England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Morison)

		Royal Courts of Justice Strand London WC2 Tuesday, 5th March 2002

1. LORD JUSTICE PILL:Lord Justice Longmore will give the first judgment.
2. LORD JUSTICE LONGMORE: This appeal arises from a charter arrangement made by an associated company of the defendants as charterers of the ship "Serenade" for pleasure trips for Israeli citizens who were seeking to evade the statutory restrictions on gambling and customs duties on Israeli goods. The underlying plan was that the ship would ply in waters in the Eastern Mediterranean and the Red Sea, outside Israeli territorial waters, and passengers would thus be able to gamble to their hearts' content and purchase duty free goods whilst enjoying all the benefits of a shipping cruise. We have been told that the operation was marketed in Israel under the title "Las Vegas on the Water".
3. The claimants in this case agreed with the associated company of the defendants, namely Boulus-Gad Tourism and Hotels Ltd ("BGTH"), as charterers of the vessel, to provide crew for the vessel, apart from deck and engine room crews. That meant, in effect, that they were to provide crews mainly for catering and leisure purposes on the cruise. The agreement, which has been called a crew management agreement, was made on 7th March 2000 and the cruising started on 25th March.
4. The charter was made at a time of comparative optimism in the Middle East, partly engendered by the Oslo Accord of 1993. But by September 2000 that optimism had been dashed and what has been called the "Al Aqsa Intifada" had begun. This Intifada still apparently continues, and even today's edition of The Times newspaper refers to Israeli claims that suicide bombers are still being sent on missions by, among others, the Al Aqsa Martyrs Brigade. In October 2000 cancellations of bookings had occurred and the charterers took the line that, because the security situation had deteriorated and because there was reduced take up of the cruise facilities, the charter would have to come to an end. On 27th October they wrote a letter to the claimants in the following terms:

"As you are aware, due to the Warlike Hostilities and the dangerous security complications in the area, we decided to stop our cruise operations this season as from 31st October 2000, and we will resume our operations as soon as the hostilities ceased (sic).

Please arrange to evacuate all your staff, equipment and all your stock from the vessel by the above date."

5. A notice in somewhat similar terms was sent to the shipowners. On 1st November the vessel was re-delivered by BGTH to the shipowners. The phrase "Warlike Hostilities" in fact refers to a part of that charterparty.
6. The obligations of BGTH were guaranteed by the defendants, and the claimant crewing agency brought an action for sums due under the crewing management agreement and applied for summary judgment. They obtained summary judgment from the judge and there is now an appeal to this court.
7. There were originally two defences to the claim. One was that under the main contract there was an arbitration clause and no claim could be brought against the defendants as guarantors until the arbitration clause had been invoked and an award obtained. The judge said that there was no real prospect of succeeding in that defence and that matter is no longer pursued before this court, permission to appeal in that respect not having been obtained. The other defence is that the "Hostilities and the dangerous security complications" referred to in the letter of 27th October constituted a frustrating event or an event of force majeure within clause 8.1 of the agreement.
8. It is now necessary for me to read a few clauses of the agreement which, as is common in such agreements, starts off with a series of boxes. Box 6 names the vessel as the "Serenade". Box 4 is entitled "Day and year of commencement of Agreement" and provides "Date of departure of the crew from country of origin, around 25th March 2000". Box 5 is entitled "Day and year of termination of Agreement" and the provision is "One year thereafter". Box 8A is entitled "Vessel's regular trading area" and says "Vessel will be cruising Eastern Mediterranean and the Red Sea". Box 8B is entitled "Trading Restrictions" and the only entry in the box is "ITF compliance". Box 11 is entitled "Termination" and under that is the phrase "Two months".
9. I should refer to clause 4 before coming to the really material clauses. Clause 4 is headed "Owner's Obligations" and provides, so far as material:

"During the period of this Agreement, and subject to the terms and conditions herein provided, the Owners [i.e. the associated company of the defendants, so far referred to as `the charterers'] shall:

4.1ensure that the applicable requirements of the law of the flag in Box 6 are satisfied in respect of the following:

(a)safety and health;

(b)manning levels, where the Owners supply part of the Crew;

(c)seaworthiness and class requirements; ...

4.3inform the Crew Managers at least six days prior to ordering the Vessel to any area excluded by War risks underwriters by virtue of the current London market war risks trading warranties or by official authorities in the country of origin of the crew members and pay whatever additional costs may properly be incurred by the Crew Managers as a consequence of such orders ..."

10. Clause 8 is headed "Responsibilities. Clause 8.1, which is the clause which the judge construed in his judgment, provides:

"Force Majeure Neither the Owners nor the Crew Managers shall be under any liability for any failure to perform any of their obligations hereunder by reason of any cause whatsoever of any nature or kind beyond their reasonable control."

11. Clause 9 is headed "Duration of the Agreement". Clause 9.3 provides:

"In the event that the Owners terminate the contract at any time during the minimum first period of commencement (Box 4) and termination (Box 5), of this Agreement the Owners will pay to the Crew Managers:

(i)Repatriation expenses of all crew members

(ii)A sum equal to two times the monthly Lump Sum payable stipulated in Box 7."

12. It is pursuant to that clause that the claimants make their claim.
13. Mr Hugo Page has appeared for the appellants and he submits that the frustrating event was:

"... a deterioration in the security situation in the Eastern Mediterranean such that no reasonable operator would continue to operate his vessel in any part of the trading area".

