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Damages, The Measure of

Voyage Charters

Law and Sea.
Berth and Port Charters

Traditionally risks for delays in getting into the berth were apportioned between the owner and the charterer in a way that all risk as to navigation, weather and alike were rested upon the owner and those as to congestion in the port or non-availability of the berth were on the charterer since it is they who determine the ports of loading and discharge, but some of these liabilities are usually transferred back to another party by way of exceptions.

Voyage Charters Damages for Repudiation
Last updated: 28-Nov-2015

In Smith v M’Guire (1858) 3 H&N 554 where at the trial, Martin B directed the jury as follows:

[T]he legal damage was the loss which had arisen from the breach of the contract; that from the amount of the freight which the ship would have earned if the charter-party had been performed, there ought to be deducted the expenses which would have been incurred in earning it, and also any profit which the ship earned between the expiration of the lay days and the time when the employment of the ship under the charter-party would have ended.

In The Noel Bay [1989] 1 Lloyd’s Rep 361 per Staughton LJ:

At first sight the owners’ claim for damages fell to be assessed on well-settled principles, albeit with a good deal of tiresome attention to detail. The owners are entitled to be placed in the same position, financially, as they would have enjoyed if the contract had not been broken. That involves a comparison of the money they would have earned, less expenses, on the contract voyage with the money they in fact earned, less expenses, on the substitute voyage. … But one problem that almost invariably arises, and does in this case, is that the substitute voyage lasts for longer than the voyage under the original charter-party. The solution commonly adopted is to take a proportion of the profits on the substitute voyage to set off against the profits lost on the original voyage; otherwise one would be involved in calculations to the end of the ship’s working life. …

Another problem is that the vessel may have been better - or worse - placed for future employment at the end of one voyage than at the end of the other. That is commonly a factor which is said to be relevant. But there is nothing to suggest that it has any importance in this case.

Per Males J in Louis Dreyfus Commodities Suisse SA v MT Maritime Management BV [2015] EWHC 2505 (Comm):

57. The fundamental principle in assessing damages is the compensatory principle, namely that the innocent party is so far as possible to be placed in the same financial position as if the contract had been performed. All the cases concerned with repudiation of a voyage charter have expressly applied this principle.

58. The Smith v M’Guire measure represents the prima facie measure of damages for loss of the profit which would have been obtained by a shipowner from performance of the repudiated charter. As such it reflects and gives effect to the compensatory principle and to the related principles of causation and mitigation. That is the purpose and effect of a prima facie measure, whether the Smith v M’Guire measure or the principle in sale of goods law that damages are prima facie assessed by reference to an available market. Such measures are adopted precisely because in general they give effect to the compensatory principle and are in accordance with the reasonable contemplation of the parties. In most cases, therefore, it will not be necessary and would be wrong to look beyond the damages resulting from the application of the prima facie measure.

59. However, the Smith v M’Guire measure is only a prima facie measure and, on appropriate facts, it may be necessary to depart from it in order to give full effect to the compensatory principle. An example, as in The Elbrus, would be where the owner receives a benefit arising from mitigation which needs to be taken into account. That will have the effect of reducing the owner»s damages.

60. It is hard to imagine circumstances where the owner»s damages for loss of the profit which would have been obtained from performance of the repudiated charter could exceed the net freight (and if applicable demurrage) which would have been earned if that charter had been performed. An owner cannot lose more by way of lost profit from a charterer»s repudiation than the freight (and any demurrage) which he would have earned by performing the charter. In that sense the net freight and demurrage represent a cap on the owners' damages. That is not because of any rule of law but simply because of the nature of the loss. The question then will be, as discussed in the cases, what deductions if any should be made from the freight in consequence of mitigating employment which the owner obtained or ought to have obtained. That question is answered by The Noel Bay.

61. The position is different if the owner suffers a different kind of loss, that is to say something different from loss of the profit which would have been obtained from performance of the repudiated charter. In such a case, there is in general no reason why such loss should not be recoverable in damages in addition to damages for loss of the profit from performing the charter, subject of course to the principles of causation, mitigation and remoteness. On the contrary, failure to award such damages would be contrary to the compensatory principle.

65. Performance of the contract voyage would not only have enabled the owners to earn the freight payable under the voyage charter, but would have positioned the vessel in Europe without delay, ready to take advantage of the higher freights available in the North Atlantic market. The consequence of the charterers' repudiation was therefore twofold. The owners lost the charter freight and had to make do with the lesser freight earned under the Glencore charter. But they also suffered a delay in repositioning the vessel in Europe and thereby lost the benefit of the two transatlantic voyages which, on the arbitrators' findings, the vessel would have been able to perform in about the same time as was taken up by actual performance of the Glencore fixture. These were two distinct heads of loss, both of which were caused by the charterers' breach.

79. The first is the finding that the owners acted reasonably in sending the vessel to South America where, as it turned out, there was no employment for the vessel for a considerable period despite the fact that, as the arbitrators found, there is a regular trade in vegoil cargoes out of South America. As already noted, it must follow that this lack of employment was unexpected. Otherwise, it could hardly have been reasonable to direct the vessel to South America instead of returning directly to the more lucrative North Atlantic trade.

80. The second factor is that although the charterers did contend that the vessel ought to have been directed north, a contention which the arbitrators rejected, there was no suggestion in the arbitration that the losses claimed were too remote, that is to say beyond the reasonable contemplation of the parties. However, I can see at any rate the possibility of an argument (I put it no higher) that a head of loss which was only suffered as the result of a wholly unexpected delay in obtaining substitute employment may have been beyond the reasonable contemplation of the parties.

81. The third factor is that on the facts here it was possible to predict the vessel's immediate future employment if the contract had been performed, which employment would have taken the vessel back to the same location at about the same time as completion of the actual substitute fixture, so that the damages claimed could be calculated with a reasonable degree of confidence. That will not always be the case.

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