Edwinton v. Tsavliris Russ (CofA)

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Edwinton Commercial Corporation and Global Tradeways Ltd v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The "Sea Angel")
English Court of Appeal: Rix, Wall and Hooper LJJ: [2007] EWCA Civ 547: 12 June 2007

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Nicholas Hamblen QC and Timothy Hill (instructed by Eversheds LLP) for the Appellant, Tsavliris
Elizabeth Blackburn QC and Mark Jones (instructed by Duval Vassiliades) for the Respondents, Edwinton and Global

A twenty day charterparty of a vessel for salvage services was not frustrated where, three days before it was due to end, the vessel was unreasonably detained for a further three months, as part of an attempt by the port authority to extract port dues in respect of the casualty which the vessel was assisting. The Court of Appeal found that the contractual risk of such delay was firmly on the charterer and the risk of detention by littoral authorities in a salvage situation where there was a concern about pollution was foreseeable.

The case note on the first instance decision of the Commercial Court is available by following this hyperlink 

DMC Category Rating: Confirmed

This case note is based on an Article in the June 2007 Edition of the ‘Shipping Offshore and Transport Bulletin’, published by the international firm of lawyers, DLA Piper. DLA Piper is an International Contributor to this website.

The owners of the Sea Angel ("the vessel") chartered it on 25 August 2003 for 20 days to Tsavliris to assist in the salvage of the oil tanker, Tasman Spirit, which had grounded at Karachi on 27 July and split in two on 13 August. On 9 September, the charterers gave notice of redelivery and expected that the vessel would leave Karachi that day.

The vessel was unable to leave, however, because the Karachi Port Authority refused to issue the requisite NDC ("No Demand Certificate") to certify that there were no outstanding port dues. As it turned out, the vessel did not leave Karachi until 26 December 2003 and the charter period was exceeded by 108 days, more than 5 times its intended length!

During the period of detention, the charterers and other interested parties tried initially to reach a commercial solution with the port authority, which was seeking from Tsavliris around US$11 million, which was in effect a payment required from the Tasman Spirit interests for pollution clean-up expenses or damages. This was of particular interest to the Pakistan authorities as that country was not a signatory to the International Convention on Civil Liability for Pollution Damage.

By 7 October, it had become apparent that a negotiated solution was unlikely to be reached and the charterers then proceeded with an action in the Karachi Court against the port authority, which led to a decision against the port authority on 5 December. The vessel should have been able to leave as a result of that decision but the authorities managed to wriggle for a little while longer; the vessel ultimately sailed on 26 December.

The shipowners claimed unpaid hire for the whole period and the charterers countered that the charter was frustrated by the detention and consequent inordinate delay. That is the point the Court of Appeal considered.

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. The purpose of the legal doctrine of frustration is to achieve a just and reasonable result.

In several charterparty cases, for example, several one-year time charters were found to be frustrated when the vessels were requisitioned in the middle of the charter period and, more importantly, in the middle of World War I. As the court observed in one such case, "it was a question of goodbye to them; there was no expectation of return." The requisition was the fault of neither party and the charter could not be performed in anything like the way that was contemplated when it started. In the circumstances, it would not be just to leave the vessel on-hire.

The Multi-Factorial Approach
In the current case, Rix LJ found that a multi-factorial approach is required to assess whether a contract has been frustrated. The factors are the terms of the contract itself, its matrix or context, the parties’ knowledge and expectations as at the time of the contract, the nature of the supervening event, and the parties’ calculations as to the possibilities of future performance in the new circumstances.

In this case, the court found that it was too simplistic to concentrate too much on the probable length of the delay compared with the unexpired portion of the charter period (only 3 days). Further, unlike in the World War I cases, the detention was not necessarily final but remained a matter for negotiation and the application of legal pressure. In addition, where the charter had been almost wholly performed at the time of the supervening event, the remaining obligation was the purely financial payment of hire and the event had not rendered impossible performance of the main activities governed by the charter.

The contractual risk of delay lay firmly on the charterers because, as usual under a time charter, the charterers are required to pay hire, unless the off-hire clause applied, until redelivery. Here it was agreed that the off-hire clause did not apply and, if it were not able to prove frustration (and the consequent discharge from further liability) the charterers would be liable for hire during the full period of detention.

The risk of detention by authorities responsible for nearby coastlines was foreseeable where there was a concern about pollution and, more generally, such risk was (as Mr Constantinides of Tsavliris had acknowledged in his evidence at first instance) "definitely" foreseeable by the salvage industry as a whole and is effectively provided for in the SCOPIC1 clause, which Tsavliris opted for in this case.

Finally, it was common ground in the appeal that there was no frustration until around 13-17 October 2003, when it was recognised that initial attempts at amicable resolution would not bear fruit and by which time the vessel had already been detained for some five weeks. Accordingly this was a "wait and see" situation and not one in which the contract was clearly frustrated when the supervening event arose. In this context, it was relevant that Tsavliris had originally contemplated that a negotiated solution could be reached by Christmas.

Taking all these factors together, Rix LJ found that the contract had not been frustrated and dismissed the charterer’s appeal.

[1] "SCOPIC" stands for "special compensation protection and indemnity clause". The philosophy of the clause is quite distinct from that of article 14 of the 1989 Salvage Convention and supersedes it where it applies. It is a safety net. At the end of the day, if the SCOPIC remuneration is greater than the article 13 award, then the salvor gets the former. If, however, the article 13 award is higher than the SCOPIC remuneration, then the article 13 award is discounted by 25% of the difference.  

Parties are free to incorporate a SCOPIC clause into their LOF agreement and in the present case, Tsavliris opted to do so. The SCOPIC clause is in fact a bundle of clauses of which the most important for the present case were clauses 5 and 9. Clause 9 deals with termination. Clause 5 governs tariff rates and in general provides for remuneration at tariff rates plus 25% or actual rates plus 10% (whichever is the greater). So, in the present case, the charter of the Sea Angel was agreed to be within the tariff rate and Tsavliris were therefore entitled to be compensated for this expense at a profit rate of 25%.

The court’s decision may seem strange when looking at the disparity between the length of the delay and the charter period of 20 days, let alone the remaining period of only three days. Nevertheless, as Rix LJ stressed, it was important to ensure as far as possible that there was no injustice. If the decision had gone the other way, the shipowners would not have had the use of their vessel and would not have been earning hire on it, through no fault of their own, for the 108 days for which it was detained.

That, in the court’s view, would have been (perhaps marginally) more unjust than making Tsavliris remain obliged to pay hire through the period of detention. As the judge at first instance said, "the risk of unreasonable detention of chartered in vessels ... can always be incorporated in the price for the services and passed on whether by way of an Article 13 award or under the SCOPIC clause."

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