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Available Market

Damages, Liquidated

Damages, Measure of

Damages, Remoteness of

Damages in a Contract and in a Tort

Time Charter

Time Charter, Damages for repudiation

Time Charter, Suspension and Withdrawal

Law and Sea.

Damages are the pecuniary recompense given by process of law to a person for the actionable wrong that another has done him. Damages may, on occasion, be awarded where the plaintiff has suffered no ascertainable damage: damage may be presumed.

Time Charter, Damages for repudiation - no available market
Last updated: 28-Nov-2015

Analysis made in Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (Comm) (28 April 2010) by Steel J at paras 63-66:

63. The decision in The Elena d'Amico [1980] 1 Lloyd’s Rep. 75 was to the effect that the normal measure of recovery in cases of premature termination of a charterparty is the difference between the contractual rate for the balance of the charter period and the market rate. But where there is no market at the time of termination, this measure does not and cannot arise. It is common ground that the spot fixtures entered into by Zodiac at that stage could not be the outcome of an independent decision since no alternative form of mitigation was available.

64. As explained Zodiac submits however that, where a market emerges at some later date on which a term charter covering the residual balance of the period could be fixed, damages for that remaining period should be assessed on the same basis since any alternative employment would constitute independent speculation.

65. The fact that a term market thereafter emerges for the (yet shorter) outstanding balance of the charter period does not in my judgment import with it the proposition that a decision not to take advantage of that market at that later stage becomes a business decision independent of the wrongful termination. The rationale is that acceptance of the market rate at the date of breach is deemed to constitute reasonable mitigation:

42. The rationale is that in such a situation that measure represents the loss which may fairly and reasonably be considered as arising naturally, i.e. according to the usual course of things, from the breach of contract (Hadley v Baxendale (1854) 9 Exch. 341 at p. 354). It is fair and reasonable because it reflects the wrong for which the guilty party has been responsible and the resulting financial disadvantage to the innocent party at the time of the breach. The guilty party has been responsible for depriving the innocent party of the benefit of performance under the original contract (and the innocent party is simultaneously released from his own unperformed obligations). The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction. Norden v Andre [2003] 1 Lloyd’s Rep. 287.

66. By this mechanism subsequent market movements are removed from the equation. It is simply a matter of chance when the vessel completes any spot voyages after the termination date. Indeed they may overrun the emergence of an available market. In short I see no basis for requiring the owner to go back into the term market at the end of every spot voyage or for that matter to disregard short time charters in case the market for longer charters emerges in the meantime.

In Glory Wealth Shipping Pte Ltd. v Korea Line Corporation [2011] EWHC 1819 (Comm) Blair J concluded at para 31:

The question for decision is as to the correct measure of damages for a charterer’s repudiation of a time charter where there is, at the date of the termination of the charter, no market for the unexpired period and a market for then the unexpired period only revives at a much later date. For the above reasons, in such a case my view is that damages are to be assessed by reference to the actual loss of the owner. Assessment of such damages is subject to the usual rules, including the principle that where the owner has unreasonably failed to mitigate its losses, it may not claim its self-induced loss. The revival of the market is obviously relevant in that regard. Mitigation apart, the revival of the market at a later date may be a factor to take into account in calculating future loss if damages fall to be assessed before the end of the contractual period, but the revival of a market for the then unexpired period of the charter does not in itself provide the correct measure of damages.

In Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718 (Comm) per Popplewell J at paras 221-223:

Where at the date of termination there is no market available for a replacement charter for the full length of the unexpired term, there is no "available market". This is because a time charter for a particular period reflects the appetite for risk which the owner and charterer are willing to take for that period. The agreed rate of hire is fixed for the period of the charter, during which market rates, whether on the spot market or for shorter term time charters, may vary up or down. Each party takes the risk that the hire locked in for the fixed term will prove more beneficial or burdensome than would have been the case had they fixed for a shorter period and been free, or required, to go into the market before the end of the fixed term. The length of the period for which each party is willing to take this risk is an essential element of the bargain. One element in determining the rate of hire will be a reflection of that risk. For these reasons the length of charters available in the market is an essential element in determining whether there is an available market for a replacement charter. A six month time charter represents a different bargain from a two year charter because of the different nature of the risk each party is willing to run. If the unexpired term is two years and there is no appetite in the market to fix for longer than six months, the owner cannot replace what he has lost in specie. Four successive six month charters are not a like for like replacement for a two year charter. His lost contractual rights cannot therefore be valued by reference to a market in which he can replace them.

222. Once this is recognised, it is apparent that if at the date of termination there is no available market for a substitute charter of the length of the unexpired term of the broken charter, there is no question of the owner breaking the chain of causation in his choice of employment for the vessel over the unexpired term. He cannot replace the bargain he has lost. He has to choose to mitigate his loss by employing the vessel in a different kind of revenue earning contract. It follows that absent any argument of failure to mitigate, the owner’s loss in such a situation is to be calculated by reference to his actual earnings, irrespective of the availability of a market for two or more successive charters for the unexpired term. The availability of a market for shorter charters does not constitute an available market in which he can replace his lost bargain. Shorter time charters are merely one of a number of forms of substitute employment by which the owner may mitigate the loss caused by the charterer’s breach in circumstances where there is no ability to replace the lost bargain with a like for like replacement.

223. A failure to replace the lost bargain with a series of successive shorter time charters does not break the chain of causation any more than a choice to employ the vessel on the spot market. Neither reflects an ability to replace the lost bargain in specie. Provided the course taken by the owner is reasonable, his actual earnings from the subsequent employment of the vessel in either manner, or a combination of the two, or any other combination of reasonable methods of earning revenue from the vessel, are legally caused by the charterer’s breach; and the amount by which actual earnings in such employment fall short of the hire which would have been earned under the broken charter is the measure of loss naturally arising out of the charterer’s breach.

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