Assessment of Damages Following a Breach of Contract - The 'Mamola Challenger'

This case discusses the extent to which a contracting party can claim, as damages for breach of contract, expenditure incurred in preparation of a contract that has been wasted as a result of breach of that contract by the other party. The facts of this claim arose from a breach of a Charterparty by the Charterers.

The Owners of the vessel MAMOLA CHALLENGER (the 'Vessel') entered into a 5 year Charterparty with the defendant Charterers who were to sub-charter the Vessel to Shell Nigeria Exploration & Production Company Limited ("SNEPCO"). Under the terms of the Charterparty the Owners had to make modifications to the Vessel prior to delivery which included the installation of a new crane. As a result Owners incurred various expenses in preparation for these modifications including the cost of removing a crane from another Vessel which they intended to install on the MAMOLA CHALLENGER.

It became apparent that the Charterers would not be able to perform this fixture because SNEPCO would not be sub-chartering the Vessel from the Charterers. The Owners accepted this breach as bringing the Charter to an end, the result was that the expenditure incurred by the Owners had been wasted and had no residual benefit to the Owners.

Following the repudiation of the Charterparty the Owners concluded a number of short-term fixtures for the Vessel. However, since the date on which the Charterparty was concluded the market rate of hire had increased and as a result the Owners were able to trade the Vessel at the higher market rate. If the Charterparty had not been breached Owners would have been restricted to the lower contractual rate, which was $7,500 per day lower than the higher market rate post breach. The consequence of this was that the Owners did not suffer any net loss as a result of losing the Charterparty, in fact they had more than recuperated their loss and the initial wasted expenditure. The Owners nevertheless claimed $675,000 damages for the expenses they had incurred and arbitration proceedings were commenced.

The arbitral tribunal held as fact that the Owners had more than recuperated the losses they were claiming but they still awarded the Owners damages in the sum of $86,534. In finding that the Owners were entitled to damages for the wasted expenditure the tribunal followed the authority of C&P Haulage v Middleton [1983] 1 WLR 1461] and held that "[The expenses] were simply wasted as a result of the termination of the contract by the...