The Relevance Of A Revival Of The Market To The Assessment Of Damages

Glory Wealth Shipping Pte Limited v. Korea Line Corporation (M/V Wren) [2011] EWHC 1819 (Comm)

Following the collapse of the shipping market in 2008, there were many instances of vessels under time charter being redelivered early by charterers who found themselves tied in to a financially unprofitable long-term charter. In those cases, there was often no serious issue that the charterers were liable for repudiatory breach of charter. The more contentious issue was usually the measure of damages recoverable by the owners for the charterers' breach.

The basic principle for assessing contractual damages in English law is that the innocent party should be put in the same financial position as it would have been in if the contract had been performed. The innocent party is however expected to minimise its losses so far as reasonably possible. So where a charterer repudiates a charterparty by redelivering early, the owner is expected to mitigate his damages by going into the market, where there is an available market, and fixing a time charter for a period equivalent to the balance period of the repudiated charter. The owner is then, in principle, entitled to recover the difference between the charter and market rates. See, for example, the Elena d'Amico [1980] 1 LLR 75, where the court also held that if the innocent party decided not to enter into a comparable replacement charter but preferred instead to take its chances on the spot market, then its resulting gains or losses need not be taken into account when damages were being calculated because they were not deemed to be a direct result of the breach. The advantage of this market-based approach is that it allows damages to be quantified relatively quickly after a repudiatory breach so that the dispute can be resolved within a reasonable time.

Where there is no available market rate, as was the case when the market collapsed in 2008, then damages will be assessed on the basis of the owners' actual losses because there is no "like-for-like" basis for calculating the losses. What happens if there is no available market at the time of the termination of the charter but the market subsequently revives at a later stage when there is still a considerable period of unexpired time under the original charter? That was the primary issue in the M/V Wren. In that case, the court held that the owners' damages should nonetheless be calculated on the basis of their actual losses for the whole of the balance...