English High Court decisions – Seán Crossan's Scots Law

Face the consequences!

By Louise Aitken, Siobhan Donaghy, Kieran Flynn and Elisha Masini (Editor: SJ Crossan)

Introduction

Privacy is a human right and both the Scotland Act 1998 and the Human Rights Act 1998, implemented provisions of the European Convention on Human Rights (Article 8) directly into national. The employment contract, consequently, is not in any way exempt from human rights issues (see the judgement of the European Court of Human Rights in Bărbulescu v Romania 5 September 2017 (Application no. 61496/08). The European Union (EU) has also had a major influence on the development of privacy laws e.g. General Data Protection Regulations.

Privacy has become a major issue in recent years, particularly due to the rise of social media use. The increasing use of IT systems and the internet by organisations and their employees are key factors in the expansion of laws regarding privacy. In Bărbulescu, the employer had violated the employee’s rights to privacy in terms of Article 8 of the European Convention in the way that it had monitored the company’s email system. Privacy in the work-place is a major issue for both employers and employees. Some of the most important areas of law that govern privacy are to be found in the areas of human rights, data protection, and freedom of information.

It is very important to establish from the outset that employees do not have an absolute right to privacy and there may be situations within and outwith the work-place where the employer has a legitimate interest in the activities of their employees – especially if such behaviour could amount to gross misconduct.

Gross misconduct

Gross misconduct relates to serious behaviour on the part of the employee that is deemed so bad that it destroys any relationship or trust between the employer and the employee. Gross misconduct warrants instant dismissal without any notice or pay.

Section 94 of the Employments Rights Act 1996 states that an employee has the right not to be unfairly dismissed.

Section 95 of the Employment Rights Act 1996 states that an employment contract can be terminated by means of the company through purpose of the employee’s conduct. Such a dismissal or termination of contract should be viewed as a fair dismissal (Section 98: ERA 1996).

Acts or omissions by the employee which would be classified as misconduct, such as theft, alcohol or drug use, poor discipline, continually missing work without justification or poor performance are all potential exceptions to this right.

Sexting

Matt Simpson former officer in the Cumbria police force is one of many who have been caught out due to things such as inappropriate text messages. In 2020, PC Simpson was dismissed from the force after he was found to be having a secret, sexual relationship while on duty. It first came to light after the new partner of the female, with whom Simpson was involved, found text messages that had been sent to her. The new partner of Simpson’s lover then went to the police authorities with this information to make a formal complaint.

A hearing was held to establish if PC Simpson was guilty of any wrongdoing. The panel found that this was a dereliction of Simpson’s duties and he was guilty of gross misconduct – not only due to having this relationship during the time when he was meant to be working but also due to him using confidential police system to uncover information about the women purely because he was “curious”. As well as this Mr Simpson also visited the female around 20 times when on shift and had vital police equipment with him while visiting such as a body camera and a taser device. The fact that this whole affair had come to light via Simpson’s private text messages was neither here nor there: this was an aspect of Simpson’s private life in which his employers had a legitimate interest and he had been carrying out his romantic activities during his employment.

A link to the story on the BBC website can be found below:

https://www.bbc.co.uk/news/uk-england-cumbria-51136711

In PC Simpson’s case, he clearly performed his duties inadequately and was guilty of very poor discipline. He was aware of the consequences of his actions. By involving himself with the female, he was making himself unavailable at times such as an emergency. Dereliction of duty is defined as the failure to fulfil one’s obligations. Here, PC Simpson clearly failed to do his job in a proper and professional manner and he could have been potentially negligent should an emergency have risen.

A further example of an employee committing acts of misconduct occurred in Adesokan v Sainsburys Supermarket Ltd [2017] EWCA Civ 22. Mr Adesokan was hired by Sainsbury’s as a Regional Operation Manager when he was in charge of ‘Talkback Procedure’, a key company policy which involved all members of staff giving information in confidence about their working environment and relationships with other colleagues. Mr Adesokan discovered that his HR manager had tried to manipulate the Talkback scores within his region by sending an email to five store managers telling them to seek feedback only from their most enthusiastic colleagues. Mr Adesokan asked the HR manager to “clarify what he meant with the store managers”, but the HR manager never responded. Mr Adesokan failed to follow this matter up and he was later dismissed by his employer for not taking action to confront the HR manager’s deliberate “manipulation” of the survey data.

