Max Cross Partner
Assessing measure of damages in early redelivery case
Maestro Bulk Limited v. Cosco Bulk Carrier Co Ltd (Great Creation)  EWHC 3978 (Comm)
The most significant shipping decision in 2008 was undoubtedly the Achilleas, in which the House of Lords overturned a decision by London arbitrators to award damages representing the loss of a follow on fixture due to late redelivery of the vessel. The House of Lords confirmed the orthodox view that damages are limited to losses suffered during the overrun period only. Similar issues were explored in a recent judgment from the Commercial Court in the Great Creation, which concerned an early redelivery.
The background facts
The Great Creation was chartered for a period of 4-5 months on the NYPE form. Upon redelivery, the Charterers were required to give 20/15/10/7 days’ approximate notice and 5/3/2/1 days’ definite notice. On 13 April 2010, the Charterers gave a 20 day notice of redelivery but then actually redelivered the ship six days later on 19 April. As a result, the Charterers redelivered the vessel early in breach of contract, not in the sense of redelivery prior to the minimum charter period but rather redelivery before the proper redelivery notice period had expired.
The Owners managed to refix the vessel on the best terms possible given the short notice of redelivery, but for earnings below what they could have achieved if they had the benefit of the full redelivery notice period.
The Owners sought to claim damages for the losses they had incurred on the follow on fixture. They argued that the correct approach to their calculation of damages was to deduct the proper notice period of 20 days from the date of actual redelivery in order to arrive at the date on which the Charterers should have given notice of redelivery, i.e. 31 March. The Owners then sought to show that, if the Charterers had given notice of redelivery on 31 March, they would have been able to fix a more profitable follow on fixture. On that basis, their damages should be calculated as the difference between the earnings on that notional profitable voyage and the actual earnings.
By contrast, the Charterers argued they were only liable to pay damages according to the usual test in cases of early redelivery, i.e. hire for the redelivery notice period running from 13 April, less any sums earned by the Owners in mitigation during that period.
The arbitration award
The arbitrators agreed with the Owners’ claim on quantum. As happened in the Achilleas, the Tribunal awarded damages based on the loss of a more profitable potential follow on fixture. The Charterers appealed that decision to the Commercial Court.
The Commercial Court decision
When assessing damages under English law, a court or tribunal compares what actually happened to what should have happened if the defaulting party had properly performed its obligations (termed by the Judge in the Great Creation as the “non breach situation”).
The key question for the Judge was the correct approach to assessing that non breach situation.
The Judge disagreed with the Owners’ method for calculating damages because their arguments relied upon an assumption that the Charterers should have given a non-contractual notice of redelivery on 31 March. The Judge concluded that any notice of redelivery on 31 March would have been uncontractual because it would not have been honest or based on reasonable grounds. It was contrary to principle, the Judge thought, to assume a non breach situation which itself involved a different breach of contract.
The Judge assessed damages based on a non breach situation where the Charterers redelivered after the correct period had expired upon giving 20 days’ notice of redelivery on 13 April. As a result, the Charterers were required to pay hire in full during that period, less the actual earnings in mitigation which, on the facts of the case, were nil as the vessel had to reposition for the next voyage in ballast.
Whilst the details of the assessment of damages in the Achilleas and the Great Creation are different, the result in both cases involved a confirmation that, in situations involving early redelivery or late redelivery, losses are payable for the actual underlap or overlap period in the orthodox way, as opposed to damages for the loss of a follow on fixture.
If you have any query in relation to this article, please contact Catherine Earnshaw.
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