LORD JUSTICE BINGHAM: On the 27th May 1988 Hobhouse J. answered four questions raised as preliminary issues in an action between J. Lauritzen A/S as plaintiffs and Wijsmuller B.V. as defendants. He answered one question in favour of Wijsmuller, and Lauritzen have not sought to challenge that ruling on appeal. He answered the other three questions in favour of Lauritzen, and Wijsmuller now appeal against those rulings.
Lauritzen were owners of a large and heavy drilling rig, now named Dan King, which was being built at a Japanese shipyard. Wijsmuller were specialised carriers by sea. By a written contract dated the 7th July 1980 Wijsmuller agreed with Lauritzen to transport the rig from Japan to the Rotterdam area of the North Sea. The contract provided that the transportation unit to be used for the carriage was to be "Super Servant One or Super Servant Two in Wijsmuller's option." These were large, self-propelled, semi-submersible barges built for carrying large loads such as this rig. The date for delivery of the rig to Wijsmuller for carriage was to be between 20th June 1981 and 20th August 1981, a period to be progressively narrowed down according to a contractual schedule. The price was to be paid as to half at the beginning of the voyage and half at the end.
The contract of carriage was expressly governed by English law and not many of its terms are germane to these preliminary issues. Clause 15, on which argument was founded, was in these terms:
"15. Duty of care
Subject to any provisions in this Contract Wijsmuller hereby agrees to do everything that a good carrier may reasonably be expected to do in order to reach the port of discharge in time and safely.
Clause 16 is of some importance and read:
"16. Liability
16.1. The Principal agrees that transportation to the actual location of loading, stowage, lashing, securing, carriage, unlashing and discharge of the Cargo and the transportation to the actual location of redelivery are entirely at the Principal's risk and that in no circumstances whatsoever Wijsmuller, its employees and/or agents and/or subcontractors and/or servants and/or agents of such subcontractors shall be liable for any loss (direct or consequential) or damage to the Cargo howsoever caused unless caused by the deliberate act or omission of Wijsmuller.
16.2. The Principal will be liable for all loss and damage whatsoever sustained by any third party caused by or contributed to by the Cargo, and the Principal undertakes to indemnify Wijsmuller, its employees and/or agent and/or subcontractors and/or servants and/or agents of such subcontractors against any claims (including interest and legal costs) made against Wijsmuller, its employees and/or agents or subcontractors and/or servants and/or agents of such subcontractors by any third party in respect of such loss or damage save in the event that such loss or damage to the third party is caused by or results from the deliberate act or omission of Wijsmuller."
Clause 17 was the subject of two issues argued before the judge, one of which remains in contention on appeal. I should recite its full terms:
"17. Cancellation
17.1. Wijsmuller has the right to cancel its performance under this Contract whether the loading has been completed or not, in the event of force majeur, Acts of God, perils or danger and accidents of the sea, acts of war, warlike-operations, acts of public enemies, restraint of princes, rulers or people or seizure under legal process, quarantine restrictions, civil commotions, blockade, strikes, lockout, closure of the Suez or Panama Canal, congestion of harbours or any other circumstances whatsoever, causing extraordinary periods of delay and similar events and/or circumstances, abnormal increases in prices and wages, scarcity of fuel and similar events, which reasonably may impede, prevent or delay the performance of this contract.
17.2. In the event that Wijsmuller has the right to terminate its performance under this Contract under this clause or clause 4, and the voyage has begun, Wijsmuller shall tender redelivery of the Cargo at a convenient port or place to be determined after consultation with the Principal and when uncontactable to be determined after consultation with the authorised representative of the Principal on board the Transportation Unit, and such delivery shall constitute good delivery under the terms of this Contract.
If Wijsmuller exercises its right under this clause, all payments due to Wijsmuller under the terms of this Contract will be deemed earned by Wijsmuller and the last instalment of the Contract sum as more specifically described in the Conditions of Particular Application of this Contract will be reduced or increased pro rata to the distance actually sailed or to be sailed to such convenient port or place and the distance in the normal course of the voyage i.e. between the port or place of delivery and the stated port or place of redelivery of the Cargo."
Clause 4 gave Wijsmuller a right to terminate the contract at a port of refuge which the state or condition of the cargo made it necessary to enter.
On the 29th January 1981, several months before Dan King was due to be tendered for carriage, Super Servant Two foundered and became a total loss in the course of off-loading another drilling rig in the Zaire River. For purposes of these preliminary issues it is to be assumed, as Wijsmuller have alleged, that they had intended to use this vessel for the Dan King carriage contract. The other vessel, Super Servant One, had been scheduled to carry, and did carry, cargo under two other contracts spanning the expected period of performance under the Dan King contract.
Lauritzen have alleged that the loss of Super Servant Two was caused by the negligence of Wijsmuller their servants or agents. Wijsmuller deny this. The facts have not yet been investigated. The issues have accordingly been framed on the alternative hypotheses that the loss of the vessel was and was not caused by the negligence of Wijsmuller.
On or about the 16th February 1981, some two weeks or so after the casualty, Wijsmuller informed Lauritzen that they would riot carry out the transportation of the rig with either Super Servant One or Super Servant Two. The parties then entered into without prejudice negotiations which led to a further agreement in April 1981 under which the rig was transported by Wijsmuller between July and October by barge and tug. This different method of carriage caused both of the parties loss or increased expense which have led to the present litigation, in which each party claims for the loss it has suffered.
