Judgments - Golden Strait Corporation (Appellants) v. Nippon Yusen Kubishka Kaisha (Respondents)

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    37.  My noble and learned friend Lord Bingham, in what has been rightly described as a strong dissent, has referred (in para 9) to the overriding compensatory principle that the injured party is entitled to such damages as will put him in the same financial position as if the contract had been performed. On the facts of the present case, however, the contract contained clause 33 and would not have required any performance by the Charterers after March 2003. It should follow that, in principle, the owners, the injured party, are not entitled to any damages in respect of the period thereafter. As at the date of the Owners' acceptance of the Charterers' repudiation of the charterparty, the proposition that what at that date the Owners had lost was a charterparty with slightly less than four years to run requires qualification. The charterparty contained clause 33. The Owners had lost a charterparty which contained a provision that would enable the Charterers to terminate the charterparty if a certain event happened. The event did happen. It happened before the damages had been assessed. It was accepted in argument before your Lordships that the Owners' charterparty rights would not, in practice, have been marketable for a capital sum. The contractual benefit of the charterparty to the Owners, the benefit of which they were deprived by the repudiatory breach, was the right to receive the hire rate during the currency of the charterparty. The termination of the charterparty under clause 33 would necessarily have brought to an end that right.

    38.  The arguments of the Owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends Lord Carswell and Lord Brown of Eaton-under-Heywood for coming to the same conclusion.

LORD WALKER OF GESTINGTHORPE

My Lords,

    39.  I have had the privilege of reading in draft the opinion of my noble and learned friend Lord Bingham of Cornhill. His opinion clearly sets out the principles of law applicable in this area, including the importance of certainty in commercial transactions. His survey of the authorities demonstrates, to my mind conclusively, the essential uniformity of reported decisions on charterparties and similar commercial contracts. In particular, none of the judgments in The Mihalis Angelos [1971] 1 QB 164 supports the respondents' case (Megaw LJ was not expressing a minority view, although he expressed his view more plainly than Lord Denning MR and Edmund-Davies LJ). The decision of Mustill J in The Wave [1981] 1 Lloyd's Rep 521 was entirely orthodox.

    40.  The decision of Timothy Walker J in The Seaflower [2000] 2 Lloyd's Rep 37 was rather less clear, but (in agreement with Lord Bingham) I consider that the judge took a view of the facts as they were at 30 December 1997 (the date of the charterers' notice of termination which was held to be unjustified) although he did (at p 44) refer to later events as a confirmation of what was inevitable on 30 December 1997. In that case, at p 44, Timothy Walker J seems to have drawn a distinction between what was "inevitable" and what was "predestined" (the expression used by Megaw LJ in The Mihalis Angelos at p 210). The word "predestined" carries theological implications (a point made by the arbitrator in para 52 of his second declaratory award) but I agree with the arbitrator that Megaw LJ must have been using the word metaphorically. He cannot possibly have meant anything other than "inevitable", in the sense of an event which is predictable with total confidence. In that case the vessel was still unloading in Hong Kong on 17 July 1965 and on that date it was simply impossible that she should be in Haiphong, ready to load, three days later. Timothy Walker J instructed himself (following Lord Denning MR in The Mihalis Angelos at p 196) that he should "take into account all contingencies which might have reduced or extinguished the loss," but he then correctly concluded that there was, at 30 December 1997, only one possible outcome.

    41.  Cases concerned with the assessment of damages in tort for personal injuries are in a quite different category. They are not concerned with economic loss as between traders operating in the marketplace, but with assessing monetary compensation (so far as money can ever provide compensation) for bodily injuries whose long-term effects may be very difficult to predict. In those cases (and especially in cases of very serious injury) it is well understood that the final assessment of damages should be made only on the basis of full and up to date medical evidence. That does not bear on the assessment of damages for breach of a commercial contract in cases where there is an available market.

    42.  For all the reasons given by Lord Bingham I would allow the appeal, and I am not sure that I can usefully say more. I would simply add that this seems to me to be a case in which a new point, not in either party's mind at (or soon after) the date of breach, has taken on a life of its own as the litigation has been prolonged, both at first instance and on appeal. This appears from the full and clear findings of fact made by the arbitrator (Mr Robert Gaisford), including his findings about later negotiations which the charterers relied on in alleging that the owners had failed to mitigate their loss.

