Following the grounding and subsequent break-up of the Tasman Spirit in the approach to the port of Karachi, Tsavliris Russ (Worldwide Salvage) Ltd (the appellant) chartered the Sea Angel to assist in salvage operations to fulfil its obligations under an LOF 2000 salvage agreement entered into with the owners of the Tasman Spirit. The Sea Angel was owned by Edwinton Commercial Corp and was in the disponent ownership of Global Tradeways Ltd (the respondent).

The charter was for 'up to 20 days' at a daily rate of USD 13,000 and the due redelivery date was 15 September 2003. On 9 September 2003 the appellant gave a three-day definite notice of redelivery at Fujairah, which was three days steaming away. The appellant expected that the Sea Angel would leave Karachi that day. It eventuated that the Sea Angel was unable to leave Karachi until 26 December 2003 and was not redelivered until 1 January 2004, meaning that the charter period was exceeded by 108 days.

The Sea Angel was unable to depart because the local port authority, Karachi Port Trust (KPT) refused to issue a 'No Demand Certificate' (NDC), which would have certified that no outstanding port dues were required and which was a prerequisite to port clearance. On 9 September 2003, the appellant's Karachi general agent (MM Marine Services (Pvt) Ltd) applied for Sea Angel’s NDC and sought to identify the port dues chargeable to Sea Angel. On 17 September 2003 KPT said there was a demand for PKR 650 million against the Tasman Spirit which was roughly equivalent to USD 11 million. This reflected a guarantee for payment of pollution clean-up expenses or damages. After a series of meetings it was agreed that PKR 923,184.36 (or USD 15,916.97) was the Sea Angel's portion. However, on 19 September 2003 the appellant's agent reported to the appellant that 'the general impression here is that unless the total amount [of PKR 650 million] is paid … or guaranteed, no movement is likely to take place'. The appellant paid no hire for the Sea Angel beyond 18 September 2003 and claimed that the charter was frustrated on 19 September 2003.

At first instance, the trial Judge found that the charter had not been frustrated. The appellant appealed on the ground that there was no good reason why the Judge should not have recognised the frustrating effect of an indefinite delay which, by a critical stage in the negotiations for the vessel's release, promised to last some three months at a minimum. When a comparison was made between the contractually agreed length of the charter, which was 20 days, and the actual and prospective delay, which amounted to many times that period, principle and authority mandated a conclusion that the charter had been frustrated.

Held: Appeal dismissed.

This was a back-to-back charter. The head charter between the associated companies was at a daily rate of USD 5,000 and the sub-charter at a 'special rate' of USD 13,000 per day to reflect the difficulties and danger associated with the salvage context.

The appellant was contracted to supply salvage services on the Lloyd's Open Form (LOF) agreement. LOF agreements are rendered on the principle of 'no cure no pay'. Where there has been a cure, the salvage award is to be fixed with a view to encouraging salvage operations. This is reflected in art 13 of the Salvage Convention 1989 which has the force of law in the United Kingdom. Article 14 of the Salvage Convention 1989 is an additional provision to extend this encouragement to the problem of expenses caused to salvors where there is a threat to the environment. It provides the salvor with special compensation where a casualty poses a threat to the environment and the art 13 award is less than the expenses incurred in performing salvage services. It provides for a 'fair rate' to be paid for equipment and personnel actually and reasonably used in the salvage operation. However, in practice it has proved to be deficient, because as the House of Lords held in The Nagasaki Spirit [1997] UKHL 2 (CMI641), the 'fair rate' is confined to a reimbursement of expenditure and does not extend to a profit element.

This led to the development of the 'special compensation protection and indemnity clause' (SCOPIC). Parties are free to incorporate a SCOPIC clause into their LOF agreement. It is a matter of the salvor exercising its option by ticking the appropriate box. The SCOPIC philosophy is quite distinct from that of art 14 and supersedes it where it applies. If the SCOPIC remuneration is higher than the art 13 award, the salvor gets the former. If the art 13 award is higher than the SCOPIC remuneration, the art 13 award is discounted by 25% of the difference.