A subsequent investigation into the matter led to Mr Adesokan’s eventual summary dismissal for “gross negligence on his part which is equivalent to gross misconduct”. Mr Adesokan brought a claim for breach of contract with regard to his notice period. The English High Court found that although he was not dishonest, his failure to take active steps to remedy the situation had damaged Sainsbury’s trust and confidence in him, which was sufficient to warrant the sanction imposed. The English Court of Appeal subsequently affirmed the decision of the High Court.

The Adekosan case was remarkably similar to that of PC Simpson where no other option was available to the employer as there was a complete loss of trust.

Activities outwith working hours

What individuals do with their own time is largely their choice (as long as they stay on the right side of the law). It is exceedingly difficult, however, for many people to do much these days without using social media or a mobile phone. Activities which used to be very much private are, consequently, at a much greater risk of public exposure in the virtual world in which we find ourselves living in 2020.

Employees can carry out many activities in private that may get them in trouble with their employers and have serious consequences for them. This might include, for instance, acts of gross misconduct committed in private which result in reputational damage to the employer. Consequently, the employer may have no alternative but to contemplate dismissal of the employee.

There is a lot of case law with regard to employees being dismissed from situations that have happened outside the workplace, an example would be the well-known case of X v Y [2004] EWCA Civ 662.

The facts of the case are as follows:

A charity employee who worked with young offenders committed an indecent act with another male in a public toilet at a motorway service station. He was put on the Sex Offenders’ Register as a result of receiving a police caution. The worker had not been straightforward with the Police when they asked questions about his job and, compounding this, he failed to inform his employer about the situation. Later, his employer decided to terminate his contract and the dismissal was once deemed to be fair. The reputational harm which the employer suffered due to the fact of the employee’s failure to be completely honest about what had happened was an enormous element of the decision to dismiss.

The English Court of Appeal was firmly of the view that the employee’S argument that he had a right to privacy (on grounds of his sexual orientation) in terms of Article 8 of the European Convention on Human Rights was not applicable here as the indecent act was not of a personal nature due to the fact it had been carried out in a public toilet.

Doctor Beck

In some cases, however, it may be problematic to dismiss the ‘offending’ employee who may be involved in activities which come under the protected characteristics of the Equality Act 2010 e.g. philosophical beliefs or freedom of speech laws in terms of the European Convention on Human Rights.

One example of this was reported by The Independent regarding Dr Gunnar Beck, a German national and a candidate for the Alternative for Germany (AfD), a far right political party.

Dr Beck was employed at School of Oriental and African Studies (SOAS), (part of the University of London) as a law lecturer. A number of his students and colleagues were enraged after discovering that he was an AfD candidate for a German seat in the European Parliamentary Elections in 2019.

Students and fellow lecturers organised protests arguing that Dr Beck should be fired from his position and for his employer to justify its part “in facilitating his far-right politics”. His colleagues from the School of Law stated that they vehemently oppose the AfD and its policies and wished to dissociate themselves completely from the people who support and advocate the Party.

The members of AfD are well-known for making provocative remarks concerning the actions taken by the Nazis. They targeted climate change activist, Greta Thunberg as part of their attempts to deny climate change.

Employees at the University of London went on to say that they were making their views public since they “recognise the importance of not being complicit in the normalisation of reactionary, right-wing populism.” A declaration by the students’ union at the university asked why Beck chose to work at a university “who hold and support so many of the identities he wants to see diminished”.

The Acting General Secretary of the University and College Union, Paul Cottrell stated that:

“The AfD is an extreme right-wing, racist, anti-immigration party that has no place on UK campuses. We are shocked that a member of academic staff from SOAS could be involved with a party like this which stands for policies utterly incompatible with the values of diversity, tolerance and internationalism at the very heart of SOAS as an institution.”

Dr Beck informed The Independent that his reason for supporting the AfD was because “there is no other Eurosceptic conservative party in Germany”.

