Bank Line v Capel and Co, [1918] UKHL 1
Citation:Bank Line v Capel and Co, [1918] UKHL 1.
Rule of thumb:If a contract is frustrated, do any of the terms in it apply? No, if a contract is frustrated, none of the terms of the contract apply any longer.
Background facts:
The basic facts of this case were that a ship was chartered/rented by the pursuers from the defenders for a total of 12 months on a hire-purchase. In April 1916 the ship was taken/requisitioned by the British Government for use in the war effort of WW1. The pursuers had the right to cancel the contract in these circumstances but did not do so. The ship was then released by the British Government in September 1916. The contract gave the pursuers the right to purchase the ship for a certain price but the defenders sold the ship to someone else. The question of law was whether this term with the right to future purchase was still valid after the frustrating event.
Judgment:
The Court held that once a contract is frustrated it is over and even if the frustrating event ends it does not restart the contract. The Court held that this contract became frustrated, the term with the right to purchase the ship did not apply and the defenders did not have to pay any damages.
Ratio-decidendi:
‘My Lords, applying these considerations I am of opinion that the requisitioning of the Quito destroyed the identity of the chartered service and made the charter as a matter of business a totally different thing. It hung up the performance for a time, which was wholly indefinite and probably long. The return of the ship depended on considerations beyond the ken or control of either party. Both thought its result was to terminate their contractual relation by the middle of June and, as they must have known much more about it than I do, there is no reason why I should not think so too’, Lord Sumner
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