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OUTER HOUSE, COURT OF
SESSION
[2009] CSOH 28
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CA76/08
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OPINION
OF LORD HODGE
in
the cause
ROBERT PURVIS PLANT HIRE LIMITED
Pursuers;
against
DAVID FARQUHAR BREWSTER, ALEX KINLOCH
BREWSTER and THE FIRM OF ALEX BREWSTER & SONS
Defenders:
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Pursuers: N. E. Beynon,
advocate; Biggart Baillie LLP
Defenders: R. W. Dunlop,
advocate; Maclay Murray & Spens
27 February 2009
[1] The
pursuers in February 2006 entered into a lease of approximately
1.75 hectares of land on Baird Road about 300 metres
to the north of Ratho village, near Edinburgh. The land had previously been used as a
concrete batching plant. The lease was
for a period of five years at an annual rental of г45,000. In entering into the lease, the pursuers
intended to use the site for recycling and storing bulk road materials and they
aver that the defenders, who are the landlords, similarly envisaged that
use. As a result of the service of an
enforcement notice by the planning authority and the pursuers' failure on an
appeal against that notice, the pursuers aver that they can neither store nor
recycle bulk materials on the site. They
seek declarator that they are no longer obliged to fulfil the tenants' obligations
under the lease. In support of that
conclusion they aver that the lease has been frustrated and separately that the
lease is void for illegality. The
pursuers also seek repayment of the rent which they have paid since the adverse
appeal decision. In a procedure roll
debate the defenders challenged the relevancy of the pursuers' pleadings and
sought dismissal of the action.
Factual
background
[2] The
factual background revealed in the pursuers' averments and the documents to
which I was referred may be summarised as follows. The site was used as a concrete batching
plant from some time between 1955 and 1960 until 1998. The defenders purchased it in 2001 and let it
intermittently on short term lets to various building firms for miscellaneous storage
purposes. In 2006 there were several
hundreds of tonnes of rubble on the site and the defenders asked the pursuers
to recycle the rubble when the pursuers took the lease of the site. The pursuers did so. The pursuers aver that the defenders knew
that the pursuers intended to recycle construction and demolition materials on
the site, using heavy plant and mobile crushing units. The defenders' agents, Rydens, sent the
pursuers a copy of a planning consent dated 1990 which permitted storage on
part of the site and told them of their belief, which they did not warrant,
that industrial use was also permitted.
In terms of the Town and Country Planning (Use Classes) (Scotland) Order
1997 (SI 1997/3061) class 5 is general industrial use which is use for the
carrying on of an industrial process other than one falling within class 4
(business) and class 6 is storage or distribution which is defined as use for
storage or as a distribution centre.
[3] The
relevant clauses of the lease were the following. Clause 3 provided that
the lease would endure from 18 January
2006 until 17 January
2011. It also provided for
the earlier termination of the lease by notice on the occurrence of either of
two events, namely (a) the acquisition of the access roadway by the local
authority under a compulsory purchase order and (b) the destruction of or
material damage to the premises. Clause 4
provided that the rent would be г45,000 per year. Clause 5.10 prohibited the tenants from
doing anything which would contravene statutory provisions which included the
Planning Acts and clause 5.12 required the tenants to apply at their own
cost for all licences, consents and permissions for alteration of the
premises. The user clause, which was
clause 5.14, was in these terms:
"To use the
premises only for the storage of bulk road materials or for such other purposes
as may from time to time be approved in writing by the Landlords ..."
Two other clauses are relevant. Clause 5.15 prohibited the tenants from
doing anything which would be or would tend to be a nuisance to the landlords
or the owner of any adjoining property.
Clause 6.6 provided that nothing contained in the lease should be
deemed to constitute a warranty by the landlords that the premises or any part
thereof were authorised under the Planning Acts for any specific purpose.
