Maestro Bulk Ltd v Cosco Bulk Carrier Co Ltd

The claimant charterers appeal, with the permission of Popplewell J, against a Final Arbitration Award dated 7th March 2014 under section 69 of the Arbitration Act 1996. The question of law arising out of the award is as follows:

“Where a time charter party provides for charterers to give notice of redelivery, what is the correct approach to damages when redelivery takes place with insufficient notice(s)?”

The dispute arose between the claimant charterers and the defendants who were disponent owners of the vessel Great Creation under a charter party on amended NYPE form dated 16th November 2009. The charter was for a period of minimum 4 and maximum 5 months, plus 15 days in charterers’ option at a daily rate of US$18,500 per day gross. A number of disputes arose between the parties on the balance of the final hire account but the only issue with which this Court is concerned is the question of law set out above.

The charterers failed to redeliver in accordance with the notice provisions of clause 60 of the charter which provided as follows:

“On redelivery charterers to tender 20/15/10/7 days approximate and 5/3/2/1 days definite notice.”

The arbitrators determined that the margin allowed for an “approximate” notice amounted to 2 days. In the case of a 20 day notice, that represented a 10% margin whilst a 2 day margin on a 7 day approximate notice tied in with a 5 day definite notice. That finding is not and could not be the subject of any appeal.

The following was common ground between the parties, based on their understanding of the authorities:

The vessel was delivered into the charterers’ service on 29th November 2009. The earliest date for redelivery was therefore 29th March 2010 and the latest date 14th May 2010. In February 2010 the charterers fixed the vessel for a voyage from Casablanca to Pasadena with a cargo of phosrock. They expected this voyage to take about 24 days, leaving the ship “open” on or about 20th March 2010. They therefore hoped to employ the vessel on a further carrying voyage before the latest date for redelivery to the owners.

Unfortunately, there were delays at both the load and discharge ports, and despite their attempts to persuade the owners to extend the charter (the owners had her on time charter from the registered owners until July 2010), the latter were unwilling to extend, save at a daily rate nearly twice the current rate of hire.

On 9th April 2010, an incident occurred involving a laden tanker, the Zouzou which, whilst transiting the Houston Ship Canal, passed close to the Great Creation which was discharging at the time. At this stage approximately 21,000 metric tonnes of phosrock had been discharged with a further 7,000 metric tonnes approximately remaining to be discharged from the vessel. The incident however resulted in the unloader serving the Great Creation being damaged and out of use until 16th April 2010.

In these circumstances, it was on 13th April 2010 that the charterers decided that it was impossible to fix a further laden voyage during the currency of their charter (with the latest date for redelivery 14th May 2010) and that they would therefore have to redeliver the vessel in Pasadena.

On 13th April the charterers therefore served what purported to be an approximate 20 day notice of redelivery. On 14th April, charterers tendered 15/10/7 approximate notices of redelivery and on 16th April served 3/2/1 definite notices.

Discharge of the phosrock resumed on 16th April and was completed on 19th April 2010, at which point the charterers tendered redelivery of the vessel to the owners. The voyage had lasted 55 days instead of the expected 24.

On 21st April 2010, the owners fixed the vessel to Oldendorff GmbH & Co KG for a time charter trip from New Amsterdam, Guyana with redelivery Mediterranean/Black Sea at a daily rate of US$22,000 per day (gross). The charter party laycan was 28th April-1st May 2010 and, in the event, the vessel was delivered into that service on 30th April 2010, eleven days after redelivery from the charter with which the Court is concerned and without any ballast bonus.

The arbitrators found as a fact that there was no failure by the owners to mitigate their loss. It was common ground, on the evidence before the arbitrators, that efforts to find new employment for a vessel coming open in the US Gulf would normally start approximately 3 weeks before she was expected to become available, which tied in with the requirement for 20 days approximate notice of redelivery and was in fact the approach of the charterers when they were looking for new business for the Great Creation for a final voyage from Pasadena, before the delay occurred. There was, on the evidence as found by the arbitrators, very little cargo available on a spot basis since cargoes were booked 2-3 weeks in advance. An owner, whose ship has became open unexpectedly, faced a dilemma. He could either try for a cargo at the going rate but at some time in the future or he could accept a more prompt cargo at a lower rate. The owners here acted reasonably in taking the only fixture that was reasonably on offer as at 21st April 2010.

The experts agreed that the Oldendorff fixture was one that was fixed at below market rates at the time for fixtures out of the US Gulf, even without taking into account the need for a 9 day ballast voyage before delivery into the subsequent charter. If account was taken of the 9 day ballast voyage, it had the effect of reducing the actual charter party rate of $22,000 per day to an effective rate of $13,485 per day.

At paragraphs 90-99 of the Reasons, the arbitrators referred to the expert evidence and the Baltic Handy Size Index for the relevant route from the US Gulf to NW/Europe/Mediterranean/Black Sea in the period 20th March–24th May 2010. They set out the applicable rate for this vessel, with the usual time available for fixing, for delivery on the following dates, as follows:

The charterers contended before the arbitrators that what the owners lost by the failure to give correct redelivery notices was hire payable at the existing charter rate for approximately 20 days beyond the date of notice that was actually given – i.e. 20 days after 13th April 2010, namely up to 3rd May 2010, less any hire actually earned in this period by owners in mitigation of their losses. The owners’ case was that the loss they suffered was the loss of the opportunity to enter into a charter at a significantly higher rate than the one they actually negotiated, having been given effectively 6 days notice of redelivery instead of the 20 days approximate notice (equivalent to 18 days) to which they were entitled. The owners produced six alternative calculations of their losses, of which Version 1 was their primary case.

The ordinary measure of damages for early redelivery is the difference between the charter rate and the market rate, if lower, for the remainder of the charter period during which the charterer was obliged to pay hire (see Wilford on Time Charters at paragraphs 4.37-4.42). Similarly, on the basis of the decision of the House of Lords in The Achilleas [2008] 2 Lloyd’s Rep 275, the ordinary measure of damages for late redelivery is the difference between the charter rate and the market rate, if the latter is higher, for the length of time for which the charterer has retained the vessel beyond the charter period. In the present case that would produce no loss to the owners because the market rate was higher in April 2010 than the charter rate and, subject to any difficulties in fixing, the owners would expect to benefit from an early redelivery. A claim that the notice given on 13th April was not honest or made on reasonable grounds and therefore amounted to breach of charter would for the same reasons and subject to the same proviso not be expected to produce any loss.

