Glory Wealth Shipping PTE Ltd v Korea Line Corporation (The "Wren")
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 14 July 2011 |
| Neutral Citation | [2011] EWHC 1819 (Comm) |
| Docket Number | Case No: 2010 FOLIO 1375 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 14 July 2011 |
[2011] EWHC 1819 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blair
Case No: 2010 FOLIO 1375
Mr Charles Priday (instructed by Winter Scott LLP) for the Applicants
Mr David Lewis (instructed by DLA Piper UK LLP) for the Respondents
Hearing dates: 22 June 2011
This appeal arises out of the collapse in the market experienced by the shipping industry in the wake of the financial crisis. By an award dated 26 October 2010, an arbitral Tribunal consisting of Mr Bruce Buchan and Mr Patrick O'Donovan awarded the Owners of the M.V. Wren damages for repudiatory breach by the Charterers of a Charterparty dated 22 February 2008 which led to its termination in November 2008. The issue is as to the measure of damages. By order of 4 April 2011, Burton J gave the Charterers leave to appeal under s. 69 Arbitration Act 1996 on the following question:
"What is the correct measure of damages for a charterer's repudiation of a time charter where there is, at the date of the termination of the charter, no market for the unexpired period and such a market only revives at a much later date?"
The vessel was a new-build which was delivered into charter on 21 June 2008. The Charterparty was a time charter on an amended NYPE form for a minimum of 36 months to maximum 38 months at a daily rate of US$39,800. In November 2008, the Charterers purported to make early redelivery, which the Owners accepted as a repudiatory breach entitling them to terminate the Charterparty. The dispute was referred to LMAA arbitration, and the Charterers subsequently conceded that their conduct had amounted to a repudiatory breach, leaving the issue of damages to be determined.
It was common ground that at the time of the termination of the contract in November 2008, there was no available market for a period charter of a duration that corresponded to the balance of the Charterparty. So the question was how the Owners' loss was to be calculated. They claimed damages on what was called a "hybrid basis", originally by reference to losses on a substitute fixture the vessel had contracted in the spot market up to January 2009, and by reference to market rates for the balance of the charter period from that time. In the course of the arbitral proceedings, and reflecting the Owners' expert evidence as to market conditions, the claim was amended. The amended claim was calculated on the basis of voyage charters which the vessel entered into up to 26 July 2009, and market rates of hire from that date. (The Charterers point out that when actual trading from January to July 2009 is taken into account, the Owners' claim reduced by approximately US$4.47m.)
As regards the revival of the market, which is the factual issue at point in the present case, the Owners' case was that as of June or July 2009, the market for the equivalent of the unexpired period of the charter (two years at that stage) had come back to life. The Charterers argued to the contrary that it had not revived. It was not in dispute that (whatever the true position as regards the revival of the market) the Owners had not in fact fixed the vessel on a long term charter at that time, continuing to fix her on the spot market.
The arbitrators' Award
The findings of the arbitrators as regards the market were as follows. The two year market in June and July 2009 "was no doubt in the early stages of recovery and was no doubt fragile, with the increase in activity…tentative at best. That does not mean, however, that there was no two year market at that point.…we took the view that there would have been a charterer of sufficient standing to take the vessel for two years at US$15,200.00 per day net had the Owners decided to so fix her". The arbitrators concluded, therefore, that there was an available market at the time in question, and their findings of fact are of course not challenged.
The submissions of the parties were essentially the same as they have been before the court on the appeal. In circumstances where there is no available market initially, but an available market arises later, there is, the Owners argued, no principled reason why a hybrid claim cannot best fulfil the object of an award of damages. The decision not to take advantage of that market in July 2009 was an independent business decision of the Owners—it did not follow that they could not recover market-based damages from that time. Otherwise, an innocent claimant would have to wait until the end of the repudiated charter before being able to make a full recovery.
The Charterers submitted that it was wrong in law to bring a hybrid claim for part actual and part market-based losses on the supposed basis that one looks to the market when it comes back to life. The only relevant date for the market is the date of termination, because this is the moment at which the innocent party can go into the market and mitigate its loss by finding a substitute fixture: see The Elena D'Amico [1980] 1 Lloyd's Rep 85 at 89. Where there is no available market at the date of termination, it is necessary to fall back on the broader question of asking what sum would put the claimants in the same financial position that they would have been in had the charterparty been performed. Since the Owners did not enter the long-term period charter market in July 2009, their actual trading thereafter must be the basis of the damages claim.
The core of the arbitrators' reasoning is in paragraphs 38 to 42 of the Award. They did not agree with the Charterers that, in principle, the Owners could not put forward a hybrid damages claim based on both actual and market losses in relation to the unexpired period of the charter. In stipulating that damages for the balance of a repudiated charter be assessed against the rate of a time charter of a duration equivalent to that balance, the law intends to facilitate comparison in so far as possible on a "like-for-like" basis. Had there been an identifiable market for a 30-month time charter at the time it was terminated, that would have been the yardstick used to calculate damages. As it was, there was no market at that point, and for the time being damages had to be established by using the net daily income, charter hire or time charter equivalent from charters actually performed. Given the law's preference for the use of the market rate for a period equivalent to the unexpired period of the charter, it was logical that once a viable market could be identified, that would become the criterion for determining loss.
The arbitrators explained that they were satisfied that the market-based approach to damages is favoured because it allows damages to be quantified relatively quickly after a repudiatory breach, so that there can be an end to litigation within a reasonable time. They agreed with the Owners that in the case of a lengthy unexpired charter period, calculation of damages on the basis of actual loss will be unsatisfactory. They accepted that there was an element of artificiality in that approach, but it was no more artificial than the principle that in cases of repudiatory breach, if there is at the time of termination an available market, damages will generally be assessed on the difference between the contract rate for the balance of the charterparty period and the market rate for the chartering in of a substitute vessel for that period. The same was true of the Charterer's suggestion of artificiality because the daily income from single voyages over a period may exceed the daily return from a time charter of comparable duration. The arbitrators did not accept that any allowance was to be made for trading vicissitudes.
In conclusion:
"Having decided that the Owners were entitled to advance a claim for both actual and market damages and that there was an available market, albeit fragile, at the relevant time, we awarded the Owners the full amount of their claim for damages for the balance of the charter period…with a deduction for accelerated payment."
Under this head of claim, the arbitrators awarded US$15,698,591.45, and it is only this element of the total award of US$22,823,858.90 which is challenged. I am told that nothing has yet been paid.
To appreciate the arbitrators' reasoning, it is necessary to appreciate the case as it was put to them. On the one hand, the Owners submitted that once the market revived, actual losses were to be put on one side, and damages were to be measured by reference to market rates for a "like-for-like" replacement two year time charter (that being the period that the repudiated Charterparty would have had to run at that point in time). The Charterers, on the other hand, submitted that the "available market measure" only applies where there is an available market at the time of termination. It cannot be applied where there is no available market, in which case one has to ask what loss has been caused to the claimant.
This explains the circumstances in which the arbitrators applied The Elena D'Amico principle as from the time the market revived, and it is clear that they did so as the best practical means of resolving the dispute they had to decide. The question is whether they were entitled to do so as a matter of law. Both counsel are agreed that this raises a point of principle. They are also agreed that the same questions arose for decision, whether the issue be expressed in terms of the question in respect of which Burton J gave the Charterers leave to appeal under s. 69 Arbitration Act 1996 (which I have set out at the beginning of this judgment), or in terms of the Owners' alternative formulation (which...
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