A recent shipping case highlighted the need for loss to be established before compensatory damages can be awarded under English law.  In Omak Maritime Limited v Mamola Challenger Shipping Company, charterers argued that a tribunal had erred in law by awarding damages to shipowners when no loss had been suffered, contrary to the fundamental principle that damages should be compensatory and not penal.

The vessel was chartered for five years and sub-chartered in order to comply with domestic Nigerian rules and to obtain essential governmental authorisations.  The authorisations were refused and the charter agreement terminated. The owners had modified the vessel and incurred costs in doing so.  Over the five year period in which the charter would have run, the owners concluded short term contracts, and, as a result earned more from these than it would have earned had the charter agreement run its course and covered the costs wasted in modifying the vessel.  Nevertheless the owners sought to recover the wasted expenditure and were awarded $86,534.

The charterers appealed on the basis that no loss had been suffered by reason of their breach.  The financial award was set aside and the judge took the view that the court must compare the innocent party’s position with the position it would have been in had the contract been performed.  The court concluded that the owners could not recover damages because this would place them in a better position than had the contract been performed.  Given that the income earned on the short term contracts exceeded the wasted expenditure, the owners were not entitled to damages.

This decision is an important one as it provides clarity on the issue of when losses can be recovered.