Edwinton v. Tsavliris

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Edwinton Commercial Corporation and another v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The "Sea Angel")
English High Court: Queen’s Bench Division: Commercial Court: Gross J: [2006] EWHC 1713 (Comm): 26 July 2006

Elizabeth Blackburn QC and Mark Jones, instructed by Hextalls, for the claimant shipowners, Edwinton
Timothy Hill, instructed by Eversheds, for the respondent charterers
The Court held that the refusal of a port authority to issue a certificate that would allow the vessel to leave port did not frustrate this charterparty; it merely made it more onerous for the salvors who had chartered the vessel. The risk of one of its chartered-in vessels being unreasonably detained is something that is part of the normal course of a salvage company's operations and so could not constitute a frustrating event.

DMC Category Rating: Confirmed

This case note is based on an Article in the August 2006 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper. DLA Piper is an International Contributor to this website.

The claim arose out of the loss of the Tasman Spirit which grounded near the port of Karachi on 27 July 2003, carrying a cargo of light crude oil. On about 13 August the vessel broke in two, causing a major pollution incident.

On 30 July 2003, the salvors Tsavliris and the owners of the Tasman Spirit entered into a Lloyd's Standard Form of Salvage Agreement on the LOF 2000 form incorporating a SCOPIC clause, which Tsavliris invoked on 13 August.

To fulfil its obligations under the LOF, Tsavliris engaged a number of sub-contracted shuttle tankers to offload part of the cargo and tranship it to a larger tanker. One of these was the Sea Angel, which was time-chartered on 25 August 2003 for a period of up to 20 days. The vessel had completed its task by 9 September and Tsavliris gave notice of redelivery as required under the charterparty. But the Sea Angel was unable to leave the port.

Before a vessel can leave Karachi, its agent must deposit sufficient funds to meet port dues and charges, at which point the Port Trust will issue a "No Demand Certificate". Without this, a vessel cannot obtain final port clearance from Customs. The Karachi Port Trust maintained that, where the same shipping agent acted for a number of vessels, non-payment by any one of them would entitle the Trust to refuse clearance to any of the others.

It was initially thought that the situation could best be resolved by negotiation and as a result legal proceedings were not begun until mid-October. On 5 December 2003, the High Court in Karachi ordered the Trust to issue the certificate. Despite this order, the detention continued until a deal had been done between the Trust and the Tasman Spirit's P&I Club relating to the pollution claims. It was only on 26 December that the vessel left port.

The owners of the Sea Angel claimed hire of over US$1.3 million for the period 18 September 2003 (when the salvors ceased paying) up to redelivery, which was on 1 January 2004. Tsavliris, however, argued that the charterparty had been frustrated as a result of the Port Trust's unlawful refusal to issue the certificate. The Port Trust had effectively detained the vessel as security for its pollution claims against the owners of the Tasman Spirit and its P&I Club.

The main questions before the court where whether there had been a frustrating event and, if so, whether the risk of such an event had been assumed by Tsavliris as part of the normal course of its operations, or by either party under the terms of their contract.

If a contract is frustrated, the parties are discharged from further liability under it (The "Super Servant Two" [1990] 1 Lloyd's Rep 1). For an event to frustrate a contract, however, it must not be either party's fault, nor should the contract make any provision for it, and it must result in a change of circumstances so radical that the nature of the contract fundamentally alters and performance would involve a radical change from the obligation originally undertaken (Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, National Carriers v Panalpina Ltd [1981] AC 675). The mere fact that an unexpected turn of events has rendered a contract more onerous to perform does not, of itself, frustrate it.

Delay is capable of giving rise to the frustration of a contract but it will depend on the circumstances of each case. There cannot be frustration if the delay in question is within the commercial risks undertaken by the parties and, in many cases, delay will be seen as a normal incident of maritime adventure.

Was there a frustrating event?
The judge concluded that the detention of the Sea Angel made the charterparty more onerous for Tsavliris but it did not amount to a frustrating event. The fact that this charterparty was entered into for a very short period to serve a particular purpose and that, by mid-October at least, it was clear that the probable delay was going to be extensive, was something to take into account, but was not, in itself, conclusive.

A further factor was whether the event was foreseeable - in other words, whether it was part of the risk taken on by salvors in doing their job.

Tsavliris' own literature noted that its salvage tugs would occasionally find themselves arrested or detained through no fault on its part. More generally, the risk of a salvage contractor's vessel being detained is addressed in the termination provisions of the SCOPIC clause, where a termination by either salvor or owner is only effective if the salvor "is not restrained from demobilising his equipment by Government, Local or Port Authorities or any other officially recognised body having jurisdiction over the area where the services are being rendered" (section 9(iii)). If he is so restrained, the SCOPIC clause remains in effect and SCOPIC remuneration continues to be earned.

This all suggested to the judge that salvage operators are accustomed to dealing with such difficulties and that salvage remuneration is designed to reward or at least reimburse them for their skill in doing so. That the risk might only manifest itself on rare occasions was "neither here nor there".

In this case, however, the risk of unreasonable detention was perhaps higher because Pakistan was not a signatory to the International Convention on Civil Liability for Oil Pollution Damage 1969 or the 1992 Protocol and so was outside the CLC liability regime. The authorities would, therefore, have been anxious to obtain some sort of security for their pollution claims.

Other factors
The judge also took into account the fact that legal proceedings were not begun until mid-October. The salvors saw litigation as a last resort because they thought it would take too long and/or would be ineffective. The judge did not agree that was the case, but would not criticise them for choosing to seek to resolve the problem by negotiation. Their actions were, however, relevant to the question of frustration since, during the period negotiations were continuing, it was difficult to conclude that the charterparty was frustrated.

Had there been a frustrating event, however, he noted that there might be some force in the argument that, since Tsavliris had had the means and opportunity to litigate at an earlier stage, the continued delay was in part self-induced.

As for the provisions of the charterparty, these should be seen against the matrix of the risk of unreasonable detention. The charterparty, which incorporated Shelltime 4 terms, provided at clause 7: "Charterers …shall pay agency fees, port charges, commissions, expenses of loading and unloading cargoes, canal dues and all charges…". Under this clause, therefore, Tsavliris assumed responsibility for making the necessary arrangements to allow the vessel to enter and leave Karachi. That responsibility became more onerous as a result of the detention, but it was not so radically changed that the contract could be said to have been frustrated. Had there been an event capable of frustrating the contract, however, the judge was not persuaded that the provisions of this charterparty would, on their own, have defeated the frustration argument.

The judge was "not unhappy" to reach this conclusion: "In a salvage operation of this nature, it seems to me (subject always to any specific contractual provision) more satisfactory that salvors should assume the risk of unreasonable detention of their chartered-in vessels. Such risks can always be incorporated in the price for the services and passed on whether by way of an Art 13 award or under the SCOPIC clause".

The decision, therefore, ultimately places the burden of payment for delays resulting from unreasonable detention on to the salvage owners' P&I Club.

Salvors will be particularly anxious to ensure that, where such incidents arise, they will be adequately compensated under Article 14 and/or the SCOPIC clause, and so they may be encouraged to invoke SCOPIC if there is a risk of detention. This, of course, brings with it the risk that, if the clause is invoked erroneously (because the traditional Article 13 award exceeds the SCOPIC remuneration), the Article 13 award will be discounted by 25% of the difference.

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