View source for Louis Dreyfus Commodities Suisse v MT Maritime Management - The MTM Hong Kong

DMC/SandT/16/01

'''England'''

'''Louis Dreyfus Commodities Suisse SA v MT Maritime Management BV (The “MTM Hong Kong”)'''

'''English Commercial Court: Males J: [2015] EWHC 2505 (Comm): 1 September 2015'''

Michael Collett QC, instructed by Bentleys, Stokes & Lowless, for Louis Dreyfus Commodities (‘LDC’)
Steven Berry QC and Yash Kulkarni, instructed by Lax & Co LLP, for MT Maritime Management (‘MTM’)
 
'''CHARTERPARTY: QUANTIFICATION OF DAMAGES FOR REPUDIATION OF VOYAGE CHARTER: DAMAGES FOR POSITIONAL LOSS IN ADDITION TO USUAL PROFIT LOSS: WHETHER DAMAGES LIMITED BY REFERENCE TO PERIOD WHEN CONTRACT VOYAGE WOULD HAVE ENDED: APPEAL UNDER SECTION 69 OF THE ARBITRATION ACT 1996'''
 
'''Summary'''
 
In a case involving the repudiation of a voyage charterparty, the judge upheld an arbitration award that held that damages for positional loss were recoverable in addition to profit loss on the repudiated charter.  The judge held that, when assessing damages, primacy was to be given to the compensatory principle.  Thus, subject to the principles of causation, mitigation and remoteness, claims for losses resulting from the repudiation of a voyage charterparty were not limited by reference to the prima facie measure of damages established in Smith v Thomas M’Guire, namely, for loss of profit on the repudiated charter for the unexpired period of the charterparty.
 
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor of England & Wales, and International Contributor to DMC’s Case Notes

'''Background'''
 
LDC as Charterers chartered "MTM Hong Kong", an oil/chemical tanker of 30,350 SDWT from MTM as Owners by a voyage charter dated 6 January 2011.  The charter was for the carriage of a cargo of 1-6 grades of crude/refined vegoil from two safe ports/berths within a range of load ports in South America, to one safe berth at 1-4 safe ports in the Gibraltar-Rotterdam range.  The vessel's previous employment had taken her to Boma, Democratic Republic of Congo, where she suffered a grounding.  This led to some delay and to exchanges between the parties, which eventually led to Owners accepting Charterers' last message as a repudiatory breach which brought the charter to an end.
 
Owners then brought a claim against Charterers in London arbitration.  The ensuing award dealt predominantly with liability, where the arbitrators found in Owners’ favour, such that Charterers were found liable for damages.  Charterers did not appeal on this issue.  The tribunal awarded Owners damages amounting to USD1,212,316.50.  This represented the difference between (a) the profit which the vessel would have earned if not only the contract voyage but also the next two voyages (urea ammonium nitrate to the United States and a chemical cargo back to Europe) had been performed, and (b) the profit actually earned on the substitute charter to Europe agreed and performed with Glencore.  However, the usual Smith v Thomas M’Guire (fn. 1) measure of damages would have amounted only to USD478,386.8, which was the issue on which Charterers appealed.

'''Judgment'''
 
The judge first summarised the key findings of fact by the arbitrators relevant to the issue of damages as follows:

(1) The vessel completed discharge at Boma and commenced her ballast voyage towards the charterparty loading range in South America on 19 January 2011.

(2) The charterparty came to an end on 21 January 2011.

(3) Thereafter the vessel continued to sail towards South America, which Owners considered to be the most promising area in which to find substitute business.

(4) The vessel arrived at Punta del Este in Uruguay on 2 February 2011.

(5) However, the vessel was not fixed until 24 February 2011, when she was fixed to Glencore for a voyage from San Lorenzo in Argentina to Rotterdam with a cargo of sunflower oil and soya methyl ester.

(6) The substitute fixture with Glencore was completed on 12 April 2011 when the vessel completed discharge at Rotterdam.

(7) If the voyage charter had been performed, the voyage would have taken 43.6 days, completing on 17 March 2011.  The vessel would then have carried a cargo of urea ammonium nitrate from the Baltic to the United States, followed by a chemical cargo from the United States to Europe.

(8) Owners' decision to direct the vessel to South America in an attempt to obtain a substitute cargo and to wait there until the Glencore fixture was concluded was reasonable.  A case of failure to mitigate was not pleaded, but even if it had been it "could not get off the ground".

The judge also drew attention to two further implicit findings and reasoning of the arbitrators:

(1)  The North Atlantic chemical trade between Europe and the United States commanded higher freight rates than the vegoil cargoes available in South America.

(2)  The long delay in obtaining a substitute fixture in South America was unexpected; otherwise, the arbitrators would not have found that Owners’ decision to go there was reasonable.
 
Having heard submissions from counsel on behalf of the respective parties, the judge summarised the principles applicable to the present case as follows:

(1) The fundamental principle in assessing damages is the compensatory principle, namely that the innocent party is so far as possible to be placed in the same financial position as if the contract had been performed.

(2) The Smith v Thomas M'Guire measure represents the prima facie measure of damages for loss of the profit that would have been obtained by a shipowner from performance of the repudiated charter.  Such measures are adopted precisely because in general they give effect to the compensatory principle and are in accordance with the reasonable contemplation of the parties.  However, on appropriate facts, it may be necessary to depart from the prima facie measure in order to give full effect to the compensatory principle.

