A Defence of Commercial Certainty in the Wake of Judicial Pragmatism Lord Bingham's Dissent in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12

AuthorChristopher Monaghan
Pages105-123
CHAPTER 6A DEFENCE OF COMMERCIAL CERTAINTY IN THE WAKE OF JUDICIAL PRAGMATISM Lord Bingham’s Dissent in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12Christopher Monaghan

6.1 Introduction 106
6.2 Facts 107
6.2.1 Subject-matter of the appeal 108
6.3 Decision before the House of Lords 109
6.4 Decision of the majority 110
6.4.1 Lord Carswell 110
6.4.2 Lord Scott 112
6.4.3 Lord Brown 114
6.5 Lord Walker’s dissent 114
6.6 Lord Bingham’s dissent 115
6.6.1 Bwllfa principle 116
6.6.2 Lord Bingham’s interpretation of The Mihalis Angelos 116
6.6.3 Distinguishing The Seaflower 117
6.6.4 Would the shipowners be unfairly rewarded? 118
6.6.5 Importance of commercial certainty 119
6.7 Why is the dissent of Lord Bingham preferred? 120
6.7.1 Importance of commercial certainty 121
6.7.2 Risk that parties will employ delaying tactics before assessment 122
6.8 Conclusion 123

106 Part II – Company and Commercial Law

6.1 INTRODUCTION

The dissenting judgment of Lord Bingham in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory)1 can be regarded as a defence of commercial certainty. It is argued that the decision of the majority undermines this principle. The importance of commercial certainty in English law was expounded by Lord Mansfield in Vallejo v Wheeler.2 The case involved an action based upon the deviation of a ship and whether this was consensual or barratry. Lord Mansfield when giving judgment stated:

It appeared to me that the nature of barratry had not been judicially considered, or defined in England with accuracy. In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon. But it is not easy to collect with certainty from a general verdict, or from notes taken at Nisi Prius, what was the true ground of decision. Therefore in this as in all doubtful cases, I wished a case to be made for the opinion of the Court.3

In this case, the meaning of ‘barratry’ was uncertain and Lord Mansfield was forced to refer to an Italian dictionary. It is clear that his Lordship understood the importance of the law providing certainty for mercantile transactions. Thus a major theme in commercial law is the importance of certainty. Merchants deserve from the law a degree of certainty. A body of established cases that define the meaning of terms and usages, and provide some certainty as to what will happen upon the occurrence of particular events, offers the merchant the ability to plan ahead. As his Lordship stated, a rule needs to be clearly decided.

The judgment of Lord Mansfield in Vallejo v Wheeler formed part of the submissions by counsel for the ship owners in The Golden Victory. It was later returned to by Lord Bingham in his opinion. The Golden Victory is a case where two principles are at play, the principle of compensatory damages in contract law and the principle of commercial certainty.4 The decision of the House of Lords clearly rejected commercial certainty, in order to award damages which did not over-compensate the innocent party. It will be argued that the decision of the majority undermines commercial certainty and that the dissenting opinion of Lord Bingham is to be preferred. It is understood that such a proposition is controversial and others (including the majority) would disagree.

1 Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12.

2 Vallejo v Wheeler (1774) 1 Cowp 143.

3 Ibid, at p 153.

4 This point was raised in the opening submissions of the ship owners’ counsel, Nicholas

Hamblen QC and David Allen.

6.2 FACTS

The Golden Victory concerned a charterparty between the owners of the vessel, the Golden Strait Corporation, and the charterers, Nippon Yusen Kubishika Kaisha. The charterparty commenced on the 10 July 1998 and was to last for 7 years. The charterer had an option to extend the charterparty by a month or to bring the charter to end a month early. According to Lord Carswell:

The rate of hire, contained in an agreed memorandum, consisted of, first, a minimum guaranteed base charter rate starting at US$31,500 per day and increasing from year to year, and, secondly, a share in operating profit over and above the base charter rate.5

