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Contract Law Cases: Fibrosa Spolka Akcyjna v Fairbarn Lawson Combe Barbour Ltd.
WW II - Ruined Companies as well as Cities and Lives
What Happened in the Fibrosa Case
- Fibrosa was a Polish company that decided to buy machinery from the English company Fairbairn.
- The total price of the machinery was £4,800 but it was in the agreement that Fibrosa would pay £1,000 in July 1939 before it would receive anything.
- Because of World War II and the German invasion of Poland in 1939, Fibrosa asked for their £1,000 back but were denied by Fairbairn on the grounds that the contract had been 'frustrated'.
The Courts Ruling
- At first Fibrosa were denied their claim for the £1,000.
- The lower courts based their decision on a previous case 'Chandler v Webster' where it was decided that if a contract was disrupted by an intervening decision 'the loss lies where it falls' meaning that no further action is required from either party.
The House of Lords
- The Lords granted Fibrosa its £1,000 on the following grounds:
- Viscount Simon argued that the Chandler case did not apply to this case because there was failure of consideration for one side of the party.
- In this case, Fibrosa was at a loss of £1,000 and didn't receive anything in return. Had they gained some machine parts this would have been untrue but the fact was they received nothing.
- Lord Wright said that a fair legal system must be able to remedy cases where one person acquires the money or property of others and feels that this idea applies to Fibrosa who lost their money due to misfortune.
What Lord Wright said on the Case:
- "The claim was for money paid for a consideration which had failed. It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. "
Lessons to Take Away from the Fibrosa Case
- The Fibrosa Case was important because it showed an exception to the Chandler v Webster case - if consideration failed on the part of one party then the law must do what it can to balance this out again.
- That means that if you have made a contract and due to an unexpected circumstance one party's need for the contract disappears (frustration), if you, at the time of frustration, lost something and gained nothing in return then you are entitled to compensation.
- Similarly, if you gained something from another party and had not given them anything at all (consideration) then you must make the difference.
This case highlights the difficulty of 'frustration' in contract law. World War II starting was not the fault of either party but yet affected their lives and their business directly.
The questions of what is fairest to do is not an easy one. What would have happened if Fibrosa received some parts of the machine but not all of them? Would frustration have meant that Fairbairn would have had to return the parts or would common law dictate that both parties received consideration and therefore no further transactions are to be made - would this be fair? Neither party would be happy with losing out on parts or money and gaining nothing of value.
What about the value of the consideration on the side of Fibrosa? If it received parts of less than £1,000 value would it have had grounds to claim the difference?
Furthermore, in the context of a world war, should the law system have focussed their efforts on other more important matters (e.g. war criminals)?
What do you think?
Do you think the House of Lords ruled rightly or wrongly?
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Fibrosa Spolka Akcyjna v Fairbarn Lawson Combe Barbour Ltd was a case about two companies, one Polish and one British, which made a contract with each other for the purchase of some machinery.
Detailed in the contract was that Fibrosa had to make an early payment of £1,000 before they received anything in July of 1939 which even from your high school days you should remember as being just before World War II had started.
With the German invasion of Poland in September of 1939 then, Fibrosa no longer wanted to the machinery it had set out to buy and asked for their £1,000 back. Unsurprisingly, Fairbarn didn't want to give the money back and said that the contract had been frustrated, meaning that anything to do with the contract and their deal no longer applied.
At first when Fibrosa took Fairbarn to court, they were denied their £1,000 back because of a previous case called Chandler v Webster which said that if a contract is frustrated the loss lies where it falls but when Fibrosa appealed, the House of Lords granted them their money on the grounds that Chandler v Webster didn't apply as in this case no consideration was given for Fibrosa meaning that it was unfair because they didn't actually get anything at all for their £1,000.
The judges concluded that if Fibrosa had gotten at least something they would not have been entitled their money back even what they got in return wasn't worth anyway near £1,000.
And on top of what I just said, being the nice guy that he was Judge Wright said that a law system should be able to remedy cases where one party loses a lot of money due to sheer misfortune.
So an odd lesson it is to learn that it's better to not receive anything at all for early payments that you make because then if the contract is frustrated you can claim your money back on the grounds that you received no consideration!
Thank you all for watching and as always there's a link to more information on this case in a more formal matter
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