Omak Maritime Ltd v Mamola Challenger Shipping Co  EWHC 2026 (Comm)
This important case was an appeal from an arbitration tribunal and concerned the true basis in law of the principle which permits a contracting party to claim, as damages for breach of contract, expenditure which has been wasted as a result of that breach.
The dispute concerned a charterparty, which was terminated as a result of the owners’ acceptance of the charterers’ repudiatory breach. Unusually, as a result of the termination, the owners were able to trade the vessel at a higher market rate. They nevertheless claimed damages on the “reliance” basis for their expenses incurred in preparing to perform the charterparty. The charterers argued that the wasted expenditure was more than offset by the increased amount for which the owner was able to charter out the vessel.
Teare J held that the fundamental principle (from Robinson v Harman [1843-60] All ER 383) that the claimant must not be put in a better position than it would have been in had the contract been performed applied equally to claims on the “reliance” basis as it does to those on the “expectation” basis. And further that the former was merely a species of the latter. It followed that the owners were not entitled to damages for the wasted expenditure. Such expenditure should only be recoverable where the likely gross profi t (had the contract been performed) would at least cover that expenditure. Further, on the facts, the owners had made larger profi ts still by reason of the higher market rate, which benefi ts obtained from mitigation should be taken into account – to recover any more would put have put them in a better position.
This is a useful judgment which clarifi es the application of the compensatory principle to claims on the “reliance” basis, and determines that that basis is merely a species of expectation loss. And there appears to have been no prior authority which concerned the position where, as a result of a breach and action taken to mitigate loss, the claimant has suffered no net loss. Teare J traversed a wide range of English, US, Commonwealth and academic authorities to reach his conclusions. Given that, and the absence of prior authority, it seems quite possible that this case will proceed to the Court of Appeal.