Measure of damages for early redelivery under a time charterparty
In an important case on measure of damages and mitigation of loss the Court of Appeal has considered whether, following early wrongful termination…
Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) (The "New Flamenco") Court of Appeal  EWCA Civ 1299
In an important case on measure of damages and mitigation of loss the Court of Appeal has considered whether, following early wrongful termination of a time charter, the benefits to the owner arising from an immediate sale of the vessel should be taken into account when calculating the damages payable by the charterers to the owners.
The "New Flamenco", a small cruise ship, was time-chartered for the period February 2004 until November 2009. In breach of charter the charterers redelivered the vessel two years early in October 2007. At that time there was no available chartering market and the owners sold the vessel for US$23,765,000. If the vessel had been sold in November 2009 at the end of the charter he valued would, due to the global financial crisis, have only been US$7,000,000.
The owners commenced London arbitration against the charterers claiming damages of €7,558,375 for the net loss of profit that would have been earned during the remaining two years of the charter. The charterers argued the owners had to bring into account and give credit for the difference of US$16,765,000 between the amount obtained on the vessel's sale in November 2007 and her value in November 2009. This sum was substantially greater than the owner's loss of profit claim and would have resulted in the owners recovering no damages for the charterer's breach of contract. The arbitrator found that the sale of the vessel was caused by the charterer's breach and that the owners had acted in reasonable mitigation of damages by selling the vessel. He held that there was no reason why the sum realised on the sale should not be brought into account in assessing the losses, thereby extinguishing the owner's claim for damages.
The owners obtained leave to appeal to the Commercial Court. Mr Justice Popplewell (EWHC 1547 (Comm)) held that the owner's decision to sell the vessel was not caused by the charterer's breach but was an independent commercial transaction that the owners could enter into at any time irrespective of the breach. The owners therefore did not have to give credit in their damages' claim for the higher sum achieved on the vessel's sale. With the judge's leave, the charterers appealed to the Court of Appeal.
Court of Appeal decision
Describing this as "a difficult area of law", the Court of Appeal overturned the decision below and allowed the charterer's appeal.
In giving judgment Lord Justice Longmore indicated that the leading authority of British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd  A.C. 673 confirmed the important principle that where a measure taken by a claimant, in mitigation of loss and arising out of the consequences of the defendant's breach in the ordinary course of business, results in a benefit to the claimant, that benefit is normally to be brought into account in assessing the claimant's loss unless the measure is wholly independent of the relationship of the claimant and defendant.
In this case, an important factor was the absence, in November 2007, of an available market to charter the vessel. In such circumstances the owner had immediately chosen to mitigate his losses by selling the vessel and the action could not be said to be independent of the contractual relationship between the parties.
The Court of Appeal accordingly allowed the appeal.
The decision provides important clarification on the law relating to the measure of damages and mitigation of loss in cases of repudiatory breach and early termination of contracts. The facts of the case were somewhat unusual in that there was no available chartering market for the vessel at the time of the charterer's repudiation of the contract. However, the decision confirms that compensation of a claimant's actual loss remains the underlying principle in this area and that a benefit obtained by a claimant arising out of a breach of contract will normally have to be taken into account in assessing damages. For further information about Weightmans or to discuss any of the issues in this update, please contact Terry Donaghy, Consultant, on 0151 242 6528 or email firstname.lastname@example.org.