The owners’ claim was for the earnings on a notional lost voyage that they would have conducted if contractual notices had been given from 31st March onwards in respect of the redelivery which actually occurred on 19th April. The lost voyage was said to run from 19th April–17th May, with credit to be given for the pro-rated daily earnings in that period which were actually achieved on a voyage which, with its non-earning ballasting positioning leg, ran from 21st April–28th May.

The fundamental issue identified by owners as determinative of the dispute was the characterisation of the charterers’ breach. It was not, in their submission, to be seen as a premature redelivery of the vessel on 19th April but as a breach in giving redelivery on that date without contractual prior notice. Thus the loss suffered by the owners should be assessed on the basis of actual redelivery on 19th April with non-contractual short notice (on 13th April), as compared with the position where that redelivery had been preceded by contractual notice. This meant examining what would have happened if the 20 day approximate notice had been given on about 31st March, it being owners’ case that a follow-on fixture would have been concluded by them between that date and 19th April. By contrast, the charterers said that the nature of the breach was redelivering on 19th April, only 6 days rather than 20 days after notice on 13th April, with the consequence that the breach was akin to premature redelivery. 20 days’ approximate notice, given on 13th April, would have resulted in redelivery on about May 1st-3rd. Although the giving of notices was not a pre-condition to re-delivery, so that, as a matter of law, the redelivery was effective on 19th April, the redelivery was wrongful and in breach of charter because of the inadequate notices given. Therefore, the loss fell to be assessed by comparing what happened in fact following the giving of notice on 13th April as against the position which would have obtained if proper notices had been given then and the charter had continued until May 1st-3rd, with hire payable until that date. In reality the claim was analogous to that of early redelivery under the charter – on 19th April instead of May 1st-3rd.

The claim made by the owners was not based on any breach or anticipatory breach in the giving of notices on March 31st or on any date up to and including April 13th but upon the breach in redelivery on 19th April, without proper notice. The breach was said not to be the redelivery as such, but the redelivery without contractual notices being sent. If proper notices had been given, it was contended that the owners would have concluded a charter for a voyage from Pasadena to NW Europe/Mediterranean/Black Sea at a rate of $28,500 per day gross ( $27,787.50 net of address commission) with delivery immediately following redelivery from the current fixture. Thus it was assumed on the counterfactual of no breach, that notices would have been given from 31st March onwards and that a fixture for the voyage direct from Pasadena would have been concluded between that date and 19th April. The earnings from that notional voyage, which would have run from 19th April to 17th May (after the last permissible date for redelivery under the charter, which was 14 May) then fell to be compared with the actual earnings on the Oldendorff voyage which ran effectively from 21st April (with a 9 day positioning non-paying ballast voyage) until 28th May, pro-rated on a daily basis for the same period up to 17th May. This constituted Version 1 of the owners’ claim and amounted to $426,089.53.

The charterers maintained that this approach was impermissible because it did not truly represent the situation which would have obtained if they had properly performed their obligations under the charter. It assumed a counterfactual which in itself posited a breach of charter by them, namely the giving of 20 days approximate notice of redelivery on about 31st March, when they had no intention to redeliver at that time, but instead had intended to effect a further voyage after completion of discharge at Pasadena. Any notice of redelivery given then would not have been bona fide, nor based on reasonable grounds and would therefore have constituted an actual breach of charter. If the counterfactual was to be that of lawful performance of the charter by charterers, the only way in which the charter could properly have been performed on the facts here, was by serving the first notice on 13th April in respect of redelivery approximately 20 days later (i.e. 18 days later on May 1st in accordance with the Arbitrators’ findings) and keeping the vessel on hire for that period whilst serving compliant ensuing notices. Thus the owners’ loss amounted to the hire payable for the relevant period from actual redelivery until May 1st, less any actual earnings received in mitigation of loss.

As the giving of valid redelivery notices is not a condition precedent to an effective redelivery, the arbitrators concluded, as was common ground, that the vessel was redelivered in fact and in law on 19th April 2010. Hire therefore ceased to be payable at that date. The breach of the notice provisions occurred on that date and the “duty” to mitigate therefore only arose thereafter.

The arbitrators categorised the nature of the breach, as “redelivery with insufficient warning resulting as a consequence with redelivery earlier than the owners were entitled to expect”. The arbitrators referred to the owners’ contention that there was a fundamental difference between the parties as to the nature of the breach and the claim, referring to the owners’ case that it was “redelivery without having given proper notice”. They referred to the charterers’ submission that the breach was in effect one of premature redelivery and their submission that damages could not possibly be awarded on the premise that a false and unreasonable notice should, with hindsight, have been given on 31st March. The arbitrators concluded that the charterers’ submission was misguided, agreeing with the owners that the counterfactual premise for the assessment of damages was the performance of the contract without breach rather than with the breach that occurred. They then went on at paragraph 70 to say that because redelivery was within the redelivery dates and place range provided for in the charter, namely between 29th March 2010 and 14th May 2010, the breach for which damages was payable did not relate to the date of redelivery as such but to the absence of correct contractual notices, honestly and reasonably given, prior thereto.

Damages were therefore, in their view, payable for the difference between notice being properly given and it not being properly given in respect of a redelivery on 19th April and the different rate for fixtures available to owners in those two sets of circumstances. The arbitrators, in setting out Version 1 of the owners’ calculations and accepting it with modification, referred to the end point of the period for that calculation as redelivery from the Oldendorff fixture, whereas in fact the period concerned ran only to redelivery under the notional fixture from Pasadena to north west Europe/Mediterranean/Black Sea ending on 17th May. The modifications that they made to the owners’ calculations related to the rate which owners said they would have achieved on that notional fixture and to the point at which delivery into the follow-on fixture would have taken place.

