December 2005
Golden Strait Corporation -v- Nippon Yusen Kubishiki Kaisha [2005] EWCA Civ 1190
The Court of Appeal (Lord Justices Auld, Tuckey and Manse - the matter was heard before his recent elevation) have handed down judgment on, in their own words, "a point of some novelty and difficulty".
The novel and difficult point being - if, after an accepted repudiation, an unexpected event occurs which means that the original charter would not have run its full term, are damages to be measured by reference to the full term or should damages take into account that owners would in fact have only had the benefit of a shorter term?
This particular case arises from repudiation of a long term time charter by Charterers in 2001, some 4 years early. Owners accepted the repudiation as bringing the charter to an end and sought damages. Subsequently, but prior to the assessment of damages taking place, the second Gulf War occurred, in March 2003. The charter had contained an option for either party to cancel in the event of war breaking out between, inter alia, the USA, the UK and Iraq.
In the first instance, the arbitral tribunal expressed a strong preference for awarding damages for the remainder of the full term but reluctantly felt constrained to follow the judgment of "The Seaflower" [2000] 2 Ll.R 37 and limit damages to the shorter term. On appeal to the Commercial Court, Langley J found that it was right to take the shorter term. Owners sought and obtained leave to take the matter to the Court of Appeal. In what is in fact a rather brief judgment (only some 28 paragraphs long) the Court of Appeal has upheld Langley J.
Owners' contention was that damages fall to be measured at the date of breach and that subsequent events are irrelevant, unless they can be said to be inevitable at the date of the breach. Although it was accepted that where a simple option in Charterers' favour exists, damages must be measured assuming the exercise of that option in Charterers' favour (for example 10,000mts 5%mol chopt), where a charter contains an option which may or not arise, dependent on subsequent events that are not inevitable at the time of the breach, it is inconsistent with principle to allow the measure of damages to be affected by such events.
This normal measure it was said allows a party commercial certainty. Damages can be ascertained at a fixed time, the amount will not be subject to fluctuation over time and, perhaps most significantly, the guilty party cannot rely on delaying tactics in the hope of an unexpected event which reduces its liability or worse, seek to re-open a judgment given before the happening of an event, which would have affected the assessment of damages.
Charterers in opposition submitted that if in the eventuality it becomes clear that the original charter would not have run for the whole balance of the period, account must be taken of that fact once established. To do otherwise would lead to an injustice with Owners receiving damages for a loss they have not actually suffered.
Charterers maintained that it is not uncommon for an assessment of damages to take place after the expiry of time for performance of a contract and for subsequent events to be accounted for. Further a delay by the guilty party to try and benefit from some unexpected event runs an equal risk that the event will not materialise.
The Court's conclusion was that the charter in this case carried with it an inherent uncertainty in the form of the war clause. Although in many situations that uncertainty could be ignored, for example if an assessment of damages was taking place after the expiry of the full period with no war having happened, in other situations it may have to be accounted for
Whilst commercial certainty was an important factor, the war clause in the charter meant Owners could never have claimed with absolute confidence that the charter would have run its full period. Commercial certainty must yield to the greater importance of achieving an assessment of damages that accurately reflects a party's loss as demonstrated to have actually been suffered at the date of assessment.
To use the Court's words again, "there is no reason why the transmutation of their claims to performance of the charter into claims for damages for non-performance of the charter should improve their position in this respect."
The Owners have applied for leave to appeal to the House of Lords for permission to appeal. It may be that commercial certainly will prevail.
Click here to view article on House of Lords decision.
