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|Judgments - Golden Strait Corporation (Appellants) v. Nippon Yusen Kubishka Kaisha (Respondents)|
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Golden Strait Corporation (Appellants) v. Nippon Yusen Kubishka Kaisha (Respondents)
 UKHL 12
LORD BINGHAM OF CORNHILL
1. 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 ( EWHC 161 (Comm),  1 All ER (Comm) 467) and by Auld and Tuckey LJJ and Lord Mance in the Court of Appeal ( EWCA Civ 1190,  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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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
He favoured the owners' position (para 56)
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")  2 Lloyd's Rep 37 which he found to be in point and indistinguishable.
8. 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.
9. 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 does not, however, resolve the question whether the injured party's loss is to be assessed as of the date when he suffers the loss, or shortly thereafter, in the light of what is then known, or at a later date when the assessment happens to be made, in the light of such later events as may then be known.
10. An injured party such as the owners may not, generally speaking, recover damages against a repudiator such as the charterers for loss which he could reasonably have avoided by taking reasonable commercial steps to mitigate his loss. Thus where, as here, there is an available market for the chartering of vessels, the injured party's loss will be calculated on the assumption that he has, on or within a reasonable time of accepting the repudiation, taken reasonable commercial steps to obtain alternative employment for the vessel for the best consideration reasonably obtainable. This is the ordinary rule whether in fact the injured party acts in that way or, for whatever reason, does not. The actual facts are ordinarily irrelevant. The rationale of the rule is one of simple commercial fairness. The injured party owes no duty to the repudiator, but fairness requires that he should not ordinarily be permitted to rely on his own unreasonable and uncommercial conduct to increase the loss falling on the repudiator. I take this summary to reflect the ruling of Robert Goff J in Koch Marine Inc v D'Amica Società di Navigazione ARL (The "Elena D'Amico")  1 Lloyd's Rep 75. That case concerned the measure of damages recoverable by a charterer for breach of a time charter during its currency by an owner. While taking care to avoid laying down an inflexible or invariable rule, the judge held (p 89, col 2) that if, at the date of breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. An analogy was drawn with section 51(3) of the Sale of Goods Act 1893. Neither party challenged this decision, which has always been regarded as authoritative. It does however assume that the injured party knows, or can ascertain, what the balance of the charter period is.
11. It is a general, but not an invariable, rule of English law that damages for breach of contract are assessed as at the date of breach. Authority for this familiar proposition may be found in Jamal v Moolla Dawood Sons & Co  AC 175, 179: Miliangos v George Frank (Textiles) Ltd  AC 443, 468; Johnson v Agnew  AC 367, 400-401; Dodd Properties (Kent) Ltd v Canterbury City Council  1 WLR 433, 450-451, 454-455, 457; County Personnel (Employment Agency) Ltd v Alan R Pulver & Co  1 WLR 916, 925-926; Chitty on Contracts, 29th ed (2004), vol 1, para 26-057; Professor S M Waddams, "The Date for the Assessment of Damages", (1981) 97 LQR 445, 446. The Sale of Goods Acts of 1893 and 1979 both give effect to this prima facie rule in section 51(3) of the respective Acts in the case of refusal or neglect by a seller to deliver goods to a buyer where there is an available market.
