Notcutt v Universal Equipment Company (London) Ltd

A periodic contract of employment terminable by relatively short notice can nevertheless be discharged by frustration in appropriate circumstances. The availability of notice does not itself exclude the doctrine, although courts should scrutinise carefully any attempt to invoke frustration to avoid statutory employment protections. The question is whether the supervening event makes performance impossible or radically different from the contractual undertaking. Illness or incapacity initially uncertain may frustrate the contract when it becomes clear that the employee will never return to work. References to justice or injustice in the authorities do not create a separate test.

Mr Notcutt appealed from the Brentford County Court’s dismissal of his claim against his former employer for sick pay during a notice period. After a coronary, he remained absent from work. A medical report later indicated that he was unlikely ever to work again, and the employer then gave notice terminating his employment. The county court held that the contract had already been frustrated by the employee’s incapacity. The central issues were whether frustration could apply to a periodic contract terminable by short notice and whether the statutory sick-pay liability arose despite the incapacity.

1. Appeal dismissed. The county court had correctly held that the contract was frustrated before the employer’s notice was given. The notice was therefore otiose and imposed no liability under the Employment Protection (Consolidation) Act 1978.
2. A periodic contract of employment terminable by short or relatively short notice may, in appropriate circumstances, be discharged by frustration. The mere existence of a power to terminate by notice does not exclude the doctrine. However, the court must examine such a submission carefully where frustration is relied upon to avoid statutory employment protection. The broader view expressed in Harman v Flexible lamps Ltd (1980) IRLR 418 was not accepted.
3. The governing test is whether, construing the contract in the light of the relevant circumstances and supervening events, performance has become impossible or would render the contractual obligation radically different from what was undertaken. Hardship, inconvenience or material loss alone is insufficient. The references to justice or injustice in National Carriers Ltd v Panalpina (Northern) Ltd (1981) AC 675 did not add a separate requirement.
4. The contractual provision contemplating absence through sickness, injury or incapacity did not extend to permanent total incapacity that made the employee’s work impossible. Once the medical report established, and both parties accepted, that the employee would not work again, the contract was outside its proper scope and had been frustrated. The statutory sick-pay provisions applied only if an effective notice terminated a subsisting contract.
5. Mr Justice Sheldon agreed with Lord Justice Dillon and additionally adopted the reasoning in Egg Stores (Stamford Hill) Ltd v Leibovici (1977) ICR 260 that, where the outcome of illness is initially uncertain, frustration may be established retrospectively when the duration and prospects make it impractical to regard the contract as continuing.

The appeal was dismissed. The appellant’s costs were subject to legal aid taxation, with liability limited to his contribution when known. Leave to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division) — unanimously dismissed the appeal and upheld the dismissal of the claim.
2. Brentford County Court — His Honour Judge Birks dismissed the claim on 22 March 1985, holding that the contract had been frustrated before the employer’s notice.