[4] Although
the user clause in the lease referred only to the storage of bulk road
materials, the pursuers installed heavy plant and crushers to recycle such
material. Noise and dust from their
operations gave rise to complaints from neighbouring proprietors. Within about two weeks after the lease was
signed, the planning authority, the City of Edinburgh
Council, served a planning contravention notice dated 28 February 2006 on the defenders alleging
that the use of the site for the recycling of construction and demolition
materials with associated plant and ancillary facilities was a breach of
planning control. The planning authority
then served an enforcement notice dated 5 September
2006 on both the pursuers and the defenders. The enforcement
notice ordered them to cease to use the site for the recycling of construction
and demolition materials and to remove all plant and materials from the site
within two months of 12 October
2006.
[5] The
pursuers, with at least the tacit support of the defenders, appealed against
the enforcement notice. That appeal was not successful. On 27 March 2007
Mr Douglas G Hope, the planning reporter, issued his decision letter, in
which he dismissed the appeal and upheld the enforcement notice but varied the
time allowed for compliance from two months to four months. His decision related to the Class 5 use
of the site. He held that the former
industrial use had been abandoned in 1998 and that the short term tenants of
the site between 2001 and 2005 had used it intermittently for storage which was
a different use class in the Use Classes Order.
He therefore held that planning permission was needed. He went on to consider the relevant planning
policies and the adverse impacts of the proposed use, and, in particular,
landscape impact, noise, dust and heavy lorry movements, and concluded that
planning permission should not be given.
While Mr Hope's decision did not determine whether there was an
extant permission for use of the site or part of it for storage, it was clear
from the reporter's summary of the Council's submission that the Council's
position was that there was no such permission.
The pursuers aver that they have no prospects of obtaining planning
consent for class 6 use.
[6] The
pursuers' case is thus that, as a result of the decision of the reporter in the
class 5 appeal and the attitude of the planning authority in relation to
class 6 use, they cannot use the site either for the recycling of the
construction and demolition material or, in accordance with the user clause of
the lease, for the storage of that material.
The pursuers'
submissions
[7] I
summarise briefly the pursuers' submissions in relation to frustration and
secondly in relation to illegality. In
relation to the proposition that the lease had been frustrated Mr Beynon
submitted that the reporter's decision and the stance taken by the local
planning authority amounted to a supervening event which rendered illegal the
only use of the site which was permitted under the lease. This event had occurred without any fault on
the part of the pursuers. Both of the
parties to the lease had envisaged the industrial use of the site and it could
be inferred that the defenders would have consented to such use as they had
encouraged it in relation to the disposal of their rubble on the site. The pursuers were offering to prove that they
had neither class 5 or class 6 consents and had no prospects of obtaining
them. While the reporter had referred to
nuisance caused to neighbours, it was not possible without inquiry to determine
whether the noise and dust from the operations amounted to a breach by the
pursuers of the prohibition against causing nuisance in clause 5.15 of the
lease. He submitted that the lease had
not made sufficient provision for the circumstances which had occurred as the
landlords could not enforce the user obligation to require the pursuers to
store materials on the site as that would require the pursuers to act
illegally. The court would not grant
specific implement in those circumstances.
Thus the attitude of the planning authorities had brought about a
significant change of circumstances which the parties had not contemplated when
they entered into the lease. If those
submissions were not upheld, he submitted in the alternative that the lease was
void from the outset as the pursuers were required by clause 5.14 to use
the site for purposes which amounted to a breach of planning law. The pursuers had pleaded a relevant case for
enquiry.
[8] Mr Dunlop
on behalf of the defenders invited the court to dismiss the action on the basis
that no relevant case of frustration of contract or of illegality had been
pleaded.
