate for the risk to lie. However it will be rare, since generally the lessee will have that for which he bargained leasehold). 

Lord Simon: He rehashes Lord Radcliffe’s understanding of frustration in a slightly different way. There are several arguments FOR allowing frustration to apply to lessees; (1) Frustration is a useful expedient for avoiding injustice, as much in this area as in any other; (2) The law should try to be comprehensive. Being compartmentalised decreases the law’s clarity and involves arbitrary distinctions that create different conclusions for fundamentally analogous situations, which is unfair; (3) the only theory incompatible with lease situations is the “total failure of consideration” theory, which is not really used an y longer anyway. The theories used are the implied terms theory (Lord Blackburn’s theory) or the more commonly used “radical change/construction” theory of Lord Radcliffe; (4) There have been no problems arising from the application of frustration to leases in other common law jurisdictions. The counter argument that a lease is more than merely a contract i.e. that it is a whole transfer of legal estate is irrelevant: a lease is executory, not fully executed, and therefore, as long as obligations and rights remain outstanding, there is no sense in refusing the applicability of the frustration doctrine. 

Lord Russel: He does not believe that frustration can apply to leases at all. 

Lord Roskill: There is no justification of treating differently leases to, say, charterparties, and it is bad for the law to create anomalous compartments of law. Therefore frustration should be as applicable to leases as to any other area of law. 

Conclusion: 2 say that frustration is fully applicable to leases, 2 say only “rarely” or “hardly ever”, 1 says never.

CW: we can now see the law on frustration as having a 3-stage approach: (1) Construction. Was the risk allocated to one of the parties? If so there is no frustration; (2) Was P at fault? If so there is no frustration; (3) Fundamentality: Does the change in circumstances make performance radically different from that originally undertaken (physical or legal impossibility or loss of purpose in performance)? If not then there is no frustration. 

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