Fulton Shipping Inc. of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain
| Jurisdiction | England & Wales |
| Judge | Lord Clarke,Lord Neuberger,Lord Mance,Lord Sumption,Lord Hodge |
| Judgment Date | 28 June 2017 |
| Neutral Citation | [2017] UKSC 43 |
| Date | 28 June 2017 |
| Court | Supreme Court |
[2017] UKSC 43
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
Steven Gee QC
Tom Whitehead
Daniel McCarthy
William Hooper
(Instructed by Gateley Plc)
Simon Croall QC
Peter Ferrer
Ben Gardner
(Instructed by Clyde & Co LLP)
Heard on 21, 22, 23 and 24 November 2016
( with whomLord Neuberger, Lord Mance, Lord SumptionandLord Hodgeagree)
This appeal concerns the assessment of damages arising out of the repudiation of a charterparty by charterers of a cruise ship called New Flamenco ("the vessel"). I can take the facts from the judgment of Longmore LJ (with whom Christopher Clarke and Sales LJJ agreed) in the Court of Appeal. He had in turn taken the facts from the judgment of Popplewell J ("the judge") on appeal from the First Final Arbitration Award, dated 3 June 2013, ("the award") made by Mark Hamsher as sole arbitrator. The arbitrator gave detailed reasons which formed part of the award.
By a time charterparty on the NYPE '93 form dated 13 February 2004 ("the charterparty") the vessel was chartered by her then owners, Cruise Elysia Inc to the defendants ("the charterers") for a period of one year. At that time the vessel was managed by the claimants ("the owners"), who 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 effective as from 7 March 2005. In August 2005 the owners and the charterers concluded an agreement extending the charter for two years expiring on 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 in terms subsequently recorded in addendum B. The agreed terms extended the charterparty for a further two years expiring 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 redelivery 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 on 11 September 2007 and Mr Hamsher was appointed sole arbitrator on 4 March 2008. The charterers denied liability, 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 between the value of the vessel in October 2007, when the owners sold her, and in November 2009, when the vessel would have been redelivered to the 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. That finding was based on expert evidence of valuers as between a willing seller and a willing buyer.
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 the two years, but which had been saved as a result of the sale of the vessel. The amount claimed was €7,558,375. As Longmore LJ put it, ironically the owners were, at this stage, prepared to give credit for what they called the "reduction in the re-sale value" of the vessel (said to be "for depreciation") between October 2007 and November 2009 of US$5,145,000.
The charterers argued that the owners were bound to bring into account and give credit for the whole difference between the amount for which the vessel had been sold in October 2007 (US$23,765,000) and her value in November 2009 (subsequently found by the arbitrator to be US$7,000,000). The owners wished, however, to argue that the difference in value was legally irrelevant and did not fall to be taken into account.
Because there was no agreement 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 owners' 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 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.
As Longmore LJ observed in para 10, towards the end of the arbitration hearing the owners had made an application to amend their submissions by deleting the conceded credit. That application was refused by the arbitrator but he allowed the point of principle (that no credit needed to be given) to be argued holding that, if the owners were successful on the point, the amount of the conceded credit would have, nevertheless, to be brought into account. That remained the position before the judge.
There were two issues before the arbitrator: (1) whether the owners had been entitled to terminate the charterparty; and (2) if so, whether they had to give credit for any benefit that they had received by selling the vessel.
On the first issue, the arbitrator found that the parties had concluded an oral agreement on the terms of addendum B and that the charterparty had been terminated by the owners in response to the charterers' repudiatory breach. There has been no challenge to that finding.
The second issue was the only issue of quantum which was argued before the arbitrator (apart from the valuation issue referred to in para 4 above). As I understand it, the parties agreed that, depending upon the circumstances, subject to the way in which the specific issue was decided, any other quantum issues would be the subject of directions and a further hearing. The issue for determination by the arbitrator was recorded in para 3 of his reasons in this way:
"… there was a fundamental difference between [the parties] as to whether any difference between the October 2007 sale and the putative November 2009 sale price had to be taken into account as a benefit that had accrued to the Owners. The Owners argued that it was totally irrelevant in considering their claim for loss of profit. The Charterers argued that it was a benefit that could and should be taken into account to establish the true net damages suffered by the Owners. This was far from being an arid, legal dispute of little practical importance. If the Charterers were correct both as to the extent of the alleged benefit that had accrued to the Owners and the fact that it had to be taken into account, then even if the Owners succeeded on liability, they could recover nothing because the benefit could exceed by a considerable margin the claim for loss of profits."
On this second issue, the arbitrator made a declaration in his award that, when damages fell to be assessed, the charterers were entitled to a credit of €11,251,677 in respect of the benefit that accrued to the owners when they sold the vessel in October 2007 as opposed to November 2009, which was the earliest time when they could have sold the vessel if addendum B had been performed.
The arbitrator added, consistently with the above, that since the parties had not agreed the other accounting figures between them, it was appropriate for him merely to declare the credit to which the charterers were entitled, leaving it to the parties either to refer the balance of their disputes to him or to resolve matters amicably. Finally he reserved the right to make such further award or awards as might be appropriate including on costs.
The owners sought permission to appeal to the High Court pursuant to section 69 of the Arbitration Act 1996 on a question of law which was formulated in this way:
"When assessing shipowners' damages for loss of profits on earnings of hire under a time charterparty which has been repudiated by the charterers and the repudiation accepted by the owners as terminating the contract, are the charterers entitled to have taken into account as diminishing the loss of earnings/hire sustained by the owner as a result of the accepted repudiation 'a benefit' said to consist of avoidance of a drop in the capital value of the vessel because the vessel has been sold shortly after acceptance of the repudiation whereas, if the vessel had been retained until after performance of the charterparty, it would have had a lower capital value by reason of decline in the capital value of the vessel through market decline in ship sale values in that period?"
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