Louis Dreyfus Commodities Suisse SA v Mt Maritime Management BV "Mtm Hong Kong"
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Males,Mr Justice Males |
| Judgment Date | 01 September 2015 |
| Neutral Citation | [2015] EWHC 2505 (Comm) |
| Docket Number | Case No: 2014 Folio 1573 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 01 September 2015 |
[2015] EWHC 2505 (Comm)
The Honourable Mr Justice Males
Case No: 2014 Folio 1573
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Michael Collett QC (instructed by Bentleys, Stokes & Lowless) for the Claimant
Mr Steven Berry QC and Mr Yash Kulkarni (instructed by Lax & Co LLP) for the Defendant
Hearing date: 30 July 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This appeal from maritime arbitrators is concerned with the damages recoverable by a shipowner for repudiation of a voyage charter.
In 1858, when the Court of Exchequer decided the case of Smith v M'Guire (1858) 3 H & N 554, it held that the starting point in ascertaining the shipowner's loss was "the amount of freight which the ship would have earned if the charter-party had been performed" and that from this amount there should be deducted "the expenses which would have been incurred in earning it" together with "what the ship earned (if anything) during the period which would have been occupied in performing the voyage". The case was cited in the first edition of Scrutton on Charterparties (1886) as establishing this as the measure of damage in an action against a charterer for not loading a cargo and, with only minor changes of wording, has been so cited in every edition since then. I shall refer to it, together with the refinements developed in subsequent cases discussed below, as the Smith v M'Guire measure.
In the present case damages awarded in accordance with this measure would have resulted in an award in favour of the shipowner of US $478,386.80. However, the damages awarded by the arbitral tribunal consisting of Mark Hamsher and Patrick O'Donovan as the party appointed arbitrators and Christopher Moss as chairman are US $1,212,316.50, almost three times this amount. The appellant charterers, Louis Dreyfus Commodities Suisse SA, contend that in failing to award damages in accordance with the Smith v M'Guire measure, the arbitrators have made an error of law. They appeal pursuant to section 69 of the Arbitration Act 1996 with the permission of Eder J.
The question of law arising from the award for which permission has been given is:
"If a voyage charter is repudiated by charterers in circumstances where the substitute employment begins after the contract voyage would have begun, and ends after the contract voyage would have ended, should damages be assessed by reference to the vessel's (actual and hypothetical) earnings up to the end of the contract voyage, or such earnings up to the end of the substitute employment?"
Mr Michael Collett QC for the charterers contended that damages should be assessed by reference to the vessel's actual and hypothetical earnings up to, but not beyond, the date when the contract voyage would have ended. He disclaimed any suggestion that this is necessarily an invariable rule, but said that it constitutes the usual measure, from which there is no justification for departing on the facts of this case. Mr Steven Berry QC for the respondent owners submitted that damages should be assessed in accordance with whichever of the alternatives proposed most fairly compensates an owner on the facts for the loss which it has suffered.
The facts
The charterers chartered the "MTM Hong Kong", an oil/chemical tanker of 30,350 SDWT built in the year 2000, from the owners, MT Maritime Management BV, by a voyage charter dated 6 January 2011 on an amended Vegoil form. The charter was for the carriage of a cargo of 1–6 grades of crude/refined vegoil from two safe ports/berths within a range of load ports in South America, to one safe berth at 1–4 safe ports in the Gibraltar-Rotterdam range. The vessel's previous employment had taken her to Boma, an upriver port on the River Congo in the Democratic Republic of Congo, where she suffered a grounding. This led to some delay, and exchanges between the parties, which eventually led to the owners accepting the charterers' latest message as a repudiatory breach which brought the charter to an end.
The greater part of the award dealt with liability. The arbitrators held that the charterparty was repudiated by the charterers, who were therefore liable for damages. That decision has not been challenged.
The arbitrators made the following findings of fact relevant to the issue of damages:
(1) The vessel completed discharge at Boma and commenced her ballast voyage towards the charterparty loading range in South America on 19 January 2011.
