Windrush Intercontinental SA v UACC Bergshav Tankers AS (556/2015) [2016] ZASCA 199 (6 December 2016) Maya DP (Shongwe, Wallis, Dambuza JJA and Makgoka AJA concurring)

The SCA allowed the appeal from the high court judgment and held that contracts of employment are not special.  They are subject to the ordinary principles of frustration of contracts.  Courts dealing with contracts of employment are not entitled to disregard the basic principles of contract and treat employment law as excluding basic legal principles.  Even if the hostages’ contracts of employment remained in force until the return of the vessel and the remaining hostages, when the vessel sailed without them on 15 April 2011, any further obligation by Concord to repatriate them was rendered impossible by a supervening event that, to a reasonable person, was not foreseeable.

It could not have been contemplated that even after full ransom was paid the hostages would continue to be held captive by the pirates.

The doctrine of impossibility or frustration applies to contracts of employment where supervening events render the performance of the contract impossible or radically different from what had been undertaken when the contract was entered into. It is a matter of fact and degree whether a contract is frustrated.

SCA summary:

“Admiralty Jurisdiction Regulation Act 105 of 1983  –  action in rem – maritime lien – application to set aside deemed arrest in rem of vessel in terms of s 3(4)(a) of  the Act to enforce maritime lien for its crew members’ unpaid wages  – vessel hijacked by pirates for ransom but pirates releasing vessel and not all crew members despite payment of ransom – pirates’ conduct a supervening event rendering fulfilment of hostage crew members’ employment contracts impossible – hostage crew members’ employment and entitlement to wages ended by supervening impossibility or frustration of  performance of employment contracts – no claim for unpaid wages giving rise to a maritime lien enforceable by an action in rem.”

Excerpts without footnotes

[2]     Windrush was the Asphalt Venture’s bareboat charterer in terms of a bareboat charterparty it concluded with Bitumen in May 2008 for the period 7 May 2008 to 7 November 2015.  The bareboat charterparty was part of an adapted sale and leaseback arrangement between Concord Worldwide Inc (Concord), Bitumen and Windrush, under which Concord, which was then the vessel’s owners, sold the Asphalt Venture to Bitumen and Windrush bareboat chartered it from Bitumen.  The charter was on the Barecon 2001 form for seven and a half years, at the end of which Windrush was obliged to purchase the vessel.[1] Windrush concluded a sub-bareboat charterparty with Concord for the same period.[2]

Between April and August 2010 Concord, through its technical manager and crewing agent, OMCI Shipmanagement (Pvt) Ltd (OMCI), entered into employment contracts with 15 crew members, who were citizens of the Republic of India, in order to crew the Asphalt Venture.

[3]     On 23 September 2010, Somali pirates, demanding ransom money, hijacked the Asphalt Venture about 100 nautical miles east of Mombasa.  Concord duly informed the relevant insurers of the hijacking, engaged solicitors and retained security advisers to assist in negotiations with the pirates and appointed a negotiator.

Seven months later, on 15 April 2011, a ransom of USD 3.4 million was delivered to the pirates in exchange for the release of the vessel and her 15 crew members.  However, after the ransom was delivered, the pirates reneged on their agreement and refused to release all the crew members.

Only eight crew members were released with the vessel.  Seven (the hostages) were held captive, apparently to be used in negotiations for the release of 120 Somali pirates arrested by the Indian navy who awaited trial in India.   On 22 December 2011 the Indian government, in line with its policy, formally refused to negotiate with the pirates for their release.  It was only some years later, between August and December 2014, and after payment of a further ransom, that the pirates finally released the hostages.

[4]     On 17 June 2011, Windrush withdrew the Asphalt Venture from the sub-bareboat charterparty with Concord, thereby terminating the sub-bareboat charterparty.  This followed Concord’s failure to honour its obligations in terms of the sub-bareboat charterparty, due to the vessel being held hostage for about seven months.

Concord nonetheless continued to pay to the hostages’ families’ amounts equivalent to the hostages’ wages until the end of October 2011, six months after the payment of the ransom and the release of the eight crew members.

[5]     During the period in which all the crew members were held hostage, namely 28 September 2010 to 15 April 2011, Concord had continued to make payment to the crew in terms of the crew’s employment contracts as if they had remained in force.  After the eight crew members were released, Concord paid for their repatriation costs and they were discharged from the vessel.

Concord contended that it had paid the further amounts to the hostages families, although their contracts had terminated, ‘on a voluntary, ex gratia basis, in sympathy and on humanitarian grounds and without legal obligation’.

But it ceased effecting payments to the hostages’ families when it ran into financial difficulties and no longer had any substantial assets or income.

. . . . .

[14]   It is this judgment that is the subject of this appeal, with the court a quo’s leave.  The crisp issue before us was whether at the time of the Asphalt Venture’s arrest at Bergshav’s instance, there existed a maritime lien for crew’s wages entitling Bergshav to arrest the Asphalt Venture by way of an in rem arrest in terms of s 3(4)(a) of the Admiralty Act.

. . . . .

[28]   Based on this reasoning, Messrs Venkiteswaran and Mukherji opined that Indian law would regard the Asphalt Venture as having been ‘lost’ in the manner contemplated in s 141(1) thus entitling its crew to their wages until repatriated.

