Shipping – Voyage Charterparty Contract – Charterparty for 7 consequtive voyages – Frustration – Effect of strike.

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Cases referring to this case:

Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724

For education purposes only

On November 2, 1978, owners chartered the Nema to charterers for seven consecutive voyages to Sorel in Canada there to load titanium slag and carry the cargo back to Europe. For three or four of the winter months Sorel was only open for ice-reinforced vessels and the Nema was not ice-reinforced. Her voyages were to start in April and end in December 1979.

By clause 5 of the charterparty time lost in, inter alia strikes was not to be computed in the loading or discharging time. The Centrocon arbitration clause providing for "final arbitrament" in London was incorporated in the charter.

After one round voyage the Nema arrived back at Sorel on June 20, 1979. She gave notice of readiness but was unable to load owing to a strike which had started there on June 6. On June 28, 1979, the parties, in consideration of the strike situation, agreed an addendum no. 2 to the charterparty by which, inter alia, the owners were permitted take the Nema for one intermediate transatlantic voyage thereafter returning to load her next cargo at Sorel, the charterparty was extended for a further seven cargoes to be lifted between April and December 1980 and, if the strike continued after the end of the intermediate voyage, the situation was to be "discuss without obligation." The strike at Sorel continued and by an addendum no. 3 of July 11, 1979, the charterers agreed to pay the owners compensation at the rate of $2,000 a day until the strike ended or the Nema got an intermediate voyage. On July 20 the Nema was released to the owners and sailed on an intermediate voyage from which she finished discharging her cargo at Glasgow on August 10, 1979. The charterers wanted the Nema to return to Sorel in case the strike ended but the owners fixed her for a further intermediate voyage.

In mid-August 1979 the parties agreed to early arbitration before a single arbitrator. On September 26, 1979, the arbitrator, who did not know when the strike would end gave his decision on September 28, 1979, that "the whole of the charterparty contract of November 2, 1978, is now frustrated." On October 3 he gave his reasoned award and stated that in arriving at his conclusions he had disregarded addenda nos. 2 and 3 and that his decision only adverted to the "seven consecut voyages for 1979," no consideration having been given "to the seven voyages contemplated for the 1980 season.

On October 5, the strike ended. On November 2, 1979, Robert Goff J. gave leave to appeal under section 1 of the Arbitration Act 1979 1and on appeal by the owners the Court of Appeal held that it had jurisdiction to entertain the appeal and declined to interfere with the judge’s grant of leave. On the hearing of the appeal, Robert Goff J. held that "the charterparty and addenda comprised on indivisible contract" which was not frustrated and ordered that the award be varied pursuant to section 1 (2) (a) of the Act of 1979 by substituting a declaration that the charterparty had not been frustrated and/or that the Nema was and had at all material times since August 10, 1979, been obliged to return to Sorel.

On appeal by the owners the Court of Appeal allowed the appeal.

Two reasoned judgments were given in the House of Lords, by Lord Diplock and by Lord Roskill dismissing the appeal, all other Lords consented. Lord Diplock’s judgment was mainly related to the question whether leave to appeal to the High Court from the arbitrator’s award ought or ought not to have been granted by the judge under Arbitration Act 1979 (c. 42), s. 1 (1) (2) (3) (4) (7). Lord Roskill, in his turn, considered questions whether charterparty concluded on 2nd November 1978 is indivisible from the adventures contemplated in addendums 2 and 3, and whether the arbitrator was, upon the facts found by him, entitled in point of law to hold that the 1979 adventure was frustrated. The extracts that follow do not deal with the question of leave to appeal to the High Court under Arbitration Act 1979: they only deal with the doctrine of frustration.

In the House of Lords, before Lord Diplock, Lord Fraser of Tullybelton, Lord Russell of Killowen, Lord Keith of Kinkel and Lord Roskill. 1981 June 15, 16, 17, 18; July 16.

Lord Roskill at p.752:

It should therefore be unnecessary in future cases, where issues of frustration of contracts arise to search back among the many earlier decisions in this branch of the law when the doctrine was in its comparative infancy. The question in these cases is not whether one case resembles another, but whether applying Lord Radcliffe’s [in Davis Contractors Ltd. Appellants v Fareham Urban District Council Respondents [1956] A.C. 696] enunciation of the doctrine, the facts of the particular case under consideration do or do not justify the invocation of the doctrine, remembering that the doctrine is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains.

Secondly, in some cases where it is claimed that frustration has occurred by reason of the happening of a particular event, it is possible to determine at once whether or not the doctrine can be legitimately invoked. But in others, where the effect of that event is to cause delay in performance of contractual obligations, it is often necessary to wait upon events in order to see whether the delay already suffered and the prospects of further delay from that cause, will make any ultimate performance of the relevant contractual obligations "radically different," to borrow Lord Radcliffe’s [in Davis Contractors Ltd. Appellants v Fareham Urban District Council Respondents [1956] A.C. 696], from that which was undertaken by the contract. But, as has often been said, business men must not be required to await events too long. They are entitled to know where they stand. Whether or not the delay is such as to bring about frustration must be a question to be determined by an informed judgment based upon all the evidence of what has occurred and what is likely thereafter to occur. Often it will be a question of degree whether effect of delay suffered, and likely to be suffered, will be such as to bring about frustration of the particular adventure in question.

And at p.754:

My Lords, I see no reason in principle why a strike should not be capable of causing frustration an adventure by delay. It cannot be right to divide causes of delay into classes and then say that one class can and another class cannot bring about frustration of an adventure. It is not the nature of the cause of delay which matters so much as the effect of that cause upon the performance of the obligations which the parties have assumed one towards the other.



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