Sotiros Shipping Inc. v Sameiet Solholt

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS
Judgment Date11 March 1983
Judgment citation (vLex)[1983] EWCA Civ J0311-3
Docket Number83/0115
CourtCourt of Appeal (Civil Division)
Date11 March 1983
Sotiros Shipping Inc. and Aeco Maritime S.A.
Appellants (Plaintiffs)
and
Sameiet Solholt
Respondents (Defendants)

[1983] EWCA Civ J0311-3

Before:

The Master of the Rolls

(Sir John Donaldson)

Lord Justice Dillon

and

Sir George Baker

83/0115

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION (COMMERCIAL COURT)

(MR. JUSTICE STAUGHTON)

Royal Courts of Justice.

MR. J. SUMPTION (instructed by Messrs. William A. Crump & Son) appeared on behalf of the Appellants.

MR. G. POLLOCK, Q.C. and MR. B. REYNOLDS (instructed by Messrs. Sinclair Roche & Temperley) appeared on behalf of the Respondents.

THE MASTER OF THE ROLLS
1

This judgment is that of the court.

2

In May 1979 the respondents, Samiet Solholt, a Norwegian concern akin to a partnership, agreed to sell their vessel "Solholt" to the appellants, Sotiros Shipping Inc., a Greek concern. The contract was on the Norwegian Sale Form and called for delivery not later than the 31st August, 1979, failing which the buyers were to have a right of cancellation. The sellers wished to use the vessel for as long as possible before delivery but miscalculated the last voyage and were unable to deliver her until a day or two later. The buyers exercised their contractual right of cancellation on the 3rd September, 1979.

3

Normally if a buyer exercises such a right of cancellation, it can be assumed that the market has fallen and that at the date of delivery the ship was worth less than the contract price. This was not so in the present case. The contract price was U.S. $5 million and it is now agreed that the market value of the vessel on the 31st August was U.S. $5.5 million. Why the buyers should have cancelled is something of a mystery, but it is possible that they thought that the wing tanks were defective and, if that had been the case, the vessel might well have been worth less than the contract price. Alternatively they may have thought that the sellers would have been sufficiently anxious to sell for it to be possible to negotiate a lower price and, after cancelling the contract, they did in fact offer to buy the vessel for U.S. $4.75 million. It is this combination of a rise in market value coupled with cancellation which has created an unusual situation and may have created unusual consequences in law.

4

Mr. Justice Staughton in a judgment given on the 18th June, 1981 held that (a) the sellers were in default in failing to deliver the vessel on or before the 31st August, 1979 and (b) the measure of damages or contractual compensation to which the buyers were prima facie enetitled was the difference between the market value of the vessel and the contract price, i.e. U.S. $500,000. However, he dismissed the buyers' claim on the grounds that they had failed to mitigate their loss by negotiating a further contract for the purchase of the vessel at the original contract price. It is against that decision that the buyers appeal. The respondent sellers would, if necessary, have raised various other issues, but in the first instance the argument was confined to this point and assumed that, but for the question of mitigation, the buyers were indeed entitled to recover U.S. $500,000.

5

Mr. Sumption has appeared for the buyers. His broad point is this. The sellers were in breach of contract in failing to deliver the vessel by the due date. If they had delivered by that date, his clients would have acquired a vessel worth U.S. $5.5 million at a cost of U.S. $5 million. It is trite law that in deciding whether or not to exercise a right to cancel the contract in such circumstances, the buyer need have no regard to the fact that in the absence of cancellation he would suffer no loss. If he cancels, the loss will be attributable to the sellers' breach of contract and not to the cancellation. How comes it then that having cancelled the contract and suffered a loss of U.S. $500,000, the buyers are expected, in effect, to reverse their decision to cancel by entering into a new contract at the same price as the old and to do so purely because this will eliminate their loss?

6

As the learned judge recognised, it is a good question. The result is that the sellers have made an uncovenanted profit of at least U.S. $500,000 as a result of their own breach of contract and the buyers have sustained an equivalent irrecoverable loss. However we agree with the learned judge in thinking that there are good answers. Let is be said at once, in order to get it out of the way, that we are concerned with the buyers' loss and not with the sellers' profit, the latter being wholly irrelevant.

7

A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase "duty to mitigate". He is completely free to act as he judges to be in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff's loss as is properly to be regarded as caused by the defendants' breach of duty. As Viscount Haldane, L.C. put it in British Westinghouse Company v. Underground Railway (1912) Appeal Cases 673, 689:

"The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps."

8

As we have already accepted as being trite law, the buyers had an unfettered right in the circumstances of this case to affirm the original contract of sale or to cancel it. No question of mitigation arose at that stage. They decided to cancel and in consequence they suffered a loss of U.S. $500,000. As a matter of causation, this loss, unless avoidable by some reasonable further action, was directly attributable to the sellers' breach of contract. The learned judge held that it was in fact avoidable by further action and that such action would have been reasonable. It is nothing to the point that this further action might, in effect, have reversed the cancellation of the old contract. We say might because the new contract which the learned judge held that the buyers could and should have made might not have been on the same terms as to price although, on the evidence, he held that it would have been.

9

Whether a loss is avoidable by reasonable action on the part of the plaintiff is a question of fact not law. This was decided in Payzu v. Sanders (1919) 2 King's Bench 581. There the sellers wrongly refused to deliver goods which had been sold on credit terms, thereby repudiating the contract. They then offered to make a new contract on cash terms. In a sense this may be said, albeit somewhat inaccurately, to have been an offer to reinstate the old contract. Certainly it was a reversal by the sellers of their refusal to deliver. The buyers refused to buy on...

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