By reference to the Baltic Handysize Index for delivery on 19th April, they concluded that the relevant rate was $25,927 per day ($25,278.83 net of address commission) on the basis of the owners going into the market 20 days before availability on that date and concluding a fixture in the ordinary course of time thereafter. Thus, the arbitrators envisaged the notional fixture being made at some point after 31st March but before 19th April. They did not however consider that the owners were entitled to be compensated for a period of two days between 19th and 21st April which represented the time between the redelivery under the current charter and entry into the Oldendorff fixture. Even if correct notices of redelivery had been given from 31st March onwards, the arbitrators considered that there could well have been dead time between redelivery and entry into the follow-on charter. Accepting the owners’ pro-rated daily figure on the Oldendorff voyage, allowing for the unpaid ballast leg, of $13,485 per day net, the net daily loss, as against the £25,278.83 figure for the notional voyage, was $11,793.83. Taking that figure for 26 days from 21st April to 17th May, the end of the notional Pasadena/Europe voyage, they arrived at a calculation of 26 days x $11,793.83 = $306,639.58.

In reaching their conclusion as to the nature of the breach, the arbitrators referred to The Liepaya [1999] 1 Lloyd’s Rep 649, a decision of Rix J (as he then was) and The Niizuru [1996] 2 Lloyd’s Rep 66, a decision of Mance J (as he then was), to which Rix J had made reference in his judgment.

Reference was also made to The Achilleas [2008] 2 Lloyd’s Rep 275 and The Sylvia [2010] 2 Lloyd’s Rep 81, in which Hamblen J ably explained the decision of the House of Lords in The Achilleas in a manner which has generally met with the approval of commercial lawyers.

Both the decisions of Mance J and Rix J to which I have just referred are relevant to the question of the nature of the breach with which the arbitrators and I am concerned but the passages in the former’s judgment is unquestionably obiter whilst the passage in the latter’s judgment is arguably so. I consider therefore that I should go back to first principles before considering the views expressed by these experienced commercial judges.

It is common ground that damages for a breach of charter are intended to put the victim into the position which would have obtained if there had been no such breach. It is therefore of critical importance to characterise the breach. Both parties agree that the breach lies in redelivery of the vessel on 19th April without giving the notices required by the contract but differ as to the hypothetical “no breach” situation. Is the “no breach” situation to be regarded as that where the charterers give contractual notices from April 13th onwards, when the first contractual notice was given or is the “non-breach” situation to be seen as that where contractual notices were given in relation to the redelivery of the vessel on 19th April?

It seems to me that different conclusions could be reached on this issue by reference to the facts of an individual case. If, for example, taking the relevant dates as those which arose here, as at 31st March charterers’ intention was to redeliver on 19th April, but no notice was given of that until 13th April, the “no breach” situation can properly be seen as that in which a notice should have been given on 31st March. If however, as at 31st March, there was no intention to redeliver on 19th April, any notice given then would neither be honest nor based on reasonable grounds and, if relied on, could give rise to damages as a non-contractual notice. Such a notice, given neither bona fide nor on reasonable grounds, would be uncontractual and a breach of charter.

To posit a “non-breach” situation on the basis that a notice should have been given at a time when it, in itself, would be wrongful and represent a breach or anticipatory breach, would appear contrary to principle. To compare the position resulting from a breach in redelivering on 19th April, without the requisite contractual notices, with a supposed “non-breach” situation, where, on 31st March, a different breach would have been committed in serving an approximate 20 day notice for 19th April, would not result in a comparison between the breach situation where charterers failed to perform the contract on the one hand and the non-breach situation where they did perform it on the other. Inherent within the “non-breach” situation envisaged, where an approximate 20 day notice was given on 31st March for 19th April, is another failure on the part of the charterers to perform the contract. That comparison is not between the breach situation where charterers breach the contract by redelivering the vessel on 19th April without proper notice and a non-breach situation where charterers properly perform the contract, which on the facts here, could only be done by giving contractual notices from 13th April onwards. If charterers were properly to perform the contract on the facts found by the Arbitrators, they would have had to give the approximate 20 days’ notice on 13th April for redelivery on 1st May (18 days later as held by the arbitrators) and keep the vessel on hire for that period. The true nature of the breach did not lie in a failure to give the approximate 20 day notice on 31st March but in a failure to give that notice as at 13th April.

Whilst it is true that the giving of contractual redelivery notices is not a condition precedent to redelivery in law or fact, the obligation was to give such notices at the time which was appropriate for proper performance of the contract. Because the vessel was at the charterers’ disposal, the contractual course was to give the full range of notices starting on 13th April when charterers first decided on redelivery at Pasadena and to pay hire until redelivery in line with such notices, whether or not they had a use for the vessel. In a rising market, they might have hoped that, through negotiation, the owners might accept an earlier redelivery if a fixture could immediately be found at a higher rate than that which was payable under the current charter, because this would be to owners’ advantage.

As a matter of principle therefore the effect of the charterers’ breach was, in my judgment, to deprive the owners of the hire which was payable under the current charter for the balance of the notice period after actual redelivery on 19th April up to 1st May – a period of 12 days. If the owners had failed to obtain any employment for the vessel during this period, no sums would fall to be credited against the charter hire payable in respect of it. Owners could have no complaint because they would be receiving exactly that for which they had bargained – namely, the hire until redelivery with proper notice. They had no ground to complain about a notice given on 13th April - only that redelivery was on short notice and not approximately 20 days later. How they chose to employ the vessel thereafter would be a matter for them, if they were compensated for the period of short notice.

If however, in reasonable mitigation, the owners entered into a fresh charter so that the vessel was employed during the relevant period, earnings received from that employment would fall to be offset against the hire in order to establish the owners’ true net loss. The complication arises in the present case because owners say that they concluded a charter at an undervalue in order to secure prompt employment, rather than wait to obtain the full market rate, which results in a lower credit against the notional voyage during the missing period of notice but increases the loss as claimed because the claim runs for a period thereafter.

The arbitrators have found that this was reasonable mitigation. As that voyage did not in fact begin until delivery into the Oldendorff charter in Guyana on 30 April, the position is that owners in fact earned nothing for the ballast leg of the voyage between 21st April and 30th April. On the authority of TheNoel Bay [1989] 1 Lloyd’s Rep 361 as hallowed by usual practice in arbitration and litigation, where earnings in respect of a voyage charter of this kind fall to be assessed, for the purpose of looking at a comparison with other employment, account is taken of the ballast leg when calculating a pro-rata daily rate.

