The 'NEW FLAMENCO'

The Court of Appeal holds that benefit arising from the sale of a vessel can reduce claim for repudiation of charterparty

In Fulton Shipping Inc. of Panama v Globalia Business Travel S.A.U. ("The NEW FLAMENCO"), the Court of Appeal considered the question of when benefits arising from actions taken to avoid losses are to be brought into account when assessing damages for a repudiation of a time charter. In particular, they upheld the decision of the arbitrator that a benefit which arose from the sale of the Vessel by the Owners, following the charterers' repudiation of a time charter, should be taken into account when assessing damages, since the sale was a step taken in mitigation. In so doing, they reversed the decision of Popplewell J [2014] 2 Lloyd's Rep. 230. Clyde & Co. LLP (Elizabeth Turnbull, Partner, and Marcia Perucca, Associate) acted for the successful Charterers.

The Facts

The "NEW FLAMENCO" (the Vessel) was a small cruise ship built in 1972. The Vessel was chartered in 2004 by Globalia Business Travel (Charterers) from Fulton Shipping Inc. (Owners). In 2007, the parties met to negotiate an extension. Owners alleged that, in that meeting, a two-year extension of the charter was agreed (up to November 2009). The Charterers, who disputed having reached the agreement, redelivered the Vessel in October 2007. At the time of redelivery there were no equivalent substitute time charter fixtures available (i.e. there was no available market). The Owners sold the Vessel for USD 23,765,000 in October 2007.

The Award and the Commercial Court Judgment

The arbitrator found that an oral agreement to extend the charter had been reached, and that the Charterers had breached that agreement. However, he found that the sale of the Vessel in October 2007 was caused by the breach, and was a step taken in reasonable mitigation of damage. He also found that, if the Vessel had been sold when the charter was due to come to an end in November 2009, her value would have been USD 7,000,000, a fall in value of USD 16,765,000. It followed that the Charterers were entitled to a credit of USD 16,765,000 in respect of the benefit that accrued to the Owners by selling the Vessel in October 2007 when worth more than it was at the end of the charter period in November 2009. The amount of this benefit, if brought into account, seemed likely to exceed the Owners' loss of profit.

The question on the appeal to the Commercial Court (and to the Court of Appeal) was...