He also went on to say that the AfD are “not a Nazi nor a fascist party.” Dr Beck stated that he was an advocate for freedom of speech and would defend anyone’s rights to it and any claims of him being a white supremacist, Islamophobe or fascist were outrageous.

Subsequently, Dr Beck was elected as 1 of 10 German MEPs from the AfD Party, but he was not dismissed from his position at the university.

A representative of SOAS stated:

“We find the policies of the AfD on a range of matters to be abhorrent. They conflict with the fundamental values we hold as an institution. We recognise the anxiety caused to staff and students as a result of this situation.”

However, they added that:

“As an academic institution, we are committed to the rights of academic freedom of speech within the law, despite the painful choices to which it gives rise. We encourage members of our community to tackle these issues through robust debate.”

This story regarding Dr Beck’s private affairs is an excellent illustration of employers not being able to fire an employee for acts committed in private due to protected characteristics (i.e. political beliefs) of the Equality Act 2010.

Both Dr Beck and the University of London have undoubtedly suffered reputational damage. Beck has suffered reputational damage in the eyes of his fellow lecturers and students because he is a member of AfD; and the university has suffered reputational damage for employing him in the first instance and subsequently for not dismissing him after the revelation about his political activities came to light.

That said, the University of London was in something of a difficult position because Dr Beck would probably have launched a legal challenge in terms of the Equality Act 2010. He would doubtless have protested that his political activities were a protected characteristic (philosophical beliefs). It would then have been up to an Employment Tribunal and, potentially, the higher courts to determine this issue. There was also the possibility that the university would have been accused of suppressing the right to freedom of speech.

A link to the story in The Independent can be found below:

https://edition.independent.co.uk/editions/uk.co.independent.issue.180519/data/8919156/index.html

Using social media outside work

As previously discussed, reputational damage is a big concern for organisations. Employers have also had valid fears about risks to their’ reputation as a result of work place misconduct that becomes widely publicised in e.g. the media. These fears have been increased with the surge in social media use today.

Employees are now far more likely to be found behaving in questionable ways or making offensive remarks online, which can attract a large audience or readership very quickly. Social media platforms, such as Facebook, Instagram, Twitter and WhatsApp (where responses can be instant) can represent something of a nightmare for an employer. It is important to remember that social media, if abused, can have a significant impact on relationships within the work place and could result in serious legal consequences.

Social media misuse by employees has become a frequent and complicated issue for employers to address. Although social media can be an extremely valuable resource for organisations, it can also pose a serious challenge to both employees and employers. Inappropriate social media misuse e.g. racial or sexual harassment could lead to employers being held vicariously liable for their workers’ misbehaviour.

When an employee misuses social media, firms need to know how to respond and handle it. Therefore, it is vital for companies to devise a clearly defined social media policy by which employees abide. It is important that employers notify workers about the nature of these policies and the potential ramifications of any violations.

So, when employers want to act against employees who make offensive remarks, such disciplinary action should come as no surprise. Such remarks can cause embarrassment, at best. At worst can hurt a firm’s reputation and lose them customers. Even if the remarks were posted years ago, they can still come back to haunt the employer and the employee.

The difficulty of dealing with social media use by employees for organisations can be seen in the case below.

Creighton v Together Housing Association Ltd ET/2400978/2016 Mr Creighton was dismissed for tweets which were made three years earlier. He had made negative remarks about colleagues and his boss on Twitter. The claim that Mr Creighton posted offensive remarks on Twitter resulted in his dismissal for gross misconduct even though he had worked with the organisation for 30 years.

Held: The Tribunal further clarified that the disciplinary policy of THA included “defaming the company or undermining its image by the use of social media” as an example of gross misconduct. The appeal panel rejected Mr Creighton’s appeal to the decision, arguing that he was aware or should have been fairly aware of the implications of his conduct as the disciplinary policy of the company.

There are more and more cases of social media defamation – which emphasises a need for extremely specific social media rules and regulations in the terms and conditions of an employer.

Employees are going to be very foolish if they assume it’s a credible argument to claim that social media comments happened outside working hours, were believed to be posted on an account that is supposed to be “secret” or posted years earlier, which Mr Creighton found out.