    43.  These matters are covered in the early paragraphs of Lord Bingham's opinion but I draw attention to some salient dates. The repudiation by redelivery occurred on 14 December 2001. The original dispute between the parties was as to the effect of a memorandum of agreement dated 17 July 1998 (a few days after the charterparty) which provided for the charterers to have an option for a charter back to the owners' parent company. This dispute (arising out of subsequent changes in the structure of the owners' corporate group) went to arbitration, resulting in a first declaratory award dated 16 September 2002. This declared that the earliest date on which the vessel could have been redelivered under the charterparty was 6 December 2005. The charterers appealed from that award to the Commercial Court, in which Morison J dismissed the appeal on 17 January 2003 ([2003] 2 Lloyd's Rep 572). There were then negotiations between the parties (described in detail in paras 7-16 of the second declaratory award) as to the charterers accepting redelivery of the vessel on the same terms (with an amendment not relating to the war clause). But on 9 January 2003 (when Morison J was still considering his judgment) Mr Martin Benny, acting on behalf of the owners, realised the significance of the war clause (clause 33 of the charterparty), if included (in its amended form) in the proposed new charterparty. The arbitrator described this as follows (para 8):

    "However, when the negotiations were close to fruition, Mr Martin Benny . . . was going through the Charterparty line-by-line when he came across clause 33. His evidence was that as soon as he saw it he thought that the Charterers might try to use the clause in the new Charterparty to throw it up virtually as soon as it was agreed. He felt at that time that war between Iraq and the United States was looking increasingly likely."

    44.  The outcome was that the owners rejected an offer which the charterers made on 7 February 2003 (after Morison J had delivered judgment) and the negotiations broke down (but that did not, as the arbitrator held, amount to a failure on the part of the owners to mitigate their loss). So the possible significance of the war clause was first raised by the owners, in the context of the proposed new charter, more than a year after the original repudiation, and at a time when the prospect of war in the Gulf was emerging as a real threat (hostilities began on 20 March 2003).

    45.  The arbitrator made a finding of fact (para 59) that at 17 December 2001 a reasonably well-informed person would have considered war or large-scale hostilities between the United States (and/or the United Kingdom) and Iraq as "merely a possibility." I do not read that as meaning "less than a 50% prospect." The whole thrust of the arbitrator's findings, after hearing a good deal of evidence, is that it was at the date of repudiation the sort of outside possibility which would, in the commercial world, be severely discounted (or even entirely disregarded). That is strikingly confirmed, I think, by the fact that the war clause does not seem to have received even a passing mention in the first part of the arbitration and the consequent appeal to the Commercial Court. The issue in those proceedings was of course different; but if the charterers had seen the war clause as even a potentially live issue, their lawyers could have been expected to put down a marker as to the need to qualify the arbitrator's unequivocal declaration, upheld in the Commercial Court, that the earliest date for redelivery would have been 6 December 2005.

    46.  In my opinion the arbitrator erred only in not following his own instinct (para 56) towards the owners' "more orthodox" approach. He concluded, wrongly in my view, that The Seaflower required him to look at later events as a guide to what was inevitable, rather than looking at the position (and weighing contingencies in an appropriate case) as at the date of breach. In this case an objective and well-informed observer, looking at the matter in December 2001, would have thought, not only that the prospect of the war clause option becoming exercisable was not inevitable (in the sense of being predictable with confidence equal, or closely approximating, to 100%) but that it was a mere possibility carrying little or no weight in commercial terms.

    47.  I would therefore allow this appeal.

LORD CARSWELL

My Lords,

    48.  The appellants chartered a ship to the respondents by a period time charterparty dated 10 July 1998, by whose terms the earliest contractual date for termination would have been 6 December 2005. The respondents repudiated the charter, however, by purporting on 14 December 2001 to redeliver the vessel to the appellants, who on 17 December 2001 accepted the repudiation. An arbitration was held in which, following some earlier skirmishes, damages for breach fell to be measured. By the time they came to be considered by the arbitrator the second Gulf War had broken out, which would have entitled the charterers to cancel the charter, if it had still been current. The question, which was decided by the arbitrator as a preliminary issue, was whether the damages sustained by the appellants should be measured by reference to the full term of the charter or only up to the date on which such cancellation would have taken place. This issue, on which there is no definitive previous authority, has come before the House as an appeal on the question of law involved.

