National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8 (11 December 1980)

A warehouse was leased for 10 years, but the only access road was closed for 20 months. The House of Lords held that the doctrine of frustration can apply to leases, but this interruption was not significant enough to frustrate this contract.

Facts

In January 1974, the appellants, National Carriers Ltd (the landlords), granted a 10-year lease for a warehouse in Hull to the respondents, Panalpina (Northern) Ltd (the tenants). The only vehicular access to the warehouse was via a street called Copperfield Street. In May 1979, the local authority closed this street due to the dangerous condition of a derelict Victorian warehouse opposite the leased property. This closure was expected to last for approximately 20 months, preventing any use of the leased warehouse during that period. With around three years of the lease term remaining after the anticipated reopening, Panalpina stopped paying rent, arguing that the lease had been frustrated by the temporary loss of access.

Issues

The case presented two primary legal issues for the House of Lords:

1. Can the legal doctrine of frustration apply to a lease of real property?
2. If so, were the events in this case—specifically, the 20-month closure of the access road in a 10-year lease—sufficient to frustrate the contract?

Judgment

The House of Lords unanimously dismissed the appeal, holding that while the doctrine of frustration is, in principle, applicable to leases of land, the specific facts of this case did not meet the high threshold required to frustrate the lease.

The Application of Frustration to Leases

The Court overturned the long-held (though debated) view stemming from Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] A.C. 221, which suggested that frustration could not apply to a lease because a lease creates an estate in land that is not destroyed by a supervening event. The Lords concluded that there was no logical or just reason to place leases in a special category, exempt from the modern contractual doctrine of frustration.

Lord Hailsham of St. Marylebone stated the modern position forcefully:

I would therefore hold that the doctrine of frustration is, in principle, applicable to leases, but I would also endorse the view of Viscount Simon L.C. and Lord Wright in the Cricklewood case, and that of the majority of the Court of Appeal in the instant case that the circumstances in which it could properly be applied are, to say the least, exceedingly rare.

Lord Simon of Glaisdale agreed, emphasising that a lease is a composite of property and contractual rights and obligations, and should not be immune from the doctrine:

I am therefore of opinion that the doctrine of frustration can apply to a demise… that the congeries of rights and obligations which are comprehended in the term ‘lease’ can be frustrated.

Application to the Facts

Despite establishing that frustration could apply in principle, the court found it did not apply in this instance. The core reasoning was that the supervening event must be so fundamental as to destroy the entire basis of the contract. A temporary interruption of use was not sufficient. The court considered the ratio of the interruption (20 months) to the total term of the lease (10 years). The interruption, while significant, was not total and would still leave the tenants with approximately three years of use after the road reopened.

Lord Simon articulated the test applied:

The doctrine of frustration is in all cases subject to the important limitation that the frustrating circumstances must be such as to destroy the identity of the subject-matter of the contract or, in other words, to destroy the foundation of the contract. Nothing less will suffice.

The court concluded that a 20-month disruption in a 10-year term did not meet this high threshold. It made performance more onerous but did not render it radically different from what was originally undertaken.

Implications

The decision in National Carriers v Panalpina is a landmark case in English contract and property law. It definitively established that the contractual doctrine of frustration can apply to a lease, thereby bringing the law of landlord and tenant more in line with general contract law. However, the judgment also stressed that the successful invocation of frustration for a lease would be exceptionally rare. The event must be unforeseen and totally undermine the foundation of the lease, for example, a catastrophic event rendering the land permanently unusable for the vast majority of the lease term. The case thus provides theoretical unity while maintaining a very high practical barrier, ensuring that leases, as proprietary interests, are not easily terminated by temporary hardship.

Verdict: The appeal was dismissed. The House of Lords held that the lease was not frustrated by the temporary closure of the access road.

Source: National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8 (11 December 1980)