Dalwood Marine v Nordana Line
English Commercial Court
Dalwood Marine v Nordana Line A/S, The “Elbrus”; Queen’s Bench Division (Commercial Court): Teare J:  EWHC 3394 (Comm),  2 All ER (Comm) 802: 21 December 2009
Andrew Baker QC, instructed by Mills and Co, for the Claimant shipowners
Simon Croall QC, instructed by Bentleys Stokes and Lowless, for the Defendant charterers
TIME CHARTERPARTY: WRONGFUL EARLY TERMINATION BY CHARTERERS: DAMAGES: WHETHER HIRE EARNED BY SHIPOWNERS IN SUBSTITUTE FIXTURE WHICH EXTENDED BEYOND REMAINDER OF ORIGINAL CHARTER RELEVANT TO ASSESSMENT
After the Charterers wrongfully terminated the charterparty, the Shipowners mitigated their loss and entered into a substitute fixture. That fixture extended beyond the notional date of redelivery under the original charter, and the Shipowners earned more from it than they would have done for the remainder of the original charter. The High Court affirmed the decision of the arbitral tribunal that the Shipowners suffered no loss and thus were not entitled to any damages from the Charterers. The normal measure of damages was the difference in hire between the original charter and the substitute fixture during the remainder of the original charter. However, as the tribunal had implicitly found that the Shipowners obtained a benefit from the substitute fixture, it was entitled to depart from the normal measure of damages and to reduce the damages to which the Shipowners were entitled.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and pupil barrister in Hong Kong.
The present case concerned a time charterparty between Dalwood Marine Co, the owners of the vessel “Elbrus”, and Nordana Line S/A, as charterers. It was on an amended NYPE 1993 form at a rate of US$10,800 per day, and was later extended to cover a voyage from Lobito, Angola to Argentina, and subsequently Houston in the USA.
Originally, that whole voyage would have taken 39 days before the vessel would have been redelivered at Houston on 13 May 2005. However, on 4 April 2005, when the vessel was still at Lobito, the Charterers wrongfully terminated the charterparty. As a result, the Shipowners were able to send the vessel for drydocking earlier. This in turn enabled them to enter into the Navimid fixture which lasted from 6 May 2005 to 13 June 2005. This meant that they earned hire during 7 out of the remaining 39 days under the original charterparty. The rate of hire was also higher at US$18,100 per day.
Arbitration ensued between the parties. It was held that the Shipowners acted reasonably in mitigating their loss after the charterparty was terminated by entering into the Navimed fixture. However, because of the higher rate of hire under the Navimed fixture, the Shipowners earned US$226,000 more between 4 April and 13 June than they would otherwise have done, had the original charterparty been performed. Thus, they had suffered no loss, and no damages were be awarded.
With the leave of the High Court, the Shipowners appealed against the arbitral decision under Section 69 of the Arbitration Act 1996. They argued that the tribunal had erred in law in concluding that they had suffered no loss.
Teare J dismissed the Shipowners’ appeal.
The Court rejected the Shipowners’ argument that the tribunal should have assessed their loss by considering only the remaining 39 days of the charterparty, and no more.
Teare J started from the general proposition that the function of contractual damages was to put the innocent party, in so far as possible, in a position he would have been in had the contract been performed. At the same time, the Shipowners, as the innocent party, had a duty to mitigate their loss by finding alternative employment for their vessel for the remainder of the charterparty. Thus, the prima facie measure of damages to which the Shipowners were entitled, was the difference between what they would have earned during the reminder of the charterparty had it continued to run, and any hire which they actually earned from the Navimed fixture during that same period.
By limiting the assessment of the benefits that the Shipowners may obtain from mitigation to the remainder period of the charter, this prima facie measure recognised the difficult task of assessing the value of such benefits for any longer period; that would have required consideration of the whole of the vessel’s working life.
However, cases like the “Concordia C”  2 Lloyd’s Rep 55, 58 and the “Noel Bay”  1 Lloyd’s Rep 361, 363 showed that departure from this prima facie measure of damages may be justified in some cases, to take into account any further benefit the shipowners obtained by entering into a substitute fixture. Bingham J said in the “Concordia C” that any benefit that the shipowners obtained after the notional date of redelivery under the original charterparty would go to diminish the damages that would be awarded to them. Staughton LJ in the “Noel Bay” gave another example where damages would be reduced because the vessel was better placed for future employment at the end of the substitute charter than at the end of the original charter.
Thus, Teare J approved the following paragraph from Scrutton on Charterparties, 21st edn, Article 193, that because of the difficulty of assessment, “no attempt will normally be made to determine the relative positions of the shipowner in the period after the date on which the charter voyage would have been completed, unless there is clear evidence that the shipowner has obtained a benefit by reason of the longer duration of the substitute charter.” (Emphasis added by Teare J) Depending on the nature of such benefits, it might be necessary to calculate their financial value by reference to the actual earnings after the notional date of redelivery under the original charter, and to deduct that from the damages payable to the shipowners.
In the present case, looking at the reasoning of the tribunal as a whole, it was implicitly held that the Shipowners obtained a benefit from their action to mitigate their loss. They were able to meet the laycan under the Navimed fixture and earn hire. The Court had no power to disturb this finding because whether a particular benefit had been established on the evidence was a matter of fact for the tribunal to determine, and from which no appeal could lie to the court under the Arbitration Act 1996. The tribunal was thus entitled to hold that the Shipowners suffered no loss because the benefit they derived from the Navimed fixture exceeded the loss they suffered for the remainder of the original charter. No error of law had been made, and the appeal was dismissed.
It must be right that any benefits obtained by the Shipowners in their action to mitigate loss should go to reduce the award of damages, because they would not have earned those benefits but for the Charterer’s breach. The only question before Teare J was whether this principle extended to benefits obtained beyond the remainder of the original charter.
The general approach, as Teare J held, was that these benefits would not be taken into account because of the difficulty in assessing their financial value. Complex financial analysis on the whole working life of the vessel might be needed. However, dicta in previous cases showed that they may be relevant. But when?
With the difficulty of assessment in mind, Teare J seemed to require, as reflected in his approval of Scrutton, “clear” evidence of benefit before displacing the general approach not to take into account benefits obtained beyond the remainder of the original charter. The “nature of such benefits” also seemed to be a relevant consideration. However, there was little discussion on how these considerations actually played out in this case. One may rationalise the “Elbrus” by saying that it may have been a clear case where benefits had been obtained, and were easily quantifiable, because a substitute fixture was actually entered into. This may indeed be a common situation after the charterer’s breach. But beyond this and the example given in the “Noel”, other cases may be less clear. So litigation seems likely to continue in this area.