Metropolitan Water Board v Dick Kerr & Co Ltd [1917] UKHL 2 (26 November 1917)

A contract for reservoir construction was interrupted when the Minister of Munitions ordered work to cease during WWI and dispersed the plant. The House of Lords held the contract was frustrated as the prohibition fundamentally changed conditions, making resumed performance a substantially different contract from that originally agreed.

Facts

The Metropolitan Water Board (appellants) contracted with Dick, Kerr & Co. Ltd (respondents) on 24 July 1914 for the construction of reservoirs near Staines, to be completed within six years. Work commenced on 16 August 1914. On 21 February 1916, the Minister of Munitions, acting under Defence of the Realm powers during World War I, ordered cessation of work and subsequently directed the sale of the contractors’ plant. The prohibition remained in force at the time of the appeal.

The Contract Terms

Condition 32 of the contract provided that the engineer could grant extensions of time if the contractor was unduly delayed by various causes including difficulties, impediments, or obstructions ‘whatsoever and howsoever occasioned’. The appellants argued this clause covered the ministerial prohibition.

Issues

The central issue was whether the contract remained binding despite the government prohibition, or whether the prohibition had brought the contract to an end through frustration. Specifically, whether Condition 32 applied to the circumstances created by the Minister’s order.

Judgment

The House of Lords unanimously dismissed the appeal, affirming the Court of Appeal’s decision that the contract was at an end.

Lord Finlay L.C.

His Lordship held that Condition 32 did not cover situations where interruption was of such character and duration that it vitally and fundamentally changed the conditions of the contract. The prohibition had already lasted nearly two years and would likely continue as long as the war. He distinguished this from temporary difficulties, noting that resuming work under entirely different conditions of labour and materials would constitute substituting a different contract.

Lord Dunedin

His Lordship emphasised that the government order not only prevented work but compulsorily dispersed and sold the plant. He stated that if a clause had been proposed allowing the Board to take and sell all plant, interrupt work indefinitely, then require the contractor to furnish new plant and recommence, no contractor would have accepted it. The resumed contract would be fundamentally different from the original.

Lord Atkinson

His Lordship held that Condition 32’s reference to ‘difficulties’ did not cover the exercise of unprecedented executive powers conferred after the contract date. The parties intended to be free to exercise their contractual rights without governmental interference of this nature, and an implied condition should be read into the contract releasing them from performance when deprived of freedom of action by vis major.

Lord Parmoor

His Lordship held that while the general words in Condition 32 might be wide enough to include legislative interference, the language was used ‘alio intuitu’ and was never intended to cover such contingencies. A mere extension of time was not an appropriate remedy for indefinite governmental prohibition.

Implications

This case is a landmark authority on the doctrine of frustration of contract. It established that:

• A contract may be frustrated where supervening illegality fundamentally changes the conditions under which the contract was made
• General ‘extension of time’ clauses in construction contracts do not necessarily cover extraordinary governmental interference
• The test is whether resumption would constitute performance of a substantially different contract from that originally agreed
• Prolonged and indefinite delay caused by governmental action during wartime can frustrate a contract even where physical performance might eventually become possible

The case built upon principles from earlier authorities including Jackson v Union Marine Insurance Co. and applied the frustration doctrine to construction contracts interrupted by wartime emergency legislation.

Verdict: Appeal dismissed with costs. The contract between the Metropolitan Water Board and Dick, Kerr & Co. Ltd was held to be at an end due to frustration caused by the Minister of Munitions’ prohibition order.

Source: Metropolitan Water Board v Dick Kerr & Co Ltd [1917] UKHL 2 (26 November 1917)