In The Liepaya, the charterers redelivered a vessel on 10th December with one day’s notice given on 9th December without serving any of the 15 and 7 days notices of expected redelivery or 5, 3 and 2 day definite notices of redelivery. Liability was admitted but the quantum of loss was disputed on the basis that the owners should have mitigated loss by accepting employment offered by the charterers or its associates, or, alternatively, because the owners had failed to prove any loss. On the facts, the judge found that there was no failure to mitigate.

The judge also found that because there had been negotiation for an extension to the charter (which came to nothing) the charterers only “woke up” to the fact that they needed to serve notice of redelivery one day before they were scheduling such redelivery. It was the collapse of negotiations for the extension and a reminder from the owners that a 15 day notice was required that caused them to serve the 1 day notice. It is to be inferred that, absent successful conclusion of negotiations for the extension, the charterers’ intention had long been for redelivery on 10th December on completion of the then current employment.

The owners accepted redelivery of the vessel and the termination of the charter on 10th December and refixed the vessel only after a period of 14 days, during which the vessel lay idle. As it happened therefore, the vessel was refixed on the very day when a contractual 15 day notice of expected redelivery would have expired. Rix J found that, had proper contractual notice of redelivery been given in respect of the redelivery on 10th December, the owners would have refixed the vessel 14 days earlier than they did so that they lost earnings for the 14 day period during which the vessel was idle as a result of the charterers’ breach.

The judge expressed the view that the uncontractual 1 day notice was an anticipatory breach of charter, not an actual breach and that the charterers could have relented and given proper notices, thus avoiding an actual breach. Had that been done, hire would of course have continued for those 14 days until redelivery with proper notice. There was actual breach however in redelivery on 10th December without proper notice being given prior thereto.

The evidence before the judge showed that the market rate in December was higher than the charter rate so, as the owners only claimed damages for 14 days at the charter rate of hire, he held that the owners were entitled to damages at that daily rate. He would, however, plainly have allowed damages for 14 days at the market rate, had that been claimed and established. Since the claim was only for the hire rate, the expression of this view can be seen as obiter.

On the facts of the case however, it could properly be said that proper performance of the charter by the charterers would have required service of notices commencing 15 days before 10th December, since the intention was to redeliver on 10th December, absent an agreed extension. This does not however mean that this is a universal principle applicable to all cases where redelivery takes place without contractual notices being given. Proper performance of the charter may mean in one case service of contractual notices in respect of the actual date of delivery whilst in another it can mean service of contractual notices at the date when short notice was given, resulting in later redelivery.

Rix J referred to The Niizuru, when saying en passant that “even if” the original breach in the case of a redelivery without adequate notice was the failure to give the stipulated notices, so that the redelivery on 10th December meant, ex post facto, that the charterers were in fact in actual breach 15 days earlier, that did not mean that there was any duty to mitigate before the time that the owners became aware that there would in fact be uncontractual delivery. He was clear that “in any event” he considered that the uncontractual 1 day notice was not an actual breach, but at that time only an anticipatory breach (though he refers to it as a “repudiatory” breach).

The reference by Rix J to The Niizuru, which the arbitrators did not regard as relevant or helpful, relates to pages 72 and 73 of Mance J’s judgment. The question there related to laycan provisions and notices on delivery and not to notices of redelivery and at page 72, the judge specifically drew attention to the difference between the two, since laycan provisions do involve rights to refuse delivery in certain situations. On the charter party clauses which fell to be construed there, he concluded that the obligation to narrow the laycan to a 15 day spread, 25 days prior thereto, was a condition precedent to delivery and the running of time for hire.

He proceeded however, obiter, to consider the position if compliance with the laycan narrowing clause was not a condition precedent to delivery, which meant that, of necessity, his starting point had to be the date when delivery was tendered on 26th March. The judge stated that the breach must then lie in failing to go through the proper procedure prior to such delivery, not in failing to give a longer notice and to deliver at a later date. In such circumstances, as he pointed out, if delivery can validly be tendered despite breach of the narrowing provision, so that time ran without giving the advance notice required, it was inherent in the situation that the time when notice should have been given could only be capable of being identified after such delivery had been tendered. If the laycan was on 17th March actually (“validly”) narrowed so as to run from March 26th, the breach lay in giving only 9 days notice instead of the 25 days required by the contract prior to March 26th.

In such circumstances, if the narrowing provision was not a condition precedent to delivery, he found that the onus would have been on the charterers to show that they had lost valuable employment opportunities as a result of not being given the contractual 25 days notice.

It is to this ex post facto identification of the date when notices should have been given, by reference to the date of delivery, that Rix J referred on a “even if” basis. To my mind, as it appeared to the arbitrators, this decision takes the matter no further.

I conclude therefore that there is nothing in the decisions of Rix J and Mance J which affect my conclusion that, on the facts of the present case, the breach lay in not redelivering in accordance with a contractual notice given on 13th April and not in failing to redeliver on 19th April following a contractual notice given on 31st March.

The effect of the arbitrators’ finding is that damages were awarded in respect of a lost business opportunity which occurred prior to the breach of contract which they themselves rightly identified as occurring on 19th April, when the vessel was redelivered on short notice. There could also be no anticipatory breach prior to 13th April. As at 13th and 19th April, any opportunity to obtain the claimed rate on the notional charter had passed so that any breach on those dates did not deprive them of that earlier opportunity - it was the lack of the 20 days’ approximate notice which was required to work the fixture, which, on their case, did so. The owners accepted that if the nature of the breach was, contrary to their submissions, as I have found it to be, this effectively determined the causation issue also, but the point may be wider than that.

The arbitrators sought to escape the difficulty by stating that the breach occurred on redelivery on 19th April 2010 and the owners’ loss was incurred when they entered into the Oldendorff fixture on 21st April whilst the circumstances giving rise to that loss preceded that date and related to the failure to give correct notices of redelivery. The loss however was not incurred when concluding the Oldendorff fixture at all since this constituted a credit to be given against the loss being claimed in respect of the notional voyage that would have been concluded, ex hypothesi, between 31st March and 16th or 19th April.