[9] In the
course of the debate counsel referred to the following authorities. On the issue of frustration of contract Mr Dunlop
referred to Cricklewood Property and
Investment Trust Ltd v Leighton's
Investment Trust Ltd [1945] AC 221, James B. Fraser & Co v Denny
Mott & Dickson Ltd 1944 SC (HL) 35,
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, National Carriers Ltd v Panalpina
(Northern) Ltd [1981] AC 675, J
Lauritzen AS v Wijsmuller BV (The
"Superservant Two") [1990] 1 Lloyd's Rep 1, Chitty on Contracts (30th
ed) paragraphs 23.58-23.60, Hart's
Trustees v Arrol (1903) 6 F 36
and Amalgamated Investment & Property
Co Ltd v John Walker & Sons Ltd [1977] 1 WLR 164. On illegality Mr Dunlop
referred to Archbolds (Freightage) Ltd v
S. Spanglett Ltd [1961] 1 QB 374 and Union
Totaliser Co Ltd v Scott 1951 SLT
(Notes) 5. Mr Beynon in his
submissions on frustration, as well discussing the cases mentioned above,
referred to Gamerco SA v I.C.M./Fair Warning (Agency) Ltd [1995] 1 WLR 1226 and McBryde, The Law of Contract in Scotland (3rd ed),
chapter 8 on the construction of contracts and paragraph 23.18 on specific
implement. On the issue of illegality he
referred to Dowling & Rutter v Abacus Frozen Foods Ltd 2002 SLT 491.
Discussion
[10] The
argument in this case turns principally on the scope of the law of
frustration. The defenders' submission
on this issue is that the action is irrelevant because the pursuers do not
plead a case which falls within the doctrine of frustration. It may be helpful therefore to start by
summarising the law so far as it is relevant to this case.
[11] The
modern doctrine of frustration has its origin in English law in the
mid-nineteenth century. In Taylor v Caldwell (1863) 3 B & S 826 Blackburn J, drawing on the civil
law, applied the principle of frustration to a claim for damages by plaintiffs
who had contracted to have the use of a music hall which thereafter had been
destroyed by fire. In Scots law the
doctrine made an appearance in its modern form in Guthrie's edition of Bell's Principles (10th
ed (1899) s.29) in the following
terms:
"When by the
nature of the contract its performance depends on the existence of a particular
thing or state of things, the failure or destruction of that thing or state of things,
without default on either side, liberates both parties."
In early cases the doctrine was explained by reference
to an implied term of the contract, and there may be cases in which that is an
appropriate theory, but the artificiality of that explanation has been
repeatedly criticised. Lord Sands illustrated that artificiality in a colourful
way in Scott & Sons v Del Sel 1922 SC 592 at p.597:
"A tiger has
escaped from a travelling menagerie. The
milkgirl fails to deliver the milk.
Possibly the milkman may be exonerated from any breach of contract, but,
even so, it would seem hardly reasonable to base that exoneration on the ground
that 'tiger days excepted' must be held as if written into the milk contract".
[12] The law
now identifies frustration by construing the contract in the light of the
circumstances which existed when it was made and comparing the nature of the
obligations which arose then with the nature of the obligations arising in the
new circumstances. In Davis Contractors Limited v Fareham Urban District Council [1956] AC 696 Lord Radcliffe at p.729 formulated the classic statement of the
modern doctrine:
"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".
In that case Lord Reid at p.721 emphasised the
importance of construing the contract and stated that:
"The question is
whether the contract which they did make is, on its true construction, wide
enough to apply to the new situation: if it is not then it is at an end."
The House of Lords have repeated these statements in
subsequent cases and Bingham LJ (as he then was) in the Court of Appeal having
quoted these passages from the speeches in Davis
Contractors Ltd helpfully set out five propositions which are relevant to
the doctrine. It appears to me that the
scope of the doctrine is substantially the same in Scotland and England as Lord
MacMillan stated in James Fraser &
Company Limited v Denny Mott &
Dickson 1944 SC (HL) 35 at p.41 and as the House of Lords in Davis Contractors Ltd drew no
distinction between the two jurisdictions and drew on the Scottish case of James Fraser & Company Limited in
their discussion of English law.
[13] Bearing
in mind Lord Radcliffe's classic statement and Lord Reid's approach
which I have quoted in the preceding paragraph, I seek to summarise the law in
the following propositions. The first
five are or include quotations from Bingham LJ's propositions in J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyds Rep 1, at p.8 which he supported by
reference to authority. First:
"The doctrine of
frustration was evolved to mitigate the rigour of the common law's insistence
on literal performance of absolute promises. ... The object of the doctrine was
to give effect to the demands of justice, to achieve a just and reasonable
result, to do what was reasonable and fair, 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".
