Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (the "Golden Victory")
| Jurisdiction | UK Non-devolved |
| Judge | LORD BINGHAM OF CORNHILL,LORD SCOTT OF FOSCOTE,LORD WALKER OF GESTINGTHORPE,LORD CARSWELL,LORD BROWN OF EATON-UNDER-HEYWOOD |
| Judgment Date | 28 March 2007 |
| Neutral Citation | [2007] UKHL 12 |
| Court | House of Lords |
| Date | 28 March 2007 |
[2007] UKHL 12
Appellate Committee
Lord Bingham of Cornhill
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Carswell
Lord Brown of Eaton-under-Heywood
HOUSE OF LORDS
Appellants:
Nicholas Hamblen QC
David Allen
(Instructed by Reed Smith Richards Butler LLP)
Respondents:
Timothy Young QC
Henry Byam-Cook
(Instructed by More Fisher Brown)
My Lords,
The issue in this appeal concerns the assessment of damages for loss of charter hire recoverable by a shipowner where a charterer repudiates a time charter of a vessel during its currency and he accepts that repudiation, there being an available market in which the shipowner can, at or shortly after the date of acceptance of repudiation, charter out the vessel for the balance of the charter term. The dispute between the parties turns on the date at which the quantification of damages is to be made. The shipowners contend that the quantification should be made when, the repudiation having been made and accepted, they charter out (or may reasonably be expected to charter out) the vessel. Events occurring later, not affecting the value of the contractual right which the owner has lost at that time, are irrelevant. The charterers contend that the quantification should be made as of the date on which the damages actually fall to be assessed, taking account of any event which has by then occurred which affects the value of what the owners lost as a result of his repudiation. The maritime arbitrator who was the original decision-maker in this case (Mr Robert Gaisford) would have preferred to accept the owners' contention, but felt constrained by first instance authority to accept the charterers'. His decision was upheld by Langley J in the Commercial Court ( [2005] EWHC 161 (Comm), [2005] 1 All ER (Comm) 467) and by Auld and Tuckey LJJ and Lord Mance in the Court of Appeal ( [2005] EWCA Civ 1190, [2006] 1 WLR 533). A majority of my noble and learned friends also agree with that decision. I have the misfortune to differ. I give my reasons for doing so, unauthoritative though they must be, since in my respectful opinion the existing decision undermines the quality of certainty which is a traditional strength and major selling point of English commercial law, and involves an unfortunate departure from principle.
The facts
By a time charterparty on an amended Shelltime 4 form dated 10 July 1998 Golden Strait Corporation, a Liberian company, as owners chartered their tanker Golden Victory to Nippon Yusen Kubishika Kaisha of Tokyo as charterers for a period of 7 years with one month more or less in charterers' option. The charterparty provided for payment of a minimum guaranteed base charter hire rate per day, increasing over the 7 years of the charter, but subject to a specified reduction if market rates should fall to a certain level. The owners were also to receive a share of operating profits earned by the charterers during the term of the charter above the base charter rate. The charterparty provided (in clause 33) that both owners and charterers should have the right to cancel the charter if war or hostilities were to break out between any two or more of a number of countries including the United States, the United Kingdom and Iraq. The charter was subject to English law and jurisdiction and there was an arbitration clause.
On 14 December 2001 the charterers repudiated the charter by redelivering the vessel to the owners. The owners accepted the repudiation three days later, on 17 December, when the charter had nearly four years to run. The owners claimed damages. The charterers did not accept the claim. The matter was referred to arbitration and the arbitrator was asked to decide whether (and if so when) the charterers had repudiated the charter, whether (and if so when) the owners had accepted the repudiation, and what was the earliest date on which the vessel could be redelivered under the charter. By an Interim Declaratory Award dated 16 September 2002 the arbitrator resolved the first two issues in the owners' favour, as summarised above. He found 6 December 2005 to be the earliest date for contractual redelivery of the vessel. This date was significant as the terminal date of the owners' claim for damages.
