Golden Strait Corporation v Nippon Yusen Kubishika Kaisha
| Jurisdiction | England & Wales |
| Judge | Auld,Tuckey L JJ,Lord Mance |
| Judgment Date | 18 October 2005 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 October 2005 |
Court of Appeal (Civil Division).
Auld and Tuckey L JJ and Lord Mance.
Nicholas Hamblen QC and David Allen (instructed by Richards Butler) for the appellant.
Timothy Young QC and Henry Byam-Cook (instructed by More Fisher Brown) for the respondent.
The following cases were referred to in the judgment of Lord Mance:
Allied Maples Group Ltd v Simmons & SimmonsWLR[1995] 1 WLR 1602.
Arta Shipping Co Ltd v Thai Europe Tapioca Service Ltd (The Johnny)UNK[1977] 2 Ll Rep 1.
BS & N Ltd v Micado Shipping Ltd (Malta) (The Seaflower) (No. 2)[2000] CLC 802.
Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks CoELR[1903] AC 426.
Dampskibsselskabet Norden A/S v Andre & Cie SAUNK[2003] EWHC 84 (Comm); [2003] 1 Ll Rep 287.
Johnson v AgnewELR[1980] AC 367.
Koch Marine Inc v d'Amica Societa de Navigazione ARL (The Elena d'Amico)UNK[1980] 1 Ll Rep 75.
Maredelanto Co Nav SA v Bergbau-Handel GmbH (The Mihalis Angelos)ELR[1971] 1 QB 164.
North Sea Energy Holdings NV v Petroleum Authority of ThailandUNK[1999] 1 Ll Rep 483.
Woodstock Shipping Co v Kyma Co Nav SA (The Wave)UNK[1981] 1 Ll Rep 521.
Shipping Time charter Repudiation Damages War clause Charterparty for seven year period Charterer re-delivered vessel after three years in repudiatory breach Shipowner sought damages calculated from date of breach for full term of charter Charter contained war clause and second Gulf war broke out 14 months after repudiation Charterer could and would have cancelled relying on war clause Damages not to be assessed at date of breach for balance of term of charter Compensatory rule for assessment of damages Arbitrator right to take outbreak of second Gulf war into account when assessing damages recoverable by owner.
This was an appeal by shipowners from the decision of Langley J ([2005] 1 CLC 138) that damages for repudiatory breach by charterers of a long-term time charter had to take account of the fact that charterers would have cancelled the charter on the outbreak of the second Gulf War.
The charterparty was made between Golden Strait Corp as owners of the tanker Golden Victory and Nippon Yusen Kabushiki Kaisha as charterers for a period of seven years (one month more or less in charterers' option). The charter contained an Outbreak of War clause which gave owners and charterers the right to cancel if war or hostilities broke out between any two or more of the following countries: USA, former USSR, PRC, UK, Netherlands, Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar and Iraq.
The earliest contractual date for redelivery of the vessel under the charter was 6 December 2005. The charterers repudiated the charter by purporting on 14 December 2001 to redeliver the vessel to the owners, who accepted the repudiation. The owners claimed for the hire they would have received until December 2005 but the arbitrator considered that the charterers would on the evidence have cancelled the charter under the war clause after the second Gulf War broke out in March 2003 and that the recovery of damages should be limited accordingly.
The owners' case was that damages fell to be measured as at or very shortly after the date of breach, and that subsequent events were irrelevant, at least unless they could be said to have been inevitable, or perhaps probable, at the date of breach.
Held, dismissing the appeal:
1. The proposition that damages should be measured as at the date of breach was neither the most basic nor an invariable principle. The general principle for the assessment of damages was compensatory. (Johnson v AgnewELR[1980] AC 367applied.)
2. The charter always had inherent in it the uncertainty involved in the war clause. In many circumstances, that uncertainty could be disregarded, e.g. if damages were being assessed after the end of the original charter period and no relevant war had occurred, or if damages were being assessed during the original charter period on the basis that there was no significant prospect of any such war. In other circumstances, if damages were being assessed during the original charter period, account might have to be taken of the contingency that a war might occur, and consideration would then also have to be given to whether or not charterers would in that event probably cancel. (Maredelanto Co Nav SA v Bergbau-Handel GmbH (The Mihalis Angelos)ELR[1971] 1 QB 164andNorth Sea Energy Holdings NV v Petroleum Authority of ThailandUNK[1999] 1 Ll Rep 463considered.)
3. Certainty, finality and ease of settlement were important general considerations, but the element of uncertainty, resulting from the war clause, meant that the owners were never entitled to absolute confidence that the charter would run for its full seven year period. They never had an asset which they could bank or sell on that basis. There was no reason why the transmutation of their claims to performance of the charter into claims for damages for non-performance of the charter should improve their position in that respect. The assessment of damages often depended on, or was informed by, subsequent events. The need to take into account the fact of the second Gulf War was simply another instance. Therefore considerations of certainty, finality and ease of settlement had, so far as necessary, to yield to the greater importance of achieving an assessment of damages and compensation which more accurately reflected the actual loss which the owners could, at whatever was the date of assessment, be seen to have suffered as a result of the charterers' repudiation.
4. The normal approach to mitigation, taking the cost of any substitute available on the market, did not dictate any other result.
Lord Mance:
1. 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?
2. The arbitrator, Mr Robert Gaisford, would have measured them by reference to the full term in his award dated 27th October 2004, had he not felt constrained to take the shorter term by first instance authority (BS & N Ltd v Micado Shipping Ltd (Malta) (The Seaflower) (No. 2)[2000] CLC 802 (Timothy Walker J). However, on appeal to the Commercial Court, Langley J by judgment and order dated 15th February 2005 ([2005] 1 CLC 138) 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.
3. The factual background can be shortly summarised. The charterparty was dated 10th July 1998 and was subject to two memoranda, Nos. 1 and 2, both dated 17th July 1998. It was made between Golden Strait Corporation as owners of the tanker Golden Victory and Nippon Yusen 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 twovoyages by additional charter hire in an amount (the Shared Profit) equal to fifty percentof the excess (the Profit) of actual nett daily time charter returns by the Charterers for such twovoyages as determined according to this Clause over the Base Charter Hire for such twovoyagesi.e.: (Minimum Guaranteed Base Charter Hire Rate) x (Days of actual On-Hire during such quarter).
4. 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.
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