The decision of the Court of Appeal in June, 2007, in the case of the Sea Angel1 examined at length frustration in the context of charterparties. The question that arose was whether a delay of some three months arising on the unlawful detention of a vessel by a port authority towards the end of a charter period had in fact caused the charter to be frustrated. In upholding the decision of the English High Court the Court of Appeal found that the charterparty had not been frustrated.
In the High Court, Gross J found that the charter had not been frustrated firstly because the detention of a vessel by a port authority was a risk inherent in the salvage industry, and secondly because the vessel had been chartered on a time charter under which the charterers had assumed the risk of delay. As such the detention fell within the reasonable sphere of responsibility of the charterers.
The charterers appealed on the grounds that there was no good reason why the judge should not have recognised the frustrating effect of indefinite delay.
Briefly the facts of the case were that the "Tasman Spirit", a tanker laden with 60,000 mt of crude oil, grounded in late July, 2003, in the approaches to the port of Karachi and subsequently broke into two causing substantial pollution. During the salvage operation that followed the "Sea Angel" was chartered by the salvors, Tsavaliris, for a period of 20 days for the transfer of oil from the wreck of the vessel.
Tsavaliris had entered into a Lloyds Open Form (LOF) salvage agreement incorporating Special Compensation Protection and Indemnity Clause (SCOPIC). Clause 9 (ii) allowed the shipowners to terminate their obligation to pay SCOPIC but Clause 9 (iii) further provided that Clause 9 (ii) shall only apply if the salvor is not restrained from demobilising his equipment by Government/Port Authorities2
The "Sea Angel" was delivered into service on the 26 August, 2003. Her redelivery date was the 15 September, 2003. On the 9 September Tsavaliris gave 3 days definite notice of redelivery at Fujairah, the redelivery port. However, the Karachi Port Trust refused to issue the necessary "no demand certificate" which is a pre-requisite to port clearance. The vessel was in the event re-delivered on the 1st January, 2004, adding 108 days to the 20 day charter period. Tsavaliris did not pay hire for the period from the 18 September to the date of redelivery. The owners claimed hire for this period. The ports decision to detain the vessel was motivated by the perceived need of the Pakistan authorities to secure their pollution claims. This was particularly so since Pakistan was not a signatory to CLC convention. The fact that this Convention had not been ratified by Pakistan meant that the claims for pollution damage were unlimited. For this reason securing the claim was a reconsideration.
Various efforts were explored to obtain the release of the vessel. However, these came to a halt somewhere between the 13 and 18 October. Around the same time the salvage master of the "Sea Angel" was put under house arrest. On the 21st October Tsavaliris gave notice that they considered the charter frustrated.
In the meantime, proceedings had been started by the High Court of Sindh, Karachi for the release of the vessel. On the 5 December the court in Karachi decided that the detention of the vessel was unlawful and ordered her release but the vessel was only allowed to sail on the 26 December after contempt of court proceedings were brought against officials of the Karachi Port Trust.
In the appeal in the English proceedings Rix LJ reviewed the doctrine of frustration. He considered a number of authorities including:
1. Lord Radcliffe's judgment in Davis Contractors Limited v Fareham District Council3:
“Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which the performance was called for would render it as being a thing radically different from that which was undertaken by the original contractors".
2. Lord Simon's judgment in National Carriers Limited v Panalpina (Northern) Ltd4:
"Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance".
Lord Simon in his judgment had also referred to the Privy Counsel's decision in Hirji Mulji v Cheong Yue Steamship Co Ltd 5 wherein the doctrine of frustration was described by Lord Summer as a means to escape injustice against the enforcement of a contract on its literal terms (after a significant change in circumstances): "…. a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands ………".
Rix LJ further referred to the more recent decision in "The Super Servant Two” 6 in which Bingham LJ concluded that where a significant change in circumstances had arisen the doctrine of frustration was intended to give effect to the demands of justice such that the result reached would be just and reasonable.
