The Asia Star

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Note: this case has now been overruled by the Singapore Court of Appeal decision reported at [2010] SGCA 12. A note on this decision is being prepared. Editor, 9 April 2010


DMC/SandT/10/10

Singapore High Court

The “Asia Star”[2009]SGHC 91

Judgment delivered by Judith Prakash J, 17 April 2009 [2009] SGHC 91

Gurbani and Co for the Plaintiff, Pacific Inter-Link Sdn Bhd

Kelvin Chia Partnership for the Defendants, Owners of the “Asia Star”

BREACH OF CONTRACT TO CARRY CARGO: WHETHER PLAINTIFF ACTED REASONABLY IN MITIGATION OF LOSS: PLAINTIFF NOT REQUIRED TO INCUR EXTRAORDINARY EXPENSE OR TO DO ANYTHING OTHER THAN IN THE ORDINARY COURSE OF BUSINESS IN ORDER TO MITIGATE LOSS: MEASURE OF DAMAGES FOR BREACH OF CONTRACT TO CARRY CARGO

Summary

A party to a contract is not required to incur extraordinary expense or to do anything other than in the ordinary course of business in order to mitigate losses arising from the other party’s breach.

The measure of damages for a shipowner’s breach of contract to carry cargo is the difference between the market and charter rates of freight, or relates to the value of the goods at the port of discharge. Alternatively, where the charterer has been able to load the goods on another vessel, he is entitled to claim the costs incurred.

This case note was contributed by Ang & Partners, the International Contributor to this website for Singapore.

Facts

The Plaintiff, Pacific Inter-Link Sdn Bhd (“Pacific”), entered into a voyage charterparty with the Defendants, the owners of the Asia Star. It was agreed that the vessel would load a minimum cargo of 21,500mt of refined palm oil for carriage to and delivery at ports in the Middle East, Turkey and the Black Sea. The cargo to be carried was purchased by the Plaintiff from Indomas, Pamin and Pacoil and was to be sold to Agrima. On 19 January 2004, the vessel’s tanks were found to be unsuitable to receive the cargo. On the same day, the Plaintiff sent the Defendants a notice holding them responsible for their breach of the charterparty in failing to provide a vessel with suitable tanks. No cargo was loaded onto the vessel.

The Plaintiff attempted to find an alternative vessel to carry the cargo. One vessel, the Puma, could have started loading at a suitable time and could have loaded twice the amount of cargo as the Asia Star. However, the Plaintiff took the view that the freight rate, demurrage and other charges proposed by the owners were commercially unviable. On 20 January 2004 the Plaintiff made a counter-proposal on laycan, freight, additional charges and demurrage. The owners of the Puma did not, however, respond. On 21 January 2004, the Plaintiff attempted to find an alternative vessel but was unsuccessful.

On 22 January 2004, Indomas cancelled all sale contracts with the Plaintiff on the basis that the contractual shipment date had not been complied with. Indomas refused to withdraw the cancellation or have the cargo shipped on board a different vessel, the Chembulk Barcelona. The Plaintiff claimed that it suffered a loss of profit amounting to US$698,889.88 as a result of the cancellation of the Indomas contracts.

On 23 January 2004, Agrima informed the Plaintiff that it intended to cancel the bulk of the sale contracts which were to be shipped on the Asia Star. While Agrima subsequently agreed to part of the cargo being shipped on board the Chembulk Barcelona, it cancelled the contracts in respect of the remainder and purchased some palm oil from the domestic Turkish market instead. Agrima made a claim for US$969,200.00 against the Plaintiff for the additional expense of obtaining cargo from the Turkish market, which, after negotiation, was reduced to US$823,800.00.

Pamin and Pacoil agreed to extend the shipment date and that the cargo be shipped on board the Chembulk Barcelona in February 2004. In return, the Plaintiff had to pay the additional storage and heating costs and other expenses arising from the delay, together with contractual interest, although the Plaintiff did manage to reduce the storage costs by a third. The amount finally claimed by Pamin amounted to US$209,990.83.

Pacoil also required the Plaintiff to pay additional charges under the contracts. As the Pacoil cargo had deteriorated due to the delay, the Plaintiff had to reprocess Pacoil’s cargo to bring it back to its original condition. The additional charges and cost of reprocessing the cargo amounted to MYR$558,467.31.

The Defendants were found to be in breach of contract. The Assistant Registrar assessing damages found that, on a balance of probabilities, the Plaintiff’s loss was caused by the Defendants’ breach. However, the Plaintiff had failed to act reasonably to mitigate its loss. It was found that the Plaintiff should have chartered an alternative vessel, the Puma, to carry the cargo to the discharge ports. However, the Assistant Registrar also held that the Plaintiff did not have sufficient cargo to fill the Puma’s larger cargo capacity.

The Assistant Registrar awarded US$302,000.00 in damages, being the difference between the total freight amount that would have been paid to the Puma and the total freight amount for the charter of the “Asia Star”. Both parties appealed.

