Glory Wealth Shipping v North China Shipping

DMC/SandT/10/20

England

Glory Wealth Shipping Pte Ltd v North China Shipping Limited (M/V “North Prince”)

Queen’s Bench Division (Commercial Court): David Steel J: [2010] EWHC 1692 (Comm): 8 July 2010

Mr Paul Key, instructed by Kennedys Solicitors, for the Claimant disponent shipowner, North China Shipping Ltd

Mr Nevil Phillips, instructed by Reed Smith Solicitors, for the Defendant sub-charterer, Glory Wealth Shipping Pte Ltd

TIME CHARTERPARTY: WRONGFUL EARLY REDELIVERY OF VESSEL BY SUB-CHARTERER: DAMAGES AS DIFFERENCE BETWEEN MARKET RATE OF HIRE AND CONTRACT RATE OF HIRE: DISPONENT SHIPOWNER’S EARLY REDELIVERY OF VESSEL UNDER HEAD CHARTER IRRELEVANT UNLESS CAUSED BY SUB-CHARTERER’S REPUDIATION

Summary

The Court affirmed that damages for wrongful early redelivery of vessel are to be calculated on the basis of the difference between the market rate of hire and the contract rate of hire for the balance of the charter period. The fact that the disponent shipowner made an early redelivery of the vessel under the head charter was irrelevant to the assessment of damages, unless it was caused by the sub-charterer’s breach – which was not the case here.

This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon).

Background

The present case involved a time charter between North China Shipping, the disponent shipowner, and Glory Wealth Shipping, the sub-charterer. The charter period was from the date of delivery to “minimum 27 June 2009”.

A dispute arose between the parties which was referred to LMAA arbitration. The tribunal held that the sub-charterer had repudiated the time charter by its wrongful early redelivery of the vessel, and that the repudiation was accepted on 5 January 2009. The sub-charterer was ordered to pay damages representing the difference between the market rate of hire and the contract rate of hire for the rest of the minimum charter period.

In fact, the disponent shipowner redelivered the vessel to the shipowner on 5 June 2009, i.e. 22 days before the earliest contractual expiry of the sub-charter. The sub-charterer argued that this saved the disponent shipowner some hire payments under the head charter, and that should be taken into account when calculating damages. This was implicitly rejected by the tribunal.

The sub-charterer obtained leave to appeal against the arbitration award. The issue of law was framed as:

“Where damages for repudiation of a sub-charter by charterers are assessed by reference to the actual earnings of the vessel during the balance of the sub-charter period, should the fact that the vessel is re-delivered under the head charter before the end of the balance of the sub-charter period be taken into account in the assessment of damages, and if so, how?”

Judgment

David Steel J dismissed the sub-charterer’s appeal.

The Court, following The Elena d’Amico [1980] 1 Lloyd’s Rep 75, held that damages for wrongful redelivery of the vessel should be calculated on the basis of the difference between the contract rate and the market rate for the balance of the charterparty period. This might or might not reflect the actual earnings made by the disponent shipowner after the termination of the sub-charterparty; the relevance of such earnings would only be as evidence of the market rate of hire.

The sub-charterer’s argument, the Court said, was based on a misconception as to the reliance placed on “actual earnings” by the tribunal. In short, the evidence of actual earnings converted as necessary into time charter equivalents was used to supplement the evidence of the prevailing six month time charter market (the outcome not being substantially different).

In the present case, the arbitrators had made no finding as to why the disponent shipowner made an early redelivery of the vessel under the head charter. It was, therefore, not established that it was “sufficiently closely connected with the [sub-charterer’s] breach” in order to bring that into account in calculating damages: The Fani [1994] 1 Lloyd’s Rep 633. Therefore, the disponent shipowner’s early redelivery of the vessel was to be treated as an ‘independent speculation’ not caused by the repudiation of the sub-charterer, and it should not, therefore, be taken into account when calculating damages.

Comment

It could be said that the judgment does not answer the question raised by the issue of law, but this seems to be because that issue did not really arise on the facts of this case. The Court held that, in this case, damages had not been assessed by reference to the “actual earnings of the vessel” but rather by reference to the difference between the contract rate and the market rate, of which the actual earnings were evidence.