Wijsmuller allege, and for purposes of the issues it is to be accepted, that Super Servant One had been scheduled to perform six cargo-carrying voyages between November 1980 and August 1981 and Super Servant Two to perform seven. Super Servant Two was lost during the third of her voyages. The Dan King carriage would have been the seventh. After Super Servant Two was lost, Super Servant One did carry one of the cargoes previously scheduled for Super Servant Two, but otherwise only carried the cargoes originally scheduled. The contracts performed by Super Servant One during the period when Dan King was due to be carried could, Wijsmuller contend, only be safely performed by a Super Servant vessel.
In the action, Lauritzen claimed damages for breach of the Dan King carriage contract. Wijsmuller pleaded that the contract had been frustrated. Alternatively they relied on clause 17.1 of the contract. They also counterclaimed.
The issues ordered to be tried were:
"Whether (on the assumption that the matters pleaded in paragraphs 5 and 6 of the Defence are accurate)
(1) the Defendants were entitled to cancel the contract under clause 17 and/or
(2) the contract was frustrated
(a) if the loss of the Super Servant Two occurred without the negligence of the Defendants their servants or agents
(b) if the loss of the Super Servant Two was caused by the negligence of the Defendants their servants or agents."
Hobhouse J. answered question (l)(a): Yes. that is the answer which Lauritzen do not challenge cm appeal. So if Super Servant Two was lost without negligence by Wijsmuller their servants or agents it must be taken that Wijsmuller were entitled to cancel the contract under clause 17. The judge answered questions (l)(b), (2)(a) and (2)(b) in the negative and it is these answers which Wijsmuller challenge.
Question 1(b)
The learned judge answered question 1(a) in favour of Wijsmuller because he rejected Lauritzen's argument that clause 17 did not apply before arrival of the carrying vessel at the loading site. It was not disputed that the loss of Super Servant Two was capable of being a circumstance which might reasonably impede or delay the performance of the contract within the meaning of clause 17. The question for decision is whether, on a proper construction of clause 17 read in the context of the contract as a whole and of relevant background circumstances, Wijsmuller were entitled to cancel the contract under clause 17 if the loss of Super Servant Two was caused by their (or their servants' or agents') negligence before the time for performance had arrived. It was common ground that the court's task is to elicit the parties' intentions from the contract they made according to familiar principles of construction.
On this issue the judge ruled in Lauritzen's favour in these terms:
"The plaintiffs' second argument was that the clause does not apply to events caused by the negligence of the defendants. This again is a question of the construction of the clause. I was referred to The Raphael, [1982] 2 Lloyd's Rep.42, and Sonat Offshore S.A. v. Amerada Hess Development Ltd. [1988] 1 Lloyd's Rep.145. It is right that, as already remarked, cl.l7(l) is not an exception clause; but it is a clause which gives to one party to the contract, Wijsmuller, the right wholly to escape from their obligations under the contract. The contract should not, in the absence of clear words, be construed so as to allow one party to achieve that result where he has been guilty of unreasonable conduct. The Sonat case indicates that the relevant principles of construction are not confined to exception clauses. In my judgment the wording of this clause clearly indicates that its subject matter is events which are not under the reasonable control of Wijsmuller. The phrase "force majeur" (sic) itself has the implication. The list of events are all ones which could occur without any negligence on the part of Wijsmuller and more naturally would be expected to. The use of the word 'whatsoever' at one point in the clause does not rebut this conclusion. In my judgment, far from it being clear that cl.l7(l) is intended to include matters arising from the negligence or unreasonable conduct of Wijsmuller, it is clear that the intention is not to include them."
In this court Mr. Anthony Clarke Q.C. for Wijsmuller relied on authority not cited to the judge, and addressed an argument more detailed (as I understand) than that put to him. He concentrated on the reference in clause 17.1 to "perils or danger and accidents of the sea", and in particular "perils ..... of the sea". This is, he argued, an expression with an established legal meaning; it means a fortuitous casualty caused by the sea (often but not necessarily involving the incursion of water) not caused by wear and tear or the ordinary action of waves and tides or progressive decay. A cause otherwise satisfying the established definition may be a peril of the sea even though caused by a shipowner's negligence: "If that which immediately caused the loss was a peril of the sea, it matters not how it was induced, even if it were by the negligence of those navigating the vessel" (The Xantho (1887) 12 App.Cas.503 at 510, per Lord Herschell). Thus an owner insured against perils of the sea may recover against his underwriter even though his own negligent conduct has led to the peril (Arnould, Law of Marine Insurance, 16th edn. para 763A). Mr. Clarke acknowledged that a shipowner could not, as against a cargo owner, rely on an exception in the bill of lading protecting him against loss caused by perils of the sea where the peril was caused by his negligence. That, however, was not because the expression "perils of the sea" had a different meaning in a bill of lading and a marine policy. It did not. The meaning was the same. But the shipowner owed the bill of lading holder a bailee's duty of care and accordingly, construing the bill of lading contract as a whole, the shipowner could not rely on the "perils of the sea" exception to oust his duty of care (The Xantho, supra; The Glendarroch [1894] P.226; The Torenia [1983] 2 Ll.210). Here there was no duty of care, because clause 15 had no effect before performance of the carriage contract began and no antecedent duty of care could be implied. Any negligence by Wijsmuller in handling the Super Servant Two in the Zaire River was not a breach of any duty owed to Lauritzen. So "perils or danger and accidents of the sea" was capable, in its ordinary meaning, of embracing events which were the result of Wijsmuller's negligence and that reading was not inconsistent with the rest of the clause because (for example) "seizure under legal process" was much more likely than not to be a result of Wijsmuller's carelessness or default.
