Globe Master Management Limited v Boulus-Gad Limited

The doctrine of frustration applies only where, without default, performance would involve a fundamental or radical change from the obligation originally undertaken. A deterioration in security, increased insurance costs or reduced commercial viability will not suffice without evidence that the contractual obligation has become radically different. The court assesses the contractual obligation and the changed circumstances; expert opinion cannot determine the legal question. Evidence that the parties sought renegotiated terms may support the conclusion that the contract remained capable of performance. A force majeure clause does not excuse payment obligations unless the relevant event prevents performance within the clause.

The claimant provided crew-management services for a cruise vessel operated under arrangements made by the defendant’s associated company. After the security situation in the Eastern Mediterranean deteriorated, bookings declined and the charterers stopped operations, seeking to end or renegotiate the arrangements.

The defendant guaranteed the associated company’s obligations. The claimant obtained summary judgment for sums due under the agreement. The defendant appealed, contending that the security deterioration was either a frustrating event or an event within clause 8.1’s force majeure provision. The central issue was whether the changed circumstances radically altered the contractual obligations or prevented payment within the meaning of the clause.

1. Appeal dismissed. The summary judgment was upheld, with costs assessed at £12,987.50. Permission to amend the notice of appeal to rely on frustration was granted.
2. Lord Justice Longmore, giving the first judgment with which Lord Justice Pill and Sir Martin Nourse agreed, applied the established frustration test: whether enforcing the contractual promise in the changed circumstances would involve a fundamental or radical change from the obligation originally undertaken. The question is whether the contract, properly construed, extends to the new situation.
3. The evidence did not satisfy that test. The security deterioration was not shown to be a surprising or radically different event. There was no evidence that shipping in the relevant area was wholly excluded, and the agreement did not require service for an exclusively Israeli clientele.
4. Expert evidence could not determine what a reasonable shipowner or charterer would do. There was no evidence from a reasonable shipowner, including the actual owner, that operation was impossible or would not continue. The charterers’ attempt to negotiate revised terms was important evidence that performance had not become radically different.
5. The force majeure argument also failed. The defendant could not show that the relevant event prevented performance of the obligation to pay money by reason of a cause beyond its reasonable control. The court therefore saw no real prospect of a successful defence and upheld summary judgment.

• Court of Appeal (Civil Division): Globe Master Management Limited v Boulus-Gad Limited, [2002] EWCA Civ 313. Appeal from summary judgment in the Queen’s Bench Division, Commercial Court, dismissed with costs.