The appellant opted to include SCOPIC in its LOF agreement. Clause 9 concerns the situation at termination and provides both parties to the salvage agreement with the option, on certain terms, to terminate the effect of SCOPIC. It provides:

(i) The Contractor shall be entitled to terminate the services under this SCOPIC clause and the Main Agreement by written notice to the owners of the vessel with a copy to the SCR [the shipowner's casualty representative] (if any) and any special Representative appointed if the total cost of his services to date and the services to fulfil his obligations hereunder to the property (calculated by means of the tariff rate but before any bonus conferred by cl 5(iii) hereof) will exceed the sum of (a) The value of the property capable of being salved; and (b) All sums to which he will be entitled as SCOPIC remuneration.

(ii) The owners of the vessel may at any time terminate the obligation to pay SCOPIC remuneration after the SCOPIC clause has been invoked under sub-clause 2 hereof provided that the Contractor shall be entitled to at least 5 clear days' notice of such termination. In the event of such termination the assessment of SCOPIC remuneration shall take into account all monies due under the tariff rates set out in Appendix 'A' hereof including time for demobilisation to the extent that such time did reasonably exceed the 5 days' notice of termination.

(iii) The termination provisions contained in sub-cls 9(i) and 9(ii) above shall only apply if the Contractor is not restrained from demobilising his equipment by Government, Local or Port Authorities or any other officially recognized body having jurisdiction over the area where the services are being rendered.

On 10 September 2003, after the completion of the transhipment of the casualty’s cargo and difficulties with the redelivery of the Sea Angel were beginning to emerge, the owners of the Tasman Spirit’s P&I Club, the American Club (the Club) purported to terminate the obligation to pay SCOPIC remuneration, exercising its rights under cl 9(ii). The appellant submitted that cl 9(iii) only contemplated an intervention by the local authorities where either casualty or salvor was seeking to terminate an ongoing salvage adventure. Therefore it was entitled to payment by the owners and their Club under SCOPIC for the cost of the services rendered to the Sea Angel, plus a 25% markup. The appellant and the Club came to an agreement on 10 November 2003 which settled the whole question of salvage remuneration. The appellant agreed to waive its 25% uplift if the Club would take over the obligation to pay the outstanding expenses. Although the litigation is in the name of Tsavliris as defendant/appellant, the real party interest is the Club.

The charter was not frustrated. The unexpired duration of the charter is only the starting point. A single-factored approach is too blunt an instrument. Unlike requisition, detention by port authorities can be rectified. When the supervening event comes at the very end of the charter, with redelivery the only remaining obligation, the effect of the detention on the performance of the charter is purely a question of the financial consequences of the delay which will fall on one party or the other, depending on whether the charter binds or does not bind. The purpose for which the Sea Angel had been chartered had been performed. The contractual risk of delay caused by detention by government authorities was firmly on the charterers. The risk of detention by the littoral authorities arising out of a salvage situation was foreseeable. This risk is foreseeable by the salvage industry as a whole and was provided for by the provisions of SCOPIC. On the particular facts of this case, there could be no frustration until the strategy of negotiation with KPT had initially failed by (13 or 17 October 2003) some five weeks into the detention. The temporary breakdown of negotiations is a staging point in a continuous process. The appellant’s managing director regarded three months as a likely time for a solution and he did not consider that period as amounting to a frustrating delay.

The dictates of justice means that the question that must be asked, is whether it would be just to relieve the appellant of the consequences of its bargain in a situation where it has assumed the general risk of delay and in a context where the risk of unreasonable detention is foreseeable and has actually (in general) been foreseen as demonstrated by SCOPIC. The trial Judge’s conclusion that the charter had not been frustrated shows that the doctrine is working justly. The appellant has failed in its burden to show that the Judge was in error either in law, rationality, or failed to appreciate the facts.