(3)  An owner cannot lose more by way of lost profit from a charterer's repudiation than the freight (and any demurrage) which he would have earned by performing the charter such that, in that sense, the net freight and demurrage represent a cap on the owner’s damages.  That is not because of any rule of law but simply because of the nature of the loss.

(4)  The position is different if the owner suffers a kind of loss different from the loss of the profit which would have been obtained from performance of the repudiated charter.  In such a case, there is in general no reason why such loss should not be recoverable in damages in addition to damages for loss of the profit from performing the charter, subject of course to the principles of causation, mitigation and remoteness.  On the contrary, failure to award such damages would be contrary to the compensatory principle.

(5)  However, caution will be necessary in considering such claims, bearing in mind that such losses must be sufficiently proved.  If proof of such losses requires complex hypothetical calculations about the future employment of a vessel, the tribunal of fact is likely to conclude that they are too speculative to be recovered, where the more complex the calculation, the less likely the claim is to succeed.

(6)  An example of such a different kind of loss arises when a vessel is redelivered to an owner in the wrong location or when a substitute fixture is completed at a discharge port which is not (or which is some distance from) the discharge port under the contract voyage.  These are important commercial considerations which the law of damages needs to recognize, where the Smith v M'Guire measure of damages compensates the owner only for loss of the freight but does not address any loss which may be suffered if the vessel is less advantageously positioned as a result of the charterer's repudiation.

In applying the principles above to the present case, the judge found as follows:

(1)  The vessel's previous employment completed at Boma in West Africa.  Owners could have directed the vessel back to the European market where higher freights were available to be earned, but that would have involved a long ballast voyage from which they would derive no earnings at all.  Instead, Owners chose to contract with Glencore for a voyage from South America to Europe.  This involved a considerably shorter ballast voyage to the vessel's next load port in South America, followed by a freight earning vegoil cargo voyage to take the vessel back to Europe.

(2)   Performance of the contract voyage would not only have enabled Owners to earn the freight payable under the voyage charter, but would have positioned the vessel in Europe without delay, ready to take advantage of the higher freights available in the North Atlantic market.  Therefore, the consequence of Charterers' repudiation was twofold.  First, Owners lost the charter freight and had to make do with the lesser freight earned under the Glencore charter.  Second, Owners also suffered a delay in repositioning the vessel in Europe and thereby lost the benefit of the two transatlantic voyages which, on the arbitrators' findings, the vessel would have been able to perform in about the same time as was taken up by actual performance of the Glencore fixture.  These were two distinct heads of loss, both of which were caused by Charterers' breach.

(3)  Once it was recognised that the arbitrators in the present case were awarding damages for the consequence of the vessel's delay in returning to the North Atlantic market, and that this was a different kind of loss from loss of the profit which would have been earned from performing the contract voyage, the application of the principles summarised above was straightforward.  The arbitrators found that the loss in question was actually suffered by Owners, that it was caused by Charterers' breach, and that there was no failure to mitigate by Owners, and it was not suggested in the arbitration that the loss claimed was too remote.  There was no finding, and no reason to suppose, that the damages awarded by the arbitrators constituted an unquantifiable, unpredictable, uncontrollable or disproportionate liability.  On the contrary, they consisted of damages for loss of employment on the spot market, the same spot market on which the vessel would have been engaged if the contract had been performed.  Nor was there any finding that such a liability would have been contrary to market understanding and expectations.

(4)  As there was no reason in law why damages for the consequence of the vessel's delay in returning to the North Atlantic market should not have been awarded in addition to the loss of the profit which would have been earned from performing the contract voyage, the compensatory principle required that such damages should have been awarded.  The arbitrators had found, in effect, that the damages that they had awarded represented appropriate compensation for both heads of loss which Owners had sustained as a result of Charterers' breach.

(5)  In dismissing the appeal, the judge determined that there was no basis in the award on which to conclude that Charterers did not assume responsibility for loss of the kind suffered here nor could it be said, in the absence of relevant findings about any general understanding or expectation in the shipping trade as to the assumption of responsibility for loss of the kind suffered here, that such loss would necessarily be irrecoverable as a matter of law.

Comment
 
The judge provided an important postscript to his decision, given that there were at least three factors in Owners’ success in the arbitration and on appeal, such that the result in this case should not be taken to be the norm.

First, there was the finding that Owners had acted reasonably in sending the vessel to South America where, as it turned out, there was no employment for the vessel for a considerable period, despite the fact that, as the arbitrators found, there was a regular trade in vegoil cargoes out of South America.  It must follow that this lack of employment was unexpected, otherwise it could hardly have been reasonable to direct the vessel to South America instead of returning directly to the more lucrative North Atlantic trade.

Second, although Charterers did contend that the vessel ought to have been directed north, which the arbitrators rejected, there was no suggestion in the arbitration that the losses claimed were too remote, that is to say, beyond the reasonable contemplation of the parties.  However, the judge could see at any rate the possibility of an argument (but he put it no higher than that) that a head of loss which was only suffered as the result of a wholly unexpected delay in obtaining substitute employment might have been beyond the reasonable contemplation of the parties.

Third, on the facts here it was possible to predict the vessel's immediate future employment if the contract had been performed, which employment would have taken the vessel back to the same location at about the same time as completion of the actual substitute fixture, so that the damages claimed could be calculated with a reasonable degree of confidence, which would not always be the case.
 
Footnote 1: 157 ER 589