    49.  By the charterparty, which was on an amended Shelltime 4 form and was subject to two memoranda dated 17 July 1998, the appellant shipowners, Golden Strait Corporation of Monrovia, Liberia, chartered the vessel Golden Victory to the respondents Nippon Yusen Kubishika Kaisha of Tokyo, Japan, for a period of seven years "with one month more or less in Charterers' option". The rate of hire, contained in an agreed memorandum, consisted of, first, a minimum guaranteed base charter rate starting at US$31,500 per day and increasing from year to year, and, secondly, a share in operating profit over and above the base charter rate.

    50.  The war clause contained in the printed Shelltime 4 form was amended by the addition of several countries and a rider, and as amended read:

    "33.  If war or hostilities break out between any two or more of the following countries: USA, former USSR, PRC, UK, Netherlands, Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar, Iraq, both Owners and Charterers shall have the right to cancel this charter. Either party, however, shall not be entitled to terminate this charter on account of minor and/or local military operation or economic warfare anywhere which will not interfere with the vessel's trade."

    51.  Following the redelivery of the vessel to the appellants and their acceptance of the repudiation of the charter, they made a claim for damages against the respondents, who denied liability. The parties referred the dispute to the arbitration in London of a sole arbitrator Mr Robert Gaisford. He found against the charterers on the issue of liability by an interim declaratory award given on 16 September 2002, an appeal from which was dismissed by Morison J, sitting in the Queen's Bench Division (Commercial Court), on 17 January 2003.

    52.  The parties then entered into the issue of damages and asked the arbitrator to determine three further preliminary issues, of which the question before the House was one. Following the dismissal of their appeal on liability, the respondents had made an offer to take the vessel back on charter and entered into negotiations on the measure of damages. When the appellants appreciated that it was apparent that the charter would be terminated under clause 33 of the charterparty on the outbreak of war, which was then increasingly likely to happen, they declined to accept the offer except on terms that excluded clause 33. The arbitrator held that the appellants did not by their refusal to accept the offer made by the respondents fail to mitigate their loss.

    53.  The arbitrator then focused on the issue which is now before the House, whether the outbreak of the second Gulf War on 20 March 2003 placed a temporal limit on the period in respect of which damages fell to be awarded for the breach of the terms of the charterparty. It was not in dispute, and was so found by the arbitrator, that there was an available market for the chartering of such vessels as the Golden Victory, though the appellants claimed that a new fixture could only have commenced earning, following negotiation, on 1 April 2002. The appellants' contention, which they have maintained throughout the sequence of appeals, was that the proper measure of damages was the basic hire which they would have received until the earliest contractual date of termination on 6 December 2005, plus the profit share to which they would, but for the breach, have become entitled in that period, less the amounts which the vessel could have earned in the available market. The respondents claimed, on the other hand, that the damages should run only until the outbreak of the war, when they would, as the arbitrator found, have cancelled the charter.

    54.  The arbitrator received evidence from experts of opposing views as to the likelihood, seen in December 2001, of the occurrence of war between the United States and Iraq. He concluded in paragraph 59 of the reasons given for his second declaratory award made on 27 October 2004:

    "On the evidence, I have concluded that at 17 December 2001, a reasonably well-informed person would have considered war (or large-scale hostilities) between the United States/United Kingdom and Iraq merely a possibility. I do not consider that such a person would have considered it inevitable or even probable but merely a possibility, although I do accept that the degree of probability would have been higher had that person known as much about the prevailing circumstances then as we do today."

He considered the parties' contentions about the period for calculation of the damages and his conclusion, following, not without some reluctance, the decision in BS & N Ltd (BVI) v Micado Shipping (Malta) (The Seaflower) [2000] 2 Lloyd's Rep 37, was that the respondents' contention was correct and that the outbreak of war in March 2003 placed a temporal limit on the damages, none being recoverable for the period from 20 March 2003 onwards.

