July 24, 2017

The Supreme Court has reversed a Court of Appeal decision and found that the judge at first instance was right to hold that a ship owner claiming damages for a charterer’s repudiation of a time charter did not have to give credit for the capital value of having sold the vessel upon repudiation for a greater sum than it would have achieved had it sold the vessel at the contractual date for redelivery under the charter.

The benefit that the defendant charterer was seeking to have brought into account was the benefit of having avoided a loss of just under US$17 million by selling the vessel in October 2007 for US$23,765,000 by comparison with the value of the vessel in November 2009, which was only US$7 million. The judge had found that this was not a benefit caused by the breach. The Supreme Court agreed with him. The sale of the vessel was not itself a relevant act of mitigation because it was not capable of mitigating the true loss suffered by the claimant as a result of the charterer’s repudiation, i.e. the prospective loss of income over the remaining two years of the agreement.

Lord Clarke said that, as a matter of principle, damages issues arise from the default rules which the law devises to give effect to the principle of compensation, while recognising that there may be special facts that show that the default rules will not have that effect in particular cases. On the facts in this case the fall in value of the vessel was irrelevant because “the owners’ interest in the capital value of the vessel had nothing to do with the interest injured by the charterers’ repudiation of the charterparty”.

The difference, or loss avoided, of US$17 million was, in Lord Clarke’s opinion, not on the face of it caused by the repudiation of the charterparty. The relevant mitigation in this context was the acquisition of an income stream alternative to the income stream under the original charterparty. The sale of the vessel was not itself an act of mitigation because it was incapable of mitigating the loss of the income stream (Globalia Business Travel SAU v Fulton Shipping Inc [2017] UKSC 43 (28 June 2017) – to access the full judgment click here).