Mr. Nicholas Legh-Jones W.C. for Lauritzen supported the judge's reasoning and conclusion. Although this was not an exemption clause, it was similar in that it gave Wijsmuller a far-reaching right to cancel, before the carriage began as well as after, even in the case of impediment and delay arid even where these were no more than reasonably predicted. Clause 17.2 gave Wijsmuller extensive protection against loss. It could not be supposed that the parties intended to confer this right of cancellation on Wijsmuller even where the event giving rise to the apprehended impediment prevention or delay could have been avoided by the exercise of reasonable care by Wijsmuller. The correct approach was that laid down in Canada Steamship v. The King [1952] A.C.192 and the cases to which the judge referred. Clause 17 did not expressly provide that the right of cancellation could be exercised even though the circumstance relied on had been caused by Wijsmuller's negligence. The clause did not lack application if the right of cancellation were not exercisable in the event of negligence. The cases relied on by Wijsmuller did not bear on the proper construction of this contract. If, however, Wijsmuller's right to cancel under clause 17 cm occurrence of a peril of the sea was only ousted where Wijsmuller were in breach of a contractual duty of care then that condition was satisfied, since under clause 15 of the contract Wijsmuller were bound to take all reasonable care to preserve both Super Servant vessels, alternatively Super Servant Two as the intended vessel, even before the time for performance had arrived. Alternatively, a term should be implied into the contract that Wijsmuller should take reasonable care to preserve both vessels, or the intended vessel, from loss or damage before the time of loading.
My conclusions are these:
1. Like the judge, I cannot accept that clause 15 has any application to events occurring before performance of the carriage contract begins. The reference to "everything that a good carrier may reasonably be expected to do" focuses attention on Wijsmuller's role as carrier alone. The expression "in order to reach the port of discharge in time and safely" focuses attention on the voyage. If the parties" intention had been that for which Mr. Legh-Jones contended I cannot think they would so significantly have failed to express it.
2. Again like the judge, I cannot accept that a term is to be implied into this contract to the effect contended for by Lauritzen. The drafting of this contract, as of most commercial contracts, is not faultless, but it is detailed and elaborate and suggests, in some respects at least, that the parties have applied their minds to the requirements of this particular adventure. The term contended for, however reasonable, is not in my view necessary to make the contract operable nor is it a term which one could confidently say the parties would have adopted had the point been raised during their negotiations.
3. I accept that the expression "perils or dangers and accidents of the sea" describes a proximate cause of loss which may, as a matter of definition, arise with or without negligence. There is nothing in these words, read alone, which excludes a cause which would not have been operative had reasonable care been taken. But the words are not to be read alone but as part of a contract to be construed as a whole.
4. Wijsmuller's construction of clause 17, giving them a right to cancel the contract at any stage with financial impunity on occurrence of an event within the clause, even though the event is brought about by negligence on their part, would make this a very one-sided clause. Had Lauritzen cancelled when Wijsmuller claimed to do so they would have had to pay 40% of the contract sum. Some contracts are of course very one-sided and expressly so, but in construing a doubtful clause it is not irrelevant that one construction may lead to a draconian result and the other not.
5. I have no doubt that Donaldson L.J. (as he then was) was right in The Raphael [1982] 2 Ll.42 at 45 to caution against uncritical application of the rules in Canada Steamship without regard to the peculiar features of the contract in issue. Different clauses are to be approached in different ways: George Mitchell (Chesterhall) Ltd. v. Finney Lock Seeds Ltd. [1983] 2 A.C.803. The present clause is not, as the judge accepted, an exceptions clause. It is not therefore directly covered by Canada Steamship. The clause is, however, one which confers on one party only a right exercisable in a very wide range of circumstances to nullify the contractual bargain made between the parties at no cost to itself and regardless of the loss which the other party may sustain. To such a clause the broad approach indicated by Canada Steamship is in my judgment appropriate.
6. Clause 17.1 does not expressly provide that Wijsmuller may cancel even though the event in question is one which they could by the exercise of reasonable care have averted. There is an obvious contrast with the language of clause 16.1 where Wijsmuller unambiguously exempt themselves from liability for loss or damage to the rig even though caused by their negligence.
7. The language of clause 17.1 is, I think, wide enough to embrace events caused by Wijsmuller's negligence. But the general tenor of the clause, opening with a reference to force majeure and acts of God and including such events as acts of war, civil commotion, canal closure and harbour congestion, strongly points towards events beyond the direct or indirect control of Wijsmuller.
8. Clause 17.1 is not deprived of a sensible application if read as excluding events brought about by the negligence of Wijsmuller their servants or agents. Almost all the events listed could only occur wholly independently of Wijsmuller and there is none which could only occur as the result of Wijsmuller's negligence.
