Fibrosa Societe Anonyme v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4 (15 June 1942)

A Polish company paid £1,000 in advance for textile machinery to be delivered to Gdynia. The contract was frustrated when Germany invaded Poland, making delivery impossible. The House of Lords overruled Chandler v Webster, holding that money paid for a consideration which has wholly failed is recoverable even where a contract is frustrated rather than void ab initio.

Facts

By a contract dated 12th July 1939, the Respondents (Fairbairn Lawson Combe Barbour Ltd), a Leeds-based textile machinery manufacturer, agreed to supply flax-hackling machines to the Appellants (Fibrosa Spolka Akcyjna), a Polish company, for £4,800. The machines were to be delivered c.i.f. Gdynia, with payment of one-third (£1,600) with the order and the balance against shipping documents. On 18th July 1939, the Appellants paid £1,000 on account. Following Germany’s invasion of Poland on 1st September 1939 and Britain’s declaration of war on 3rd September, delivery became impossible. On 23rd September 1939, Poland was declared enemy territory by Order in Council.

The Claim

The Appellants sought recovery of their £1,000 advance payment on the ground that the consideration for which it was paid had wholly failed. The Respondents refused to return the payment, arguing that work had been done on the machines and relying on the rule in Chandler v Webster that when a contract is frustrated, the loss lies where it falls.

Issues

The central issue was whether the rule in Chandler v Webster [1904] 1 KB 493 was correct, namely: when a contract is frustrated by supervening impossibility, is money paid in advance irrecoverable, or can it be recovered as money paid for a consideration which has wholly failed?

Judgment

The House of Lords unanimously allowed the appeal and overruled Chandler v Webster.

Lord Chancellor (Viscount Simon)

The Lord Chancellor held that the reasoning in Chandler v Webster was fundamentally flawed. The claim for money paid on a total failure of consideration does not arise from the contract but from quasi-contract. The action for money had and received rests not upon a contractual term but upon an obligation imposed by law when the defendant has received money to which he has no further right. The distinction drawn by Collins M.R. in Chandler v Webster between contracts wiped out altogether and contracts merely discharged as to future performance was erroneous in relation to the action for failure of consideration.

Lord Atkin

Lord Atkin emphasised that the right to recover money paid for a consideration which has wholly failed is an established principle of common law independent of the contract. He rejected the reasoning in Chandler v Webster as a misapprehension, noting that the action for money had and received has long been available where consideration fails, regardless of whether the contract was void ab initio.

Lord Russell of Killowen

Lord Russell confirmed that the right to recover money paid for a wholly failed consideration does not depend on the contract being void ab initio. It arises from the fact that impossibility of performance has caused total failure of consideration. He stated that Collins M.R.’s suggestion that recovery only applies where a contract is wiped out altogether was clearly a misapprehension.

Lord Macmillan

Lord Macmillan noted that the law of England had long recognised the right to recover under the common indebitatus count for money received where consideration has wholly failed. The distinction drawn in Chandler v Webster had no basis in principle or precedent.

Lord Wright

Lord Wright provided an extensive analysis of quasi-contract and unjust enrichment, tracing the principle from Lord Mansfield’s judgment in Moses v Macferlan. He held that the claim for money had and received is not a claim under the contract but arises from the law’s imposition of an obligation to prevent unjust enrichment.

Lord Roche

Lord Roche distinguished between final or out-and-out payments (such as advance freight) which are irrecoverable, and payments on account of a purchase price which are recoverable if the consideration wholly fails. The present payment was clearly of the latter character.

Lord Porter

Lord Porter agreed that the payment in this case was not a final payment but part of the lump sum price payable for completed articles. The goods remained the property and at the risk of the sellers until documents were presented. The case fell within the principle that money paid for a consideration which wholly fails is recoverable.

Implications

This decision fundamentally reformed the law relating to the recovery of advance payments following frustration of contracts. By overruling Chandler v Webster, the House of Lords established that money paid in advance can be recovered where the consideration has wholly failed, even though the contract was not void ab initio but merely frustrated. However, their Lordships acknowledged that this rule works only rough justice, as it cannot address partial failure of consideration or compensate a party who has incurred expenses in partial performance. The Lord Chancellor expressly noted that legislative intervention might be needed to provide for equitable apportionment. This decision led directly to the Law Reform (Frustrated Contracts) Act 1943, which addressed these remaining difficulties.

Verdict: Appeal allowed. Judgment entered for the Appellants for £1,000. Chandler v Webster [1904] 1 KB 493 overruled. The Appellants were entitled to recover the £1,000 advance payment as money paid for a consideration which had wholly failed.

Source: Fibrosa Societe Anonyme v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4 (15 June 1942)