(2) The charterparty came to an end on 21 January 2011.
(3) Thereafter the vessel continued to sail towards South America, which the owners considered to be the most promising area in which to find substitute business.
(4) The vessel arrived at Punta del Este in Uruguay on 2 February 2011.
(5) However, the vessel was not fixed until 24 February 2011, when she was fixed to Glencore for a voyage from San Lorenzo in Argentina to Rotterdam with a cargo of sunflower oil and soya methyl ester.
(6) The substitute fixture with Glencore was completed on 12 April 2011 when the vessel completed discharge at Rotterdam.
(7) If the voyage charter had been performed, the voyage would have taken 43.6 days, completing on 17 March 2011. The vessel would then have carried a cargo of urea ammonium nitrate (UAN) from the Baltic to the United States, followed by a chemical cargo from the United States to Europe.
(8) The owners' decision to direct the vessel to South America in an attempt to obtain a substitute cargo and to wait there until the Glencore fixture was concluded was reasonable. A case of failure to mitigate was not pleaded, but even if it had been "could not get off the ground".
Although the award does not spell out two further points, no doubt because they were obvious to all concerned, they are necessarily implicit in the arbitrators' findings and reasoning. The first is that the North Atlantic chemical trade between Europe and the United States commanded higher freight rates than the vegoil cargoes available in South America. Hence the charterers' suggestion to the owners' witness in cross examination, which the arbitrators rejected, that despite the longer ballast voyage (longer by six days) the vessel should have been sent to Europe following the termination of the charter. The second is that the long delay in obtaining a substitute fixture in South America was unexpected. Had it been otherwise, the arbitrators could hardly have found that the decision to go there was reasonable.
The owners' claim
The owners claimed damages consisting of the difference between (a) the profit which the vessel would have earned if not only the contract voyage but also the next two voyages (UAN to the United States and a chemical cargo back to Europe) had been performed and (b) the profit actually earned on the Glencore substitute charter to Europe. Once again the award does not spell this out, but it is implicit that performance of the contract voyage followed by the next two voyages would have brought the vessel back to Europe at about the same time as the completion of discharge under the Glencore fixture.
The charterers disputed this method of calculating the owners' damages, contending that it was wrong as a matter of law to take into account the position up to the end of the substitute fixture which had terminated long after the charter voyage itself would have terminated. They argued that the correct approach was to apportion the earnings under the substitute charter so as to reflect the amount earned up to the date on which performance of the voyage charter between the parties would have been completed.
The award
The arbitrators accepted the owners' case. In so doing they found that the loss claimed by the owners had been caused by the charterers' breach, that the problems which sometimes arise in determining what a vessel's future employment would have been did not arise in this case, and (as already noted) that the owners acted reasonably at all times. They determined, therefore, that the loss claimed had actually been suffered by the owners, that damages ought to be awarded accordingly in order to compensate the owners, and that there was no rule of law which prevented the full application of the compensatory principle by limiting damages by reference to the period when the contract voyage would have come to an end. They stated the position in paragraph 121 of the award as follows:
"In principle we agreed with the submission made on behalf of the Owners that there is no rule of law which requires that assessment of the damages due to an owner must be made simply by reference to what would have been earned under the repudiated charterparty and that it is therefore permissible to look beyond the date on which the repudiated charterparty would have ended if to do so enables an arbitration tribunal to more fairly judge the loss actually suffered by the innocent party for the purposes of applying the compensatory principle."
I should refer to two passages in the award which, according to the charterers, demonstrate a fallacy in the arbitrators' reasoning. First, in paragraph 109, the arbitrators described the problem with which they had to grapple in the following terms:
"As we have noted, the problem in assessing the Owners' damages in the present case arose from the fact that following the termination of the charterparty the vessel was idle at Punta del Este from 2 nd to 24 th February. They [the owners] argued that...
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