Secondly:
"Since the effect
of frustration is to kill the contract and discharge the parties from further
liability under it, the doctrine is not to be lightly invoked, but must be kept
within very narrow limits and ought not to be extended".
Thirdly, "frustration brings the contract to an end
forthwith, without more and automatically". Thus in Lauritzen
frustration was excluded among other reasons by the fact that after the loss of the Superservant II the defendants
re-arranged the schedule of their other semi-submersible barge to take on one
of the lost barge's contracts before informing the plaintiff oil rig owners
that they could not honour their contract.
It was not the loss of the Superservant II which prevented the
defendants from performing their contract but their decision on the use of
their other barge. Fourthly,
"the essence of
frustration is that it should not be due to the act or election of the party
seeking to rely on it. ... A frustrating
event must be some outside event or extraneous change".
Fifthly, "a frustrating event must take place without
blame or fault on the side of the party seeking to rely on it". In Lauritzen
Bingham LJ (at p.10) interpreted "fault" not by reference to any legal duty
but by asking whether the person seeking to rely on the event had had the means
and opportunity to prevent it but nevertheless had caused or permitted it to
come about. The fourth and fifth propositions
are generally consistent with Gloag on Contract (2nd ed) at p.346,
in which the absence of fault was equated with the supervening impossibility
having arisen from circumstances beyond the control of either of the parties,
and with Professor McBryde's "The
Law of Contract in Scotland" (3rd ed) at paragraphs 21.38 to
21.43 in which he states that the event must be beyond the control of the
person who seeks to rely on it.
[14] I would
add the following propositions. Sixthly,
as Viscount Simonds and Lord Radcliffe stated in Davis Contractors Ltd at pp.716 and 729 respectively it is not
sufficient of itself that a change of circumstances renders performance of the
contractual obligations more expensive or onerous or thereby causes hardship. The supervening event or circumstances must
have rendered performance impossible or fundamentally different from what, on
an objective construction of the contract, the parties contemplated when they
contracted. See also National Carriers Limited v Panalpina (Northern) Limited [1981] AC 675, Lord Simon of Glaisdale at p.700 F-G
which I quote in paragraph 15 below and at p.707 B. Seventhly, if the parties have foreseen the
event and made provision for it, that would generally exclude the doctrine of
frustration as, in Lord Reid's words in Davis
Contractors Ltd at p.721 the
contract would be wide enough to apply to the new situation. Similarly if the event had been foreseen and
parties had not provided for it in their contract, that would usually prevent
the doctrine from applying on the occurrence of the event: Davis Contractors Ltd at p.731 and Chitty, paragraph 23.059. But circumstances may arise where parties
have been aware of the possibility of an event occurring but have not made any
or sufficient provision for the risk and justice requires the application of
the doctrine: National Carriers Ltd,
Lord Roskill at p. 712 F. See also
Chitty para. 23.057. Finally,
frustration relieves parties from further performance of their obligations
under the contract. Accrued rights are
preserved. In Scotland the law of
unjustified enrichment is available in appropriate cases to give a remedy to
enrichment at another's loss as a consequence of the frustration. This is relevant to the pursuers' claim for
repayment of rent paid. Whether the
court has a wider power to apportion losses between the parties is a matter of
academic controversy.
[15] In this
case parties accepted that the doctrine of frustration could apply to leases: National Carriers Ltd. Mr Dunlop derived the structure of his
submission from Lord Simon of Glaisdale's description of frustration in National Carriers Ltd at p.700 F-G where
he stated:
"Frustration of a
contract takes place where 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 the expense or onerousness) of the
outstanding 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".
Mr Dunlop submitted that the pursuers' case did
not meet what he called the four requisites of frustration. Those were (a) that there had to be a
supervening event, (b) without fault by either party, (c) for which the
contract made no sufficient provision and (d) which amounted to a significant
change in the nature of the obligations from what the parties could reasonably
have contemplated.
