Isabella Ship-owner - v - Shagang Shipping: 'The Aquafaith'

Introduction

This case concerns the circumstances in which, following a breach of charterparty and purported early redelivery of the vessel, the owners can elect not to accept redelivery and instead affirm the contract claiming hire as opposed to damages.

Facts

The vessel "Aquafaith" was chartered for a minimum period of 59 months on an amended NYPE form in 2006. In an admitted anticipatory breach of the charter in July 2011, the charterers stated that they would re-deliver the vessel. They made it clear to the owners that they would have no further use for the vessel during the remaining 94 days of the charter.

On the 25th July 2011 prior to the vessel being redelivered, the owners commenced arbitration proceedings seeking a partial final award declaring that the owners were entitled to refuse redelivery and affirm the charterparty.

The arbitrator held that the owners were required to take redelivery of the vessel, trade her on the spot market by way of mitigation and claim damages in respect of the loss.

The Law

The owner's argument was based on the decision of White & Carter v McGregor [1962] AC 413. In this case it was decided that that where a party to a contract repudiates it and makes it clear that he will not carry out his part of the contract, the innocent party has an option to either accept the repudiation and claim damages, or to affirm the contract and claim the contract price.

One of the main criticisms of this decision is that by allowing the innocent party to earn and recover his contract price, the law allows him to avoid the constraints which would have applied had he elected to terminate immediately and sue for damages (the so-called "duty" to mitigate).

In his judgment in White & Carter, Lord Reid observed that "in most cases the innocent party cannot complete the contract himself without the other party doing, allowing or accepting something...the party in breach can compel the innocent party to restrict his claim to damages".

He also went on to say:

"It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself."

This had the effect of restricting the innocent party's right to affirm the contract to situations where no cooperation was required from the breaching party to fulfil the contract and where damages would...