The Eugenia 21 Nov 1963 [1964] 2 QB 226, CA

A time charterparty required a voyage via the Suez Canal, which then closed during the 1956 crisis. The charterers argued the contract was frustrated. The Court of Appeal held it was not; the longer, more expensive voyage around the Cape was not radically different.

Facts

The owners of the vessel, The Eugenia, (Ocean Tramp Tankers Corporation) chartered it to the charterers (V/O Sovfracht) for a time charter trip from Genoa to India via the Black Sea. The charterparty contained a war clause which stipulated that the vessel should not be brought into any zone which was dangerous as a result of war-like operations without the owners’ permission. In October 1956, during the Suez Crisis, the charterers ordered the vessel to enter the Suez Canal, which was a dangerous zone. The vessel entered the Canal and was subsequently trapped when the Canal was blocked by the Egyptian government. The charterers then claimed the charterparty was frustrated. The owners argued the charterers were in breach of the war clause and that the contract was not frustrated. The vessel eventually undertook the much longer voyage around the Cape of Good Hope.

Issues

The Court of Appeal had to determine two primary legal issues:

1. Was the charterparty frustrated by the closure of the Suez Canal, which made the contemplated voyage impossible and required a much longer and more expensive one around the Cape of Good Hope?
2. If the event could be considered frustrating, could the charterers rely on the doctrine of frustration, given that they had arguably induced the event by breaching the war clause?

Judgment

The Court of Appeal, overturning the decision of Megaw J., held that the charterparty was not frustrated, and that the charterers were in breach of contract. Lord Denning M.R. delivered the leading judgment.

The Test for Frustration

Lord Denning reviewed the existing tests for frustration, rejecting the ‘implied term’ theory as artificial. He instead endorsed the modern test based on whether the performance of the contract had become radically different from what was originally undertaken.

The test seems to be this: a contract is not frustrated merely because the journey is longer, more expensive or more onerous than was expected unless it becomes a thing radically different from that which was undertaken by the contract.

Application to the Voyage

Applying this test, the court found that the journey around the Cape of Good Hope was not a ‘radically different’ venture from the one contemplated via the Suez Canal. The voyage via the Cape would take 138 days, compared to 108 days via Suez. Although this made the voyage more expensive and longer, it did not change the fundamental nature of the undertaking, especially as the cargo of iron and steel would not be affected by the delay. The commercial purpose of the contract was not destroyed.

Self-Induced Frustration

Crucially, the court also found that even if the closure of the Canal had been a frustrating event, the charterers could not rely on it. They had induced the situation by ordering the vessel into the Canal, which was a known dangerous zone, in breach of the war clause. A party cannot rely on frustration that it has caused by its own breach of contract.

It was the charterers’ own fault that the ship was trapped in the Canal. They were in breach of the war clause in entering it. They cannot rely on a frustration which was induced by their own breach of contract.

Implications

This case is a landmark decision in the law of contract, particularly regarding the doctrine of frustration. It cemented the ‘radical change in obligation’ test as the primary standard for determining frustration, moving the law away from the less practical ‘implied term’ theory. The judgment provides a clear authority that mere increased expense, delay, or onerousness of performance is insufficient to frustrate a contract. Furthermore, it powerfully reinforces the well-established principle that frustration cannot be ‘self-induced’; a party in breach cannot use the consequences of that breach to escape its contractual obligations.

Verdict: Appeal allowed.

Source: The Eugenia 21 Nov 1963 [1964] 2 QB 226, CA