Channel Island Ferries Ltd v Sealink U.K. Ltd (Corbiere, Earl Godwin, Earl Granville, Earl Harold, Earl William)

Prior to 30th September 1986 the plaintiffs and the defendants, to whom I shall refer as C.I.F. and Sealink, both operated ferry services between the United Kingdom and the Channel Islands, the ports involved, beihg Weymouth and Portsmouth. Both operations were loss making.

Early in 1986 the two companies entered into discussions with a view to combining the two operations and making them profitable. The combined operation was intended to be carried out by su Channel Islands' company to be jointly owned by C.I.F. and Sealink.

On 16th July the parties had progressed far enough to sign Heads of Agreement. Clause 7 of those Heads of Agreement provided as follows:

"BCIP will bareboat charter ships from SUKL and CIF at agreed arms length commercial rates. The rates agreed for 1987 are £l.lm. per vessel. SUKL will provide two vessels from its existing CI fleet and CIF will provide Corbier."

Clause 9 provided:

"It is agreed that all ships will be crewed in accordance with the crewing levels established by CIF in their current NUS Agreement. The Weymouth ship will have a minimum crew which will be supplemented by temporary additions in the operating season. These crewing levels together with a reduction by SUKX of their present fleet of ships from 3 to 2 implies significant redundancies in both offiers and ratings. The financial and organisational approach to this has been agreed and is as detailed in Addendum A".

The service was to begin on 1st October. The Heads of Agreement led, ultimately, to a Joint Venture Agreement which was signed on 30th September. Before referring to the terms of that agreement, it is necessary to state that the original intention of the parties was to sign the agreement and announce to the Unions involved what was to take place on 15th September, leaving some 15 days in which to negotiate with the Unions before the new service began on 1st October. It was, however, later decided that it would be a better plan to sign the agreement and make the announcement on 30th September. That obviously presented certain difficulties as one can see when one comes to look at the Joint Venture Agreement itself. It is unnecessary to refer to more than a few clauses of that agreement.

Clause 4(3) provided:

"No later than the Commencement Date" (which.was 1st October) "SUKL shall make the vessels, the Earl Granville and the Earl Harold available to the Company by bareboat charter and BAI and CIF shall make the vessel, the Corbiere, available to the Company by bareboat charter. Provided that if for any reason beyond the control of SUKL either the Earl Granville or the Earl Harold cannot be made so available then SUKL shall make available another vessel or vessels of such sizes and capacity as are suitable to meet the Company's requirements (such requirements to be a vessel or vessels, with similar capacity to the vessel or vessels replaced) at an overall cost to the Company for chartering and operation no greater than the cost envisaged in bareboat chartering the Earl Granville and/or the Earl Harold (respectively)".

Clause 19 of the Agreement provided as follows:

"(1)If either:—(a)any Shareholder commits or suffers an event of default (as defined in paragraph (a) of sub-clause (3) below); "—((b) I need not read)—"then the other Shareholder shall be entitled in its entire discretion to require the defaulting or notifying Shareholder (as the case may be) to sell all (but not part only) of the Shares held or beneficially owned by such defaulting or notifying Shareholder at the Prescribed Price by delivering written notice to the defaulting or notifying Shareholder (as the case may be) stating that the option hereby conferred is exercised at any time within 21 days of the date of the occurrence of such event of default or within 21 days of the date of such notice (as the case may be)."

Clause (3) provides as follows:

"For the purpose of this Clause the following expressions shall have the following meanings:-

(a) 'an event of default' means the occurrence of any of the following:-

(i) either of the Shareholders committing a material breach of its obligations under this Agreement and in particular a breach of sub-clause 11(1) hereof or, and in the case of a breach capable of remedy, failing to remedy the same within 21 days of being specifically required in writing so to do by the other Shareholder or being in default in complying with any of its obligations under any agreement to provide the Company with additional funds entered into as provided in sub-clause 9(4) and (5);…"

Clause 34, which is the last clause I need refer to is headed "Force Majeure" and provides as follows:

"A party shall not be liable in the event of non- fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire, and any accident or incident of any nature beyond the control of the relevant party".

As anticipated, the Union reaction on being informed of the Agreement was severe. The announcement was accompanied by Redundancy Notices in respect of all the crews and officers involved. What then occurred was that certain of the Sealink vessels were occupied by their crews, who refused to move them and within a very few days the strike had become nationwide and all of Sealink's vessels were so occupied.

As a result Sealink did not make available on the 1st October either of the two named vessels; nor did they make either of the two named vessels available at any time thereafter—either on bareboat charter, or on any other form of charter. Nor did they make available on 1st October any alternative vessels, either on bareboat charter or on any other form of charter.

Negotiations with the Unions proceeded, and it was made plain by both of the Unions that they were not prepared to countenance offshore agreements or bareboat charter. Within ten days Sealink had come to an agreement with both Unions involved—the N.U.S. for the crews and N.U.M.A.S.T. for the officers. The strike was then officially called off, although occupation of some of the vessels continued for some time thereafter.

The agreement with the officers' Union, N.U.M.A.S.T. contained a clause by way of amendment as follows:

"Manning and Industrial Agreement. The company, its parent company and subsidiaries confirm that on existing Sealink routes from or in the United Kingdom and for any of Sealink's managed, owned or bareboat chartered in freight, ror ferries, car ferries, passenger ferries, multi-purpose ferries, train ferries and freight line service ships operating from or in the United Kingdom the following conditions shall apply:

"Time charters for relief purposes are permitted subject to continuous employment of all Sealink officers under normal rostering arrangements.

"The company confirms that it is not its intention to use associate companies as a device to evade the above agreement".

Until that agreement was signed, it does not appear to me that there was anything which would have prevented Sealink, on finding that the two named vessels were occupied, searching for, finding and tendering on bareboat charter (having previously bareboat chartered in such vessels) two alternative vessels. From the date of that agreement it would plainly have been in breach of Sealink's obligations under the agreement with H.U.M.A.S.T. so to do. That agreement is not contended to have had any legal force.

The agreements having been made, on 22nd October C.I.F. gave notice pursuant to Clause 19 requiring the breach to be remedied within 21 days. That notice was handed over at a board meeting of the operating company on that day at which Sealink had contended that it was not obliged to produce alternatives on bareboat terms; but was entitled to tender alternatives on a time charter basis.

The notice expired, and on 11th or 13th November C.I.F. exercised their option. It was contended by Sealink that they were not entitled so to do, and on 14th November the Writ in this action was issued, in which C.I.F. sought to establish that they were entitled to exercise their option and that Sealink were in default.

The action having been commenced on 14th November, the trial took place at the beginning of December, occupied some eight days, and judgment was given on 18th December by Hirst J. who held, amongst other things, that the defendants were not protected by the Force Majeure clause, and accordingly that the option was validly exercised.

From that judgment the defendants now appeal. Before Hirst J. there were a number of issues which do not now arise. The sole issue for this Court being whether or not Sealink are protected by the Force Majeure clause. Pending appeal, there has been a holding...