Post-termination benefits and damages

The Court of Appeal decision in the "NEW FLAMENCO" appeared in the January 2016 edition of this Bulletin. The Supreme Court has now ruled - [2017] UKSC 43 - on the interesting issue of damages raised by this case.

Nothing in the Supreme Court's judgment will help in the struggle to grapple with those questions

The charterers repudiated a long-term time charter by redelivering this cruise ship two years early. The owners sold her around the same time as redelivery for approximately US$24m. The value at the contractually agreed date of redelivery would have been much lower, around US$7m.

The owners claimed their loss of profit over the remaining two years of the charterparty, but the arbitrator ruled that they had to give credit for the benefit that accrued by selling the ship at the earlier date. This resulted in the owners recovering no damages at all.

The Court of Appeal supported this conclusion but the Supreme Court (in fact supporting the findings of Mr Justice Popplewell at first instance in the High Court) has now reversed that decision. In doing so they restated the existing understanding of the law that, in order to be brought into account, a benefit must have been caused either by the breach of the contract or by a successful act of mitigation. According to their Lordships the required causal link was missing in this case. The sale of the vessel did not constitute mitigation of the loss of the charter income stream.

In Lord Clarke's view:

…there was nothing about the premature termination of the charterparty which made it necessary to sell the vessel, either at all or at any particular time. Indeed, it could have been sold during the term of the charterparty. If the owners decide to sell the vessel, whether before or after termination of the charterparty, they are making a commercial decision at their own risk about the disposal of an interest in the vessel which was no part of the subject matter of the charterparty and had nothing to do with the charterers.

Lord Clarke

Even if the vessel had been sold due to a lack of employment, the answer would have been the same since the premature termination would only be the occasion for the sale, not the legal cause of it. The issues in this case are difficult yet the judgment only contains seven paragraphs of reasoning. The only consideration of existing case law is a reference back to the judge's summary of this at first instance.

This is something of a frustration. As the Court of Appeal pointed out the: "questions of law in the realm of mitigation" are "notoriously difficult". Nothing in the Supreme Court's judgment will help in the struggle to grapple with those questions, although it is probably fair to say that in most cases, the application of the compensatory principle is much more straightforward.

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