9. It could not be supposed (and Mr. Clarke did not argue) that Wijsmuller could cancel under clause 17.1 where they had deliberately brought about the event relied on. But, in contrast with clause 16, there is no express exclusion of deliberate acts or omissions. So some restriction of the wide language of clause 17.1 is to be understood. In considering the breadth of the clause it is significant that the words "howsoever caused" which appear in clause 16.1 do not appear here.
10. It seems plain that clause 16 is an exemption clause of the purest water, attracting the full rigour of the Canada Steamship approach. On that basis Wijsmuller are protected against any liability for loss or damage to the rig unless caused by their deliberate conduct. Is it anomalous that this far-reaching exemption should be coupled with a right of cancellation under clause 17.1 not exercisable where the event in question has been brought about by the negligence or deliberate conduct of Wijsmuller their servants or agents? I think riot. The practical effect of clause 16, by allocating the risk of loss or damage to the cargo almost entirely to Lauritzen, is to impose on Lauritzen the commercial necessity and the expense of obtaining insurance. If the clause were in less stringent terms Wijsmuller would no doubt insure themselves against cargo claims with a consequent increase in the contract price. Lauritzen might reasonably prefer to insure the rig themselves and keep the price down. There is no reason to suppose that insurance cover would not be readily available in the market. By contrast, the risk to Lauritzen of cancellation by Wijsmuller under clause 17.1 would, I think, be much less readily insurable. It would not in my view make commercial sense for the risk under clause 17.1 to be allocated in the manner which Wijsmuller's construction would involve. A more restrictive interpretation of the clause is thus to be preferred.
11. Mr. Clarke argued that if Wijsmuller negligently brought about a clause 17 event they were entitled to cancel even after the carriage had begun and although clause 15 by that stage admittedly applied. Lauritzen's remedy, he suggested, lay in an action for breach of clause 15. I cannot accept this. For reasons already outlined I infer that Wijsmuller could not rely on a clause 17.1 event which the exercise of reasonable care would have prevented, whether it occurred before or after carriage had begun. This interpretation does, I must accept, give little save cosmetic effect to clause 15. That does not trouble me. Clause 9 (which exempts Wijsmuller from liability for delay) and clause 16 already combine to deprive clause 15 of its apparent potency. I cannot think the parties included clause 15 to give Lauritzen a right to damages if Wijsmuller cancelled the contract during the voyage in reliance on an event they had negligently or deliberately brought about.
12. Mr. Clarke also argued that if, contrary to his submission, negligence precluded reliance on clause 17.1 before the carriage began, then it had to be negligence cm the part of Wijsmuller as opposed to its servants or agents. I do not accept this. There are undoubtedly instances in which actual fault or privity on the part of the shipowner must be shown if he is to be liable, and liability for the acts of servants or agents can of course be excluded by contract. In the ordinary way, however, English law treats a party, his servants and agents as one, and I would construe clause 17.1 as precluding reliance by Wijsmuller on any event which would not have occurred if they, their servants or agents had exercised reasonable care.
I accordingly agree with the conclusion which the judge has, with much greater succinctness, expressed.
Question 2: general
The argument in this case raises important issues on the English law of frustration. Before turning to the specific questions I think it helpful to summarise the established law so far as relevant to this case.
The classical statement of the modern law is that of Lord Radcliffe in Davis Contractors Ltd. v. Fareham Urban District Council [1956] A.C.696 at 729:
"..... 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 performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do."
As Lord Reid observed in the same case (at page 721):
"..... there is no need to consider what the parties thought or how they or reasonable men in their shoes would have dealt with the new situation if they had foreseen it. The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end."
Certain propositions, established by the highest authority, are not open to question:
1. The doctrine of frustration was evolved to mitigate the rigour of the common law's insistence on literal performance of absolute promises (Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C.497 at 510: Denny Mott & Dickson Ltd. v. James B. Fraser & Co. Ltd. [1944] A.C.265 at 275; Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd. [1942] A.C.154 at 171). ' The object of the doctrine was to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances (Hirji Mulji, supra, at 510; Joseph Constantine Steamship Line Ltd. (supra), at 183, 193; National Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] A.C.675 at 701.
2. Since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended (Bank Line Ltd. v. Arthur Capel & Co. [1919] A.C.435 at 459; Davis Contractors Ltd. supra, at 715, 727; Pioneer Shipping Ltd. v. B.T.P. Tioxide Ltd. (The Nema) [1982] A.C.724 at 752).
3. Frustration brings the contract to an end forthwith, without more and automatically (Hirji Mulji, supra, at 505, 509; Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] A.C.524 at 527; Joseph Constantine Steamship Line Ltd. supra, at 163, 170, 171, 187, 200; Denny Mott & Dickson Ltd. supra, at 274).
4. The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it (Hirji Mulji, supra, at 510; Maritime National Fish Ltd. supra, at 530; Joseph Constantine Steamship Ltd. supra, at 170; Denny Mott & Dickson Ltd. supra, at 274; Davis Contractors Ltd. supra, at 728. A frustrating event must be some outside event or extraneous change of situation (Paal Wilson & Co. A/S v. Partenreederi Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 A.C.854 at 909).