The importance of having a social media policy

As previously mentioned, establishing a solid social media policy is vital for an organisation. From the workers’ viewpoint, it is important that they are aware of the existence of such a policy, understand its substance and also recognise any potential consequences for failing to follow its rules.

Employers are also urged to review and update social media policies on a routine basis. New platforms and technology continue to be developed at a quick pace today and to maintain the knowledge of social media is simply made part of induction and training methods.

It is extremely necessary for an employer to make clear to its employees the kind of conduct which may justify dismissal. Usually, this may be done via a section in the employee handbook which addresses the consequences of misconduct in the workplace.

Additionally, an acceptable induction technique for new personnel may centre on the kinds of behaviour which the corporation would not condone. Regular refresher training for current and long-term personnel may be beneficial and, in large organisations, this would be a necessary function of the Human Resources Department.

Panera Bread

There was a huge news outbreak when a Panera Bread employee leaked a video of a man laughing hysterically that’s racked up almost 1 million likes (now that’s a lot), as a plastic packet of frozen macaroni and cheese is dropped into a boiler, burst open and then poured into a bowl geared up to serve to customers. The lady who posted the clip offers a thumbs-up in the hat that marks her as a worker of Panera Bread.

A link to the video can be found below:

https://www.youtube.com/watch?v=9yGSQ1BULWg

The clip introduced a wave of complaints in October 2019 from dissatisfied clients of a chain recognized for “fast casual” eating commonly perceived as a step in quality above other quickly made or fast food meals. Commenters stated they expected more than warmed-from-frozen dishes, or — as one critic put it — “glorified hospital food.”

Unfortunately for the employee she later posted on Twitter stating, ‘lol I lost my job for this’. The employer was clearly very unhappy at the negative media attention and being ‘outed’ for lying to its customers and providing them with low quality food.

Conclusion

In conclusion, employees should be incredibly careful of what they are doing or how they areusing social media during or outwith their working hours as their employers will have the right to investigate any implications arising from employees’ misconduct.

One of most likely repercussions arising from employees’ misconduct in privacy cases, is that the business and those involved will experience reputational damage. Whether this reputational damage is a result of offensive language in a tweet, forms of bullying in a Whatsapp groupchat or even now a TikTok exposing behind the scene practices of a company – there can be significant consequences. The preponderance of evidence shows that how employees conduct themselves in what they may consider private, has a major effect on workplace relations.

References

Adesokan v Sainsburys Supermarket Ltd [2017] EWCA Civ 22

Bărbulescu v Romania 5 September 2017 (Application no. 61496/08)

Chartered Institute of Personnel and Development (CIPD), (2020) ‘Employment law’ Available at: https://www.cipd.co.uk/knowledge/fundamentals/emp-law [Accessed: 28 April 2020]

Creighton v Together Housing Association Ltd ET/2400978/2016

Crossan, S. J. (2019a) ‘It happened outside work … (or it’s my private life!)’ Available at: https://seancrossansscotslaw.com/2019/02/07/it-happened-outside-work-or-its-my-private-life/ [Accessed: 28 April 2020]

Crossan, S. J. (2019b) ‘I’m a political activist: don’t sack me!’ Available at: https://seancrossansscotslaw.com/2019/06/05/im-a-political-activist-dont-sack-me/[Accessed: 29 April 2020]

Group, E., 2004. X v Y, CA, 28 May 2004, EWCA Civ 662 – Personnel Today. [online] Personnel Today. Available at: https://www.personneltoday.com/hr/x-v-y-ca-28-may-2004-ewca-civ-662/ [Accessed 29 April 2020].

Knowles, H., 2019. [online] Available at: https://www.washingtonpost.com/food/2019/10/14/woman-says-she-was-fired-over-tiktok-video-exposing-panera-breads-use-frozen-mac-cheese/ [Accessed 29 April 2020].