14. He relied for that purpose on evidence from security experts, in particular a Mr Nikafama, the general manager of a security firm; Mr Ehud Sprinzak, a security expert, who had become the founding dean of Israel's first private university; and Mr Malka, the ex-head of Israel's Security in Europe and also the ex-head of the Human Resources Department in Israel's General Security Service.
15. The highest way the matter can be put is in Mr Sprinzak's evidence. Mr Sprinzak summarises his conclusions in the following terms:

"The gist of this opinion is that the `Al Aqsa Intifada' which unexpectedly broke out in Israel and the occupied territories on September 29, 2000, constitutes a war-like activity of the first order. This conclusion is supported by both the raw data from the battlefields and the perceptions of the two people involved, the Israelis and the Palestinians. This opinion further maintains that the bloody events of the last two months and the large number of calls to kill the Jews and their supporters have produced a significant threat of anti-Israeli, anti-Jewish, anti-American and anti-Western terrorism in the entire area (lands and seas) surrounding Israel. This threat of terrorism makes an Israeli operation of tourist and cruise ships in the shores of the Eastern Mediterranean and the Red Sea extremely hazardous. There is consequently no governmental or private agency that can presently provide satisfactory passenger protection for economic price. The fear of terrorism has already driven away over 90% of Israel's potential visitors and tourists, has reduced and is likely to further reduce dramatically the number of potential passengers interested in cruising."

16. Mr Sprinzak then sets out the supporting evidence for his conclusions. At subparagraph (9) he refers to Mr Malka's expert opinion and says:

"If Malka, perhaps the Middle East's top protection specialist, states categorically that he is `unaware of any government or private agency that can provide satisfactory passenger protection for an economic price', then such agency does not exist in the entire world. No shipping company can ignore such judgment."

17. Mr Sprinzak states, towards the end of his conclusion:

"There is presently neither government nor private agency in the area that can answer these fears and provide the minimal protection for a safe leisure sailing. Based on the aforesaid, I state that no reasonable and prudent shipping or cruise operation would continue sailing under the prevailing warlike hostilities as from October 2000."

18. Mr Page thus submits that that expression of expert opinion supports his assertion of a frustrating event and, indeed, in the last sentence I have quoted, provides an adequate statement of the test for a frustrating event.
19. For my part, I would not agree that the test is as stated by Mr Sprinzak in that sentence. Rather it is as stated in the twenty-eighth edition of Chitty on Contracts, at paragraph 24-012, which says that the test may be formulated as follows:

"If the literal words of the contractual promise were to be enforced in the changed circumstances, would performance involve a fundamental or radical change from the obligation originally undertaken? Thus, Lord Radcliffe said [in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696]:

`... 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. ... There must be ... such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.'

Lord Reid put the test for frustration in a similar way. `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.'"

20. In my judgment the evidence relied upon by Mr Page does not satisfy that test of frustration. I say that for three main reasons. First, the deterioration in the security situation in the Eastern Mediterranean was not a surprising, let alone a radically different, event. Although war risk underwriters gave notice of cancellation and required an additional premium for part of that area, there was no indication that underwriters would decline cover for shipping in the area entirely. There was no evidence of any exclusion zone for shipping. The terrorist threat was directed against the Israelis and there was nothing in the crewing management agreement to suggest that the crewing arrangements were to be for an exclusively Israeli clientele. The extracts from the evidence which I have quoted are largely predicated on assertions about the uneconomic cost of providing extra security.
21. Secondly, it is not, in my judgment, for an academic expert, however distinguished, to decide for the court what a reasonable shipowner or charterer would or would not do. There was no evidence in the case from any reasonable shipowner, let alone the actual owner of the "Serenade", that he would not operate a vessel in the prevailing conditions. Indeed, we were told that, although the charterers had asserted that the charterparty had come to an end, that was not accepted by the shipowners. There has been an arbitration about that matter, but, whatever the result of that arbitration might have been, it seems that at least one shipowner was content to operate his vessel during the relevant period.
22. Thirdly, even the charterers in this case did not seek to abandon the venture: they sought renegotiated terms. For that purpose I have in mind the exchange of correspondence at pp.57-61 of the bundle. Mr Page submits that that cannot be decisive of a frustrating event, which is a matter of law. But it is, in my judgment, some important evidence on the question whether reasonable charterers in general would consider that the performance had become radically different from the obligation originally undertaken in the contract. The judge thought that the exchange of correspondence was of significance; and so do I. Mr Page sought to argue that the negotiations related to a period after the natural expiration of the charterparty in March 2001, but that does not accord with any proper reading of the documents themselves. It is, moreover, powerful evidence that such unsafety as there may have been did not in fact prevent performance of the contract.
23. So although Mr Justice Morison used the following phrase in relation to an argument based on clause 8.1 of the contract, I would agree with his approach that the argument on frustration does not "get off the starting blocks" and there is no reason for there to be a full trial for this point to be argued since there is no real prospect of the defendants successfully defending the claim.
24. As the matter was argued before the judge, it proceeded mainly in relation to clause 8.1 of the crewing management agreement relating to force majeure, if not exclusively so. We have permitted Mr Page to amend his notice of appeal to rely on the doctrine of frustration in addition to clause 8.1, and both he and I have dealt with the case on that basis. Mr Page came to recognise that he could not succeed on clause 8.1 if he failed on his frustration claim because he could not show that he was, within the wording of that clause, prevented from performing his obligation as to the payment of money by reason of an event beyond his reasonable control. In those circumstances I need say nothing more about that provision.
25. In my judgment the judge was right to give summary judgment and I would dismiss this appeal.
26. SIR MARTIN NOURSE: I agree and do not wish to add anything of my own.
27. LORD JUSTICE PILL: I also agree.
Order: application for permission to amend notice of appeal granted; appeal dismissed with costs assessed at £12,987.50.