[16] In my
opinion there is in this case no supervening event on which to ground the
assertion that performance has been frustrated.
The attitude of the planning authorities is not a relevant event. The reporter in his findings looked at
circumstances as they existed before the parties entered into the lease as the
background to the enforcement notice and held that planning permission was
needed for industrial use. Thus at the
start of the lease and thereafter the parties did not have planning permission
for such use. While it is clear from his
recording of the Council's submissions that the Council's stance was that there
was no extant permission for class 6 use, I do not construe his report as
expressing any conclusion on the existence of permission for such use. Even if he had concluded that there was no
permission for class 6 use, that conclusion would apply to the circumstances as
they existed at the start of the lease as well as at the date of his
decision. The absence of planning
permission for the intended use predated the lease.
[17] I
consider that Gamerco SA, in which Garland J treated the public
authorities' ban on the use of an unsafe stadium as a supervening event which
frustrated a contract for the performance of a rock concert, falls to be
distinguished from the circumstances of this case. While it appears that the stadium was
potentially unsafe before the contract was made because high alumina cement had
been used in its construction, its use was not illegal until the ban was
imposed.
[18] The
absence of a supervening event is of itself sufficient to determine the
relevancy of the frustration argument.
Nonetheless, I comment briefly on the other points which the defenders
argued. If the attitude of the planning
authorities had been a supervening event, I am not persuaded that I could
determine as a matter of relevancy without enquiry into the facts that the
event arose through the fault of the pursuers in the sense that it was
something within their control. In
particular I cannot give effect to the defenders' assertion that the pursuers
acted in breach of the user clause and caused a nuisance without hearing
evidence on those matters and also considering any evidence which supported the
pursuers' averment that the defenders intended that the site be used in the way
in which the pursuers used it. Thus,
interpreting fault in the way in which Bingham LJ did in Lauritzen, I cannot hold as a matter of relevancy that the pursuers
had the opportunity and means to prevent the planning authorities from taking
the attitude which they did but nevertheless caused them to take that
attitude.
[19] I
consider that the contract made provision for the possible absence of a
relevant planning permission by allocating that risk to the pursuers. Clause 6.6 addressed the possible
absence of such permission and excluded any warranty by the landlords. Clause 5.12 imposed on the pursuers the
obligation to obtain the necessary permissions and clause 5.14 created a
mechanism by which the pursuers could obtain the landlords' permission for
alternative use. Looking objectively at
the terms of the lease in the context of the circumstances revealed in the
pleadings and documents, I am satisfied that the parties are to be taken as
having foreseen the possibility that there was no relevant planning permission
and as having agreed who would bear the risk of that being so. While the reporter's decision and the
Council's attitude may have come as an unpleasant surprise to the pursuers, I
am not persuaded that on an objective interpretation of the lease it amounted
to a significant change from what the parties had contemplated. I have considerable sympathy for the pursuers
as they appear to have onerous rental obligations and no obvious use of the
site which will generate sufficient income to support the rent. But it appears to me that the pursuers took
the risk that there was no relevant planning permission and have made an
imprudent deal. As they undertook that
risk, the nature of their obligations have not changed significantly. The doctrine of frustration, which Bingham LJ
and other judges have said must be kept within very narrow limits, does not
release contracting parties from their obligations in such circumstances.
[20] The
alternative case of illegality was concerned not with supervening events but
illegality ab initio. The flaw in that case is clause 5.14,
which creates a mechanism by which the pursuers can use the site legally by applying to the landlords for
approval for a use which is authorised under planning legislation. As Devlin LJ stated in Archbolds (Freightage) Limited v
S. Spanglett Limited [1961] 1 QB 374 at p.391, "it is a familiar principle
of law that if a contract can be performed in one of two ways, that is, legally
or illegally, it is not an illegal contract".
This contract can be so performed.
I am therefore satisfied that the alternative case of illegality is also
irrelevant.
Conclusion
[21] As I am
satisfied that the pursuers' pleadings are irrelevant to support the declarator
which they seek, I sustain the defenders' first plea in law and dismiss the
action.