The charterparty contained clause 33 which was to prove crucial to the majority decision. Clause 33 enabled either party to terminate the charter on the outbreak of hostilities between certain countries, which included the United States and Iraq. The significance of the ‘war clause’ was to prove important, as all parties had agreed that had the charterparty not been repudiated by the charterers, the charterers would have relied upon clause 33 to bring the charterparty to an end upon the outbreak of hostilities in March 2003. This would have meant that the charterers would not have breached the charterparty. The significance of clause 33 only became apparent a year after the charterers repudiation. Lord Walker noted that during the parties’ post-repudiation negotiations in 2003, it was only after going through the charterparty line by line that the charterers realised the significance of clause 33. It provided them with an opportunity to escape any new charterparty. This was because at the start of 2003 the prospect of hostilities between the United States and Iraq was looking increasingly likely.

The charterers repudiated the charterparty on 14 December 2001 by redelivering the vessel and the owners responded by claiming for damages. This claim was disputed by the charterers and the matter was referred under the contract to arbitration. The arbitrator was Mr Robert Gaisford. He found that the owners could claim damages up until December 2005, which was the earliest date that the charterers could have terminated. The charterers appealed to the Commercial Court,6 with Mr Young QC arguing that the contract should not be construed as to last 7 years, but rather it contained an option to allow redelivery of the vessel after 3 or 5 years.7 Their appeal was dismissed by Morrison J.

5 Above, n 1, at [49].

6 [2003] 2 Lloyd’s Rep 592.

7 Ibid, at [8].

108 Part II – Company and Commercial Law

The parties then entered into negotiations whereby the owners would redeliver the vessel to the charterers. The charterparty would be on the same terms and the charterers would pay damages between the date that repudiation was accepted and the date of redelivery. The owners rejected the offer made by the charterers on 7 February 2003. According to Lord Bingham, the rationale for this was that the owners had received legal advice which stated that in accessing damages the arbitrator would not take clause 33 into account. This was because an event which occurred 15 months after repudiation would not be taken into account by the courts.8 Therefore, the owners would be awarded damages from the date of their acceptance of repudiation to the earliest date the charterers could have brought the charterparty to an end, 6 December 2005. The arbitrator was asked by the parties to consider three questions. The first regarded the rejection of the charterers’ offer, namely whether by doing this the owners had failed to mitigate their losses. This rejection was not regarded by the arbitrator as a failure by the owners to mitigate their losses.9

6.2.1 Subject-matter of the appeal

The pivotal question according to Lord Bingham was:

whether the events (described as the outbreak of the Second Gulf War) in March 2003 placed a temporal limit on the damages recoverable by the owners for the charterers’ repudiation of the charterparty such that no damages were recoverable for the period from 21 March 2003 onwards.10

It was the arbitrator’s determination of this second question which saw an appeal to the Commercial Court, the Court of Appeal and, finally, the House of Lords. The arbitrator held that the Second Gulf War fell within clause 33. The arbitrator accepted the charterers’ evidence that they would have relied on clause 33 had the charterparty still been in operation. The arbitrator relied on expert evidence, which stated that at the date the repudiation was accepted, the chance of hostiles between the United States and Iraq was merely possible. Therefore the question was this: what exactly was the loss suffered by the owners?

Lord Bingham believed that the arbitrator ‘correctly summarised the law on mitigation of damage where there is an available market, as it was agreed, and the arbitrator found, was the case here’.11 Thus where there is an available

8 Above, n 1, at [4].

9 Above, n 1, at [42]–[44], see the opinion of Lord Walker.

10 Above, n 1, at [5].

11 Above, n 1, at [6].

market, the innocent party will be awarded the difference between his actual loss and any subsequent charterparty which he enters into. Parties are expected to mitigate their losses. The key issue according to the arbitrator was what ‘was the value of the contract that the Owners lost on the date it was lost’.12 The

arbitrator had to decide whether to take clause 33 into account when calculating the owners’ loss. He clearly favoured the owners’ argument, that because on 17 December the outbreak of hostilities were only a mere possibility, the owners at that date had lost a charterparty which had just under 4 years left to run.13

This according to the arbitrator was:

[T]he more orthodox approach and supported by cogent reasons for maintaining it. In essence, it does not seem to me that it can be right that the value of that which the owners have lost (and which is calculable on the date...

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