Flame SA (Appellant (and respondent in the arbitration) v Glory Wealth Shipping PTE Ltd (Respondent (and claimant in the arbitration)
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr. Justice Teare,Mr. Justice Teare |
| Judgment Date | 22 October 2013 |
| Neutral Citation | [2013] EWHC 3153 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2013 FOLIO 43 |
| Date | 22 October 2013 |
[2013] EWHC 3153 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: 2013 FOLIO 43
Christopher Hancock QC (instructed by Thomas Cooper) for the Appellant
Lawrence Akka QC (instructed by Holman Fenwick Willan) for the Respondent
Hearing dates: 19 & 20 September 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
There are before the court two applications by the Appellant. One is an appeal from an arbitration award pursuant to section 69 of the Arbitration Act 1996 (brought with the leave of Hamblen J.) and the other is a challenge to the award on the grounds of a serious irregularity pursuant to section 68 of the Arbitration Act 1996. The appeal pursuant to section 69 raises a question of law which is of importance to the general law of contract and, in particular, the assessment of damages for breach of contract.
The Appellant and the Respondent were party to a contract of affreightment (the "COA") dated 19 August 2008 which provided for the Respondent (as "disponent owners of the Glory Wealth to be nominated motorship") to carry 6 cargoes of coal in bulk in each of the years 2009, 2010 and 2011. The arbitration award in respect of which the section 69 appeal and section 68 challenge are brought relates to the failure of the Appellant (as charterers under the COA) to declare laycans for the 5 th. and 6 th. shipments of 2009 and for all 6 shipments in 2010. The arbitration panel awarded damages to the disponent owners in the sum of US$5,426,608.60 plus interest.
The arbitration panel found that the charterers were in actual repudiatory breach of the COA by failing to declare laycans for the voyages in question and that each such repudiatory breach had been accepted by the disponent owners as terminating the disponent owners' obligation to carry cargoes on those voyages. The panel further found that the lost revenue, the difference between the COA rate and market rate, was US$5,426,608.60. The reason for such a great difference between the COA and the market rates was that, following the collapse of Lehman Brothers, the freight market, which had already started to experience a slow decline, suffered a sudden collapse. In October 2008, the Baltic Index was 3,025 but by December 2008 it had fallen by more than 75% to 700.
The charterers said that as a result of the market's collapse the financial position of the disponent owners had so deteriorated that, had the charterers declared the laycans in question, the disponent owners would have been incapable of providing the required vessels. They submitted that the disponent owners were only entitled to substantial damages if they, the disponent owners, could prove that if the charterers had declared any of the laycans in question the disponent owners would have been able to perform the corresponding voyages by going out into the market and chartering in a vessel at the relevant time.
The arbitration panel rejected the submission made on behalf of the charterers. The rejection of that submission has given rise to the first question of law, described in these terms in the application notice:
"Whether, pursuant to The Mihalis Angelos, The Simona and Gill & Duffus SA v Berger & Co. Inc, in order to displace the prima facie substantial measure of damages for breach of contract, the "contract breaker" must prove that at the time when the innocent party accepted the repudiatory breaches, said innocent party was already in breach. The Tribunal found that it was not open to the "contract-breaker" to allege that the innocent party still bore the burden of proving its loss on the balance of probabilities if it had accepted the repudiatory breach of the "contract-breaker".
The arbitration panel also held that the words "disponent owners of the Glory Wealth to be nominated motorship" meant only that the disponent owners were obliged to nominate vessels that would carry the charterers' cargo. The panel held that those words did not require the disponent owners to have time-chartered or voyage-chartered the vessels, though it was likely that the vessels would be so chartered. That holding has given rise to the second question of law, described in these terms in the application notice:
"Whether, in order to fulfil contractual obligations under a COA it is sufficient for the vessel "owner" to arrange for vicarious performance of its contractual obligations (ie by procuring vessels over which it had no contractual control), or whether contractual control by an Owner or disponent Owner over a nominated vessel was an essential characteristic of a contractual nomination."
