Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (the "Golden Victory")
| Jurisdiction | England & Wales |
| Judge | Lord Mance,Lord Justice Tuckey,Lord Justice Auld |
| Judgment Date | 18 October 2005 |
| Neutral Citation | [2005] EWCA Civ 1190 |
| Date | 18 October 2005 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2005/0408 |
[2005] EWCA Civ 1190
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN's BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE LANGLEY
Lord Justice Auld
Lord Justice Tuckey and
Lord Mance
Case No: A3/2005/0408
Mr Nicholas Hamblen QC and Mr David Allen (instructed by Messrs Richards Butler) for the Appellant
Mr Timothy Young QC and Mr Henry Byam-Cook (instructed by Messrs More Fisher Brown) for the Respondent
This appeal raises a short point of some novelty and difficulty relating to the measurement of damages for repudiatory breach, here by charterers, of a long term time charter. If after an accepted repudiation, an unexpected event occurs which means that the original charter would not have run its full term, are damages still measured by reference to that full term, or by taking into account that the owners would in fact only have had the benefit of the charter for a shorter term?
The arbitrator, Mr Robert Gaisford, would have measured them by reference to the full term in his award dated 27 th October 2004, had he not felt constrained to take the shorter term by first instance authority ( B. S. & N. Ltd. v. Micado Shipping Ltd. (Malta) ("The Seaflower") [2000] 2 Ll.R. 37 (Timothy Walker J). However, on appeal to the Commercial Court, Langley J by judgment and order dated 15 th February 2005 concluded that it was right to take the shorter term as a matter of principle. But he gave permission to appeal to this Court, on the basis that the point is of some general significance.
The factual background can be shortly summarised. The charterparty was dated 10 th July 1998 and was subject to two memoranda, Nos. 1 and 2, both dated 17 th July 1998. It was made between Golden Strait Corporation as owners of the tanker "Golden Victory" and NipponYusen Kubishika Kaisha as charterers for a period of 7 years (one month more or less in charterers' option)—a perhaps unusually long period in modern times, at least for a charter for trading rather than financing purposes. Another feature of the charter, probably associated with its length, was that the rate of hire, stated in the charter itself to be "as agreed", was recorded in addendum No. 1 as consisting of (a) a minimum guaranteed base charter hire rate, starting at $31,500 per day and increasing from year to year, plus (b) a share in any operating profit over and above such base charter rate
"for each two … voyages by additional charter hire in an amount (the "Shared Profit") equal to fifty percent …. of the excess (the "Profit") of actual nett daily time charter returns by the Charterers for such two …. voyages as determined according to this Clause over the Base Charter Hire for such two …. voyages ….., i.e: ( Minimum Guaranteed Base Charter Hire Rate) x (Days of actual On-Hire during such quarter)."
The charter further provided:
"Outbreak of War ["the War Clause"]
33. If war or hostilities break out between any two or more of the following countries: U.S.A., former U.S.S.R., P.R.C., U.K., Netherlands, Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar, Iraq, both Owners and Charterers have the right to cancel this charter.
69. CANCELLING OPTION IN CASE OF LONG OFF-HIRE
If for any reason whatsoever the Vessel will be off-hire or is reasonably estimated to be off-hire for 30 days, Charterers have the option to cancel the balance of this Charter Party."
Having regard to the vessel's delivery date under the charter, the earliest contractual date for redelivery of the vessel under the charter was, the arbitrator found, 6 th December 2005. The charterers repudiated the charter by purporting on 14 th December 2001 to redeliver the vessel to the owners, who accepted the repudiation as bringing to an end performance of all primary obligations under the charter on 17 th December 2001. On the basis of the evidence before him, the arbitrator concluded that:
"…. at 17 December 2001, a reasonably well-informed person would have considered war or large-scale hostilities) between the United States/United Kingdom and Iraq merely a possibility. I do not consider that such a person would have considered it inevitable or even probable but merely a possibility, although I do accept that the degree of probability would have been higher had that person known as much about the prevailing circumstances then as we do today."
In fact, on 20 th March 2003 there occurred what the arbitrator described as the Second Gulf War involving hostilities between both the United States and the United Kingdom and Iraq. The arbitrator considered that the charterers were not only entitled to the benefit of a presumption that they would in that event have cancelled the charter under clause 33 had it not already been terminated on account of their repudiation, but that they would on the evidence in fact have cancelled it under clause 33 (despite an immediate increase in rates brought about by the war) because they were fundamentally disenchanted with the charter.
In claiming damages for the charterers' repudiation of the charter, by Particulars of Damage in the arbitration dated 25 ththtjtht September 2003, the owners calculated (a) the basic hire that they would have received under and in accordance with the charter, but for its breach, in the period from 17 th December 2001 to 6 th December 2005 and (b) the profit shares that they would have made on projected voyages on an assumption that actual market rates during that period "were a repeat of those achieved in the 3 year cycle from January 1999 to December 2001". They then compared the total of these two figures with earnings calculated on the basis that there was a market on which a substitute long term charter could have been fixed for the period from 1 st April 2002 until 6 th December 2005, with the vessel trading spot between 17 th December 2001 and 1 st April 2002. The comparison gave a claim of nearly US$22.4 million.
At the heart of the appellant owners' case is the proposition that damages fall to be measured as at or very shortly after the date of breach, and that subsequent events are irrelevant, at least unless they can be said to have been inevitable, or perhaps probable, at the date of breach. Owners accept that, where a charter contains a simple option in charterers' favour, damages are to be measured on the basis of an assumption or presumption that the charterers would, but for their breach, have exercised that option in their favour. But, where a charter contains an option which may or may not arise, according to subsequent developments not inevitable or at least probable at the time of breach, owners submit that it would be inconsistent with principle and with the requirements of business certainty, if the measure of damages could be affected from time to time by such developments.
Mr Nicholas Hamblen QC for the appellant owners starts with the proposition that damages should be measured as at the date of breach. But the House of Lords authority to which he refers on this point, Johnson v. Agnew [1980] AC 367, shows that this is neither the most basic nor an invariable principle. Lord Wilberforce, with whose speech all other members of the House concurred, said at p.400H-401A:
"The general principle for the assessment of damages is compensatory, i.e. that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach—a principle recognised and embodied in section 51 of the Sale of Goods Act 1893. But this is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances."
S.51(1) of the 1893 Act also contained a basic principle, viz that
"The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract."
The normal rule was then stated in s.51 (3):
"Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, then at the time of refusal to deliver."
In Koch Marine Inc. v. D'Amica Societa de Navigazione A.R.L. ("The Elena d'Amico") [1980] 1 Ll.R. 75, Robert Goff J, as he was, drew on the sale of goods analogy in holding that, in the event of an accepted repudiation of a long-term time charter (in that case a repudiation by the owners after 14 months of a 3 year charter), then:
"If, at the date of the breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. If however the time charterer decides not to take advantage of that market, then, generally speaking, that will be his own business decision independent of the wrong; and the consequences of that decision are his. If he judges the market correctly, he reaps the benefit; if he judges it incorrectly, then the extra cost falls on him.
It does not matter ….. that his decision was a reasonable one, or was a sensible business decision, taken with a view of [sic] reducing the impact upon him of the legal wrong committed by the shipowners. The point is that his decision so to act...
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