§ Order for Second Reading read.
§ The Solicitor-General (Major Sir David Maxwell Fyfe)
I beg to move, "That the Bill be now read a Second time."
This Bill, despite its somewhat legal and technical title, is of some general importance and will, we hope, effect a useful improvement in the law. It owes its inception to the Seventh Report of the Law Revision Committee, presided over by Lord Wright. It is supported by the highest legal opinion, and its principles have been considered and approved by the Associated Chambers of Commerce. It deals with this position. It sometimes happens that a contract is frustrated, that is to say, some supervening event comes which discharges both parties from further performance of the contract, and the performance ceases from the date of frustration. The obvious example that would occur to hon. Members is the case of a contract that was made before the outbreak of war with someone in Germany or someone in a territory occupied by Germany. Then the war came, and the contract was frustrated in the sense which I have described. The classic examples are what are known as the Coronation cases of contracts made in regard to the Coronation of his late Majesty, King Edward VII, which had to be postponed owing to his illness.
For 40 years the law was that the loss lay where it fell; that is, sums paid or rights accrued before the event are not surrendered, but all obligations falling due for performance after the event were excused. The law which existed for 40 years was found by the Supreme Tribunal of this country to be wrong, and this Bill Gives effect to their decision and clarifies 1343 the matter in a number of ways. There are three main points. If there has been a pre-payment before the frustration of a contract, the man who has received the money has to hand it back, but where he has incurred expense in the performance of the contract he is entitled to set off expenses against the amount which he has to return.
The second point regards another facet and is concerned with the other party. If he has received some valuable benefit before the frustration he must pay for it, taking into account his own expenses and all the circumstances of the contract. Thirdly, there are various subsidiary provisions dealing with what constitutes expenses and the effect of insurance.
The second Clause delimits the time. The Bill applies to contracts whose date of discharge is after 1st July this year, that is, approximately the date when the Bill received its Second Reading in an-another place. It applies to contracts in which the Crown is concerned, and there are certain savings for contracts which contain special terms, that is, which deal with the point of frustration itself or are separable and have one part dealing with frustration and another part in which the position does not arise. There are three exceptions which I ought to mention, and these are: Charter parties, contracts of insurance and contracts concerning the sale of goods which perish. With regard to these, it is felt that there are clear and well-defined principles of maritime and commercial law applicable, and it would not be right to interfere with these principles, and thus affect not only the position as it is understood to-day but the carrying on of these important activities which are so necessary to our national life. Therefore, the exception is made in that regard. But I venture to submit this Bill to the House with the assurance that in the view of everyone that I have met who has considered the point it is effecting a real improvement in the law of contract.
§ Sir Herbert Williams (Croydon, South)
This is a difficult and complicated Bill, and I do not profess to be an expert on it, but, as my hon. and learned Friend knows, I have taken a great interest in this matter, because of representations which have been made from time to time, and in particular my hon. Friend the Member for Walton (Mr. Purbrick) has 1344 taken a very great interest in this problem because he has had evidence of very considerable hardships that people have suffered arising out of contracts in existence at the time of the war in which there has been frustration. Many people have been, in my judgment, deprived of money which was rightly theirs, and I do not think any of those grievances will be remedied. I realise that it is always difficult to deal with past events, but the State, by its act of going to war, did rob a lot of people of their rights.
§ Sir H. Williams
I agree, and of their lives, and compensation should arise in all cases. Where there is loss it should be compensated. I have no concern with any of these particular individual contracts, but it is a difficult matter when the State, by its action, suddenly ends up all sorts of things, and I think an effort should have been made to go a little further so that those who suffered might be compensated. I do not know whether any hon. Members will attempt the difficult task in Committee of trying to amend a Bill, but I think there is just a chance that Amendments may be forthcoming; and I thought it well to let my hon. and learned Friend know of that possibility.
§ Dr. Russell Thomas (Southampton)
I think this Bill is somewhat overdue and is also disappointing to many people. The Solicitor-General mentioned one class of case which I believe is outside the scope of this Bill, and that is where insurance premiums were paid to insurance companies on risks in what are now enemy countries. He said, I believe, that alleviation in these cases would disturb the ordinary course of business. Personally, I cannot see that that argument holds, and I hope he will be able later to elaborate what he said on that point. On the outbreak of war, at different times different countries fell into the hands of the enemy, and Lloyds' and other insurance policies were frustrated. I believe that the underwriters, relying on an old judgment, Chandler and Webster, and after consultation with the Insurance Committee of the Board of Trade, have refused to make any proportionate refund for the unexpired portions of the premiums. The Law Revision Committee, under the Lord Chancellor, dealt with this, and said that 1345 Chandler and Webster was bad law. I think they laid that down clearly, and recommended legislation to deal with it. I presume the exigencies of the war have prevented this Bill coming up before, but we did have an impression that this matter would be put right in the Bill. Representations were made to my hon. and learned Friend and to the Lord Chancellor and to the President of the Board of Trade. The people who made those representations received considerable sympathy. Questions were put in this House with regard to the matter, but unfortunately nothing has been done. In the Fibrosa case I think the learned judge made very caustic comments on the state of the present law—the learned Solicitor-General will correct me if I am wrong—and suggested that Parliament should adjust it by legislation. The result of all this cogitation was that the Lord Chancellor, after representations from Chambers of Commerce and so on, and discussion with Lloyds' Committee, has brought forward this Bill.