On the facts of the case the arbitration panel held, on the totality of the evidence before it, that the disponent owners would have been able to fulfil their obligations under the COA. The charterers had sought permission to appeal this finding on the grounds that it was so unreasonable as to amount not to a finding of fact but to a question of law. Unsurprisingly permission to appeal was refused. The charterers now submit that if they succeed on both questions of law the award should be remitted to the arbitration panel to enable them to decide, having regard to the proper construction of "disponent owner", whether the disponent owners would have been able to perform their obligations under the COA.
The first question of law
Mr. Hancock QC, on behalf of the charterers, submitted, on the basis of the Golden Victory [2007] 2 AC 353 and the Mihalis Angelos [1970] 2 Lloyd's Reports 43, that the measure of the disponent owners' loss was the freight which they as the innocent party would have earned had the contract been performed (less the cost to them of providing the nominated vessel, the market rate of freight) and that in assessing such loss any contingencies, such as the inability of the disponent owners to perform their future obligations under the COA which might have prevented them earning freight under the COA, must be taken into account.
Mr. Akka QC, on behalf of the disponent owners, submitted, on the basis of Braithwaite v Foreign Hardwood Company [1905] 2 KB 543 and Gill & Duffus v Berger [1984] AC 382 that in assessing their loss it had to be assumed that they, as the innocent party, would have been able to perform their obligations under the COA. They had accepted the charterers' repudiation of the charterparty and so were no longer obliged to perform their obligations under the charterparty.
Mr. Hancock, in response, said that whilst it was accepted that as result of the disponent owners' acceptance of the charterers' repudiatory breaches the disponent owners were no longer obliged to perform their respective obligations under the COA, the assessment of damages had to be assessed on the hypothesis that the charterers had performed their obligations and that the disponent owners remained obliged to perform their obligations. Only by so doing could the court compare the position in which the disponent owners would have been in had the COA been performed with the position that they were in as a result of the several repudiatory breaches.
The distinguished academic lawyer Sir Guenter Treitel is of the opinion that
"where the charterer's case was that he would have been entitled to terminate on account of the shipowner's future breach"
that cannot be taken into account so as to reduce damages to a nominal amount
"for once the shipowner had accepted the charterer's earlier repudiation and so terminated the contract for that anticipatory breach, the shipowner would be relieved of any further obligation to perform, so that his failure to perform on the due day could no longer be a breach."
This opinion is expressed in The Law of Contract 13 th. ed. at paragraph 20–082. That work is now edited by Professor Peel but I was told that the passage can be traced back to earlier editions written by Sir Guenter Treitel. He has expressed the same view in Benjamin's Sale of Goods 8 th.ed. at paragraphs 19–169 and 19–170. He relies upon the decision and reasoning in Gill & Duffus v Berger. Sir Guenter Treitel contrasts the position, illustrated by the Mihalis Angelos, where a contract gives the innocent party the right to cancel the contract on the occurrence of a specified event, irrespective of whether there has been a breach. He accepts that such an event can still occur even after the innocent party has accepted a repudiatory breach as terminating the contract. Thus, if that event in fact occurred, then the possibility that the party in breach would have exercised his right to cancel can be taken into account when assessing the damages caused by the repudiatory breach.
However, in another chapter of Benjamin's Sale of Goods, written by Professor Bridge, a rather different view is expressed. In paragraph 9–011 Professor Bridge states that
"there is some doubt as to whether and in what circumstances the buyer may raise as a defence to liability, in reduction of the damages payable, the fact that the seller was or would have been incapable of performing the contract in accordance with its terms."
In paragraph 9–020 Professor Bridge noted that earlier authority on the question was "divided" and footnote 103 referred to a number of cases in support of that proposition. However, Professor Bridge expressed the opinion that it has now been established by the decision of the House of Lords...
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