Davis Contractors v Fareham Urban DC [1956] UKHL 3 (19 April 1956)

A building contractor agreed to build 78 houses within eight months but took twenty-two months due to labour and material shortages. The contractor claimed the contract was frustrated and sought payment on a quantum meruit basis. The House of Lords held the contract was not frustrated as the work remained the same, merely more onerous.

Facts

Davis Contractors Limited entered into a building contract with Fareham Urban District Council on 9th July 1946 to construct 78 houses within eight months for £85,836. Due to shortages of skilled labour and building materials in the post-war period, the work took twenty-two months to complete instead of eight. The contractors were paid the contract price of £94,424 (including adjustments) but claimed an additional sum of approximately £17,000 on a quantum meruit basis.

The Contractors’ Arguments

The contractors argued on two alternative grounds: (a) that the contract price was subject to an express condition in a letter dated 18th March 1946 requiring adequate supplies of labour and material; and (b) that the contract had been frustrated because the parties had contracted on the basis that adequate supplies would be available, and the failure of this expectation removed the footing of the contract.

Issues

1. Whether the letter of 18th March 1946 was incorporated into the formal contract.

2. Whether the contract was frustrated by the shortage of labour and materials, entitling the contractors to payment on a quantum meruit basis rather than the contract price.

Judgment

Incorporation of the Letter

The House of Lords unanimously held that the letter of 18th March 1946 was not incorporated into the contract. The letter was merely part of preliminary negotiations, and the formal agreement of 9th July did not include its terms. The reference to the letter in an appendix to the tender was confined to matters relating to price fluctuations of materials, not to the general availability of supplies.

Frustration

The House of Lords unanimously rejected the frustration argument. Lord Radcliffe articulated the test for frustration:

“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.”

Lord Reid emphasised that the question is whether the contract, on its true construction, applies to the new situation that has emerged. He stated that the delay in this case was merely greater in degree than expected, not caused by any new and unforeseeable factor.

Viscount Simonds observed that it would be contrary to the doctrine of frustration to allow a contractor to work continuously for twenty-two months and then claim the contract was frustrated simply because the work took longer and cost more than anticipated.

Bush v Whitehaven Distinguished

The House of Lords held that the earlier case of Bush v Whitehaven Trustees could not be relied upon as authority for the contractors’ position. That case was decided on very special facts and must be read in light of subsequent developments in the law of frustration.

Implications

This case established important principles regarding the doctrine of frustration in English contract law. The judgment makes clear that:

1. Mere increase in expense or onerousness of performance does not constitute frustration.

2. Disappointed expectations alone do not lead to frustrated contracts.

3. For frustration to apply, performance must have become something radically different from what was originally undertaken.

4. Where parties could have foreseen the possibility of certain circumstances and made contractual provision for them but did not, they cannot later invoke frustration when those circumstances materialise.

The case remains a leading authority on the limits of the frustration doctrine and emphasises that contractors who undertake fixed-price contracts bear the risk of unforeseen difficulties that make performance more expensive but not fundamentally different.

Verdict: Appeal dismissed. The House of Lords held that the letter of 18th March 1946 was not incorporated into the contract, and the contract was not frustrated. The contractors were only entitled to the contract price already paid and could not recover additional sums on a quantum meruit basis.

Source: Davis Contractors v Fareham Urban DC [1956] UKHL 3 (19 April 1956)