Legislation.gov.uk. 2020. Employment Rights Act 1996. [online] Available at: http://www.legislation.gov.uk/ukpga/1996/18/section/95 [Accessed 29 April 2020].

startups, (2019) ‘Employee privacy and employee confidentiality: Know the laws’ Available at: https://startups.co.uk/employee-privacy/ [Accessed: 28 April 2020]

Sterling Law, (2018) ‘Privacy in the Workplace’ Available at: https://sterling-law.co.uk/en/privacy-workplace/ [Accessed: 28 April 2020]

Team Employment, 2017. Employment Law Case Update: Creighton V Together Housing Association Ltd. [online] Warner Goodman. Available at: https://www.warnergoodman.co.uk/site/blog/news/employment-law-case-update-creighton-v-together-housing-associat [Accessed 28 April 2020].

The Independent, (2019) ‘Campus outcry as teacher stands for German far-right party in European elections’ Available at: https://edition.independent.co.uk/editions/uk.co.independent.issue.180519/data/8919156/index.html [Accessed: 28 April 2020]

X v Y [2004] EWCA Civ 662

Copyright Louise Aitken, Siobhan Donaghy, Kieran Flynn and Elisha Masini, 28 April 2020

Crazy days! Force majeure & frustration!

I never thought that the subject of impossibility and frustration in relation to contract would become such a popular topic of everyday conversation; but it has.

The phrase “force majeure” has also been making more of an appearance than is commonly the case.

Why?

The continuing fallout from Coronavirus or COVID-19 has led to all sorts of sporting and cultural events being cancelled or postponed. We are also about to enter the holiday season with the Spring Break and Easter Weekend just over the horizon. Many people will have booked getaways to foreign climes and events have now completely overtaken such plans.

Critically, thousands of people will have paid something up front for football season tickets and holidays and they will be anxious to know where they stand legally.

Hearts owner Ann Budge says she would consider legal action should her club be relegated from the Scottish Premiership with eight games left:

Coronavirus: Hearts would seek legal advice if relegated

So where do they stand legally?

There are two ways of dealing with an unexpected situation which affects contractual performance: being reactive or being farsighted.

At the moment, the scale of COVID-19 has completely taken Governments, societies, business, cultural, sporting organisations and individuals completely by surprise. So, in a sense, we are being forced to react to changing circumstances and rely upon established legal contractual principles which govern the termination of agreements i.e. frustration, impossibility and illegality. More about these matters shortly.

As lawyers, could we have pre-empted or foreseen that events (I’m speaking in the general sense here) might render contractual performance highly unlikely or well nigh impossible? Well, yes the concept of Force Majeure clauses is recognised in contract law – although the linguists amongst us may recognise that it’s not a native species of English or Scots law.

“words ‘force majeure’ are not words which we generally find in an English contract. They are taken from the Code Napoleon and they were inserted by this Romanian gentleman or by his advisers, who were no doubt familiar with their use on the Continent.”

In the English case of Matsoukis v Priestman [1915] 1 KB 681 Bailhace J, sitting in English High Court was of the view that force majeure clauses could cover events such as industrial action, but certainly not bad weather or football or funerals:

“these are the usual incidents interrupting work, and the defendants, in making their contract, no doubt took them into account”.

Yet, in the later English High Court decision Lebeaupin v Richard Crispin [1920] 2 KB 714, force majeure clause was given a much broader meaning to include events such as war, bad weather, industrial action and, interestingly, epidemics. That said McCardie J was at pains to point out:

“A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The eﬀect of the clause may vary with each instrument.”

Essentially, such clauses are inserted into contracts to deal with the consequences of events outwith the control of the parties which may render performance of the contract impossible.

Ross Campbell of Brodies Solicitors who has pointed out that the rules of last year’s Rugby World Cup tournament in Japan contained a force majeure clause addressing the cancellation of matches due to extreme weather. The clause was not utilised and, therefore, not challenged, but it’s an interesting example of how parties to an agreement might attempt to address situations which can have serious consequences for contractual performance.

A link to Ross Campbell’s article can be found below:

https://brodies.com/blog/dispute-resolution/the-power-of-force-majeure-clauses/

The very phrase force majeure conjures up images of an unstoppable force that sweeps away the accepted rules or conventions – almost akin to the idea of damnum fatale or an act of God.

