In its recent judgment in the case of Fulton Shipping Inc of Panama v Globalia Business TravelSAU of Spain, the Court of Appeal adopted a more pragmatic approach in assessing how loss a benefit obtained by the claimant following a defendant’s breach should be taken into account in the assessment of damages payable by a defendant.

Overturning the High Court decision of Mr Justice Popplewell, the Court of Appeal held that owners of a vessel claiming damages for the early redelivery and repudiation of a time charterparty should give credit to the charterers for the whole of the difference between (i) the sale value achieved when the owners sold the vessel following the repudiatory breach and (ii) the sale value that would had been achieved when the vessel would have been redelivered to the owners two years later, had the charterparty not breached the contract.

The decision in Fulton provides useful guidance on the principles that fall to be applied in determining when a claimant must give credit against its claim for any benefits obtained as a result of the defendant’s breach. The general theme of the decision is that the courts need not follow the same rigorous approach to the application of the rules of causation that apply to the assessment of whether a loss flows from a breach of contract or tort. This seems to us exactly the right approach.

Background

Fulton Shipping (“Fulton”) had chartered a small cruise ship (“the Vessel”) to Globalia Business Travel (“Globalia”) until 28 October 2007. Before the charter was due to expire, Fulton and Globalia agreed verbally to extend the charterparty for a further two years to 2 November 2009. Globalia later disputed having made that agreement and redelivered the Vessel in October 2007. Upon redelivery Fulton sold the Vessel for $23,765,000.

After Fulton had sold the Vessel it commenced arbitration proceedings against Globalia seeking to recover the net loss of profit (7,558,375 Euros) it alleged it would have obtained during the additional two years of the charter. Globalia argued that Fulton was bound to give credit for the whole of the difference between the amount for which the Vessel had been sold in October 2007 ($23,765,000) and its value in November 2009 (found by the arbitrator to be $7,000,000).

The arbitrator found that the sale of the Vessel by Fulton in October 2007 was caused by Globalia’s repudiatory breach of the charterparty and held that Fulton had to give credit for the value obtained upon the sale of the Vessel in October 2007 against the lower value that would have been achieved had the Vessel been sold in November 2009. The amount of the difference between the two prices meant that Fulton’s claim for loss of profit was wiped out by the credit.

The High Court decision

Fulton sought permission to appeal the decision to the High Court on the basis that the arbitrator had erred on a point of law. Mr Justice Popplewell allowed Fulton’s appeal. In reaching his decision, Mr Justice Popplewell undertook a review of the authorities relating to mitigation and avoidance of loss.

He concluded that the search for a single general rule which determined when a wrongdoer obtained credit for a benefit received following his breach of contract or duty was “elusive” but that 11 key principles could be distilled from the authorities. Applying those principles, Mr Justice Popplewell found that Fulton was not required to give credit for any benefit in realising the capital value of the Vessel in October 2007 as Fulton’s decision to sell the Vessel had not legally been caused by the breach of Globalia in delivering the Vessel two years early.

The Court of Appeal’s decision

In a judgment handed down on 21 December 2015, the Court of Appeal allowed Globalia’s appeal against the decision of Mr Justice Popplewell and upheld the decision of the arbitrator.

Delivering the leading opinion, Lord Justice Longmore commented that it was “notoriously difficult to lay down principles of law in the realm of mitigation of loss particularly when it is said that a benefit received by a claimant is to be brought into account as avoiding the loss”and that, whilst Justice Popplewell was to be commended for having tried to do so, “hard and fast principles are difficult to annunciate.”

Lord Justice Longmore found the important principle which emerged from the authorities was that “if a claimant adopts by way of mitigation a measure which arises out of the consequences of the breach and is in the ordinary course of business and such measure benefits 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 the defendant.” He concluded that this more general principle should be sufficient to guide the decision of the fact-finder in any particular case.

Applying this central principle, the Court of Appeal determined that the benefit which accrued to Fulton on the sale of the Vessel in October 2007 arose out of the consequences of the Globalia’s breach in the ordinary course of business and by way of mitigation of Fulton’s loss. The benefit obtained by Fulton therefore fell to be taken into account when assessing damages.

Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain [2015] EWCA Civ 1299