The arbitrators relied upon an illustration put forward by the owners, referred to as “the Ryanair example”. It was expressed as follows:

“If I am told today I must go to Paris tomorrow and it costs me £100 for my air ticket, whereas I could have travelled tomorrow for only £10 on Ryanair if I had been told a fortnight ago, then the short notice has cost me £90. If I have been promised that any trips to Paris would be made on a fortnight’s notice, then there is a breach of that promise and the £90 loss is caused by that breach. The breach may only occur when I travel without having had proper notice, but the loss, though based upon the breach, is a real loss and one which has been caused by the breach.”

The arbitrators considered the example apposite and added that the loss occurred on travelling which was also the date of the breach, whilst the circumstances giving rise to the loss preceded the date upon which the loss was incurred. The difficulty with this analogy is that, in circumstances where the promise of a fortnight’s notice has been given, the breach of the promise occurs when the individual is told to go at short notice and the loss is incurred on payment for the ticket thereafter. The loss follows from the breach in the conventional manner. The mistaken view of the arbitrators in talking of loss being incurred when the owners entered into the Oldendorff fixture is demonstrable when a different hypothesis is assumed, namely one where owners could not conclude the Oldendorff fixture but were left with an idle ship. In these circumstances, the claim would have been for the loss of the notional voyage on a fixture concluded between March 31st and April 19th, without any credit to set against it in respect of actual earnings. The loss claimed relates to that notional piece of business which was notionally concluded before the date of breach.

Although I was referred by the owners to the decision in The Marine Star [1994] 2 Lloyd’s Rep 629, that does not assist. There, a claim arose in respect of a liability incurred to a sub-purchaser which had bought in a substitute cargo on the default of the plaintiffs who had sold to the defendants and the corresponding default of the defendants who had sold to the sub-purchaser. The replacement purchase by the sub-purchaser was made on 31st July at a time when the defendants were in breach of contract to the plaintiffs and the plaintiffs in breach of their sub-sale in failing to nominate a vessel by the appropriate date. The liability therefore arose after the breach which was “an anticipatory repudiatory breach”, even though that was not accepted as giving rise to termination of the contract until August 2nd, by which time it was clear than no nomination of a vessel could result in arrival at the loadport at the relevant time. The plaintiffs were able to attribute to the defendants their liability to their sub-purchasers arising from circumstances for which the defendants were responsible which led to non-performance by the defendants, and so by the plaintiffs on their sub-sale. In the context of a chain of back-to-back purchase and sale contracts, the particular temporal order of events was held not, in any event, to reflect a proper analysis of causation. Nothing of that kind arises in the present case, however, since there could not be an anticipatory repudiatory breach on 31st March, or prior to 13th April, for the reasons already given.

The charterers submit that the owners’ claim is novel inasmuch as the damages claimed are based upon an allegedly lost “follow-on” fixture which bears no relation to either the contractual notice period, the duration of the charter which is breached, the charter rate of hire or any differential between charter and market rates of hire. It is submitted that the lost notional voyage from Pasadena to north-west Europe which would, as hypothesised, have lasted 28 days, could equally have been any other lost business opportunity, whether for a five year charter or something between the two. The comparison would then fall to be made with the charter, of whatever duration, concluded instead at short notice and the difference in remuneration claimed for whatever period, regardless of the length of the missing period of notice, the maximum duration of the charter and the rate of charter hire. Equally, the lost business opportunity and the actual business which fell to be credited against it could also be of any type. The charterers contend that any loss of this kind falls foul of the principles set out by the House of Lords in The Achilleas, as further explained by Hamblen J in The Sylvia.

The Achilleas was a late delivery case. The final contractual date for redelivery under the time charter (which had run for about 14 months) was 2nd May 2004. By April 2004 market rates were more than double the charter rate. On 20th April the charterers gave notice of redelivery between 30th April and 2nd May and on 21st April the owners fixed a period charter of 4-6 months at a rate of $39,500 per day, as compared with the current charter rate of $16,750 per day. The laycan under the follow-on charter expired on 8th May 2004.

The vessel was delayed in its final discharge and was not redelivered to the owners until 11th May, nine days after the final date allowed under the charter party and the final date referred to in the notice of redelivery. It had become clear to owners by 5th May that the vessel would not be available before the cancelling date of the follow-on charter but by that time the market rate had fallen considerably. In order to obtain an extension of the cancelling date to 11th May in order not to lose the follow-on charter, the owners agreed to a reduction in the rate of hire for that fixture from $39,500 per day to $31,500 per day. That charter then ran for about 6 ½ months and the owners claimed damages for late redelivery for the differential between $39,500 per day and $31,500 per day for the whole period of the follow-on charter, amounting to $1.365 million approximately. The charterers contended that the owners were only entitled to the difference between the charter rate and the market rate for the overrun period of nine days between May 2nd and May 11th amounting to $158,301.17.

The majority award in favour of the owners’ submissions was upheld in the High Court and by the Court of Appeal but the House of Lords reversed their decisions on the basis that although the type of loss complained of was foreseeable, it was not one within the reasonable contemplation of the parties at the time the contract was made. What was within the parties’ contemplation was that late redelivery would result in the loss of use of the vessel at the market rate, as compared with the charter rate during the period of overrun. A loss of profits from the follow-on fixture beyond the overrun period was not in the reasonable contemplation of the parties and, according to Lord Hoffman and Lord Hope, was not a matter for which the charterers assumed responsibility under the charter. At paragraph 23 of his judgment, Lord Hoffman stated that the loss claimed would be completely unquantifiable because, although the parties would regard it as likely that the owners would at some time during the currency of the charter, conclude a forward fixture, they would have no idea when that would be done, or what its length or other terms would be. In consequence any knowledge of owners’ arrangements for the next charter was regarded by the market as res inter alios acta. (In the present case there is no finding as to charterers’ knowledge of any plans of the owners for future fixtures). The decision has attracted much comment.

In explaining the decision of the House of Lords, Hamblen J in The Sylvia stated that it did not involve any new generally applicable legal test of remoteness in damages beyond that set out in Hadley v Baxendale (1854) 9 Exch 341. At paragraph 40, Hamblen J described the decision in The Achilleas as an amalgam of the orthodox approach and a broader approach of assumption of responsibility adopted by Lords Hoffman and Hope. He then stated that the orthodox approach remained the general test of remoteness applicable in the great majority of cases but that there could be “unusual” cases, such as The Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market made it necessary specifically to consider whether there had been an assumption of responsibility for the loss in question. He said that this was “most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectation.”

