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Save now, pay later: Court endorses wait and see approach to potential costs savings

Insights / / London

Space Shipping Ltd (CV Stealth) v. ST Shipping & Transport Pte Ltd (CV Stealth) [2021] EWHC 2288 (Comm)

This case is an example of a party attempting the “if at first you don’t succeed…” approach to litigation, with the Owners filing numerous appeals and objections to a deduction for savings for drydocking following the prolonged detention of their vessel. An earlier appeal to the Commercial Court challenging such a deduction was unsuccessful. In this latest appeal, the Court reiterated its refusal to re-open issues of fact that have been put by the parties to arbitration. The Court also endorsed the "wait and see" approach to dealing with potential savings where it is too soon to assess them.

The background facts

In 2014, the Disponent Owners let the Vessel, CV Stealth, to the Charterers for a period of eight months. The Charterers ordered the Vessel to load cargo at the port of Puerto La Cruz in Venezuela. The Vessel arrived at the load port on 5 September 2014 and, on 19 September 2014, the Vessel was detained by order of the Venezuelan Court.

Despite several attempts to obtain her release, the Vessel was detained until 3 October 2017. She was redelivered to the Head Owners on 24 March 2018 without having been drydocked. On 30 August 2018, the Vessel was sold for scrap and, on 21 October 2018, she sailed for Pakistan where she was broken up. 

The arbitrations

The Vessel’s detention resulted in considerable losses for the Owners, who sought to recover these losses from the Charterers in arbitration proceedings.

In total, the arbitrator made seven Partial Final Awards. By the First Partial Final Award dated 23 September 2015, the arbitrator awarded the Owners sums in respect of hire, bunker conversion costs and damages in a total sum of over US$4.6 million plus interest and costs. The damages were calculated by reference to the average market hire rate.

In the Second Partial Final Award dated 2 August 2016, the arbitrator set aside a sum of US$1.4 million for dry docking expenses which were potentially saved by the Owners, taking a "wait and see" approach to how much the final figure would be. Despite objections from the Owners, this finding was maintained in the fourth Partial Final Award. Additionally, the Owners tried (and failed) following the fourth Final Partial Award to appeal this point to the Commercial Court.

A Final Award was made on 19 October 2020. The total sum awarded in favour of the Owners against the Charterers amounted to US$24,468,621.91. The arbitrator concluded that the US$1.4 million deduction in respect of dry docking should be maintained to prevent the Owners from being in a better off position than they would have been had they not been prevented from complying with their contractual obligations by the Charterers’ breach. The Owners appealed.

The Commercial Court decision

The Court considered whether a “possible saving” in drydocking costs or even a “saved” drydocking cost should have been deducted from the award.

In summary, the Owners argued that the arbitrator’s deduction for dry docking costs was wrong in law as:

  • The First Partial Final Award had already determined the Owners’ loss of profit claim without a deduction of the drydocking cost;
  • The Charterers had failed to prove that the Owners had made a saving;
  • Alternatively, if there was a “saving”, this saving lacked a sufficient causal nexus with the breach; and
  • There was an express right to indemnity against consequences of a breach but no express right to deduct or a provision for deduction of savings.

The Court dismissed the appeal and held that the arbitrator did not err in law. The Court thought it was clear that but for the detention, the drydocking would have taken place in 2015. In the Court’s view, the saving to the Owners by reason of the drydocking not having taken place was an “unassailable finding of fact” and no errors of law could be established. The Court added that when considering the consequences of a breach, it is appropriate and consistent with the notion of indemnity to bear in mind the consequences which have provided the claimant with a saving.

Finally, the Court affirmed that where the extent of such savings are unknown, the “wait and see” method is a sensible approach for the arbitrator to have taken.

Comment

The case is a useful reminder that the Court will not tolerate appeals from the arbitrators’ finding of facts disguised as errors of law.

The Court’s continued endorsement of the “wait and see” approach where a claimant’s potential savings are unknown is interesting as it involves a degree of speculation about future contingencies. It appears to open the door to parties “earmarking” potential savings that may be quantified later.

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Paul Crane

Paul Crane Partner

Sophie Forsyth

Sophie Forsyth Associate

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