Time Charterparty
Damages for Repudiation
Damages for repudiation of a time charter assessed on the basis of general principle of restitutio in integrum, within the limits expressed in Hadley v Baxendale, (1854) 9 Exch. 341 and comparable with that of the law for sale of goods: where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver. Sale of Goods Act 1979, s 51(3)
In cases of owners’ wrongful repudiation a time charter, when there is at the time of the termination of the charter-party or shortly after an available market for the chartering in of a substitute vessel, the normal measure of damages is the difference between the contract rate for the balance of the charterparty period and the market rate for the chartering in of a substitute vessel for that period.
Charterers’ right to damages is qualified by their obligation to mitigate their losses. When mitigating, the charterer, by analogy with the buyer of non-delivered goods, has to decide whether or not to charter in a substitute ship and if he decided not to charter, what he is fully entitled to do, he cannot visit the consequences of that decision upon the shipowner. Acceptance of the market rate at the date of breach is deemed to constitute reasonable mitigation.
More recently the general rule applicable to analysis of legal consequences of either the charterers’ or the owners’ renunciation of the contract, was stated by Lord Carswell in Golden Strait Corporation v Nippon Yusen Kubishka Kaisha (The Golden Victory) [2007] UKHL 12 at para 57:
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… 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.
As a general rule, when there is no available market at the time of breach, the measure of damage is no more than the sum which would put the owners in the same financial position as if the charter had been performed and should be assessed by reference to the actual loss of the owner. In Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (Comm) Steel J amended this rule with analysis of damages available in cases when although there is no market at the time of termination, but a term market thereafter emerges for the outstanding balance of the charter period:
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…
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.
Although revival of the market is relevant for the purpose of establishing whether the owners’ loss is self-induced and flows from his failure to mitigate it does not in itself provide the correct measure of damages.
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