So whether, will the courts permit the application of a force majeure clause will turn on the wording of the clause.

Could anyone have predicted the situation that we are now in with COVID-19 and drafted an appropriate clause to address these unprecedented times? It’s extremely doubtful. I’m not pretending to be Nostradamus (or for our Scottish readers, the Brahan Seer or Thomas the Rhymer) when I predict that many lawyers and their clients will actively be looking at the usefulness of force majeure clauses.

Triggering a force majeure clause

For those parties wishing to rely upon force majeure clauses, drafting the term may be crucially important. It might be highly advisable to have a list of events or circumstances which trigger operation of the clause; and then have a catch-all provision or belt and braces term to cover things you might not have explicitly specified (as per McCardie J’s remarks in Lebeaupin v Richard Crispin [1920]. Be aware, however, that extremely wide catch-all provisions may be disallowed because they are not within the normal meaning of the term (see Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm)).

Frustration, impossibility and illegality

Let’s now turn to situations where individuals have to react to unexpected events without having the benefit of a force majeure clause in the agreement.

Since the formation of a contract, circumstances affecting the agreement may have changed dramatically (i.e. the pandemic). The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.

Physical destruction of the subject-matter of the contract can also frustrate contracts.

Perhaps one of the best known examples of frustration can be seen in the case below:

Taylor v Caldwell (1863) the Surrey Gardens and Music Hall was hired by the pursuers from the defenders for the purpose of holding four grand concerts and fêtes. Before the first concert on 17 June 1862 could took place, the hall was completely destroyed by fire. Neither party was responsible for this incident. The pursuers, however, brought an action for damages against the defenders for wasted advertising costs.

Held: By the English High Court that it was clearly impossible for the contract to be performed because it relied on the continuing existence of the venue. The pursuers claim for damages was dismissed on the grounds that the purpose of the contract had been frustrated.

In another case, Vitol SA v Esso Australia 1988 The Times 1 February 1988, a contract for the sale of petroleum was discharged on the grounds of frustration when both the ship and its cargo of petroleum were completely destroyed in a missile attack in the Persian Gulf during the Iran-Iraq War (1980-1988). The sellers had attempted to sue the buyers for the price of the goods, but this claim was dismissed.

The ‘coronation’ cases

Two famous cases which are particularly instructive are the ‘Coronation Cases’ because they concern the consequences of changing circumstances. Both cases arose due to the illness of King Edward VII. The new King was unable to participate or attend a variety of events to celebrate his accession to the British throne following the death of his mother, Queen Victoria.

The English Court of Appeal took different approaches in each of the cases:

Krell v Henry [1903] 2 KB 740 the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.

Held: by the English Court of Appeal that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention.

The reason behind the hire of the flat was, therefore, a material term of the contract. Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer.

Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?

The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.

Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation.

The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 (a considerable sum in those times) owed by the defender who was refusing to pay for the hire of the boat.

Held: the contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.

Why the difference in approach?

In Krell v Henry [1903], Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract.

The difference in Herne Bay Steamboat Co v Hutton [1903] was that the contract was the main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet – despite the fact that King Edward VII would not be personally reviewing the fleet due to his unexpected illness.

This difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the coronation procession (which was postponed). Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime.

In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired.

Lord Justice Vaughn-Williams compared the situation in Herne Bay Steamboat Co to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.

It will, however, be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.

The limits of frustration …

Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.

Tsakiroglou v Noblee Thorl GmbH [1961] 2 ALL ER 179 the sellers had agreed to transport Sudanese ground nuts from Port Sudan in the Red Sea to Hamburg in Germany. The ship was to take the fastest route to Europe through the Suez Canal. This proved to be impossible because the Canal was closed as a result of military hostilities following the Anglo-French-Israeli invasion of Egypt causing the Suez Crisis in late 1956. The sellers would have to ship the goods around the alternative route of the Cape of Good Hope in South Africa. This meant that the distance the ship had to travel from Port Sudan to Hamburg was greatly increased and this would also mean a dramatic increase in the costs of carriage in respect of the goods.

Held: by the House of Lords that a party will still have a duty to perform a contract even if this means that performance is more difficult or expensive than was originally intended by the parties. The closure of the Suez Canal did not mean that the sellers’ duties were discharged by reason of frustration of contract.

