Omak Maritime Ltd v Mamola Challenger Shipping Company Ltd

JurisdictionEngland & Wales
JudgeMr. Justice Teare
Judgment Date21 September 2010
Neutral Citation[2010] EWHC 2026 (Comm)
Docket NumberCase No: 2009 FOLIOS 1596 AND 1630
CourtQueen's Bench Division (Commercial Court)
Date21 September 2010

[2010] EWHC 2026 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

IN AN ARBITRATION CLAIM

Before: Mr. Justice Teare

Case No: 2009 FOLIOS 1596 AND 1630

Between
Omak Maritime Ltd.
Claimant (Respondent in the Reference)
and
Mamola Challenger Shipping Co.
Defendant (Claimant in the Reference)
And Between
Mamola Challenger Shipping Co.
Claimant (Claimant in the Reference)
and
Omak Maritime Ltd.
Defendant (Respondent in the Reference)

Timothy Young QC (instructed by Stephenson Harwood) for Omak Maritime Ltd

Timothy Brenton QC and Charles Holroyd (instructed by MFB Solicitors) for Mamola Challenger Shipping Co.

Hearing dates: 13,14 and 18 May 2010

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.

MR.JUSTICE TEARE

Mr. Justice Teare

Mr. Justice Teare:

1

This is an appeal by Omak Maritime Ltd. (“the Charterers” and Respondents in the reference) from an award of an LMAA tribunal in favour of Mamola Challenger Shipping Co.Ltd. (“the Owners” and Claimants in the reference) which concerns the true basis in law of the principle which permits a contracting party to claim, as damages for breach of contract, expenditure which has been wasted as a result of a breach of that contract.

2

The question is raised in the context of a long term charterparty which was terminated as a result of the Owners' acceptance of the Charterers' repudiatory breach of the charterparty. The charterparty was repudiated by the Charterers in unusual circumstances. The market rate of hire was higher than the charterparty rate of hire. In such circumstances one would usually expect the Charterers to wish to retain the benefit of the charterparty. As a result of the Owners' acceptance of the Charterers' breach the Owners were able to trade the vessel at the higher market rate and were not restricted to trading the vessel at the lower contract rate. They nevertheless claimed damages, namely, the expenses they had incurred in preparing to perform the charterparty. The arbitral tribunal held that the Owners were entitled to do so notwithstanding that the tribunal held, as a fact, that the Owners “did not…..suffer any net loss in this case and that they “more than recuperated the losses they claim in this arbitration”. Mr. Young QC, counsel for the Charterers, has submitted on this appeal that the tribunal erred in law. Mr. Brenton QC, counsel for the Owners, has submitted that the decision of the tribunal was correct in law.

3

There is also a cross-appeal by the Owners which only arises in the event that the tribunal's decision was right in law.

The facts as found by the tribunal

4

Mr. Brenton summarised the facts as found by the tribunal as follows:

i) The Charterers agreed to charter the Owner's vessel MAMOLA CHALLENGER for 5 years. Under the charterparty the Owners were required to make certain modifications to the vessel prior to delivery which included the installation of a new crane.

ii) The Owners incurred various expenses in preparation for these modifications, including the cost of removing from another vessel the crane which Owners intended to install on MAMOLA CHALLENGER. (The removal took place at Port Gentil, Gabon, on 27 and 28 December 2006.) When doubts arose as to whether the Charterers would perform the fixture, the Owners held the vessel at Cape Town (where they intended to do the works) pending clarification of the Charterers' position. (The vessel arrived at Cape Town on 19 January 2007 and waited until 30 January 2007.)

iii) Ultimately the Owners accepted the Charterers' conduct as bringing the Charter to an end (on 29 January 2007). The expenses which the Owners had incurred were wasted; they had no residual value or benefit for the Owners.

iv) After the repudiation of the Charterparty the Owners concluded a number of short-term fixtures. (The vessel arrived at Luanda, Angola, on 5 February 2007 where she was delivered into the first of such fixtures.) The tribunal has held that, over the 5 year term for which the Charterparty would have run, the Owners have earned, or will earn, more from these fixtures than they would have earned under the Charterparty, and the excess is greater than the amount of the wasted expenditure.

