J. LAURITZEN A.S. v. WIJSMULLER B.V. (THE “SUPER SERVANT TWO”)

A contractual power to cancel for force majeure and similar events will not ordinarily permit a party to rely on an event which its own failure to exercise reasonable care caused. The clause must be construed as a whole, with regard to its commercial consequences and the clarity of any language allocating that risk.

Frustration requires an external event which, without the relying party’s fault, makes performance radically different. It operates automatically. Where a contract permits performance by either of two vessels, the loss of one does not frustrate it while the other remains available. A commercial election to use the remaining vessel elsewhere cannot create frustration. Fault for this purpose turns on practical responsibility and control, rather than breach of an independently actionable duty.

The respondents owned a drilling rig which the appellants contracted to carry from Japan to the Rotterdam area. The contract permitted the appellants to use either of two named vessels. One vessel sank before performance, while the other was committed to different contracts. The appellants declined to perform by either vessel, and the rig was subsequently transported by another method.

Hobhouse J determined four preliminary issues. His ruling that clause 17 permitted cancellation where the vessel was lost without the appellants’ negligence was not appealed. The appellants challenged his conclusions that negligent loss prevented cancellation and that the contract was not frustrated, whether or not the sinking was negligent. The central questions were whether clause 17 extended to an event caused by the appellants’ negligence and whether the loss of one vessel, followed by an election to deploy the other elsewhere, frustrated the contract.

1. The appeal was dismissed unanimously. Bingham and Dillon LJJ agreed that clause 17 did not authorise cancellation where the relevant event would have been prevented by reasonable care on the part of the appellants, their servants or agents.

2. Per Bingham LJ, the expression “perils or dangers and accidents of the sea” was capable, as a matter of definition, of including a casualty caused by negligence. It nevertheless formed part of a contract which had to be construed as a whole. Clause 17 conferred a broad and potentially draconian unilateral power to nullify the bargain without cost to the appellants. Its force majeure language and general tenor pointed towards events beyond their direct or indirect control. Unlike clause 16, it contained neither “howsoever caused” language nor any clear provision extending the power to negligently caused events.

3. Dillon LJ reached the same construction by applying the established qualification upon a carrier’s reliance on a peril-of-the-sea exception. The cancellation power was subject to an equivalent qualification throughout the period covered by clause 17. Clause 15 did not apply before carriage began, and no term requiring preservation of either vessel before loading could be implied.

4. The contract was not frustrated by the loss of one vessel. Performance remained possible using the contractually permitted alternative vessel. The loss therefore did not transform the obligation into something radically different from that undertaken.

5. Frustration operates automatically and cannot depend upon a later commercial decision by the party invoking it. The appellants’ election to allocate the surviving vessel to other contracts intervened between the casualty and non-performance. The reasonableness of that allocation could not convert their election into a frustrating event. Principles used when construing consensual force majeure clauses did not alter this rule.

6. A frustrating event must be external and must occur without fault attributable to the party relying upon it. The inquiry is a pragmatic one: whether that party had the means and opportunity to prevent the event but caused or permitted it to occur. It is not confined to deliberate conduct or breach of an independently actionable duty. Significant negligence in causing the vessel’s loss would therefore preclude reliance on frustration.

1. Court of Appeal (Civil Division): Dismissed the appellants’ appeal against the three contested answers to the preliminary issues.
2. High Court, Queen’s Bench Division, Commercial Court: Hobhouse J held that clause 17 permitted cancellation if the vessel was lost without the appellants’ negligence, but not if its loss was negligent. He also held that the contract was not frustrated on either hypothesis.