The claim in The Sylvia was for lost profit on a cancelled sub-charter consequent upon the owners’ breach in failing to maintain the steelwork of the vessel. The arbitrators found in favour of the charterers and the judge found nothing surprising about the conclusion that they had reached by reference to the first limb of the rule in Hadley v Baxendale. Lost profits on a sub-charter consequent upon a failure by owners to provide the services of the vessel during the currency of a time charter have long been recognised as potentially recoverable. At paragraph 68, the judge stated that a disponent owner who loses a voyage fixture due to owners’ breach is effectively in the same position as a vessel owner who loses a voyage fixture due to charterers’ repudiatory breach. The damages recoverable would normally be calculated by comparing the gross profit (freight demurrage and other charges, less voyage expenses) which the owner would have derived from a broken charter party and the gross profit which he has earned under the substituted charter or charters, the latter being apportioned so as to reflect the amount earned up to the date when performance of the original charter would have been completed (as per The Noel Bay method of calculation).

It was the owners’ contention in The Sylvia that the tribunal’s conclusion was wrong in law because of the decision of the House of Lords in TheAchilleas. In that context, in rejecting that submission, the judge said this:

“71.

However, in my judgment there are important differences between the claims made in the present case and in The Achilleas.

72.

Unlike in The Achilleas, there is no finding of a general market understanding or expectation that damages for delay during the currency of a time charter party are limited to the difference between charter and market rates during the period of delay. On the contrary, as Wilford and The Derby illustrate, the general understanding is that damages can be recovered for loss of a fixture in such circumstances. Moreover, the measure of damages recoverable for a lost voyage fixture is a well recognised measure of damages in charterparty cases.

73.

Similarly, unlike in The Achilleas, this is not a case in which it can be said that the resulting liability is likely to be unquantifiable, unpredictable, uncontrollable or disproportionate. Where a follow on fixture is made at the end of a charter it could be for any period. It is entirely possible that it could be a long term charter lasting years even though the charter breached is for a relatively short term. It is the unpredictable and unquantifiable element introduced by the various possible lengths of follow on charter that makes the potential liability disproportionate and commercially unacceptable. By contrast, loss of a sub-charter during the currency of a time charter can never be for a longer period than the time charter itself. Further, very often, as here, it will be for the loss of the specific charter voyage for which the vessel was fixed. Loss of a voyage fixture within the course of a charterparty will result in a loss within reasonable and fixed confines. It is possible that market movements may mean it is a large loss, but it will be a loss based on a trading voyage.”

The charterers’ submission to me in the present case is that the liability for a hypothetical lost business opportunity of the type for which the owners contended is “unquantifiable, unpredictable, uncontrollable and disproportionate” at the date of entry into the charter, as the very nature of a follow-on fixture made at the end of a charter is that it could last for any length of time. It is the unpredictable and unquantifiable element introduced by the various possible lengths of follow-on charter that make the potential liability disproportionate and commercially unacceptable as a basis for assessing damages to be paid for inadequate notices and corresponding late redelivery. The difference between the follow-on fixture and the sub-charter which is limited to the currency of the time charter in question is self-evident. Loss of a voyage fixture within the course of a time charter will result in a loss within foreseeable and fixed confines, whereas the follow on fixture could take any form, which would not be in the contemplation of the defaulting charterer at the time of the conclusion of the charter.

The arbitrators cited the charterers’ submission that the owners’ claim here was not even for a specific voyage for which she had been fixed (as in The Achilleas) but for a putative, hypothetical follow-on fixture, which could be for any period and was not a concurrent fixture. It could be a long term charter for months or years even though the breach related only to a matter of 12 days. As claimed, it was more than double the period of short notice and was therefore disproportionate and commercially unacceptable. It was unpredictable and unquantifiable in the sense that at the date of the charter, the parties would have no idea where the vessel might be at the date of redelivery, what markets might be available or what duration any follow-on business might have. The claim was based not on an agreed actual voyage, but on a possible route, one of many possible routes or fixtures a ship might take. It was not therefore within reasonable or fixed confines.

The owners’ submission, as recorded in the arbitrators’ award and before me was that there was no evidence of any general market-wide understanding that damages were limited to the period for which notice should have been given and that there was no question of an uncontrollable or disproportionate liability when there was a finite period left under the head charter which expired in July. There were no extremely volatile market conditions which applied at the time and the loss suffered was the ordinary and natural consequence of the situation in which the owners found themselves as a result of the charterers’ breach.

The arbitrators accepted that there was no need to consider whether there had been an assumption of responsibility by the charterers for the loss in question because any follow-on charter could not exceed the relatively short period left under the head charter and application of the general test did not lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability but, as in TheLiepaya, the claim was one for loss of follow-on business due to a lack of notice.

Whilst it is true that the notional voyage was a 28 day voyage only expiring on 17th May, the fact remains that 17th May fell outside the last date for redelivery under the current time charter, as well as outside the expiry date of a contractual notice sent on 13th April. The length of the head charter to which the owners (but not self-evidently charterers) were party, is an irrelevant consideration because there is no suggestion that this was within charterers’ knowledge. (In fact, the owners subsequently obtained an extension to that head charter). Whilst this particular notional voyage was for 28 days, the comparison was made with the Oldendorff voyage which, with the ballast leg, lasted some 37 days from 21st April to 28th May, 2 weeks beyond the final delivery date set out in the current charter. It is not the exact length of the voyages in question that matters but the nature of the liability in the context of a follow-on fixture, as described by Hamblen J.

Notwithstanding these points, if the arbitrators had been directing their minds, in the light of a correct characterisation of the breach, to the right comparative notional voyage – an appropriate notional prospective fixture which owners would have concluded with appropriate notices given from 13th April onwards, it would not, in my judgment, be open to this court to interfere with the arbitrators’ conclusions since they directed their minds to the appropriate tests as set out in the authorities and in particular in The Achilleas and The Sylvia. They did not however do so, because of their characterisation of the loss which I have held to be in error. They directed their attention to a notional voyage fixed on the basis of contractual notice sent on 31st March.