Whether delay in a particular case should give rise to a frustrating event though should be considered on an objective basis taking into account past and prospective delay. For example, in England & Northern Trading Ltd -v- Emlyn Jones and Williams 7the vessel was requisitioned with three months of a 12 month charter remaining. The authorities gave no indication of probable length of the requisition. Deciding that the charterparty had been frustrated Balhache J held that "the main consideration is the probable length of the total depravation of use of the vessel as compared with the unexpired duration of the charterparty".
Similarly, Taten v Gamboa8, involved a 30 days charter of a vessel by the Republicans during the Spanish Civil War. The vessel was seized by General Franco's forces after 14 days and was detained for about two months. Goddard J agreed with the charterers that the charter was frustrated from the moment of seizure on the basis that while the parties may have contemplated that the vessel may be seized they had not contemplated the loss of the vessel for such a period of time. Further, he said "…it makes very little difference whether the circumstances are foreseen or not. As foundation of the contract goes, it goes whether or not the parties have made provision for it" and that "…it makes very little difference whether the circumstances are foreseen or not. If the foundation of the contract goes, it goes whether or not the parties have made provision for it".
These cases were relied upon by counsel for Tsavaliris to support the proposition that the Sea Angel charter was frustrated. However, Rix LJ was not persuaded that the cases of maritime delay arising out of war-time requisitions, trappings or seizures were of relevance to the circumstances surrounding the "Sea Angel". He observed that “one cannot negotiate ones way out of the consequences of war”, but that unless a charterparty makes express provision for such circumstances (i.e. war clauses) the possibility of frustration is relatively high.
In the "Sea Angel" both counsel argued the relevance of foreseeability to the doctrine of frustration. Based on Professor Trietel QC's work "Frustration of Force Majeure” 9 the salvors argued that forseeability of the risk of seisure by the port authority may be a weak or inconsequential factor when considering if that act was a frustrating event unless the tests of kind, extent and degree were satisfied . By this what was meant was that both the type and extent or length of interference or delay must be foreseeable, and the degree of forseeability had to be very high. In this respect Trietel summarised the position as: "While an unforeseen event will not necessarily lead to the frustration of a contract, a foreseen event will generally exclude the operation of the doctrine. The inference that a foreseen event is not a frustrating event is only a prima facie one and so can be excluded by evidence of contrary intention".
Therefore, the frustration turned on the extent to which the risk of an event was foreseeable, and the issue for consideration was whether or not one or other of the parties had assumed the risk of the occurrence of that event. The degree of foreseeability required though to exclude a frustrating event was high. That is foreseeability will support the inference of risk assumption only where the supervening event (in the case of the "Sea Angel" the unreasonable decision of the port authority to detain the vessel) is “one of which any person of ordinary intelligence would regard as likely to occur, or …. the contingency must be "one which the parties could reasonably have thought to have foreseen as a real possibility"”.10
In the "Sea Angel" there was a foreseeable risk of detention by the port authority of a vessel participating a salvage operation. Rix LJ concluded the risk was recognised by the salvage industry, as amongst other things evidenced by the salvage contract (specifically clause Rules 9 (iii) of SCOPIC). Thus, the question was whether it was just and reasonable to relieve Tsavaliris of the consequences of the delay in re-delivery of the vessel in circumstances where the risk of unreasonable detention was foreseeable, Tsavaliris had under the charterparty assumed the general risk of delay, and where from the time of detention a solution was thought, on an objective basis, possible. In a unanimous decision The Court of Appeal agreed with the High Court that the charterparty was not frustrated.
1. The "Sea Angel" (2007) 2 LLR 517
2. Clause 9 (iii) "The termination provisions contained in sub-clause 9 (i) and 9 (ii) above shall only apply if the Contractor is not restrained from demolishing his equipment by Government, Local or Port Authorities or any other officially recognised body having jurisdiction over the area where the salvage services are being rendered".
3. (1956) AC 696
4. (1981) AC 675
5. (1926) AC 497
6. (1990) 1LLR 1
7. (1917) 2KB 78
8. (1939) 1KB 132
9. 2nd ed 2004
10. Rix LJ P 535 and quoting Chitty on Contracts 26th ed, 2004.