The doctrine of frustration and leases: National Carriers Ltd v Panalpina (Northern) Ltd

It had been thought, since the English Court of Appeal decision in Leighton’s Investment Trust Ltd v Cricklewood Property and Investment Trust Ltd ([1943] KB 49), that the doctrine of frustration did not apply to leases. In National Carriers Ltd v Panalpina (Northern) Ltd ([1981] AC 675), the House of Lords confirmed that the doctrine does apply to leases.

The doctrine of frustration applies when, after a contract has been entered into, some supervening event occurs that makes performance of the contract radically different from what the parties had contemplated when they entered into the contract.

National Carriers concerned a 10 year lease of a warehouse. The lease only allowed the building to be used as a warehouse. The local authority closed the only road leading to the warehouse for 20 months. This meant that the warehouse was useless to the tenants for that time.

The tenants sought to invoke the doctrine of frustration. They argued that the closure of the road and its effect on the contemplated use of the property brought their case within the doctrine.

The majority of the House of Lords decided that the doctrine was, in principle, as applicable to leases as to any other contract.

Lord Wilberforce explained that there were two issues of principle to be considered:

1. was the fact that the lease created an estate in land a barrier to the applicability of the doctrine? He thought not. In principle, events can occur that might lead to the estate in land coming to an end. And there might be many leases where it was clear that the parties have a mutually contemplated purpose (such as use as a warehouse) That purpose could be frustrated by the occurrence of a supervening event.

2. Do all risks pass to a tenant when a lease is entered into? Lord Wilberforce thought that there was no general principle to that effect.

Lord Russell of Killowen gave the only dissenting judgment. He pointed out that land is indestructible and that this fact makes the doctrine of frustration inapplicable to leases. He was also of the view that all risks pass to the tenant when a lease is entered into.

In any event, the tenant failed: the loss of 20 months out of a 10 year term was held not to be serious enough to fall within the doctrine of frustration.

One Response to “The doctrine of frustration and leases: National Carriers Ltd v Panalpina (Northern) Ltd”

  1. Precious kaniki Says:

    Thanks very much.

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