Facts
- Ocean Trawlers Ltd, the respondents, owned a steam trawler equipped with an otter trawl and chartered it to Maritime National Fish Ltd, the appellants, for use in the fishing industry.
- The charterparty was renewed in October 1932 for an additional year.
- Both parties knew that Canadian law required a government-issued license to operate an otter trawl.
- In March 1933, the appellants requested licenses for five trawlers, but the authorities granted only three licenses.
- The appellants had to select which three vessels would receive licenses and chose their own trawlers rather than the chartered vessel.
- After failing to allocate a license to the chartered vessel, the appellants claimed the contract was frustrated and ceased paying hire, arguing performance was impossible because the vessel could not be used legally for fishing.
Issues
- Whether the doctrine of frustration applied when impossibility of performance was caused by the appellant’s own decision rather than an unforeseen external event.
- Whether the denial of a license for the chartered vessel constituted frustration sufficient to discharge the appellants from their contractual obligations.
Decision
- The Privy Council held that the contract was not frustrated.
- The impossibility of performance arose directly from the appellants’ own decision to allocate licenses to other vessels, not from an external or unforeseen event.
- The appellants remained liable for the hire of the vessel under the charterparty agreement.
- The Council emphasized that self-induced inability to perform does not permit a party to invoke the doctrine of frustration.
Legal Principles
- Frustration requires that the impossibility of performance arise from an unforeseen, external event and not from the voluntary actions or decisions of a party.
- A party cannot escape contractual obligations by making choices that directly cause the inability to perform the contract.
- Contractual responsibility remains with the party possessing decision-making power relating to performance conditions, and the courts will not intervene to relieve a party from self-induced difficulties.
- The doctrine of frustration is not a mechanism to avoid contractual obligations because of a party's own election or preference.
Conclusion
The Privy Council confirmed that frustration of contract does not apply where the supervening impossibility results from a party's own actions or choices; contractual obligations remain enforceable in such circumstances, and parties must carefully manage licensing and risk in commercial agreements.