Krell v Henry 11 Aug 1903 [1903] 2 KB 740, CA

The defendant hired a flat to view the King's coronation processions, which were subsequently cancelled. The court held that the contract was frustrated as the processions were the foundation of the agreement, thus excusing the defendant from paying the balance.

Facts

The plaintiff, C. S. Krell, owned a flat at 56A, Pall Mall. An advertisement in the window led to the defendant, Paul Henry, agreeing through his solicitor to hire the rooms for 26 and 27 June 1902. The purpose was to view the coronation processions of King Edward VII, though this was not explicitly mentioned in the written correspondence forming the contract. The agreed price was £75, with £25 paid as a deposit and the balance of £50 to be paid on 24 June. The King became seriously ill, and the processions were cancelled on the morning of 24 June. The defendant refused to pay the outstanding £50. The plaintiff brought an action to recover this balance.

Issues

The central legal issue was whether the contract was discharged by the non-occurrence of the coronation processions. The court had to determine if the principle of frustration of contract could apply not only where the subject-matter is destroyed (as in Taylor v Caldwell), but also where the event that formed the entire basis of the contract fails to take place. The key question was whether the processions were an implied condition and the foundation of the contract, the absence of which would render performance impossible in the manner contemplated by both parties.

Judgment

The Court of Appeal, comprising Vaughan Williams, Romer, and Stirling LJJ, upheld the decision of Darling J at first instance and dismissed the plaintiff’s appeal. They held that the contract was frustrated and the defendant was excused from paying the balance of £50.

Vaughan Williams LJ, delivering the main judgment, established a three-part test for determining frustration:

First, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?

He concluded that the processions and the relative position of the flat were the foundation of the contract. The cancellation of the processions prevented the substantial performance of what was contracted for. He reasoned that extrinsic evidence was admissible to show that the state of things which was the foundation of the contract had ceased to exist. He expanded upon the principle established in Taylor v Caldwell:

I do not think that the principle of the civil law as introduced into the English law is limited to cases in which the event causing the impossibility of performance is the destruction of the subject-matter of the contract, but that it applies also to cases in which the event which renders the contract incapable of performance is the cessation or non-existence of an express condition or state of things, going to the root of the contract, and essential to its performance.

He distinguished the case from a hypothetical scenario of hiring a taxi to attend the Derby, where the cabman is not concerned with the hirer’s purpose. Here, the letting of the rooms for the specific purpose of viewing the procession was common to both parties. The rooms’ value was intrinsically linked to the event, making the procession’s occurrence a fundamental, albeit unwritten, condition of the contract.

Implications

The judgment in Krell v Henry is a landmark decision that significantly developed the doctrine of frustration of contract in English law. It broadened the scope of the doctrine beyond physical impossibility (e.g., destruction of the subject-matter) to include the frustration of a common purpose. The case established that if the very basis or foundation of a contract ceases to exist without the fault of either party, the contract is discharged. This ‘frustration of purpose’ principle has become a cornerstone of contract law, allowing courts to provide a just outcome where an unforeseen event radically changes the nature of the contractual obligations, making performance fundamentally different from what was originally intended by the parties. It is one of the leading ‘coronation cases’ that arose from the cancellation of Edward VII’s coronation events.

Verdict: The appeal was dismissed. The defendant (Henry) was not liable to pay the remaining £50 balance to the plaintiff (Krell) as the contract was held to be frustrated.

Source: Krell v Henry 11 Aug 1903 [1903] 2 KB 740, CA