Globe M. v. Boulos Gad

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Globe Master Management Ltd. v. Boulos Gad Ltd. (2002)

English Court of Appeal: Pill and Longmore LJJ, Sir Martin Nourse: March 2002
Richard Lord, instructed by Clyde & Co, for Globe Master
Hugo Page, instructed by Shaw & Croft, for Boulos Gad

In the context of an agreement to provide crew for a cruise vessel scheduled to trade in the area of the Eastern Mediterranean and the Red Sea, the fact that the Al-Asqa Intifada, which commenced in September 2000, had increased the risk to the security of – particularly – the Israeli passengers on the ship, did not amount to a frustrating event, in the sense that performance of the contract in the changed circumstances would involve a fundamental or radical change in the obligation originally undertaken.

DMC Category Rating: Confirmed

Boulos Gad, the defendants in the case, appealed against a summary judgment given in favour of Globe Master as claimants. The parties had entered into an agreement under which Boulos Gad guaranteed the obligations of an associated company – Boulos Gad Tourism & Hotels Ltd. (‘BGTH’) - under a crew management agreement. Under this agreement, Globe Master undertook to provide catering and leisure facilities staff for the cruise ship ‘Serenade’, which BGTH had chartered for a period of one year from March 2000, for use between the ports of Cyprus, Israel, Egypt and the Red Sea. The prime commercial objective of the charter was to provide facilities for gambling and duty free purchase to Israelis outside Israeli territorial waters.

With the onset of the Al-Asqa Intifada in September 2000 and the inherent increased risk of hostilities, passengers began to cancel their bookings, to the point where, on 27 October 2000, BGTH terminated the crew management agreement with effect from 31 October 2000 on the grounds that the agreement relating to the hire of the "Serenade" was frustrated by the warlike hostilities in the area.

Globe Master accordingly brought proceedings against Boulos Gad under the agreement, claiming – in accordance with clause 9.3. of the agreement – the expenses of repatriating the crew members and liquidated damages of twice the monthly lump sum payable under the agreement. Boulos Gad's defence was that the hostility and dangerous security situation in the area constituted a frustrating event in the sense that no reasonable cruise operator would have continued to operate his vessel in the area in the prevailing conditions. In support of that argument, Boulos Gad relied on academic experts in security and hostilities whose evidence was that the threat of terrorism made the operation of ships in the area dangerous and that no government or private agency would have provided protection at any economic price.

At first instance, the judge had found that that Boulos Gad’s defences had no real prospect of success and had, in consequence, awarded summary judgment in favour of Globe Master.

The judgment of the court was given by Lord Justice Longmore, who held
1. The test that Boulos Gad sought to apply to establish that the crew management agreement had been frustrated, namely that ‘no reasonable and prudent shipping or cruise operation would have continued sailing under the prevailing warlike conditions’, was not the test to be applied. The test was whether, if the obligations under the agreement were to be enforced, it would have amounted to a radically different performance than what was agreed – Davis Contractors Ltd. v. Fareham Urban District Council [1956] AC 696.
2. In this case the evidence relied on by Boulos Gad did not satisfy that test. "The deterioration in the security situation within the Eastern Mediterranean and the area was not a surprising, let alone a radically different, event." Although War Risk underwriters had required 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…. are largely predicated on assertions about the uneconomic cost of providing extra security."
3. It was not for an academic expert to decide what a reasonable ship owner or charterer would have done and there was no evidence that that such an owner of charterer would not have operated a vessel in the prevailing conditions.
(4) Accordingly, the defence put forward by Boulos Gad had no real prospect of success and the appeal would be dismissed accordingly.

For related proceedings, see Boulos Gad Tourism & Hotels Ltd v Uniground Shipping Co Ltd.  


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