5

The circumstances in which the Charterers repudiated the charterparty were these. The original intention was for the vessel to be chartered by the Owners to Shell Nigeria Exploration & Production Company Limited (“Snepco”) but in order to comply with local laws and regulations it was necessary to include a local Nigerian company in the venture and it was consequently arranged for the Charterers to charter the vessel from the Owners and sub-charter her to Snepco. The charterparty between the Owners and the Charterers was concluded but Snepco could not or would not enter into a sub-charterparty without the approval of the National Petroleum Investment Management Services (“Napims”). No such approval was forthcoming. The Charterers defended themselves against the Owners' claim for damages by arguing, first, that Snepco approval was a condition precedent to the charterparty and, second, that the lack of approval from Napims frustrated the charterparty. Both arguments were rejected by the tribunal.

6

The rate of hire under the charterparty was US$13,700 per day whereas the market rate of hire was US$21,347. Thus as a result of the termination of the charterparty the Owners were able to earn about $7,500 per day more than they would have earned under the charterparty.

7

The Owners claimed as damages a sum in excess of $675,000 which they claimed were expenses which had been wasted. The tribunal awarded the Owners damages in the sum of $86,534.

8

The tribunal said this in support of its decision:

“[The expenses] were simply wasted as a result of the termination of the contract by the other party. The fact that the vessel might have been occupied in more gainful employment as a result of the termination of the Charterparty by the Charterers is not a matter to be brought into account on the authority of C&P Haulage [ v Middleton [1983] 1 WLR 1461]. The expenses, such as they were, were wasted in preparing for the Charterparty and were rendered irrecoverable not by any provision of the Charterparty but as a result of its termination. It seems to us that to take the Charterers' position and look at the net overall position is to mix this basis of claim with a claim based on the difference between contract and market rates inasmuch as the latter contains within it the concept of what the vessel should have earned overall from substitute employment as compared with what would have been earned under the Charterparty.”

The opposing arguments

9

Mr. Young submitted that the tribunal's decision was wrong in law. His argument was simple. The Owners had in fact suffered no loss by reason of the Charterers' breach because the market rate of hire was higher than the charter rate of hire and therefore the Owners “more than recuperated the losses they claim in this arbitration”. In those circumstances the decision to award any damages to the Owners (other than nominal damages) breached the principle that awards of damages for breach of contract are compensatory (see The Golden Strait Corpn. v NYKK (“The Golden Victory”) [2007] 2 AC 353) and are designed to put the innocent party in the position he would have been in had the contract been performed (see Robinson v Harman (1848) 1 Exch.850) rather than the position he would have been in had no contract been made (see C&P Haulage v Middleton [1983] 1 WLR 1461). Where the innocent party receives a benefit which flows directly from the breach that benefit must be taken into account in assessing damages for that breach (see British Westinghouse v Underground Electric Railways [1912] AC 673.)

10

Mr. Brenton submitted that the tribunal's decision was right in law. His argument was, perhaps, not as simple but was nevertheless principled. Where the law protects a party's “negative” or “reliance” interest, as where wasted expenditure is claimed, the benefit flowing from the substitute employment cannot be taken into account to reduce or extinguish a claim for wasted expenditure. Robinson v Harman does not require that benefit to be taken into account since it is concerned with the protection of a party's “positive” or “expectation” interest. It is only when the law is protecting that interest that it is appropriate to compare a party's actual position with the position had the contract been performed. Robinson v Harman does not provide a rational and sensible explanation for the award of damages in a wasted expenditure case. Mr. Brenton accepted that the principle in British Westinghouse applied to claims for injury to a claimant's negative interest but submitted that, properly applied, it did not prevent the claimant from recovering expenditure wasted as a result of the breach of contract. By entering into the charterparty the Owners not only committed themselves to expenditure which was wasted by the Charterers' breach but also gave up the opportunity to charter the vessel at the market rate. That sacrifice was also wasted by the breach. By chartering the vessel out at the market rate after the charterparty had been terminated the Owners ensured that their sacrifice had in fact caused them no loss from the date on which the vessel was employed at the market rate. But such earnings did not compensate them for their expenditure which had been incurred before that date and which therefore remained “wasted”.

Discussion

11

It is necessary to start with Robinson v Harman (1848) 1 Exch. 850. The plaintiff sought damages for breach of a contract to grant a lease. The...

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