To counter this view, the appellants tendered an opinion of their own expert, former Chief Justice of India, Justice VN Khare.  The nub of his opinion was that although in the ordinary course clauses 5 and 19 of the collective bargaining agreement entitled seamen to payment of their wages until their repatriation, the hostages had no viable claim to wages in this case.  As he saw it, even if the hostages’ contracts of employment remained in force until the return of the vessel and the remaining hostages, when the vessel sailed without them on 15 April 2011, any further obligation by Concord to repatriate them was rendered impossible by a supervening event that, to a reasonable person, was not foreseeable.  In his view, it could not have been contemplated that even after full ransom was paid the hostages would continue to be held captive.

. . . . .

[31]   I have difficulty with the court a quo’s reasoning and findings.  It seems to me that its first misstep was in its evaluation of the expert evidence and in accepting the plausibility of the opinion of Bergshav’s experts, without analysing that evidence.  Where a court is dealing with the evidence of experts on foreign law it is entitled to consider it in the same way in which it considers the evidence of any other expert.

As this court has consistently said, foreign law is a question of fact and must be proved.[1] This is achieved by reference to the evidence of experts ie lawyers practising in the courts of the country whose law our courts want to ascertain.  But the court is not bound to accept the view of the experts and it may, for cogent reasons, accept the testimony of one as against that of another where they are at odds.  And, if in their evidence the experts have referred to passages in the Code of the country whose law is sought to be ascertained, the court is at liberty to look at those passages and consider their proper meaning.[2]

. . . . .

[33]   It is hard to discern why the court a quo rejected Justice Khare’s opinion.

The doctrine of impossibility or frustration is applicable to contracts of employment where supervening events rendered the performance of the contract impossible[1] or radically different from what had been undertaken when the contract was entered into.[2]

And whether a contract is frustrated in the particular circumstances of the case will be a matter of fact and degree.[3]

In English law a contract may be frustrated if supervening events prevent its further performance.[4] The principle forms part of the law of contract in India too in terms of s 56 of The Indian Contract Act 9 of 1872, which provides that

‘a contract to do an act, which after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful’.

[34]   There is nothing special about the contract of employment that precludes such a contract from being subject to the ordinary principles of frustration of contracts.  In Prest v Petrodel Resources [2013] 2 AC 415 the Supreme Court in the United Kingdom had to deal with the relationship between the law on the division of assets on divorce and the principle of company law that the company and its assets are distinct from the person and assets of the shareholders.   It held that the latter principle did not cease to apply in proceedings in the Family Court and Lord Sumption said:[1]

‘Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different.’

No more are courts dealing with contracts of employment entitled to disregard the basic principles of contract and treat employment law as excluding basic legal principles.  Neither expert on behalf of Bergshav sought to suggest that the doctrine of frustration of contracts did not apply to employment contracts or was inapplicable in India.

. . . . .

[38]   But the hallmark of a maritime lien in respect of wages is the benefit to the vessel of the service of the crew without which no maritime lien can arise.  As Clarke J observed in The Ever Success:[1]

‘The maritime lien is in respect of service to the ship.  In the absence of some very unusual contractual provision, that service will ordinarily be measured by reference to the seaman’s contract of service …  under which he was hired, whether by the shipowner, or (as in this case) the putative shipowner, provided of course that there is a sufficient connection between the service and the ship in the sense discussed below.  It follows that I accept [the] submission that it is never appropriate for the court to evaluate the services of each seaman on a quantum meruit basis.  The proper approach is to ask whether in the relevant period the claimant was rendering a service to the ship as a member of the crew.  If he was, he was entitled to a maritime lien in respect of his wages in respect of that period assessed in accordance with his contract.’

Thus, even if on some indeterminate basis the hostages were entitled to recover wages from one of Concord, Bitument or Windrush, the entitlement to those amounts would not have arisen from service on or to the Asphalt Venture and would not have attracted a maritime lien.  And the absence of a maritime lien was fatal to the entitlement of Bergshav to arrest the Asphalt Venture.

[39]    The court a quo’s finding that, if the hostages ‘were engaged in terms of a contract governed by and subject to Indian law, which promised them wages from the date of termination of their employment to date of repatriation without regard to the duration  of  the  delay  and  without  regard  to  the  fact  that the employer giving the undertaking might not be at fault with regard to any delay in repatriation’, this passes the traditional test of recompense for execution of duty, with the result that ‘the claim is supported by a maritime lien’, is in my view wrong.

It, as did Bergshav’s experts, overlooked the provisions of the collective bargaining agreement, which underpinned the employment contracts, especially Appendix – 1 of article 5, which made clear that the hostages’ contracts of employment had terminated by 15 April 2011 when the vessel was released.   In any event, the wages contemplated in these provisions were paid.  The judgment attached no weight to the fact that the reason for the hostages not being repatriated was the conduct of the pirates, which was beyond Concorde’s control.  It also ignored the fact that the hostages did not perform any service on or to the vessel and were unable to do so because of their detention by the pirates.

[40]   The mainstay of Bergshav’s case, article 19.2, expressly envisages repatriation for ‘normal reasons’, which could not be further from the unusual situation in which the hostages found themselves.  These provisions cannot by any stretch of the imagination bear relevance here.  The employment contracts simply make no provision for the type of wages claimed.  And, in my view, neither does the Indian law to which we were referred.  I respectfully disagree with the court a quo’s interpretation of s 141(1) of the Merchant Shipping Act that the Asphalt Venture was ‘lost’ to the pirates, for which no substantiation was given.  This construction goes against the plain wording of the provisions and common sense.  We are after all concerned with the situation after the Asphalt Venture had been restored to its owners and had resumed trading.  It cannot then have been ‘lost’ to the pirates.