Although Version 2 of the owners’ damages calculation proceeded on the basis of proper performance with a 20 day redelivery notice given on 13th April and expiring 3rd May 2010 and a notional voyage from 3rd May 2010 to 31st May 2010, the arbitrators made no findings of fact as to the rate which would have applied to that charter, fixed in the ordinary course of business with such 20 days notice at the full market rate. The owners claimed that the prevailing rate was $26,500 per day gross ($25,837.50 net). Nor did they make any finding as to remoteness in relation to any such claim. The arbitrators might have held that the differential between whatever rate they found was applicable and the Oldendorff fixture rate was recoverable but they might not, though, given their reasoning, it seems that they might well have come to the same conclusion as for the earlier notional voyage. However, any voyage commencing on 1st/3rd May of a similar kind to the notional voyage commencing on 21st April would have lasted for 28 days or more, taking the expiry date well beyond the last date for redelivery under the current charter party. I do not know what the arbitrators’ conclusion would have been about such a voyage, whether in terms of rate or remoteness and I cannot infer from the rates given at specific dates, which I have set out in paragraph 14, what the rate would have been for the notional voyage commencing 1st/3rd May from Pasadena/US Gulf.

If I was to examine the matter afresh in the context of remoteness, I would accept the charterers’ submissions. It is the very nature of the follow-on fixture, when compared with an hypothetical follow-on fixture which gives rise to notions of unquantifiability, unpredictability, uncontrollability and disproportionality at the date of the charter, even if the figures can be quantified ex post facto.

In my judgment what the parties would have in contemplation at the time of entering into the charter as a consequence of the failure to serve contractual notices on 13th April would be the loss of hire from the date of actual redelivery to the date when the approximate 20 day notice expired and the vessel should have been redelivered in accordance with the service of compliant notices. In this case that would be the hire from 19th April to 1st May, on the arbitrators’ findings. That must be the prima facie measure of loss.

The arbitrators referred to the dilemma of an owner whose ship becomes unexpectedly open at short notice. As in the case of TheLiepaya, there could be a period of idleness before a follow-on fixture was made or a more prompt cargo could be accepted at a lower rate. Whatever decision the owner takes, there is, of course, every possibility of charterers arguing that there is a failure to mitigate. The low rate on a “prompt” fixture would be set off earlier against the prima facie loss of hire compared with a full market rate which would only fall to be credited at a later date. Damages for the unexpired period of proper contractual notice in the former case will usually give rise to a lesser overall level of damages recoverable than an enforced period of idleness prior to commencement of earnings under a voyage charter concluded in the ordinary course of business at the full market rate. That will depend on the period of time prior to the expiry of the notice and the extent of the discount allowed for prompt fixtures. If a further period beyond the missing notice period is taken into account, then the equation will depend on the extent of discount and the unpredictable length of the actual follow on charter. An owner will obviously carry out calculations to see where his best interests lie and he may act entirely reasonably or not unreasonably in making his decision, but this is not decisive of the loss which he is entitled to recover. Of course, if he acts so unreasonably that he fails to mitigate loss or it can be said, using other language, that the loss suffered was not the result of the breach, the owner will suffer the consequences, if relevant to the measure of damages.

The fact that an owner may act reasonably in accepting a lower “ prompt” rate does not however, in a case such as the present, in my judgment, mean that the period for which damages are claimed will ordinarily extend beyond the missing period of contractual notice which must be seen as analogous to the late redelivery position in The Achilleas. At the time of concluding the charter, liability for the difference in rates of follow-on fixtures, hypothetical and real, for their duration however long that might be, would not be in the contemplation of the parties.

I do not say that, as a matter of principle, a claim of the kind posited could never, on appropriate facts, be recoverable. Such a claim could conceivably run in either situation where proper performance of the contract involved giving contractual notices prior to the date of actual redelivery or giving contractual notices at and from the date when the first short notice was actually sent. On special facts, the ordinary measure could be held inapplicable and it might be possible to recover in respect of a period above and beyond the missing period of notice (see by analogy The Elbrus [2010] 2 Lloyd’s Rep 315), but that is not an option open to me here. The evidence would have to show what the full market rate was if the full notice period had been used to negotiate a fixture in the ordinary course of business, as against the lesser prompt figure which the owners had accepted in reasonable mitigation. Those figures are not available here and that equation could not be done even if a different view was taken as to remoteness and the fact that neither the hypothetical fixture nor the Oldendorff fixture terminated within the missing period of notice or the currency of the charter with which I am concerned.

By the end of the hearing of this appeal, I had, in addition to the six different calculations set out in the Reasons, a further 2/3 calculations emanating from the owners, some in response to my questioning, and two calculations from the charterers. Because of the sums involved, neither party sought remission to the arbitrators for further findings of fact should I be of the view that the proper measure of damages related to a comparison with contractual performance consisting of the service of contractual notices on 13th April. The parties sought a final answer from the court on the basis of the facts found in the award, varying it, should I consider that, contrary to the owners’ submission, the arbitrators had erred in law.

As is apparent, I consider that they did err and that, even if I did have findings of fact by the arbitrators as to the appropriate rate for a notional voyage beginning on 1st/3rd May from Pasadena/US Gulf (NWE Europe), I would not consider that the proper measure of damages could include a period running beyond the end of the missing notice. I must therefore look for the measure of damages which best reflects the loss by reference to that period and that which I consider would have been within the contemplation of the parties at the time of fixing the charter.

The hearing before the arbitrators proceeded on documents alone without the benefit of the oral argument from Mr Andrew Baker QC and Mr Charles Priday which helped to elucidate the issues and the different calculations of damages for me. Matters were not teased out before them in the testing of arguments which occurs when there is an oral hearing. The detrimental absence of this incident of oral advocacy is a matter upon which this Court has previously commented, where the understandable desire to save costs by conducting an arbitration on documents alone can sometimes prove counterproductive.