Issues:-

(a) Did the Defendants’ breach cause the Plaintiff’s loss, given that the Plaintiff had a degree of flexibility in determining the allotment of cargo to its buyers and nomination of vessels for carriage of the cargo?

(b) Did the Plaintiff act reasonably in mitigating its loss, given that it did not charter an alternative vessel, the Puma, on terms demanded by the owners of the Puma?

(c) What was the measure of damages for the Plaintiff’s loss?

Judgment

(a) Did the Defendants’ breach cause the Plaintiff’s loss, given that the Plaintiff had a degree of flexibility in determining the allotment of cargo to its buyers and nomination of vessels for carriage of the cargo?

The Plaintiff’s loss was caused by the Defendant’s breach. While the Plaintiff had a certain degree of flexibility in the way it allocated cargo to various buyers and nominated vessels to carry the cargo to various ports, the extensions of time given to the Plaintiff by its buyers were, in contractual terms, indulgences rather than entitlements. The Plaintiff did not possess sufficient flexibility to escape entirely liability for non-shipment of cargo on board the Asia Star.

(b) Did the Plaintiff act reasonably in mitigating its loss, given that it did not charter an alternative vessel, the Puma, on terms demanded by the owners of the Puma?

The Plaintiff had acted reasonably in mitigating its loss. The Plaintiff was not obliged to incur extraordinary expenditure or to do anything other than in the ordinary course of business. It was, therefore, entitled to negotiate with the owners of the Puma to get the best possible terms, particularly where the charter of the Puma on the terms proposed by her owners would pose a number of practical and commercial difficulties for the Plaintiff, including the possibility of incurring substantial dead freight.

Even though it turned out that the Plaintiff would have suffered a smaller loss had the Plaintiff chartered the Puma, it did not follow that the Plaintiff had been behaving unreasonably in making a counteroffer for the charter of the Puma.

On the facts, the Plaintiff did not act unreasonably, as the charter of the Puma was a risky and expensive venture, while there was a possibility that the Plaintiff could obtain further extensions of time from its suppliers and buyers if the Plaintiff was able to confirm that a substitute vessel with a confirmed lay time within January 2004 had been chartered. At the time the counter-offer was made, there was also the possibility that the Defendants would be able to provide a substitute vessel or that the Plaintiff’s brokers would revert with other vessel options.

The Plaintiff was not unreasonable in failing to inform Agrima and Indomas of the difficulty faced. The charter of the Puma would have been a speculative venture as Agrima and Indomas had not yet consented to an extension of time. Since the previous extensions given to the Plaintiff by its shippers and buyers were indulgences rather than entitlements, the Plaintiff could not expect to be granted further extensions without a viable alternative put forward first.

(c) What was the measure of damages for the Plaintiff’s loss?

The usual measure of damages where a shipowner fails to perform a contract to carry cargo is the difference between the market and charter rates of freight, or relates to the value of the goods at the port of discharge. Alternatively, where the charterer has been able to load the goods on another vessel, he is entitled to claim the costs incurred.

The Plaintiff was therefore not entitled to recover damages on the basis of loss of profits in respect of the cancelled Indomas contracts, or on the basis of the damages it had to pay Agrima for failing to delivery cargo by mid-February 2004.

The correct measure of damages for the portion of the cargo cancelled by Indomas and Agrima and that could not be shipped by the Chembulk Barcelona was the difference between the market value of the cargo at its destination in Turkey at the time it ought to have arrived less the value of the cargo to the Plaintiff at the agreed time and place of shipment with appropriate deductions for expenses saved.

The claim for the amounts paid to Pacoil and Pamin for the delayed shipment of their cargoes was considered under the alternative measure of damages, which applies where a charterer is able to load the cargo on another vessel.

The Plaintiff had paid Pamin a total of US$209,990.83, which included a contractual penalty, interest and storage charges. The Plaintiff had paid penalty charges exceeding the amount prescribed under its contract with Pamin, but could only recover the amount it was contractually obliged to pay. The Plaintiff had also paid interest charges on the full price of the cargo, owing to the delay in shipment. However, Pamin’s remedy for such delay was to claim the penalty charges provided for in the contract, and the claim for interest was therefore a double-claim. The Plaintiff should not have paid interest and was therefore unable to recover the same from the Defendants. The Plaintiff was, however, entitled to claim the full amount of storage charges incurred in respect of the Pamin cargo.

The Plaintiff paid Pacoil a total of MYR $558,634.90, being payment for storage, reprocessing, heating and transportation charges, as well as interest. As with the Pamin claim, Pacoil’s remedy for delay was to impose a contractual penalty and not interest, and the Plaintiff was unable to recover from the Defendants the interest paid. The Plaintiff was allowed to recover storage, heating, reprocessing and transportation charges as these charges were attributable to the delay.