12. While not, I think, challenging the general correctness of the principles last stated, the charterers dispute their applicability to the present case. Their first ground for doing so is in reliance on what, from the name of the case in which this principle has been most clearly articulated, has sometimes been called "the Bwllfa principle". It is that where the court making an assessment of damages has knowledge of what actually happened it need not speculate about what might have happened but should base itself on the known facts. In non-judicial discourse the point has been made that you need not gaze into the crystal ball when you can read the book. I have, for my part, no doubt that this is in many contexts a sound approach in law as in life, and it is true that the principle has been judicially invoked in a number of cases. But these cases bear little, if any, resemblance to the present. In Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Company  AC 426 a coalowner claimed statutory compensation against a water undertaking which had, pursuant to statutory authority, prevented him mining his coal over a period during which the price of coal had risen. The question was whether the coal should be valued as at the beginning of the period or at its value during the currency of the period. The coalowner was entitled to "full compensation" and the House upheld the latter measure. In doing so, it was at pains to distinguish the case from one of sale or property transfer: see Lord Halsbury LC, pp 428-429; Lord Macnaghten, p 431; Lord Robertson, p 432. In re Bradberry  Ch 35, where the principle was invoked, concerned the valuation of an annuity in the course of administering an estate. The claim in Carslogie Steamship Co Ltd v Royal Norwegian Government  AC 292 was a claim by shipowners for loss of time during repairs of damage caused by a collision. After the collision the ship had suffered heavy weather damage, which required the ship to be detained for repair of that damage. It was common ground that the ship would have been detained for the same period if the collision had never occurred (p 313). In In Re Thoars Deceased ( EWHC 2416(Ch), unreported, 15 November 2002) the principle was invoked in the course of deciding whether a policy of life insurance had been transferred at an undervalue within the meaning of section 339 of the Insolvency Act 1986. The principle was again invoked in McKinnon v E Survey Ltd ( EWHC 475 (Ch), unreported, 14 January 2003), a claim against negligent surveyors in which the court was asked to assume, for purposes of a preliminary issue, that the property had not been the subject of movement at the date of valuation and had not been subject to movement since, but that it would not have been possible to establish these facts until after the purchase of the property. In Aitchison v Gordon Durham & Company Limited (unreported, 30 June 1995) the Court of Appeal applied the principle where a joint venture agreement to develop land had been broken and the court took account of what actually happened to decide what the claimant's profit would have been. I do not think it necessary to discuss these cases, since it is clear that in some contexts the court may properly take account of later events. None of these cases involved repudiation of a commercial contract where there was an available market.
13. The charterers further submit that even if, as a general rule, damages for breach of contract (or tort, often treated as falling within the same rule) are assessed as at the date of the breach or the tort, the court has shown itself willing to depart from this rule where it judges it necessary or just to do so in order to give effect to the compensatory principle. I accept that this is so. But it is necessary to consider the cases in which the court departs from the general rule. Some are personal injury claims, of which Curwen v James  1 WLR 748 and Murphy v Stone-Wallwork (Charlton) Ltd  1 WLR 1023 may serve as examples. Dudarec v Andrews  EWCA Civ 256,  1 WLR 3002 was in form a negligence claim against solicitors, but damages were sought for the loss of a chance of success in a personal injuries action struck out for want of prosecution seven years earlier, and the issue was similar to that in a personal injuries action. It is unnecessary to consider the extent to which, in the light of Baker v Willoughby  AC 467 and Jobling v Associated Dairies Ltd  AC 794, the breach date principle applies to the assessment of personal injury damages in tort. The court has also departed from the general rule in cases where, on particular facts, it was held to be reasonable for the injured party to defer taking steps to mitigate his loss and so reasonable to defer the assessment of damage. Radford v De Froberville  1 WLR 1262 and Dodd Properties (Kent) Ltd v Canterbury City Council  1 WLR 433 are examples. In both cases the general rule was acknowledged and reasons given for departing from it. County Personnel (Employment Agency) Ltd v Alan Pulver & Co  1 WLR 916 was a claim against solicitors whose negligent advice had saddled the plaintiffs with a ruinous underlease, from which the plaintiffs had had to buy themselves out. The ordinary diminution in value measure of damage was held to be wholly inapt on the particular facts. Again, reasons were given for departing from the normal rule. In Miliangos v George Frank (Textiles) Ltd  AC 443 the effect of inflation led the House to sanction a departure from the rule that losses sustained in a foreign currency must be converted into sterling at the date of breach. The plaintiff in Re-Source America International Ltd v Platt Site Services Ltd  EWCA Civ 97,  2 Lloyd's Rep 50 was bailee of spools used to carry optic fibre cables which it was to refurbish. The spools were destroyed by fire. It was held to be entitled to recover the cost of replacing the spools, subject to a deduction based on the saved cost of refurbishment. The Court of Appeal took account of what happened after the fire. It was expressly found (para 5) that there was no available market in used spools, so the plaintiff could not have mitigated its loss by replacing them. Sally Wertheim v Chicoutimi Pulp Company  AC 301, cited by the charterers, was not a case of non-delivery or refusal to deliver, but of delayed delivery. The goods, although delivered late, were received and there was no accepted repudiation. The case would not have fallen under section 51(3) of the 1893 Act. The buyer made a claim for damages, based on the difference between the market price at the place of delivery when the goods should have been delivered and the market price there when the goods were in fact delivered. It was apparent on the figures that this claim, if successful, would have yielded the plaintiff a much larger profit than if the contract had not been broken, and he was compensated for his actual loss. None of these cases, as is evident, involves the accepted repudiation of a commercial contract such as a charterparty. It is necessary to consider some cases more similar to the present case to which the House was referred.
