Golden Strait Corporation v Nippon Yusen Kubishika Kaisha, R (on the application of Hurst) v Northern district of London coroner
House of Lords
Lord Bingham, Lord Scott, Lord Walker, Lord Carswell and Lord Brown
28 March 2007
In calculating damages for repudiation of a charterparty, the House of Lords has held that an arbitrator was obliged to take into account the fact that that the shipowners would only have had the benefit of the charter for a shorter term, because in the event the charterers would have been able to cancel the charter in reliance on the war clause, due to the outbreak of the second Gulf War, which had occurred after repudiation but before the arbitration hearing.
Nicholas Hamblen QC and David Allen (instructed by Reed Smith Richards Butler) for the owners.
Timothy Young QC, Henry Byam-Cook and Michael Furmstom (instructed by More Fisher Brown) for the charterers.
The parties entered into a charterparty on the Shelltime 4 form in 1998. The earliest contractual date for termination would have been 6 December 2005. By cl 33 of the charter, both parties were entitled to cancel the charter in the event of war between, inter alia, the US, the UK and Iraq. In the event, the charterers repudiated in December 2001. The owners accepted the repudiation and brought a claim for damages against the charterers. The matter was referred to arbitration. By the time of the arbitration the second Gulf War had broken out.
The arbitrator found against the charterers on the issue of liability. The parties then asked the arbitrator to determine, whether the damages sustained by the owners should be measured by reference to the full term of the charter or only up to the date on which such cancellation would have taken place. The owners maintained that the proper measure of damages was the basic hire which they would have received until the earliest contractual date of termination in December 2005, plus the profit share to which they would, but for the breach, have become entitled in that period, less the amounts which the vessel could have earned in the available market.
The charterers claimed that the damages should run only until the outbreak of war, when they would have cancelled the charter. The arbitrator determined that the charterers’ contention was correct and that the outbreak of war in March 2003 had placed a temporal limit on the damages, none being recoverable for the period from 20 March 2003 onwards. The owners appealed on a point of law to the High Court. The appeal was dismissed, as was the subsequent appeal to the Court of Appeal. The owners appealed to the House of Lords.
LORD CARSWELL:
The charterers submitted that on the occurrence of the repudiation the injured party had the opportunity to mitigate his loss by going into the market and making new arrangements as soon as reasonably possible, so that at that point the loss became crystallised and one could calculate it over the remainder of the charter period. Where there was a suspensive condition such as a war clause, however, the duration of the charter was always uncertain, depending on a contingency of the occurrence of an event which was by definition within the contemplation of the parties.
His Lordship considered, inter alia, Maredelanto Compania Naviera SA v Bergbau-Handel GmbH The Mihalis Angelos [1970] 3 All ER 125. He concluded that the contingency of the outbreak of war, which had occurred before the damages fell to be considered in the arbitration, could be taken into account. Considerations of certainty and finality had to yield in the instant case to the greater importance of achieving an accurate assessment of the damages based on the loss actually incurred.
The duration of the charter might in a case such as the present be affected by the contingency of the occurrence of an event which was in the contemplation of the parties and catered for in the terms of the charterparty. While the rate at which the hypothetical new charter was arranged on repudiation of the original one was for good reasons taken to be fixed at the time when the injured party could go into the market to negotiate a replacement, the same considerations did not apply to determination of the duration.
The damages could be assessed at the date of repudiation by valuing the chance that the contingency would occur and that the charter would be cancelled. That value might lie anywhere on the scale between extreme unlikelihood, which would give the deduction a minimal value, to virtual certainty, which would mean that it would be assessed at a figure very close to that which would be reached if one made the definite assumption that the contingency would occur. That approach was well known and recognised in other areas of the law.
If the second Gulf War had not broken out by the time the arbitration was held, the arbitrator would have had to estimate the prospect that it might do so and factor into his calculation of the owners’ loss the chance that the charter would be cancelled at some future date under cl 33. As events happened, however, the outbreak of the second Gulf War was then an accomplished fact, which was highly relevant to the amount of damages, and the arbitrator was correct to take it into account in assessing the appellants’ loss.
The appeal would therefore be dismissed.
Lord Scott and Lord Brown delivered concurring opinions, and Lord Bingham and Lord Walker dissented.
