Should damages reflect subsequent events?

Golden Strait Corporation v Nippon Yusen Kubishiki Kaisha HL TLR 30 March

Where, by the time damages for the wrongful repudiation of a charterparty came to be assessed, an event had occurred that would have brought the charterparty to an end, should the damages be reduced to reflect that fact? Yes, answered Lord Scott. No, replied Lord Bingham. Yes, answered Lord Carswell. No, responded Lord Walker. Yes, held Lord Brown, and thus it was established that the arbitrator had been entitled to reduce the damages to reflect a subsequent event. The subsequent event was the Second Gulf War, which occurred in March 2003. The owners had chartered the Golden Victory to the charterers for a period ending on 6 December 2005 subject to a clause enabling either party to cancel the charter if war or hostilities should break out between named countries, including the US, the UK and Iraq. The charterers had in fact wrongfully repudiated the charterparty on 17 December 2001, but contended that had they not done so, they would have exercised their right under clause 33 to bring it to an end on the outbreak of the war, and therefore the damages should be assessed by reference to the period from 17 December 2001 to March 2003. The owners said that the damages should be assessed by reference to the value of their rights under the charterparty as at 17 December 2001. That assessment could probably take account of the chance assessed, as at that date, that a clause 33 event might occur, but should not take account of the actual occurrence of any events subsequent to 17 December 2001. The question had been decided by the arbitrator, the judge, and the Court of Appeal in favour of the charterers. In his judgment Lord Scott said that the owners were claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. They contended that because the repudiation and its acceptance had preceded March 2003, the rule requiring damages for breach of contract to be assessed at the date of the breach required the subsequent event to be ignored. That contention attributed to the breach-date rule an inflexibility inconsistent with principle and authority. The underlying principle was that the victim of a breach of contract was entitled to damages representing the value of the contractual benefit to which he was entitled, but of which he had been deprived, no less but also no more. He was entitled to be put in the same position, as far as money could do it, as if the contract had been performed. Assessment under the date-of-breach rule could usually achieve that result, but not always. If there had been a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the claimant would, if the contract had remained intact, have become entitled, the quantum of damages might need to be reduced proportionately, to reflect the extent of the chance that that possibility might materialise. But if a terminating event had happened, speculation was not needed and in relation to the period during which the contract would have remained executory but for the event, it would be apparent that the earlier anticipatory breach had deprived the victim of nothing. The owners’ contention required the arbitrator to speculate regarding the occurrence of a clause 33 event and shut his eyes to the actual happening. The argued justification for thus offending the compensatory principle was that priority should be given to the so-called principle of certainty. There is no such principle. Certainty is a very important desideradum, particularly in commercial contracts, but it is not a principle and had to give way to the compensatory principle. Lord Bingham would have found in favour of the owners. In his dissenting judgment he said that the decision of the majority undermined the quality of certainty that was a traditional strength and major selling point of English commercial law and involved an unfortunate departure from principle. The compensatory principle was not in doubt, but it did not resolve the question of whether the injured party’s loss was to be assessed as of the date when he suffered it, or shortly thereafter in the light of what was then known, or at a later date when the assessment happened to be made, in the light of such later events as might then be known. It was a general, but not invariable, rule of English law that damages for breach of contract were assessed as at the date of breach. The importance of certainty and predictability in commercial transactions has been a constant theme of English commercial law, at any rate since the judgment of Lord Mansfield, Chief Justice, in Vallejo v Wheeler [1774] 1 COWP 143, 153, and had been strongly asserted in recent years. The present judgment appeared to impair the quality of certainty.