14. Considerable attention has been paid to the decision of the Court of Appeal (Lord Denning MR, Edmund Davies and Megaw LJJ) in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH ("The Mihalis Angelos")  1 QB 164. The case concerned a voyage charterparty by which the ship was fixed to sail to Haiphong and there load a cargo for delivery in Europe. In the charterparty dated 25 May 1965 the owners stated that the ship was "expected ready to load under this charter about July 1, 1965". The charterparty also provided, in the first sentence of the cancelling clause, "Should the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel's expected arrival at port of loading". On 17 July 1965 the ship was at Hong Kong still discharging cargo from her previous voyage. It was physically impossible for her to finish discharging and reach Haiphong by 20 July. The charterers gave notice cancelling the charter. The owners treated this as a repudiation and claimed damages, which were the subject of arbitration and of an appeal to Mocatta J. On further appeal, there were three issues. The first was whether the "expected readiness" clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. All three members of the court decided this issue in favour of the charterers and against the owners. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling on 17 July, three days before the specified 20 July deadline. Lord Denning held that they had not, but Edmund Davies and Megaw LJJ held that they had. The third issue was as to the damage suffered by the owners, on the assumption that the charterers' premature cancellation had been a repudiation. Lord Denning, in agreement with the arbitrators, who were themselves agreed, held that they had suffered no damage (p 197):
Edmund Davies LJ agreed (p 202):
Megaw LJ (at pp 209-210) stated:
It is evident that all members of the court were viewing the case as from the date of acceptance of the repudiation (although only Megaw LJ said so in terms). They were not taking account of later events. They were recognising, as was obvious on the facts as found, that the value of the contractual right which the owners had lost, as of the date of acceptance of the repudiation, was nil because the charter was bound to be lawfully cancelled three days later.
15. If, as I think, the Court of Appeal's decision on the third issue in the Mihalis Angelos was entirely orthodox, so was the decision of Mustill J in Woodstock Shipping Co v Kyma Compania Naviera SA ("The Wave")  1 Lloyd's Rep 521. This concerned a time charter for 24 months, 3 months more or less at charterers' option. The owners repudiated the charter and the charterers accepted their repudiation on 2 August 1979. In assessing the charterers' loss, and allowing for their ability to obtain a substitute fixture in the available market shortly after the date of the accepted repudiation, in accordance with the ruling in the Elena D'Amico, above, the judge compared the charterparty rate with the market rate in the early days of September 1979, declining to speculate whether market rates in September 1981 would induce the charterers to exercise their three month option one way or the other.
16. SIB International SRL v Metallgesellschaft Corporation ("The Noel Bay")  1 Lloyd's Rep 361 concerned a voyage charterparty. The charterers repudiated the charterparty and the owners accepted the repudiation on 3 June 1987. On appeal to the Court of Appeal, Staughton LJ accepted (p 364, col 2) the submission of counsel that the value of the contract which the owners lost "must be assessed as at June 3, the date when repudiation was accepted". He went on to quote, with approval, the passage from the judgment of Megaw LJ in the Mihalis Angelos which I have set out in para 14 above.