Assessment Of Damages: Compensatory Principle Upheld

The case of Flame SA v Glory Wealth Shipping Pte Ltd (The "GLORY WEALTH") [2013] emphasises the importance of the compensatory principle in the assessment of damages. The Court showed its reluctance to find that an innocent party be placed in a better position than it would have been in, had the party in breach not repudiated the contract.

Glory Wealth as "disponent owners of the Glory Wealth to be nominated motorship" (the Owner) and Flame AS (the Charterer) entered into a contract of affreightment dated 19 August 2008 (the COA). Following the collapse of the market shortly thereafter, the charterer failed to declare laycans in respect of a number of shipments under the COA. The Owner commenced London arbitration proceedings, and claimed that the measure of loss that it was entitled to was the difference between the COA rate and market rate, this being USD 5,426,608.60. The Charterer argued that, as a result of the market collapse, the Owner would have been incapable of providing the required vessels had laycans been declared, and the Owner should prove that it would have been able to perform the voyages in order to be entitled to damages.

The arbitration tribunal found that the Charterer was in repudiatory breach of the COA, and awarded the Owner the damages claimed. The tribunal reached its finding on the following grounds:

(a) It was not open to the Charterer as "contract-breaker", to allege that the Owner, as the innocent party, still bore the burden of proving its loss on the balance of probabilities after Owner's acceptance of the Charterer's repudiatory breach

(b) The words "disponent owners of the Glory Wealth to be nominated motorship" meant only that the Owner was obliged to nominate vessels at its disposal (by whatever means) that would perform the voyage, and the Owner was not required to own or actually to have time or voyage chartered the vessels

The Charterer challenged these two points of law in the High Court under section 69 Arbitration Act 1996. In addition, the Charterer challenged the award on the grounds of three heads of serious irregularity under section 68.

In respect of the first point of law, the Owner submitted that in assessing loss, it had to be assumed...

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