The Bill deals with matters of frustration generally, excluding all those contracts whose time of discharge such as the expiry of insurance premiums, was before the date mentioned in the Bill. All the insurance premiums and contracts covering risks in enemy countries have now expired and no relief whatsoever is given to these unfortunate people. Sometimes the risk has only been covered for six months and in other cases for three months, although a year's premium has been paid in advance; and the insurance company has not covered the risk for the unexpired portion of the premium. They were nearly all yearly premiums, and the companies were relieved of carrying the risk for a portion of the year, although they retained their premiums. I think the learned Solicitor-General should consider this matter again and also consider the date in the Bill—that should definitely be reconsidered. I believe it has been argued that this would involve retrospective legislation. I do not think that matters very much. As my hon. Friend for South Croydon (Sir H. Williams) said when His Majesty's Government declared war certain people lost their rights, and it would be only ordinary elementary justice to introduce retrospective legislation in this particular regard. I do not think for a moment in this case that His Majesty's Government need have the slightest 1346 qualms about introducing retrospective legislation. Recently they introduced retrospective legislation, which I considered of a doubtful type, in the Finance Bill. They made past legal actions completely illegal—a most danger precedent. They had no hesitation about doing that, although I admit there were considerable excuses for it under the conditions in which they acted, so I do not think they need hesitate on that particular ground. I ask the Solicitor-General between now and the Committee stage to make some adjustments in the Bill and do justice to a considerable number of people who have suffered, and not allow underwriters to skim off the cream in this way but to relieve those unfortunate citizens who covered risks in what are now enemy countries. With these few remarks I beg of him to consider this matter between now and the Committee stage.
§ The Solicitor-General
I should like to say one word more, because I know that both my hon. Friends were very anxious to be helpful in this matter, and if I explain the position it may help to assuage some of their doubts. I think my hon. Friend the Member for South Croydon (Sir H. Williams) will allow me the momentary humour of the situation that he should be asking for retrospective legislation and that I should be explaning why it should not be introduced, but I know that he has in mind cases of hardship, and I should like to try to explain the position to him and also to my hon. Friend the Member for Southampton (Dr. R. Thomas). The difficulty with regard to an insurance contract is that it is very difficult, and in my opinion impossible, to apply the word "frustration" to an insurance contract where, on the one hand, the premium has been paid and, on the other hand, the matter insured has been at risk. That is the position. Both my hon. Friends will appreciate that where the matter has been at risk, although the period is shortened, you cannot say that there is frustration in the ordinary sense. If my hon. Friend who has just spoken will consider again the authorities which he has mentioned, I think he will find that this is quite clear.
There was no recommendation in the Seventh Report of the Law Revision Committee that that alteration should extend to insurance contracts. The case of Fibrosa to which he referred was a 1347 case of supplying machines to Poland where there had been a pre-payment which the House of Lords said should be paid back, but it is quite clear, in my view, from the judgment in the Fibrosa case, and in my opinion it is manifest and must be accepted, that the House of Lords did not intend to apply that principle to insurance cases. I hope that my hon. Friend the Member for South Croydon will appreciate the importance of this point to his contention. It is not a case where the law with regard to insurance contracts was wrong for 40 years and has been put right by the House of Lords. The retrospective legislation for which he and the hon. Members are asking would be true retrospective legislation and would be contrary to the law as it has been understood, and also as to commercial practice. I need not, I am sure, emphasise to the hon. Member for South Croydon that the commercial law applicable to insurance delimits and conditions not only the commercial activity of insurance, which is so valuable to this country, but the commercial activity of insurance in the world, which follows the practice of this country and is of great importance to us. I did want to make that point, and therefore I have ventured, with the leave of the House, to intervene for this short time.
Question, "That the Bill be now read a Second time", put, and agreed to.
Bill read a Second time.
Bill committed to a Committee of the Whole House.—[Captain McEwen.]
Committee upon the next Sitting Day.