A feature of the argument before me was the owners’ calculations which, largely, brought into account the ballast voyage which was necessary to position the vessel for the Oldendorff charter in Guyana. The owners brought into their calculations which compared the notional lost voyage, at full market rate commencing on 21st March, with the Oldendorff voyage at reduced “prompt” rate, the 9 day ballast leg which was necessary to position the vessel for delivery into the latter charter. This had the effect of reducing the actual daily rate of the Oldendorff charter from $22,000 per day to $13,485 per day as a credit to be offset against loss claimed under the notional voyage up to 17th May (Version 1). The same $13,485 figure was used in Version 2 which however assumed a notional voyage beginning on 3rd May and running to 31st May at a rate of $26,500 per day ($25,837.50 net of commission), figures upon which the arbitrators made no findings. As the assumption was that the Oldendorff voyage would have completed by 28th May in those circumstances, the last 3 days gave credit for the hire earned on the further follow-on voyage from the Black Sea to Turkey or Iran.

I need not refer to Versions 3 and 4 of the owners’ calculations but Version 5 proceeded on the basis of the damages calculation which did not run beyond the date when proper notices would expire (said to be 3rd May) or, if earlier, delivery into the Oldendorff charter (30th April). The claim was made at a suggested market rate of £26,500 per day (Version 5) or at the charter rate of $18,500 per day (gross) until 30th April but treated the ballast voyage as idle time and did not give credit for any period of subsequent employment after 30th April (Version 6).

As I have already indicated, the prima facie quantum of loss must be the hire which should have been paid for the balance of the notice period running from 19th April to 1st May – i.e. 12 days. Credit would ordinarily fall to be given against that figure in respect of any earnings achieved by the owners in mitigation of loss in the same period. The complexity which arises here is because of the ballast leg when no earnings were achieved as such and the contention that the rate actually achieved and payable from 30 April on the Oldendorff charter was not the full market rate as a direct result of the short notice of redelivery given by the charterers, which resulted in loss which continued after the expiry of notice and which is only quantifiable by reference to a notional voyage for which arbitrators have not found a rate.

If it is, as I have held, impermissible to take into account the differential between the “prompt” rate and the full market rate achievable by ordinary working of a fixture with the approximate 20 days notice for an unpredictable notional voyage, the question then arises as to the best way of representing the owners’ loss. Ordinarily, there might well be a period of idle time before a vessel was fixed at market rate and only what was received by the owners in the missing period of notice, after such a gap, would be offset against the hire which they ought to have been paid by the charterers in the self-same period. Where something less than the market rate is achieved earlier by reason of the charterers’ breach in giving uncontractual notices, the owners’ loss is best reflected by the amount of charter hire lost in the missing notice period against which credit can be given for the true market rate, but only when achievable.

In these circumstances I consider that the starting point for the calculation which best represents the owners’ loss on the arbitrators’ findings is the hire payable for the period between 19th April and 1st May, the date when a 20 day approximate notice of redelivery could, at the earliest, expire (18 days from 13th April). Credit then falls to be given for the market rate of hire as and when it was achievable.

I consider that the period of 21st April–30 April is to be treated as idle time, with no earnings to set against the charter hire which should have been paid by charterers. As the ballast voyage to Guyana occupied the period between 21st April and 30th April prior to delivery into the Oldendorff charter, it could properly be said that there were no earnings received by the owners to set off against their loss of hire in respect of those 11 days, in any event, since the only purpose of prorating the Oldendorff rate to take account of the ballast passage was for comparison purposes against the notional voyage. Owners in fact achieved a rate of $22,000 on a fixture out of Guyana with laycan 28th April–1st May on short notice, with actual delivery on 30th April but what does this mean in the context of deciding when the full market rate was available to owners?

Was the full market rate available to owners on 1st May? The charter hire for that day which the owners should have received amounts to $18,037.50 net but the hire actually received on the Oldendorff charter was the net daily rate, without taking account of any pro-rating exercise in respect of the ballast voyage. The gross figure is $22,000, from which address commission would fall to be deducted. Because the Oldendorff hire exceeded the charter hire, taking this into account would result in a credit to charterers against the damages payable in respect of hire due for the previous 11 days.

The arbitrators found as a fact however that the Oldendorff charterparty, with delivery in Guyana, was entered into at an undervalue, even without taking account of the ballast leg, when compared with a voyage charter concluded prior to 19th April and that conclusion would appear to hold good, on the figures that are available in the award for a prospective voyage in the future. Notwithstanding the absence of any finding of fact by the arbitrators as to the loss suffered in taking the prompt Oldendorff fixture on 21st April as compared with the full market rate of hire obtainable by working a fixture for delivery 20 days from 13th April – i.e. May 1st-3rd, the evidence to which I have referred in paragraph 14 above and the material referred to by the arbitrators when setting out the owners’ Version 2 calculation suggests that the rate obtainable for a voyage from Pasadena/US Gulf to NWE Europe would have been appreciably more than the $22,000 hire rate obtained for the Oldendorff voyage. The owners claimed a rate of $25,837.50 net as the relevant market rate for a voyage commencing on 3rd May. A figure of this order would rise to an even greater credit than the Oldendorff rate to be set off against the damages representing 11 days hire, if it was available to owners on 1st May.

I consider that, in the circumstances and giving due weight to the arbitrators’ finding that the owners acted reasonably in taking the only fixture that was reasonably on offer on 21st April which involved a ballast passage to Guyana, laycan dates of 28 April-1st May and actual delivery on 30th April, at a rate which appears lower than the market, the full market rate would not have been available to the owners on that day. In other words, if the owners had waited in order to obtain market rate, as opposed to accepting a “prompt” fixture, 1st May would also have been an idle day.

All in all, I consider that, on the arbitrators’ findings of fact, I shall not be doing any injustice in taking 12 days loss of net charter party hire, as the sum which best represents the owners’ loss as a result of the short notice.

The award therefore should be varied to reflect the owners’ success in relation to damages for failure to serve contractual notices in the sum of 12 days x $18,037.50 = $216,450. This figure replaces the figure of $306,639.58 which was the figure awarded by the arbitrators. The effect of this on the final figures awarded on the balance of final account is as follows:

The appeal of charterers is therefore allowed to that extent and, absent any special considerations, it appears to me that although charterers did not succeed in reducing the award by as much as they sought, they have succeeded on the appeal and this should be reflected in costs.

If there are submissions to be made about this or any other matters which arise from my decision I will make any necessary determination on handing down of this judgment. If however the form of the order can be agreed, I would be grateful to receive a draft for consideration.