5. A frustrating event must take place without blame or fault on the side of the party seeking to rely on it (Bank Line Ltd. supra, at 452; Joseph Constantine Steamship Ltd. supra, at 171; Davis Contractors Ltd. supra, at 729; The Hannah Blumenthal, supra, at 882,909).
Question 2(a)
Mr. Clarke for Wijsmuller submitted that the extraneous supervening event necessary to found a plea of frustration occurred when Super Servant Two sank on the 29th January 1981. The Dan King contract was not, however, thereupon frustrated but remained alive until Wijsmuller decided a fortnight later that that contract could not be, or would not be, performed. There was, he submitted, factually, no break in the chain of causation between the supervening event and the non-performance of the contract. He acknowledged that Maritime National Fish Ltd. supra, contained observations on their face inimical to his argument, but distinguished that as a decision on causation confined to its own peculiar facts and laying down no general rule. For authoritative support Mr. Clarke relied on cases dealing with the application of force majeure clauses in commodity contracts, and in particular on an unreported judgment of Robert Goff J., as he then was, adopted with approval by the Court of Appeal in Bremer Handelsgesellschaft m.b.h. v. Continental Grain Co. [1983] 1 Ll.269 at 292:
"..... the question resolves itself into a question of causation; in my judgment, at least in a case in which a seller can (as in the present case) claim the protection of a clause which protects him where fulfilment is hindered by the excepted peril, subsequent delivery of his available stock to other customers will not be regarded as an independent cause of shortage, provided that in making such delivery the seller acted reasonably in all the circumstances of the case ....".
A similar approach was reflected in other cases: see, for example, Intertradex S.A. v. Lesieur - Tourteaux S.A.R.L. [1977] 2 LI 146 at 155, per Donaldson J. as he then was; [1978] 2 LI.509 at 513, per Lord Denning MR. Reliance was also placed on passages in "The Law of Contract (7th edn) by Professor Treitel, which the judge quoted in his judgment at page 152. Thus, Mr. Clarke urged, this was a case in which Wijsmuller could not perform all their contracts once Super Servant Two was lost; they acted reasonably (as we must assume) in treating the Dan King contract as one they could not perform; so the sinking had the direct result of making that contract impossible to perform.
Mr. Legh-Jones answered that since the contract provided for the carriage to be performed by one or other vessel the loss of one did not render performance radically different, still less impossible. That apart, Wijsmuller's argument fell foul of the principles summarized above since (among other things) the frustration they sought to establish did not bring the contract to an end forthwith, without more and automatically and was not independent of the act or election of Wijsmuller. The force majeure cases were good law so far as they went, but it was one thing to construe and apply a consensual force majeure clause, another to determine whether the facts were such that the law should hold the contract to be discharged.
The doctrine of frustration depends on a comparison between circumstances as they are or are assumed to be when a contract is made and circumstances as they are when a contract is, or would be, due to be performed. It is trite law that disappointed expectations do not of themselves give rise to frustrated contracts. To frustrate, an event must significantly change "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 [the contract's] execution .....". (National Carriers Ltd. supra, at 700, per Lord Simon if Glaisdale).
Had the Dan King contract provided for carriage by Super Servant Two with no alternative, and that vessel had been lost before the time for performance, then assuming no negligence by Wijsmuller (as for purposes of this question we must), I feel sure the contract would have been frustrated. The doctrine must avail a party who contracts to perform a contract of carriage with a vessel which, through no fault of his, no longer exists. But that is not this case. The Dan King contract did provide an alternative. When that contract was made one of the contracts eventually performed by Super Servant One during the period of contractual carriage of Dan King had been made, the other had not, at any rate finally. Wijsmuller have not alleged that when the Dan King contract was made either vessel was earmarked for its performance. That, no doubt, is why an option was contracted for. Had it been foreseen when the Dan King contract -was made that Super Servant Two would be unavailable for performance, whether because she had been deliberately sold or accidentally sunk, Lauritzen at least would have thought it no matter since the carriage could be performed with the other. I accordingly accept Mr. Legh-Jones' submission that the present does not fall within the very limited class of cases in which the law will relieve one party from an absolute promise he has chosen to make.
But I also accept Mr. Legh-Jones' submission that Wijsmuller's argument is subject to other fatal flaws. If, as was argued, the contract was frustrated when Wijsmuller made or communicated their decision on the 16th February, it deprives language of all meaning to describe the contract as coming to an end automatically. It was, indeed, because the contract did not come to an end automatically on the 29th January that Wijsmuller needed a fortnight to review their schedules and their commercial options. I cannot, furthermore, reconcile Wijsmuller's argument with the reasoning or the decision in Maritime National Fish Ltd. supra. In that case the Privy Council declined to speculate why the charterers selected three of the five vessels to be licensed but, as I understand the case, regarded the interposition of human choice after the allegedly frustrating event as fatal to the plea of frustration. If Wijsmuller are entitled to succeed here, I cannot see why the charterers lost there. The cases on frustrating delay do not, I think, help Wijsmuller since it is actual and prospective delay (whether or not recognised as frustrating by a party at the time) which frustrates the contract, not a party's election or decision to treat the delay as frustrating. I have no doubt that force majeure clauses are, where their terms permit, to be construed and applied as in the commodity cases on which Wijsmuller relied, but it is in my view inconsistent with the doctrine of frustration as previously understood on high authority that its application should depend on any decision, however reasonable and commercial, of the party seeking to rely on it.
