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MITIGATED LOSS OR COLLATERAL BENEFIT?

Lloyd's Maritime and Commercial Law Quarterly

MITIGATED LOSS OR COLLATERAL BENEFIT? David McLauchlan * Fulton v Globalia (The New Flamenco) 1. Introduction The recent case of Fulton Shipping Inc of Panama v Globalia Business Travel SAU (The New Flamenco) 1 raised an intriguing issue concerning the assessment of damages for breach of contract. The material facts were relatively simple but the answer was not. An appeal to the UK Supreme Court is pending but it would be a foolhardy person who wagered money on the outcome. The case concerned the time charter of a small cruise ship that the charterers repudiated when the charter still had two years to run. The owners accepted the repudiation and, since there was no possibility of arranging a substitute two-year time charter in the market, they decided to sell the ship. The price obtained was US$23,765,000. The owners subsequently sued to recover the net loss of profits they would have earned (some €7.5m) if the charter had not been repudiated. However, since the evidence established that the value of the ship when the charter was due to end would have been a mere $7,000,000, primarily as a result of the fall in the charter market brought about by the Lehman Brothers collapse and the ensuing financial crisis, the charterers argued that the difference of $16,765,000 between this sum and the actual sale price must be brought into account. Accordingly, no damages should be awarded because the sum exceeded the lost profits claimed. 2. Decisions of the arbitrator and the High Court The arbitrator held that the “benefit” should be brought into account, since the sale was caused by the breach and was a reasonable step taken to mitigate the damage. He acknowledged that the facts were unusual because normally a vessel will not need to be sold, and will not be sold, after acceptance of a charterer’s repudiation, but in this case, “where the owners acted in reasonable mitigation of damages caused by a breach of a time charterparty by selling the vessel, there was no reason why capital savings could not and should not be brought into account in considering the net loss suffered by the owners”. 2 On appeal to the High Court, 3 Popplewell J disagreed. The difference between the price 1. [2015] EWCA Civ 1299; [2016] 1 Lloyd’s Rep 383 . 2. Ibid , [12]. 3. [2014] EWHC 1547 (Comm); [2014] 2 Lloyd’s Rep 230 . See P Todd, “Mitigation, Causation and Policy” [2014] LMCLQ 481 . 460

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