Fulton Shipping Inc of Panama v Globalia Business Travel S.A.U. (The New Flamenco) [21.12.15]

Court of Appeal holds that benefit of proceeds of subsequent sale are to be taken into account in assessing damages for breach of time charterparty.

Background

This was an appeal from a High Court decision which itself was an appeal from a London arbitration award.

The vessel had been chartered from February 2004 to November 2009. The charterers redelivered early in October 2007 with the owners accepting the repudiation. At the time of redelivery, there was no available market for the balance two year period, so the owners decided to sell the vessel instead of fixing spot. The sale price was US$23,765,000. The owners then claimed damages for lost profits for the balance period in the sum of €7,558,375.

By the time the matter came to an arbitral hearing in May 2013, it was clear that, given the intervening market crash, the vessel would have been worth substantially less on the contractual redelivery date in 2009 than the sale price in 2007. The charterers argued that, applying the law of mitigation and avoided loss, this windfall, of close to US$17 million, should be taken into account in assessing quantum.

The arbitrator held that the act of selling the vessel was a step in mitigation and the owners had to give credit for this difference in the usual way.

On appeal to the High Court, Mr Justice Popplewell considered when a benefit obtained by an innocent party is relevant to the assessment of damages. The common thread of the principles he set out was causation: the breaching party’s act needs to have “caused” the benefit subsequently obtained by the innocent party. Popplewell J held in the owners’ favour, deciding that, by analogy to the reasoning in The Elena D’Amico [1979], the decision to sell was unrelated to the charterers’ breach. It was an independent event that did not have to be factored in when assessing damages.

Decision

The Court of Appeal held that the benefit the owners derived from the earlier sale did affect the recoverable loss, as the decision to sell was caused by the charterers’ breach.

Lord Justice Longmore stated as follows:

“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.”

In this case, the benefit the owners derived from the earlier sale did affect the recoverable loss as the decision to sell was caused by the charterers’ breach. If the vessel had not been redelivered, given she was on a profitable long-term charter, there would have been no reason for the owners to sell.

The decision in The Elena D’Amico turned on there being an available market which the innocent party opted to ignore for their own reasons, rendering it an independent decision. In this case, there was no market for replacement fixtures so the same reasoning could not apply.

Comment

This case is important in clarifying the position in relation to the assessment of damages in early redelivery cases where there is no available market. In addition, the principles set out by the Court of Appeal are of general application when considering issues of mitigation and avoided loss.

The decision also reinforces that the compensatory principle, as encapsulated by the House of Lords in The Golden Victory [2007], continues to underpin the approach to the assessment of damages for breach of contract under English law. Compensation for actual loss is the guiding principle.

Read other items in Shipping and Commodities Brief - February 2016