Fulton Shipping Inc. of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain: The New Flamenco
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Popplewell |
| Judgment Date | 21 May 2014 |
| Neutral Citation | [2014] EWHC 1547 (Comm) |
| Docket Number | Folio 2013/864 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 May 2014 |
[2014] EWHC 1547 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
The Hon. Mr Justice Popplewell
Folio 2013/864
Steven Gee QC & Tom Whitehead (instructed by Gateley LLP) for the Claimant
Simon Croall QC & Peter Ferrer (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 30 April & 1 May, 2014
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.
Introduction
This is an appeal brought with leave of Teare J pursuant to s.69 of the Arbitration Act 1996 from a reasoned award dated 3 June 2013 ("the Award") by an experienced maritime arbitrator. It raises a short point as to whether a shipowner claiming damages for charterers' repudiation of a time charter must give credit for the capital value of having sold the vessel upon repudiation for a greater sum than the value of the vessel at the contractual date for redelivery under the charter.
The arbitration and facts found in the Award
The "NEW FLAMENCO" ("the Vessel") was a small cruise ship built in Genoa in 1972. By a time charterparty on the NYPE form dated 13 February 2004 she was chartered by her then owners to the Defendants, a division of Spain's leading tourist group ("the Charterers"). At that time the Vessel was managed by the Claimants ("the Owners"). The Owners bought the Vessel on 4 March 2005 and entered into a novation agreement dated 23 March 2005 under which they assumed the rights and liabilities of the owners under the charterparty.
In August 2005 the Owners and the Charterers concluded an agreement extending the charter for two years to 28 October 2007, with an option for a third year. The option was never exercised. The extension was recorded in Addendum A.
At a meeting on 8 June 2007, the Owners and Charterers reached an oral agreement (as the arbitrator found) in terms subsequently recorded in Addendum B. The agreed terms extended the charterparty for a further two years so as to expire on 2 November 2009.
The Charterers disputed having made the agreement recorded by Addendum B and refused to sign it. They maintained an entitlement to redeliver the Vessel on 28 October 2007 in accordance with Addendum A. The Owners treated the Charterers as in anticipatory repudiatory breach and on 17 August 2007 accepted the breach as terminating the charterparty.
The Vessel was redelivered on 28 October 2007. Shortly before that date, the Owners entered into a Memorandum of Agreement for sale of the Vessel for US$23,765,000.
The charterparty was governed by English law and provided for London arbitration. The Owners commenced arbitration and a sole arbitrator was appointed on 4 March 2008. Claim submissions were served only on 23 November 2011 and the hearing took place in May 2013. By the time of the hearing it was apparent that there was a significant difference in the value of the Vessel between October 2007, when the Owners sold it, and November 2009, when the Vessel would have been redelivered to Owners had the Charterers not been in breach of the charterparty. The collapse of Lehman Brothers in September 2008 and the financial crisis had occurred in the meantime. The value of the Vessel when she would have been redelivered in accordance with Addendum B in November 2009 was, as the arbitrator subsequently found, US$7,000,000.
The Owners advanced their claim for damages calculated by reference to the net loss of profits which they alleged that they would have earned during the additional two year extension. Such profits were set out in a detailed schedule identifying the revenue which would have been earned under the charterparty, and giving credit for the costs and expenses which would have been incurred in operating the Vessel in providing the charterparty service for those two years, but which had been saved as a result of the sale of the Vessel. The amount claimed was €7,558,375.
The Charterers argued that the Owners were bound to bring into account and give credit for the difference between the amount for which the Vessel had been sold in October 2007 (US$23,765,000) and her value in November 2009 (US$7,000,000). The Owners argued that the difference in value was legally irrelevant and did not fall to be taken into account. The arbitrator decided this issue in favour of the Charterers. Because there was disagreement between the parties on the accounting figures in relation to the net profits which would have been earned for the two year period under the charter, the arbitrator made no findings on the quantum of the Owner's claim and left the figures to be agreed by the parties or referred back to him in the absence of agreement. But he declared that in respect of those sums the Charterers were entitled to a credit of €11,251,677 (being the equivalent of US$16,765,000) in respect of the benefit that accrued to the Owners by selling the Vessel when worth more in October 2007 than it was at the end of the charter period in November 2009. This was more than the Owners' loss of profit claim and would result in the Owners recovering no damages for the Charterers' repudiation.
The way in which the point arose before the arbitrator involved a procedural wrangle which he described as being extremely contentious at the hearing. In the original claim submissions, the Owners particularised their loss and damage as being "€7,558,375 (giving credit for expenditure saved and reduction in the re-sale value that the vessel would have had on completion of the period) as set out in the schedule attached hereto". The schedule gave details of different elements of expenditure saved and concluded with "reduction in re-sale value between November 2007 and November 2009: US$ 5,145,000 @ 1.49 €3,453,020". The amended defence submissions admitted and averred "as asserted by owners" that it was appropriate to take into account the benefit accruing to owners as a result of the sale of the vessel in 2007 and that such benefit was to be calculated by reference to the difference between the amount payable under the MOA and the value on the open market of the vessel as at November 2009, being the first day when she could be sold if Addendum B had been performed. There was a plea in the original reply submissions that a drop in the shipping market between August 2007 and November 2009 was res inter alios acta and irrelevant to the assessment of damages which were to be made by reference to the date when the contract was terminated and not by reference to subsequent market movements. As the arbitrator observed, this left a tension between the claim submissions and the reply submissions on the point in issue in this appeal.
Following disputes during the course of the hearing, on the morning of the final day of the hearing the Owners applied for leave to amend their claim submissions, one of the proposed amendments being to delete the conceded credit. The arbitrator resolved the disputed application by refusing to allow permission to amend the claim submissions. He ruled that it was open to the Owners to run the argument identified in their reply submissions to the effect that a drop in the market value of the vessel was res inter alios acta and irrelevant to the assessment of damages, but they were not entitled to withdraw the quantified concession made in the claim submissions that a benefit of US$5,145,000 had to be brought into account. He therefore held that if the Owners were successful in their argument on the issue of principle, a credit of US$5,145,000 would in any event have to be brought into account in calculating their net loss.
The arbitrator made findings that the sale of the Vessel by the Owners in October 2007 was caused by the Charterers' breach and was in reasonable mitigation of damage. The relevant findings were expressed in the following terms:
(1) Paragraph 3: "It was common ground between the parties that when the Charterers declared that they did not accept that a binding agreement for a two year extension had been agreed and that they were not going to perform it, there was no suitable timecharter employment for the vessel. The Owners therefore sold the Vessel in October 2007."
(2) Paragraph 23: "…the Charterers [had] accepted that there was no charterparty employment for the vessel at the time in question and that her sale was reasonable."
(3) Paragraph 60: "It was common ground that when the "NEW FLAMENCO" was redelivered to the Owners on 28 th October 2007, it would not have been possible for the Owners to conclude an alternative substitute two year time charterparty. The need to sell the vessel was clearly caused by the breach. It was common ground that the sale price achieved was reasonable."
(4) Paragraph 62: "I was advised by counsel for the parties that there was no directly applicable authority on the point. That is perhaps not surprising because it would not be very often that the premature termination of a time charterparty would cause the sale of a vessel…"
(5) Paragraph 70: "As I have already commented, in this case it was clear that the necessity for the sale had been brought about by the refusal to perform the two year extension."
(6) Paragraph 73: "Normally vessels will not reasonably need to be sold and would not be sold following the premature termination of a charterparty so that any movement in the capital value of a vessel will not crystallise and will not be relevant to a claim for a net loss of earnings. On the unusual facts of this case, where...
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