I reach the same conclusion as the judge for the reasons which he lucidly and persuasively gave.
Question 2(b)
The issue between the parties was short and fundamental: what is meant by saying that a frustrating event, to be relied on, must occur without the fault or default, or without blame attaching to, the party relying on it?
Mr. Clarke's answer was that a party was precluded from relying cm an event only when he had acted deliberately or in breach of an actionable duty in causing it. Those conditions were not met here since it was not alleged Wijsmuller sank Super Servant Two deliberately and at the material time Wijsmuller owed Lauritzen no duty of care if (as I have held) clause 15 did not apply when the vessel sank. Mr. Clarke relied on tentative doubts expressed in Joseph Constantine Steamship Ltd. supra, whether mere negligence would render an event "self induced" and on a statement of Lord Diplock in Cheall v. Apex [1983] 2 A.C. 180 at 188-9.
Mr. Legh-Jones argued for a less restrictive approach. He relied on what Griffiths L.J., as he then was, said in The Hannah Blumenthal supra, at page 882:
"[Denmark Productions Ltd. v. Boscobel Productions Ltd. [1969] 1 Q.B.699] best illustrates what is meant by default in the context of frustration. The essence of frustration is that it is caused by some unforeseen supervening event over which the parties to the contract have no control and for which they are therefore not responsible. To say that the supervening event occurs without the default or blame or responsibility of the parties is, in the context of the doctrine of frustration, but another way of saying it is a supervening event over which they had no control. The doctrine has no application and cannot be invoked by a contracting party when the frustrating event was at all times within his control; still less can it apply in a situation in which the parties owed a contractual duty to one another to prevent the frustrating event occurring."
I do not pause to ask whether Griffith L.J.'s opinion is formally binding upon us since in my judgment it clearly indicates the path which the law should follow. When, in Bank Line Ltd. supra, at page 452 Lord Sumner made his famous observation that "Reliance cannot be placed on a self-induced frustration" he was contrasting a self-induced frustration with one arising "without blame or fault on either side." As the judge observed (at page 156), "..... in some respects the doctrine of frustration and the concept of "self-inducement" are simply opposite sides of the same coin".
Wijsmuller's test would, in my judgment, confine the law in a legalistic strait-jacket and distract attention from the real question, which is whether the frustrating event relied upon is truly an outside event or extraneous change of situation or whether it is an event which the party seeking to rely on it had the means and opportunity to prevent but nevertheless caused or permitted to come about. A fine test of legal duty is inappropriate; what is needed is a pragmatic judgment whether a party seeking to rely on an event as discharging him from a contractual promise was himself responsible for the occurrence of that event.
Lauritzen have pleaded in some detail the grounds on which they say that Super Servant Two was lost as a result of the carelessness of Wijsmuller their servants or agents. If those allegations are made good to any significant extent Wijsmuller would (even if my answer to Question 2(a) is wrong) be precluded from relying on their plea of frustration.
I would answer this question also as the judge did and would therefore dismiss the appeal.
LORD JUSTICE DILLON: When this appeal was first called on, a question was canvassed whether the appeal ranked as a final appeal which under the Rules required a Court of three Judges. In the event the parties agreed to the hearing proceeding with two Judges, in view of the state of the term. The Notice of Appeal had been drawn on the footing that the appeal was a final appeal. My own view is that the Civil Appeals Office was right in treating the appeal as an interlocutory appeal which two Judges would have jurisdiction to hear; the judge in the court below had merely to decide four preliminary issues of law which would determine what issues would have to be considered at the trial and the scope of the trial, without finally determining the matters in issue in the litigation. Nonetheless if the complexity and importance of the issues raised in the appeal had been appreciated at an early stage it would have been very much better if the appeal had been listed to come before a court of three judges, even though strictly there was jurisdiction for a court of two to hear it. The final sentence in the judgment of Purchas L.J. in Coldunell Ltd. v. Gallon [1986] Q.B. 1184 at 1212 is very much in point. To arrange for a third judge when the hearing actually commenced in the final week of term in July was not practicable.
The four issues the judge had to try have been set out by my Lord. The judge answered issue 1(a) in the affirmative viz: on the assumption that the matters pleaded in paragraphs 5 and 6 of the defence are accurate, the defendants were entitled to cancel the contract under clause 17 if the loss of the Super Servant Two occurred without the negligence of the defendants, their servants or agents. This answer is not challenged.
I propose to consider first, in this judgment, the issue 1(b) which the judge answered in the negative, viz: whether on the like assumption, the defendants were entitled to cancel the contract under clause 17 if the loss of the Super Servant Two was caused by the negligence of the defendants their servants or agents.
