Shipping: Benefit from Sale Reducing Claim for Repudiation

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How do benefits arising from actions to mitigate loss affect the calculation of damages for repudiation of a time charter? At top Bahamas law firm ParrisWhittaker our expert shipping lawyers have many years of experience with advising shipping and maritime clients on all aspects of claims for damages, including issues that might affect the calculation of the sum owed.An important Court of Appeal ruling in the UK demonstrates that in certain cases benefits arising from the sale of a vessel can reduce a claim from a charter party.

How do benefits arising from actions to mitigate loss affect the calculation of damages for repudiation of a time charter? At top Bahamas law firm ParrisWhittaker our expert shipping lawyers have many years of experience with advising shipping and maritime clients on all aspects of claims for damages, including issues that might affect the calculation of the sum owed.

An important Court of Appeal ruling in the UK demonstrates that in certain cases benefits arising from the sale of a vessel can reduce a claim from a charter party.

What was the background?

The cruise ship ‘New Flamenco’ was chartered in 2004. In 2007 the Owners and the Charterers met to agree to a 2-year extension to the charter, up to 2009. The Charterers disputed having reached this agreement and consequently returned the vessel to the owners in 2007.  In October 2007, the owners sold the vessel for US$765, 000.

At arbitration, it was found that an oral agreement had been reached and that as a consequence the Charterers were in breach. The sale of the vessel had been an act in mitigation of losses. However, if the vessel had been sold in 2009 (at the time it would have been returned at the end of the extended charter period) it would have sold for a value of US$7,000,000, representing a loss in value of US$16,765, 000. As a consequence, the Charterers were in credit to the sum of US$16,765, 000, which credit should be set against any damages awarded to the Owners for loss of profit.

On appeal, the Commercial Court held that the sum arising from the sale of the vessel should not be considered a sum in credit to the Charterers. The Owners’ decision to sell the vessel had not been caused by the breach of contract. The Owner could have made the decision to sell at any time: the benefit was not caused by the breach.

What did the Court of Appeal decide?

The Court allowed the appeal and held that the benefit (arising from the sale of the vessel) should be taken into account and set against any damages for loss of profit. If a claimant takes measures to mitigate against loss, and those measures arise out of the consequence of a breach and benefits the claimant, that benefit should be taken into account – unless the actions taken were entirely independent of any relationship between the claimant and the defendant (in this case, the Owner and the Charterer).

An important principle arising from this judgment is that it is not necessary for an arbitrator to articulate to both parties a causative connection between the breach of contract, and the benefit arising.

How can we help?

For expert, incisive legal advice on all matters relating to maritime and shipping law, including regarding claims for damages and how they may be affected by benefits arising from acts in mitigation of loss, call the experienced shipping lawyers at ParrisWhittaker. Whatever your circumstances and however complex your case, we are ready to act on your behalf.

¹Fulton Shipping Inc of Panama v Globalia Business Travel S.A.U. (the New Flamenco) [2015] EWCA Civ 1299