The High Court has held, in Omak Maritime Ltd v Mamola Challenger Shipping Co (“The Mamola Challenger”) [2010] EWHC 2026 (Comm), that wasted expenditure cannot be recovered as damages for breach of contract where an award of damages on that basis would put the Claimant in a better position than he would have been in had the contract been performed.

A charterparty was terminated following Owners’ acceptance of Charterers’ repudiatory breach. Owners were subsequently able to trade the ship at a higher market rate, and so they suffered no net loss. Nevertheless, they claimed damages for the expenses which they had incurred in modifying the vessel before delivery, as required under the charterparty.

The dispute went to arbitration, and the tribunal held that Owners were entitled to claim these expenses even though they had suffered no net loss and indeed had more than recuperated the losses they were claiming. Charterers appealed this decision.

Charterers’ appeal was allowed. The judge acknowledged that Owners had the right to claim damages in the form of expenses incurred by them in reliance on the contract being performed (the principle of reliance loss). However the crucial question was whether the principle in Robinson v Harman (1984) 1 Ex 850 (the principle of expectation loss, i.e. that damages should put the injured party in the position he would have been in had the contract been performed) applied and, if so, how.

The challenge facing the judge was the lack of binding authority on whether damages for wasted expenditure (i.e. reliance based damages) could be awarded where to do so would put the claimant in a better position than he would have been in had the contract been performed. The judge answered in the negative to this question, as a result of his conclusion that reliance loss is essentially a species of expectation loss, and that there is only one fundamental principle underlying the two (that set out in Robinson v Harman).

The judge’s conclusion runs contrary to the opinions of Professor Treitel, in The Law of Contract and it is likely that this matter will be revisited by a higher court. In the meantime, Teare J’s judgment in this matter includes interesting analysis of many of the authorities on how to calculate expectation- and reliance-based damages.