The defendants rely on the reference in clause 17, the cancellation clause, to "perils or danger and accidents of the sea". It has long since been held that such words bear the same meaning, as a matter of construction, in a bill of lading or contract of carriage as in an insurance policy - The Xantho, 12 App.Cas.503. In an insurance policy the words mean basically if not exhaustively an accidental incursion of seawater into a vessel at a part of the vessel and in a manner where seawater is not expected to enter in the ordinary course of things, with consequent damage to the thing insured. This applies whether the accident consists in some negligent act, or is due to negligence, or not -Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. [1941] A.C.55 at 68-69 and The Xantho per Lord Herschell at 510. It follows that if the sinking of the Super Servant Two in the Zaire River was due to "perils or danger and accidents of the sea" within the meaning of clause 17 if the sinking occurred without the negligence of the defendants, it was equally, so far as the mere construction of these words is concerned, due to perils or danger and accidents of the sea if the sinking was caused by the negligence of the defendants.
There is, however, a very well recognised qualification that in an exceptions clause in a bill of lading excepting the shipowner from liability for perils of the sea there is by necessary inference to be read in an exception upon the exceptions that the exception for perils of the sea is not to apply if the loss was the result of the negligence of the shipowner or his servants. See the judgment of Lord Esher M.R. in The Glendarroch [1894] P.226 at 230-231, especially where he said:
"When you come to the exceptions, among others, there is that one, perils of the sea. There are no words which say "perils of the sea not caused by the negligence of the captain or the crew". You have got to read those words in by a necessary inference. How can you read them in? They can only be read in, in my opinion, as an exception upon the exceptions. You must read in, 'Except the loss is by perils of the sea, unless or except that loss is the result of the negligence of the servants of the owner.'"
The basis for this qualification has been put on the ground that the contract in a bill of lading is to carry with reasonable care, unless prevented by the excepted perils, and that if the goods are not carried with reasonable care and are consequently lost, the reconciliation of the two provisions of the contract is that if the loss through perils of the sea was caused by a previous default of the shipowner he is liable for this breach of his covenant: see per Willes J. in Grill v. General Iron Screw Collier Co. L.R. 1 C.P.600 at 611 cited in The Xantho at 510, and see also per Davey L.J. in The Glendarroch at 237. But it seems also to have been put in the earlier cases on the basis that an exception to a shipowner's or bailee's duties in respect of the goods entrusted to him ought not, except by clear terms, to be construed as extending to absolve him from liability for his own negligence and want of care. See Phillips v. Clark 2 C.B.(N.S.) 156, and Czech v. General Steam Navigation Co. L.R.3 C.P.14 where Byles J. said at page 20, "Although the condition in the bill of lading in terms exempts the shipowner from liability for any damage" - sc. damage from danger and accident of the seas - "it is now decided that that must be read as if subject to the exception 'if not occasioned by the negligence of the defendants'". This would be in line with the general approach of the courts to an exceptions clause in Canada Steamship Lines v. R. [1952] A.C.192 and Smith v. South Wales Switchqear Co. Ltd. [1978] 1 W.L.R.165.
Of course an exceptions clause may be so worded that it exempts from liability even for the party's own negligence. See the tests of Lord Morton of Henryton in Canada Steamship Lines Ltd. v. R. and see also the speech of Lord Diplock in Photo Productions Ltd. v. Securicor Transport Ltd. [1980] AC 827 especially at 848 F-G.
Accordingly the crucial question in the present case is whether it is possible to read into clause 17, which is a cancellation clause and not an exceptions clause, a qualification that it is not to apply to perils or danger or accidents of the sea occasioned by the shipowners' own negligence.
The contract contains in clause 16.1 an exceptions clause which clearly does, in my judgment, exempt the defendants, where it applies, from liability for their own negligence; it exempts from liability for any loss (direct or consequential) or damage to the cargo howsoever caused unless caused by the deliberate act or omission of the defendants. But it only applies to what happens during the voyage, i.e. from the start of the transportation of the rig to the actual location of loading to its transportation to the actual location of redelivery.
Clause 17 applies also to the earlier period from the date of the contract to the arrival of the Transportation Unit in Japan for loading. That is common ground between the parties and obviously necessary in the defendants' interests from the nature of some of the possible events listed in clause 17. Clause 17 does not in terms exclude from its scope listed events caused by the deliberate act or omission of the defendants, in line with the limitation on the exemption in clause 16. But clause 17 must be subject to the general principle of law, so far as it goes, that a party shall not take advantage of his own wrong - New Zealand Shipping Co. v. Societe des Ateliers et Chantiers de France [1919] A.C.I. That in turn - apart from a further point to which I return below - does not take matters very far, since the majority of the events listed in clause 17 are events which could not have been brought about by the defendants.
The first corollary of that, to my mind, is that clauses 16 and 17 are essentially different clauses directed to different ends, and therefore clause 16 affords no guide to the construction or scope of clause 17.
We do however have, as possible points of overlap between the two clauses, among the many other events listed in clause 17 the reference to "perils or danger or accidents of the sea", which may be the result of negligence on the part of the defendants, and the reference to "seizure under legal process" which might be the result of failure by the defendants to satisfy their just obligations to others.
The judicial reasoning which led to the establishment in the Glendarroch and earlier cases of the qualification that in an exceptions clause in a bill of lading or contract of carriage excepting the shipowner from liability for perils of the sea there is by necessary inference to be read in an exception upon the exceptions that the exception for perils of the sea is not to apply if the loss was the result of the negligence of the shipowner or his servants must prima facie, in my judgment, equally apply to a power to cancel in a cancellation clause where performance of the contract has been impeded prevented or delayed by perils and accidents of the sea.