    55.  The appellants appealed on a point of law to the High Court and in a written judgment given on 15 February 2005 Langley J dismissed their appeal. He examined a number of cases, but was unable to derive direct authority from them on the issue the subject of the parties' contentions. He rejected the appellants' submission founded on statements contained in the judgments in Maredelanto Cia Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164, and expressed his conclusions in paragraph 35 of his judgment:

    "In my judgment the arbitrator was right in his conclusion despite his reluctance to reach it. Essentially and in summary I think: (i) the conclusion accords with the basic compensatory rule for the assessment of damages in that had the charterparty not been repudiated but been performed it would have come to an end upon the outbreak of the second Gulf War; (ii) I can see no sound reason why the ordinary principles requiring a claimant to prove his loss and that it was caused by the impugned conduct of the defendant should not apply in this case nor why the 'normal' approach to assessment of loss derived from the normal approach to mitigation should dictate another result; (iii) I also see no sound reason why there should be an 'exception' to the rule for which Mr Hamblen contends limited only to a case where at the time of repudiation the loss is predestined to end at a date earlier than the expiry of the charter period; (iv) the desirability of certainty and crystallisation is accepted but, I think, no more obviously achievable with than without Mr Hamblen's rule and its supposed exception. The fact is that the charterparty itself contained the uncertainty of the war clause. That was what GSC lost. If Mr Hamblen were right GSC would recover more than the charterparty was worth to it and do so without in fact incurring any greater loss."

    56.  The appellants appealed to the Court of Appeal (Auld and Tuckey LJJ and Lord Mance), which on 18 October 2005 dismissed their appeal. Lord Mance, with whose judgment the other members of the court agreed, also declined to accept the appellants' argument based on The Mihalis Angelos and the emphasis placed by their counsel on the paramountcy of certainty and finality in charter transactions. He expressed the view, first, that it was correct in principle to take into account the subsequent event of the second Gulf War and, secondly, that considerations of certainty and finality

    "would have, so far as necessary, to yield to the greater importance of achieving an assessment of damages and compensation which more accurately reflects the actual loss which the owners can, at whatever is the date of assessment, now be seen to have suffered as a result of the charterers' repudiation."

    57.  Damages for breach of contract are a compensation to the claimant for the loss of his bargain: McGregor on Damages, 17th ed, (2003), para 2-002. He is entitled to be placed, as far as money can do it, in the position which he would have occupied if the contract had been performed: Sally Wertheim v Chicoutini Pulp Co [1911] AC 301, 307, per Lord Atkinson. They should ordinarily be assessed as at the date when the cause of action arose, that is to say, the date of breach: see Chitty on Contracts, 29th ed (2004), vol 1, para 26-057; and cf Johnson v Agnew [1980] AC 367, 400-1, per Lord Wilberforce and the other cases cited by my noble and learned friend Lord Bingham of Cornhill in paragraph 11 of his opinion. The basic rule in the case of repudiation of a charterparty, where there is an available market, is that the loss is measured as at the date of acceptance of the repudiation. The calculation is made on the basis that the injured party can mitigate his loss by going into the market and obtaining a replacement charter as soon as reasonably possible on the best terms available for the balance of the charter period: see Koch Marine Inc v D'Amica Società di Navigazione ARL (The Elena D'Amico), per Robert Goff J. His loss will then be calculated by reference to the extent to which he is worse off in consequence. This will normally be the extra cost of chartering a substitute vessel, if the owner has repudiated the original charter, and any reduction in charter rates if the repudiation was by the charterer. In either case the loss is ordinarily assessed over the remainder of the duration of the original charter.

    58.  At the centre of the appellants' printed case and the persuasive oral argument presented to the House by their counsel Mr Hamblen QC was the proposition that in commercial transactions such as shipping charters the pre-eminent requirement is for certainty, finality and ease of settlement of disputes. There are many judicial statements, going back to Lord Mansfield CJ in Vallejo v Wheeler (1774) 1 Cowp 143, underlining the high importance of certainty in commercial transactions, a number of which have been cited by Lord Bingham in paragraph 23 of his opinion. I do not propose to set these out again, since the principle is so well known and established. Mr Hamblen took as his starting point the rule that where there is an available market the loss is measured at (or close to) the date of acceptance of the repudiation. Applying to that the requirement of certainty, he reasoned that events subsequent to that date are irrelevant in the assessment of the damages, since the loss is crystallised at the date of repudiation and an arbitrator or court should not look at such events in making the assessment. The only exception to this rule was where the subsequent event could be seen at the crystallisation date to be inevitable or "predestined" (the term used by Megaw LJ in The Mihalos Angelos, to which I shall return). In such a case, but not otherwise, it could be shown that at that date the effect of the events which were inevitably going to take place had rendered less valuable the contractual rights lost by the injured party.

