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Davis Contractors v. Fareham Urban DC
Smart Summary
Factual and Procedural Background
On 9 July 1946, Company A (building contractors) and Company B (a local authority) executed a written contract for the construction of 78 houses in The City within eight months for £85,836. Severe post-war shortages of skilled labour and certain materials prolonged completion to 22 months.
Company B nevertheless paid the contractual sum (with agreed adjustments) totalling £94,424. Claiming that the prolonged period rendered the contract price inapplicable, Company A sought additional remuneration on a quantum meruit basis.
The dispute travelled through multiple stages: (1) arbitration, resulting in a special-case award; (2) hearing before Judge [Chief Justice]; (3) an initial appeal to the Court of Appeal; (4) a reference back to the arbitrator for supplemental findings; (5) a second Court of Appeal decision rejecting Company A’s claim; and (6) the present appeal before the House of Lords, which is the opinion summarised here.
Legal Issues Presented
- Whether a paragraph in Company A’s letter dated 18 March 1946 (stating that its tender was “subject to adequate supplies of material and labour being available”) was incorporated into the sealed contract of 9 July 1946.
- Whether, owing to unexpected and prolonged shortages of labour and materials, the contract was frustrated, thereby entitling Company A to payment on a quantum meruit rather than the fixed contract price.
Arguments of the Parties
Company A’s Arguments
- The 18 March 1946 letter was expressly or implicitly incorporated, creating an overriding condition that adequate labour and material must exist; failure of that condition triggered payment outside the fixed price.
- Alternatively, both parties contracted on the shared assumption that adequate supplies would be available; the unforeseen 14-month delay destroyed the “basis” or “footing” of the bargain and therefore frustrated the contract under the doctrine recognised in Bush v. Whitehaven Trustees.
Company B’s Arguments
- The formal contract did not incorporate the 18 March letter; subsequent negotiations and the executed agreement superseded any prior qualifying language.
- Delay and extra cost, though substantial, did not constitute a radical change rendering performance fundamentally different. No specific event or date could be identified at which the contract became incapable of performance, so the doctrine of frustration could not apply.
- Even if frustration were arguable, conduct throughout showed both parties continued under, and were paid pursuant to, the original contract sum, precluding any quantum meruit claim.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Bush v. Whitehaven Trustees | Early example invoked to support frustration where contractual conditions change radically. | Distinguished and regarded as puzzling; the House held it could not justify relieving a party merely because a contract became more onerous. |
| Bank Line Ltd v. Arthur Capel & Co [1919] AC 435 | Frustration requires a definite event ending contractual rights; they must not be “left in suspense.” | Cited to show that no identifiable disruptive event occurred during the 22-month period. |
| British Movietonews Ltd v. London & District Cinemas Ltd [1952] AC 166 | Unexpected difficulty or expense does not by itself frustrate a contract. | Treated as directly governing the present facts; supported rejection of frustration. |
| Denny, Mott & Dickson v. Fraser & Co [1944] AC 265 | Discussed conceptual foundations of frustration (construction vs. implied term vs. destroyed foundation). | Used to analyse the correct doctrinal basis; court favoured construction of the contract over implied-term theory. |
| Tamplin Steamship Co v. Anglo-Mexican Petroleum Co [1916] 2 AC 397 | Classic statement that frustration arises where parties must have contracted on the footing that a particular state of affairs would continue. | Quoted but court emphasised that parties did not contract on a footing that no delays could occur. |
| Horlock v. Beal [1916] 1 AC 486 | Illustrates limits of implying a term that parties would have agreed to end the contract. | Cited to critique the “implied term” explanation of frustration. |
| Scott & Sons v. Del Sel [1922] SC 592 | Example showing artificiality of adding hypothetical implied terms (e.g., “tiger days excepted”). | Used illustratively to reject implied-term reasoning. |
| Thorn v. Mayor and Commonalty of London (1 App. Cas 120) | Reference to unforeseen, peculiar additional work. | Quoted in discussion of when work becomes fundamentally different; here it did not. |
| Dahl v. Nelson, Donkin & Co 6 App. Cas 38 | Frustration judged objectively by what fair and reasonable parties would have agreed had they foreseen the event. | Cited to emphasise objective standard. |
| Hirji Mulji v. Cheong Yue Steamship Co [1926] AC 497 | Effect of frustration is independent of the actual parties’ intentions. | Quoted to underline that subjective expectations cannot create frustration. |
| Parkinson v. Commissioners of Works [1949] 2 KB 632 | Delay must “transmute the job” into one of a different kind before frustration applies. | Supported conclusion that longer duration alone did not transmute the building project. |
| Larrinaga case (29 Com. Cas 1) | Contracts fix the incidence of risk; commercial depression or similar adversity is no ground to discharge them. | Relied on to show that shortage risks were contractually allocated to Company A. |
Court's Reasoning and Analysis
The House first addressed incorporation. It found that the sealed contract expressly listed the documents forming part of the agreement; the 18 March letter was not among them. References to that letter in an appendix were limited to price-variation matters and could not transform the labour-and-materials clause into a contractual term. Therefore, no express or implied overriding condition existed.
Turning to frustration, the Court reviewed the arbitrator’s findings that both parties expected adequate supplies and that delays increased Company A’s costs by approximately £20,000. The Court held:
- Frustration is a doctrine of law, applied narrowly, requiring performance to become radically different, not merely more onerous or expensive.
- Shortage of labour and materials was a foreseeable post-war risk; the parties could have, but did not, stipulate for its occurrence. Consequently, the risk was borne by Company A under the fixed-price bargain.
- No single disruptive event or identifiable date terminated the contract; the work proceeded without interruption and was ultimately completed under the original terms.
- Past authorities, especially British Movietonews, confirm that greater expense or delay does not by itself frustrate a contract. Bush v. Whitehaven was regarded as non-binding, fact-specific, and inconsistent with later House of Lords jurisprudence.
Because the contract remained operative throughout, Company A had no entitlement to additional payment beyond that already received.
Holding and Implications
APPEAL DISMISSED WITH COSTS.
The House of Lords affirmed that (1) pre-contract correspondence not expressly incorporated cannot later be relied upon as a contractual condition, and (2) even substantial delay and cost escalation—caused by foreseeable shortages—do not frustrate a fixed-price building contract. The decision reinforces the narrow scope of the frustration doctrine and signals to contractors that post-war labour or material scarcities, absent explicit contractual allocation, remain their risk. No new legal precedent was created; the judgment consolidates existing principles.
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