If I am right that clause 16 affords no guide to the construction or scope of clause 17, such a qualification must therefore be read into clause 17 in the present case. It must be read in in relation to the whole of the period covered by clause 17, including the earlier period before the arrival of the Transportation Unit in Japan for loading; no process of construction can enable the court to imply different qualifications into clause 17 in respect of different periods, before or after the arrival of the Transportation Unit in Japan.
The principle of law referred to in the New Zealand Shipping case that a party shall not take advantage of his own wrong was limited by Lord Diplock in Cheall v. APEX [1983] 2 A.C.180 where he said at 189 F-G that to attract the principle, whether it be one of construction or one of law that a party to a contract is not permitted to take advantage of his own breach of duty - as Lord Diplock expressed the principle - the duty must be one that is owed to the other party under that contract. In the present case, however, at the time of the sinking of the Super Servant Two or the subsequent purported cancellation of the contract under clause 17 there was no breach of duty by the defendants to the plaintiffs. The time for presentation of the Transportation Unit in Japan for loading had not come and there was no contractual obligation to the plaintiffs comparable to clause 15 of which the defendants were in breach as a result of the loss of the Super Servant Two. Moreover it is common ground that the loss did not give rise to any liability in tort of the defendants in favour of the plaintiffs; see Leigh and Sillivan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] AC 785 and Candlewood Navigation Corporation Ltd. v. Mitsui Lines [1986] A.C.I. This principle therefore cannot apply in favour of the plaintiffs against the defendants, since there was no relevant duty.
In these circumstances it is right, in my judgment, that the reference in clause 17 to "perils or danger or accidents of the sea" should be read as subject to the qualification "unless caused by the negligence of Wijsmuller or its servants". Accordingly I agree with my Lord and the learned judge that issue 1(b) should be answered in the negative.
Issues 2(a) and (b) are concerned with frustration. Was the contract frustrated by the sinking of Super Servant Two or by that event coupled -with the subsequent election by the defendants to use Super Servant One on other voyages and not for carrying the Dan King? The important factor, common to both issues, is that under the contract the defendants could have satisfied their obligation by using Super Servant One to carry the rig, after Super Servant Two had sunk, but they elected not to do so.
In this respect, the present case appears to be a direct parallel to that described by Lord Wright in Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] A.C.524 at 529-30 where he said:
"..... in [their Lordships] judgment the case could be properly decided on the simple conclusion that it was the act and election of the appellants which prevented the Cuthbert being licensed for fishing with an otter trawl. It is clear that the appellants were free to select any three of the five trawlers they were operating and could, had they willed, have selected the St. Cuthbert as one, in which event a licence would have been granted to her. It is immaterial to speculate why they preferred to put forward for licences the three trawlers which they actually selected nor is it material, as between the appellants and the respondents, that the appellants were operating other trawlers to three of which they gave the preference. What matters is that they could have got a licence for the St. Cuthbert if they had so minded. If the case be figured as one in which the St. Cuthbert was removed from the category of privileged trawlers, it was by the appellant's hand that she was so removed because it was their hand that guided the hand of the Minister in placing the licences where he did and thereby excluding the St. Cuthbert. The essence of 'frustration' is that it should not be due to the act or election of the party."
The parallel seems to be even closer, if, as some of the documents seem to suggest, the defendants, after the loss of the Super Servant Two, negotiated extra fees with the parties with whom they had other contracts of carriage before finally allocating the Super Servant One to perform those other contracts.
It is the view of Professor Treitel, expressed both in his own book on the Law of Contract - see the 7th Edition at pages 674-5 and 700-1 - and in the current editions of well-known textbooks of which he is editor or an editor, that where a party has entered into a number of contracts with other parties and an uncontemplated supervening event has the result that he is deprived of the means of satisfying all those contracts, he can, provided he acts "reasonably" in making his election, elect to use such means as remains available to him to perform some of the contracts, and claim that the others, which he does not perform, have been frustrated by the supervening event. The reasoning depends on the proposition that if it is known to those concerned that the party will have entered into commitments with others and if he acts "reasonably" in his allocation of his remaining means to his commitments, the chain of causation between the uncontemplated supervening event and the non-performance of those of his contracts which will not have been performed will not have been broken by the election to apply his remaining means in a "reasonable" way. Similar reasoning was, as my Lord has pointed out, used by Robert Goff J. in relation to an exceptions clause in the unreported case of Westfalische Central-Genossen-schaft G.m.b.h. v. Seabright Chemicals Ltd.
Such an approach is however inconsistent to my mind with the view expressed by Lord Wright in the passage in Maritime National Fish which I have already cited, where he said:
"It is immaterial to speculate why they preferred to put forward for licences the three trawlers which they actually selected".
It is also, as my Lord has pointed out, inconsistent with the long accepted view that frustration brings the contract to an end forthwith, without more ado automatically. Plainly the sinking of Super Servant Two did not do that, since even after that sinking the defendants could have used Super Servant One to perform the contract.
We in this court should apply Maritime National Fish and the other authorities to which my Lord has referred. Accordingly I agree with my Lord and the learned judge that issues 2(a) and (b) should be answered in the negative.
Despite the admirably clear and interesting arguments of Mr. Anthony Clarke Q.C., I would dismiss this appeal.
Appeal dismissed.