    59.  Mr Young QC for the respondents submitted that whereas the appellants' proposition might be regarded as sound in respect of the rate at which the loss is to be calculated, it was incorrect in respect of the duration of that loss. He drew that distinction because on the occurrence of the repudiation the injured party has the opportunity to mitigate his loss by going into the market and making new arrangements as soon as reasonably possible, so that at that point the loss becomes crystallised and one can calculate it over the remainder of the charter period. Where there is a suspensive condition such as a war clause, however, the duration of the charter was always uncertain, depending on a contingency of the occurrence of an event which was by definition within the contemplation of the parties. As Lord Mance said in the Court of Appeal (para 23), the charter always had inherent in it the uncertainty involved in the war clause.

    60.  The cases cited by Lord Bingham in paragraphs 15 to 17 of his opinion are in complete accord with the principle of measuring the loss at a date as near as practicable to the acceptance of the repudiation. In none of these cases was there any suspensive condition which might come into operation, and they each reaffirm the standard rule of crystallisation, which is undoubtedly correct. The issue before the House arises where such a condition may affect the duration of the charter but it cannot be forecast with any certainty whether or when it will operate. Mr Hamblen recognised that an exception may be allowed to permit the occurrence of certain subsequent events to affect the calculation of the injured party's loss, but he argued that the ambit of the exception is limited in the manner which I have set out. In so submitting he relied strongly on a statement by Megaw LJ in The Mihalos Angelos, a decision to which I must now turn.

    61.  Lord Bingham has set out the facts and issues in that case in some detail in paragraph 14 of his opinion and I gratefully adopt his account to avoid unnecessary repetition. The passage from Megaw LJ's judgment on which Mr Hamblen relies is at page 210:

    "If the contractual rights which he [the injured party] has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events."

It is in my opinion important to read this statement in the context of the case which the Court of Appeal was deciding. It was completely certain, or predestined, that the contingency on which the charterers were entitled to cancel the contract would occur, since it was physically impossible for the ship to reach Haiphong by 20 July, the date on which she was to be ready to load at that port and the date on which the charterers could cancel if she was not so ready. Megaw LJ's statement was entirely correct, for the event was predestined to happen and the consequence which he set out in the passage which I have quoted had to be regarded as following. It might be doubted whether Megaw LJ intended to enunciate a general rule limiting consideration of subsequent events to those predestined to happen, seen from the date of acceptance of repudiation, and it may be observed that neither Lord Denning MR nor Edmund Davies LJ went so far as to tie the consideration of subsequent events to those which could be seen at the date of repudiation as certain to happen. If, however, the meaning to be taken from Megaw LJ's statement is that only events predestined to happen will qualify to bring the exception into operation, then I must decline to accept that as correct, for the reasons which I shall set out.

    62.  The decision in The Seaflower has some similarity to that in The Mihalos Angelos. Lord Bingham has set out the facts of this case in paragraph 19, and again I would adopt them and need not repeat them. Timothy Walker J found that it was inevitable that the charter would have come to an end on 26 February 1998, since the Mobil approval could not have been regained by that date and the charterers would have been entitled to cancel. He said specifically at page 44 of the report that he must follow the view expressed by the majority of the court in The Mihalos Angelos and that he could see no reason why in the case before him "the approach should be constrained in the way suggested by Lord Justice Megaw". He went on in the next sentence:

    "If the contract would inevitably have come to an end earlier than its due date anyway, it is right that the damages should be limited accordingly, regardless of whether or not the event was predestined at the date of repudiation."

It appears accordingly that the judge did not hold that it could be said at the date of repudiation that it was inevitable or predestined that the owners would be unable to regain the Mobil approval, which was necessary if the charterers were not to have the right to cancel on that date. It became inevitable at some later date, but it was not so found at the date of repudiation (although no doubt it was highly likely). If it had been, one would have expected the judge to hold that on either test the damages were limited to the period up to 27 February 1998. The arbitrator considered, I think rightly, that Timothy Walker J in The Seaflower took the view which I have attributed to him and that the supervening event was capable of limiting the measure of damages.

 
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