Globalia Business Travel S.A.U. (formerly TravelPlan S.A.U.) of Spain v Fulton Shipping Inc of Panama - (28 Jun 2017)

In absence of an available market, measure of loss is difference between contract rate and what was or ought reasonably to have been earned from employment of vessel under shorter charterparties

Contract

Present appeal concerns assessment of damages arising out of repudiation of a charterparty by charterers of a cruise ship called New Flamenco (“vessel”). There was a significant difference between value of vessel in October 2007, when owners sold her, and in November 2009, when vessel would have been re-delivered to owners had the charterers not been in breach of charterparty. Owners advanced their claim for damages calculated by reference to net loss of profits which they alleged that they would have earned during additional two-year extension. Arbitrator declared that, charterers were entitled to a credit for this difference in value, amounting to €11,251,677 (being equivalent of US$16,765,000), which could be discounted from any damages payable by charterer to owners from loss of profit claim. Credit was more than owner’s loss of profit claim and would result in owners recovering no damages. High Court Judge held that, on facts found by arbitrator, application of principles of law which he had identified did not require owners to give credit for any benefit in realising capital value of vessel in October 2007, by reference to its capital value in November 2009, “because it was not a benefit which was legally caused by breach.” Charterers appealed to Court of Appeal, which allowed the appeal.

Most damages issues arise from default rules which law devises to give effect to principle of compensation, while recognising that, there may be special facts which show that, default rules will not have that effect in particular cases. On facts here, fall in value of vessel was irrelevant because owners’ interest in capital value of vessel had nothing to do with interest injured by charterers’ repudiation of charterparty. This was not because benefit must be of same kind as loss caused by wrongdoer. Essential question is whether there is a sufficiently close link between two and not whether they are similar in nature. Relevant link is causation. Benefit to be brought into account must have been caused either by breach of charterparty or by a successful act of mitigation.

On facts found by arbitrator, benefit that, charterers are seeking to have brought into account is benefit of having avoided a loss of just under about US$17m by selling vessel in October 2007 for US$23,765,000 by comparison with value of vessel in November 2009, namely (as arbitrator found) US$7m. That difference or loss was, not on face of it caused by repudiation of charterparty. Repudiation resulted in a prospective loss of income for a period of about two years. Yet, there was nothing about premature termination of charterparty which made it necessary to sell vessel, either at all or at any particular time. Indeed, it could have been sold during term of charterparty. If owners decide to sell vessel, whether before or after termination of charterparty, they are making a commercial decision at their own risk about disposal of an interest in vessel, which was no part of subject matter of charterparty and had nothing to do with charterers.

Absence of a relevant causal link is reason why they could not have claimed difference in market value of vessel, if market value would have risen between time of sale in 2007 and time, when charterparty would have terminated in November 2009. Owners cannot be required to bring into account benefit gained by fall in value. Analysis is same even if owners’ commercial reason for selling is that, there is no work for vessel. At most, that means that, premature termination is occasion for selling vessel. It is not legal cause of it. There is equally no reason to assume that, relevant comparator is a sale in November 2009. A sale would not have followed from lawful redelivery at end of charterparty term, any more than it followed from the premature termination in 2007. Causal link fails at both ends of transaction.

Sale of ship was not on face of it an act of successful mitigation. If there had been an available charter market, loss would have been the difference between actual charterparty rate and assumed substitute contract rate. Sale of vessel would have been irrelevant. In absence of an available market, measure of loss is difference between contract rate and what was or ought reasonably to have been earned from employment of vessel under shorter charterparties, as for example on spot market. Relevant mitigation in that context is acquisition of an income stream alternative to income stream under original charterparty. Sale of vessel was not itself an act of mitigation because it was incapable of mitigating loss of income stream.

Popplewell J was therefore correct to hold that, arbitrator erred in principle. His order, setting aside the part of the arbitral award that declared that the charterers were entitled to a credit of €11,251,677 in respect of the benefit that accrued to the owners when they sold the vessel in October 2007 as opposed to November 2009, is therefore restored.

Tags : AWARD DAMAGES ASSESSMENT