Voyage Charters

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Chapter 21

Remedies for Breach of the Charter

12. Indemnity 135
  Indemnity for non-performance of this Charterparty, proved damages, 136
  not exceeding estimated amount of freight. 137

Damages in General

The object of damages in contract and tort

21.1 The remedy to which an injured innocent party most commonly resorts in the event of a breach of charter is a claim for damages, and this is frequently the only remedy available. The basic principle which lies behind an award of damages for breach of contract is that of indemnity, it being “the general intention of the law that, in giving damages for breach of contract, the party complaining should, as far as it can be done by money, be placed in the same position as if the contract had been performed”.1 This is often called the “compensatory principle”.2 That is

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supplemented by the principle of excluding “transferred loss”3 or “reflective loss”4 such that, in general,5 the claimant is entitled to recover only his own loss6 but not the loss suffered by others, although in the context of claims under bills of lading, the general rule is reversed by statute7 and the lawful holder of the bill of lading can recover the losses suffered by others. 21.2 The law permits the introduction of claims in tort into the contractual sphere,8 although it should be noted that the basic principle which lies behind an award of damages in tort is the restoration of the status quo ante so that the claimant should be put in the same position as if the tort had not been committed. Tortious damages are not in principle for the value of the unperformed bargain.9

Wasted expenditure

21.3 The general contractual principle described earlier is intended to compensate the claimant for the loss of the value of his contractual bargain (“expectation” loss) rather than to put him in the same position as if he had not made the bargain in the first place. Nevertheless, the claimant in contract is permitted, at his option, to claim damages to recover those expenses which he has incurred in preparing to perform the contract or to enjoy the fruits of the contract, and which have been rendered futile as a result of the breach (“reliance” loss).10 However, “reliance” loss is nonetheless analytically merely a species of “expectation” loss, with both bases of recovery founded upon the same underlying principle; the claimant’s option as to the basis of his claim does not enable him to be put into a better position than if the contract had been performed.11 Thus, recovery of “reliance” loss may be precluded or reduced to nominal damages if the defendant proves that performance of the contract would have caused the claimant to suffer a loss or if the claimant’s overall net financial position following the breach is better than or not materially worse than if the contract had been performed.12

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21.4 Therefore, if charterers wrongfully repudiate a charterparty while the ship is proceeding to the loading port, the shipowner may put forward his claim either on the normal “expectation” basis, for loss of the profit which he would have made under the charterparty, or on the “reliance” basis for the recovery of expenses wasted in proceeding towards the loading port, notwithstanding that the latter were not caused by the breach. Claims on the latter basis are usually resorted to only when the ordinary measure of damages is difficult to quantify.13 The damages which would have been recoverable on the ordinary basis provide a limit to the amount which can be claimed, although the burden is upon the defendant to prove the facts necessary to bring the limit into operation. In this example, if the shipowner claims damages on the “reliance” basis for the wasted expenses in proceeding to the loading port, the burden would be upon the charterer to prove that the charterparty was of no financial value to the owner or was of less value than the expenses claimed or less value than his substitute employment of the vessel.14 Although there are cases where the claimant has been held entitled to claim both wasted expenditure and loss of profits15 care must be taken to ensure that the claims have not been advanced upon a mutually inconsistent basis and that they do not lead to a double recovery.16

The assessment of the claimant's “expectation” damages and the compensatory principle

21.5 In the absence of special considerations of the sort outlined above, the usual assessment of the loss suffered by a claimant as a result of a breach of contract involves the evaluation of his infringed contractual rights17 making due allowance for the amount he recovers or is deemed to recover by mitigating his loss.18 This requires a consideration of (1) what would have been the situation if the contract had not been broken,19 and (2) what allowance to make for relevant mitigation of loss. These are two distinct inquiries and raise different issues. It is not an exclusively factual inquiry, since it also involves a determination of the parties’ rights, duties and liberties,20 including those of the party in breach, for he cannot be liable for not doing what he was not obliged to do.21 It may also be necessary, consistently with that principle,

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to consider the impact of facts which are extraneous to the parties upon that performance, where, for example, events would have occurred preventing performance without liability.

What would have happened but for22 the breach?

21.6 A claimant may be able to show, on the balance of probabilities, what would have happened but for the breach in question, and thus what he has lost, or he may be able to prove only that he has lost a chance to make a particular gain.23 Whilst the probable lost gain, or the value of the lost chance, will often represent the value of the loss caused by the wrongdoer’s breach, it is important to appreciate that they may only be a starting point; these matters are not necessarily determinative of the evaluation of the damages flowing from a breach. As noted above, one may have to have close regard to the terms of the contract and the legal obligations and the rights or options of the wrongdoer and the wrongdoer may be able to prove that, even if the contract had not been broken by him, some extraneous event would have occurred so as to relieve him (or both parties) from further performance or liability, so that the claimant can have suffered only the loss of a factually worthless contract and his damages are assessed as accordingly worthless. However, in applying this principle, one must take care to distinguish cases of anticipatory breach and actual accrued breach.

M contracted to supply a series of cargoes of iron ore pellets under a COA with C for carriage on vessels nominated by C from Brazil to Malaysia. The COA contained an exceptions clause (cl.32) in respect of force majeure events, including floods, affecting performance of the contract. A dam above the intended port of shipment broke causing flooding which prevented shipment. M was unable to show it would have been able to ship particular cargoes but for the dam collapse and resulting flooding, and so could not rely in the exception in cl.32 but even M argued that the flooding would have prevented any shipment and that was itself an answer to C’s claim for substantial damages for M’s failure to ship.

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