Bank Line Ltd v Arthur Capel & Co [1918] UKHL 1, [1919] AC 435

Facts

The appellants (Bank Line, Ltd, “the charterers”) entered into a time charter-party with the respondents (Arthur Capel & Co, “the owners”) on 16th February 1915 for the steamship *Quito*. The charter was for a period of twelve months, commencing upon delivery of the vessel at a coal port in the UK. The charter-party stipulated that the vessel was to be delivered by 30th April 1915, and provided the charterers with an option to cancel the contract if she was not delivered by this date (clause 26). The contract also contained a standard exception for “restraint of Princes, Rulers or Peoples” (clause 31). The owners failed to deliver the vessel by 30th April, but the charterers chose not to exercise their option to cancel, thereby keeping the contract alive. Before the vessel could be delivered, she was requisitioned by the British Government on 11th May 1915 for an indefinite period. The owners contended that this governmental requisition frustrated the contract. In August 1915, while the vessel was still under requisition, the owners sold her to a third party. The vessel was finally released from requisition in September 1915, at which point the charterers demanded delivery. The owners refused, citing the sale and their belief that the contract had been frustrated. The charterers brought an action for damages for breach of contract. The matter was referred to an arbitrator who found in favour of the charterers, subject to the opinion of the Court on a special case.

Issues

The House of Lords was required to determine three primary legal issues:

1. Whether the indefinite requisition of the vessel by the Government before the charter period had commenced constituted a frustrating event that automatically discharged the contract.
2. What the effect of the “restraint of princes” clause was. Specifically, whether this express provision for such an event precluded the operation of the doctrine of frustration by showing the parties had allocated the risk.
3. Whether the charterers’ right to cancel under clause 26, which they did not exercise, meant that the risk of all subsequent delays, including requisition, lay with the owners.

Judgment

The House of Lords, by a majority (Lord Finlay L.C., Lord Sumner, Lord Parmoor, and Lord Wrenbury; Lord Shaw of Dunfermline dissenting), allowed the appeal, holding that the contract had been frustrated by the requisition. The Court reasoned that the requisition created a delay of such an indefinite and lengthy duration that it fundamentally altered the nature of the contractual venture from what the parties had originally contemplated.

Lord Sumner’s Reasoning

Lord Sumner delivered the leading and most influential speech, which has become a cornerstone of the modern doctrine of frustration. He critically analysed the theoretical basis for the doctrine, distancing it from the fiction of an “implied term” and reframing it as a positive rule of law. He articulated that frustration occurs when, 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.

The theory of dissolution of a contract by the frustration of its commercial object rests on an implication of law, which, of course, can be excluded by the parties by apt and sufficient words. If the parties have provided for the case, there is no room for an implication; their express words must govern.

Applying this principle, Lord Sumner addressed whether the parties in this case had, through their express clauses, provided for the eventuality of an indefinite requisition and thus excluded frustration.

• On the Cancellation Clause (Clause 26): He concluded this clause was irrelevant to the question of frustration. It merely gave the charterer an option upon a specific, defined event (non-delivery by 30th April). It did not purport to govern an indefinite, supervening impossibility that arose after that date.
• On the Restraint of Princes Clause (Clause 31): This was the central point of contention. Lord Sumner held that such a standard exception clause was designed to excuse temporary interruptions and provide a defence to a claim for damages for delay *within* a subsisting contract. It was not intended to, and did not, cover an event so fundamental and prolonged that it destroyed the entire foundation of the charter. He drew a crucial distinction:

…a restraint of princes may be a defence to an action for damages for not prosecuting a voyage with all convenient speed, but… an indefinite restraint of princes may terminate the contract altogether. The contract is gone, and with it the defence, which is only a part of it.

Ultimately, he concluded that the requisition, being of an uncertain and protracted nature, destroyed the identity of the chartered service. The contract was therefore terminated by law, not by the action of the parties, at the moment the frustrating event occurred.

Other Judgments

Lord Finlay L.C. agreed that the requisition had “destroyed the identity of the adventure” and that the exception for restraint of princes did not prevent the application of the doctrine of frustration where the interruption was of a fundamental character. He distinguished the case from F. A. Tamplin Steamship Co. Ltd v. Anglo-Mexican Petroleum Products Co. Ltd on the basis that here, the charter had not yet commenced, making the indefinite delay to its start all the more foundational.

Lord Shaw of Dunfermline delivered a powerful dissent, arguing that the parties had explicitly allocated the risk of “restraint of princes”. In his view, the contract had provided for this very event, and the court should not override the express agreement of the parties to declare the contract frustrated. He believed the principles from the Tamplin case should have been applied.

Implications

The decision in Bank Line v Capel is of major importance in the development of the English law of contract. Its primary significance lies in the clarification of the relationship between express contractual terms (exception clauses) and the doctrine of frustration. The case established the critical principle that a standard exception clause, such as “restraint of princes,” will only protect a party from liability for non-performance during temporary interruptions; it will not, unless drafted with extraordinary precision to the contrary, prevent the contract from being discharged entirely where the interruption is so fundamental as to destroy the commercial purpose of the venture. Lord Sumner’s judgment, in particular, provided a robust theoretical framework for frustration, anchoring it as a rule of law that operates to bring a contract to an end when its foundational basis has been eroded by a supervening event, rather than relying on the artifice of an implied term. This has had a lasting impact on how courts approach cases of supervening impossibility.

Verdict: The appeal by the shipowners was allowed; the Order of the Court of Appeal was reversed, and judgment was entered for the appellants (the owners), discharging them from liability.

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