Contracts for personal services

Such a contract is discharged by the death of the person who was to perform it. The incapacity of a person who is to perform a contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it will be very difficult to argue that the employment contract should be allowed to continue. Employees who have had a lengthy prison sentence imposed on them by a criminal court may find it very difficult to argue against the employer’s proposition that the contract of employment has been terminated by reason of frustration.

Some words of warning: the courts may be unwilling to use frustration as a means of terminating an employment contract if other ways of achieving this result are available. This could occur in situations where it is possible for the employer to dismiss the employee entirely fairly by reason of a lack of capability (e.g. on grounds of ill health) as per the Employment Relations Act 1996.

Notable cases on frustration in connection with employment contracts include the following:

Davis Contractors Ltd v Fareham UDC [1956] AC 696
Marshall v Harland & Wolff [1972] IRLR90
G F Sharp & Co Ltd v McMillan [1998] IRLR 632

The purpose of the contract becomes impossible to perform

As we have seen, a situation involving the physical destruction of the subject-matter of the contract will discharge the parties from performance of their duties by reason of frustration. However, frustration can also occur in situations where physical destruction of the subject-matter of the contract may not be the issue.

Jackson v Union Marine Insurance Co (1874) LR 10 CP 125 the pursuer owned a ship which had been chartered to go with all possible speed from Liverpool to Newport for the purpose of loading a cargo bound for San Francisco. The pursuer had insurance with the defenders to protect himself in the event that the charter might be prevented from being carried out. The vessel was stranded whilst on its way to Newport. It was not refloated for over a month and could not be properly repaired for some time. The charterers hired another ship and the pursuer turned to the insurers. They suggested that the pursuer should sue the charterer for breach.

Held: the fact that the ship was stranded effectively frustrated the agreement’s commercial purpose and, therefore, the charterers were free to go elsewhere. The pursuer had no remedy against the charterers and was in turn entitled to seek compensation under the insurance policy.

Illegality

We are seeing the introduction of emergency powers legislation across the World in response to COVID-19 and this will undoubtedly have a huge impact on a range of contractual obligations. Many European Union countries have reintroduced border controls and curbs on free movement of persons which would normally be a clear breach of European Treaties (e.g. the Treaty on the Functioning of the European Union; the Treaty on European Union; and the Schengen Agreement), but these are not normal times. These drastic measures can all be justified on grounds of public security and public health – legitimate derogations or grounds for withdrawal from key EU legal principles. Travel and tourism will obviously be disproportionately affected by these restrictions.

Contracts can become illegal because Parliament introduces legislation to this effect. After the murder of schoolchildren and a teacher at Dunblane Primary School in 1996 by Thomas Hamilton, the British government made it illegal to own particular models of firearms. Therefore, anyone who entered a contract to purchase firearms shortly before the legislation was introduced could not force the supplier to perform the contract. If the buyer insisted on performance of the contract by the seller, the seller would be complying with his contractual duty, but he would also be breaking the law as the contract would be illegal.

Events can also make further or future performance of contracts illegal e.g. the outbreak of war. Two House of Lords’ decisions are excellent authority for this proposition –

Stevenson & Sons Ltd v AG für Cartonnagen Industrie (1918) AC 239 an English company, Stevenson, was in partnership with a German company acting as a sole agent to sell the German company’s goods. By continuing to carry on business with an enemy during wartime (the First World War had broken out), Stevenson would be committing a criminal act and there was no alternative but to have the partnership dissolved (see also Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co Ltd (1923) SC (HL) 105 where, again, the First World War had a similar effect on a contract between a Scottish company and an Austrian buyer of a ship).

Conclusion

The Coronavirus or COVID-19 is not merely a health issue – it has also become something of a legal minefield for society. This is where knowledge of the circumstances of termination of contractual obligations and performance is vital. The doctrine of frustration, impossibility and supervening illegality are highly relevant to this debate.

Doubtless, the use of force majeure clauses will become more common – especially, if as predicted, we are going to be experiencing further waves of disruption due to this pandemic.

