Louis Dreyfus Commodities Suisse SA v. MT Maritime Management BV (MTM Hong Kong)  EWHC 2505 (Comm)
The fundamental principle governing the assessment of damages under English law is the compensatory principle, i.e. that damages should compensate the victim of the breach for the loss of their contractual bargain. In applying the compensatory principle in this case, the English Court departed from the normally used measure of damages where the charterers wrongfully terminate a voyage charter. In doing so, it significantly increased the owners’ recovery.
The background facts
On 6 January 2011, Owners and Charterers entered into a voyage charter for the carriage of vegoil from two safe ports/berths within a range of loadports in South America, to one safe berth at 1-4 safe ports Gibraltar-Rotterdam range.
The ship’s previous employment had taken her to an up river port on the River Congo where she had suffered a grounding. This led to a delay, which meant that the ship only commenced her ballast voyage on 19 January 2011.
After an exchange of messages between the Owners and Charterers, the charterparty was terminated on 21 January 2011.
The ship then continued towards South America as the Owners thought this was the best place to find substitute fixtures. The Owners were found to have acted reasonably in doing so.
The ship arrived in Punta del Este, Uruguay on 2 February 2011. However, she was only fixed on 24 February 2011. This delay was unexpected.
The substitute fixture was for a voyage from South America to Rotterdam, and ended on 12 April 2011.
If the voyage charter had been performed, it would have been completed on around 17 March 2011. The ship would then have carried a cargo of urea ammonium nitrate from the Baltic to the USA, followed by a chemical cargo from the USA to Europe. The ship would then have been in Europe around 12 April 2011, around the time she did in fact end her substitute fixture.
The North Atlantic chemical trade between the USA and Europe commanded higher freight rates than the vegoil trade from South America to Europe.
The usual measure of damages
In cases where a charterer has walked away from a voyage charter, the usual measure of damages is:
- the amount of freight that the ship would have earned if the voyage had been performed, less the expenses which would have been incurred in performing the voyage (i.e. the net profit of the voyage);
- what profit the ship actually earned (if anything) during the period which would have been occupied in performing the voyage.
The Owners’ claim
However, in this case, the Owners claimed as their losses the difference between:
- the net profit that the ship would have earned if the intended voyage and the next two voyages had been performed
- what the ship actually earned during the period that would have been occupied in performing the voyage and the next two voyages (which, in this case, was the same length as the substitute voyage).
Calculating their losses in this way significantly increased the Owners’ claim, from US$478,386.80, to US$1,212,316.50.
The London Tribunal awarded the Owners the higher amount. The Charterers appealed to the Court on the ground that the Tribunal had made an error of law.
The Commercial Court decision
The Court upheld the Tribunal’s decision and dismissed the appeal.
In doing so, and after a thorough review of the case law, it found that the normal measure of damages in these kinds of claims was the net profit of the voyage less what profit the ship actually earned during the period that would have been occupied in performing the voyage.
However, it ruled that this method may be departed from if the result of applying it would be to breach the compensatory principle. The compensatory principle is paramount.
This was a case where the normal measure should be departed from because:
- the Owners had acted reasonably in sending the ship to South America – the lack of employment at South America was unexpected;
- no suggestion was made by the Charterers that the losses being claimed by the Owners were too remote (i.e. beyond the reasonable contemplation of the parties when they entered into the charterparty); and
- it was possible to predict the ship’s future employment if the fixture had been performed with some certainty. That employment would have taken the ship back to the same location at the same time as the completion of the substitute fixture. This meant that damages could be calculated with a degree of confidence that would otherwise not be possible.
The Court found that the Tribunal did not err in law by awarding the Owners damages for losses suffered beyond the period when the cancelled voyage would have been completed. This was a clear break from the normal method, and one that substantially increased the Owners’ recovery.
Although the Court departed from the normal method, it made clear that it did so only because of the particular circumstances of this case. It will be interesting to see over the next few months/years the extent to which other owners will be able to make good similar claims. The prospect is certainly there for them to try.