Benefiting From Breach - When Will Damages Be Reduced?

In its judgment in Globalia Business Travel S.A.U. (formerly TravelPlan S.A.U) of Spain (Respondent) v Fulton Shipping Inc of Panama (Appellant) [2017] UKSC 43, the Supreme Court considered when benefits obtained by a wronged party as a result of a breach of contract will be taken into account to reduce the damages payable by the party in breach. This was a rare case on mitigation of loss with potential ramifications outside of its immediate shipping context.

Background Facts

In 2005, the appellants (the "Owners") bought a cruise ship, which was chartered to the respondents (the "Charterers").

The parties subsequently extended the charterparty twice, first (in writing) to 2007, then (orally) to 2009.

The Charterers disputed the second oral extension, and claimed to be entitled to redeliver the vessel in 2007. The Owners treated this as an anticipatory repudiatory breach of the charterparty, and accepted the breach as terminating the charterparty.

The Charterers redelivered the vessel in 2007. Shortly before redelivery, the Owners agreed to sell the vessel to a third party.

The Owners then commenced arbitration (as provided for by the charterparty) seeking damages for the loss of profits as a result of the repudiation and early termination of the charterparty.

The arbitrator's findings

The arbitrator found that the parties had concluded an oral agreement to extend the charterparty to 2009, and that the charterparty had been terminated by the Owners in response to the Charterers' repudiatory breach.

Having considered expert evidence on the point, the arbitrator found there was a significant difference between the value of the vessel when it was actually sold in 2007 (approximately $24m) and its expected value had it instead been sold at the anticipated end of the charterparty in 2009 ($7m). He found that the Owners had therefore obtained a benefit by selling the vessel in 2007 rather than 2009 by avoiding this drop in value. The arbitrator gave the Charterers credit for this difference, to be deducted from any damages assessed to be payable. As this benefit outweighed the Owners' claim for loss of profits, the result was that the Owners would not in fact recover any damages.

The Owners appealed the decision to the High Court under s.69 Arbitration Act 1996 (which provides, unless the parties to the arbitration agree otherwise, for an appeal to the court on a point of law).

High Court

In the High Court, Popplewell J allowed the appeal from the...