The charterers sought unsuccessfully to challenge this Award on appeal, and negotiations then followed for redelivery of the vessel to the charterers on the same terms (so far as material) as before, with settlement of damages for the period between the accepted repudiation and the redelivery. The charterers made an offer to that effect on 7 February 2003. At that stage the owners, according to evidence recited by the arbitrator in the Reasons for his Second Declaratory Arbitration Award (para 8), had received legal advice that if they proceeded to arbitration of their damages claim the arbitrator would ignore a later event of war and the charterers' option to cancel and would award the owners damages for the entire four year period between 17 December 2001 and 6 December 2005. The owners' consultant considered that an event 15 months after the repudiation was irrelevant and that (para 10) "it would be sheer stupidity and not mitigation for us to enter into a charter well below the current market with a clause which entitled the charterer to cancel if there was a war, which seemed to be about to happen". The owners rejected the charterers' offer.
The matter then returned to the arbitrator, who was asked to decide three further questions. The first was whether the owners had failed to mitigate their loss by not accepting the charterers' offer of 7 February 2003 to take the vessel back on charter on the same terms as before. In his Second Declaratory Arbitration Award dated 27 October 2004 he held that they had not. There is no appeal against this ruling. The second issue was that which gives rise to this appeal. It was whether the events (described as the outbreak of the Second Gulf War) in March 2003 placed a temporal limit on the damages recoverable by the owners for the charterers' repudiation of the charterparty such that no damages were recoverable for the period from 21 March 2003 onwards. This issue the arbitrator reluctantly decided in the charterers' favour. The owners say that he was wrong to do so. The third issue was not explored in the reference and is irrelevant for present purposes.
In his reasons for deciding the first of these issues as he did, the arbitrator correctly summarised the law on mitigation of damage where there is an available market, as it was agreed, and the arbitrator found, was the case here.
In his reasons for deciding the second issue as he did, the arbitrator concluded that the Second Gulf War, which effectively began on 20 March 2003, fell within clause 33, as it plainly did. He then considered the likelihood of the Second Gulf War occurring when judged from mid-December 2001 by a reasonably well-informed person. This was an issue on which both sides called expert evidence. He judged (para 59) that at 17 December 2001 such a person would have considered war or large-scale hostilities between the United States or the United Kingdom and Iraq to be not inevitable or even probable but merely a possibility. But by the date of the Award, the war had occurred and the judge accepted the charterers' evidence that if the charterparty had still been in force on 20 March 2003 they would have exercised their right to cancel under clause 33. He had to decide whether that conclusion put a limit on the period of the owners' recoverable loss or whether, as he put it, "the question is what was the value of the contract that the Owners lost on the date it was lost". He observed (para 55) that
"if the Second Gulf War was no more than a possibility on 17 December 2001, it cannot be doubted that what the Owners lost at that date was a charterparty with slightly less than four years to run. For example, had the Charterers not repudiated the Charterparty but the Owners had sold the vessel with her charter on that day, the value they would have received would surely have been calculated on that basis."
He favoured the owners' position (para 56)
"since it seems to me to be the more orthodox approach and supported by cogent reasons for maintaining it. In essence, it does not seem to me that it can be right that the value of that which the Owners have lost (and which is calculable on the date of breach in the then prevailing circumstances) should thereafter vary according to when a determination is made in proceedings to enforce their rights and in perhaps quite different circumstances."
But (para 56) he felt constrained to follow Timothy Walker J's decision in BS & N Ltd (BVI) v Micado Shipping Ltd (Malta) ("The Seaflower") [2000] 2 Lloyd's Rep 37 which he found to be in point and indistinguishable.
Principle
The repudiation of a contract by one party ("the repudiator"), if accepted by the other ("the injured party"), brings the contract to an end and releases both parties from their primary obligations under the contract. The injured party is thereupon entitled to recover damages against the repudiator to compensate him for such financial loss as the repudiator's breach has caused him to suffer. This is elementary law.
The damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed. This is the compensatory principle which has long been recognised as the governing principle in contract. Counsel for the charterers cited certain classical authorities to make good this proposition, but it has been enunciated and applied times without number and is not in doubt. It...
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Table of Cases
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Damages
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Management and Enforcement
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