J Lauritzen AS v Wijsmuller BV, The Super Servant Two

 

[1990] 1 Lloyds Rep 1

Court of Appeal

 

Wijsmuller agreed to transport Lauritzen's drilling rig, the Dan King, from Japan to Rotterdam on one of their barges; either the Super Servant One or Super Servant Two. In fact, Wijsmuller intended to use the Super Servant Two to transport the Dan King because the Super Servant One was committed to other contracts. Before the Dan King was due to be carried the Super Servant Two sank. The issue before the court was whether the Dan King contract had been frustrated by the sinking of the Super Servant Two.

 

Bingham LJ

 

Question 2: general [Was the contract frustrated?]

 

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,

 

... 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:

 

... 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; Denny Mott and Dickson Ltd v James B Fraser & Co Ltd; Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd). 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; Joseph Constantine Steamship Line Ltd; National Carriers Ltd v Panalpina (Northern) Ltd).

 

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; Davis Contractors Ltd; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)).

 

3. Frustration brings the contract to an end forthwith, without more and automatically (Hirji Mulji; Maritime National Fish Ltd v Ocean Trawlers Ltd; Joseph Constantine Steamship Line Ltd; Denny Mott & Dickson Ltd).

 

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; Maritime National Fish Ltd; Joseph Constantine Steamship Ltd; Denny Mott & Dickson; Davis Contractors Ltd). 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)).

 

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; Joseph Constantine Steamship Ltd; Davis Contractors Ltd sup; The Hannah Blumenthal).

 

Question 2(a) [Was the contract frustrated (a) if the loss of the Super Servant Two occurred without the negligence of the Defendants their servants or agents?]

 

Mr Clarke for Wijsmuller submitted that the extraneous supervening event necessary to found a plea of frustration occurred when Super Servant Two sank on 29 Jan 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, 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 judgement of Mr Justice Robert Goff, as he then was, adopted with approval by the Court of Appeal in Bremer Handelsgesellschaft GmbH v Continental Grain Co:

 

... the question resolves itself into a question of causation; in my judgement, 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 SA v Lesieur -Tourteaux SARL, per Mr Justice Donaldson as he then was; per Lord Denning, MR. Reliance was also placed on passages in The Law of Contract by Professor Treitel, which the Judge quoted in his judgement. 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...

 

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, though 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 case 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 16 Feb, 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 29 Jan, 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 sup. 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...

 

Question 2(b) [(2) Was the contract frustrated (b) if the loss of the Super Servant Two was caused by the negligence of the Defendants their servants or agents?]

 

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 on 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...

 

Wijsmuller's test would, in my judgement, 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 judgement 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.