Related Blog Articles:

https://seancrossansscotslaw.com/2019/02/10/frustration-of-contract/

https://seancrossansscotslaw.com/2019/03/25/locking-horns-frustration-of-contract-part-2/

https://seancrossansscotslaw.com/2019/11/23/pay-up-or-frustration-of-contract-part-3/

https://seancrossansscotslaw.com/2019/08/28/stormy-weather-im-at-the-end-of-my-tether/

https://seancrossansscotslaw.com/2020/02/25/welcome-to-austria/

Safe spaces?

Another day in the toxic debate over proposals to liberalise the Gender Recognition Act 2004. Yesterday’s blog entry (Hate crime?) addressed the issue of limits on freedom of speech and expression in relation to extending transgender rights.

Today, the UK media is focusing on remarks made by Labour leadership contender, Rebecca Long-Bailey MP. In an interview with the BBC’s Andrew Marr, Ms Long-Bailey expressed her support for changes to the current Gender Recognition Act which would permit transgender women to gain access to institutions such as refuges for women who have experienced domestic violence at the hands of men.

As Mr Justice Knowles acknowledged in Miller v (1) The College of Policing (2) Chief Constable of Humberside [2020] EWHC 225 (Admin), the debate over transgender rights can be summarised as follows:

“On one side of the debate there are those who are concerned that such an approach will carry risks for women because, for instance, it might make it easier for trans women (ie, those born biologically male but who identify as female) to use single-sex spaces such as women’s prisons, women’s changing rooms and women’s refuges. On the other side, there are those who consider it of paramount importance for trans individuals to be able more easily to obtain formal legal recognition of the gender with which they identify.”

Knowles J went on to remark:

“I should make two things clear at the outset. Firstly, I am not concerned with the merits of the transgender debate. The issues are obviously complex. As I observed during the hearing, the legal status and rights of transgender people are a matter for Parliament and not the courts. Second, the nature of the debate is such that even the use of words such as ‘men’ and ‘women’ is difficult. Where those words, or related words, are used in this judgment, I am referring to individuals whose biological sex is as determined by their chromosomes, irrespective of the gender with which they identify. This use of language is not intended in any way to diminish the views and experience of those who identify as female notwithstanding that their biological sex is male (and vice versa), or to call their rights into question.”

A group within the British Labour Party, Labour Campaign for Trans Rights, has published a 12 point charter to push through changes to UK equality laws. Other women’s groups, such Women’s Place UK and the LGB Alliance, are bitterly opposed to this campaign.

Long-Bailey admitted that her position could set her at odds with many female members of the Labour Party who are deeply resistant to such developments. Many feminist opponents of reform to the current gender recognition rules have been given the acronym, TERF, or Trans- exclusionary radical feminists.

Gender reassignment is a protected characteristic in terms of the Equality Act 2010, but the legislation exempts women only refuges which currently exclude transgender women (i.e. those who were born male, but have undergone gender reassignment to become female). Although excluding transgender women would normally be regarded as an example of direct discrimination in terms of Section 13 of the Act, Parliament has provided the defence of objective justification. This means that permitting women only spaces in this instance – caring for the female victims of male domestic violence – is an example of a proportionate means of achieving a legitimate aim.

Conclusion

Much of the opposition to reform of the Gender Recognition Act 2004 appears to centre around proposals, in both England and Scotland, to permit individuals to self-identify in terms of their chosen gender without the need to go through physical changes. At the moment, anyone wishing to change gender must obtain a gender recognition certificate which will only be granted after the conclusion of the appropriate medical procedures.

It will, therefore, be for legislators in the UK and Scottish Parliaments to determine how far reforms to the Gender Recognition Act 2004 and, by extension the Equality Act 2010, will go. In the months to come, expect plenty of passionate arguments on both sides of the debate to be aired publicly.

A link to an article in The Independent discussing Ms Long-Bailey’s interview with Andrew Marr can be found below:

https://edition.independent.co.uk/editions/uk.co.independent.issue.170220/data/9338316/index.html

Related Blog Article:

https://seancrossansscotslaw.com/2020/02/16/say-what-you-want-continued/