Golden Strait Corporation v Kaisha

Damages for accepted repudiation are compensatory. They reflect the loss actually caused by the breach and aim to place the innocent party in the position performance would have produced. The usual date-of-breach and available-market approaches are not absolute. Where a contract contains a contingency or cancellation right affecting its duration or value, the assessment may take account of subsequent events and the probability that the right would have been exercised. Commercial certainty and finality yield where necessary to avoid compensating loss that was never suffered. The substitute-market rule supplies a rate for comparison; it does not erase the terms or contingencies of the original contract.

Golden Strait Corporation, owners of the tanker Golden Victory, appealed against Langley J’s decision concerning damages for the charterers’ repudiation of a seven-year time charter. The repudiation was accepted in December 2001. The arbitrator found that the Second Gulf War later occurred and that the charterers would have cancelled under the contractual War Clause, but initially felt constrained by The Seaflower to assess damages by reference to the shorter period. Langley J upheld that approach. The central issue was whether damages should be measured by reference to the charter’s full remaining term or should reflect the later event which would have brought the charter to an end.

1. Appeal dismissed. Lord Justice Mance gave the leading judgment. Lord Justices Tuckey and Auld agreed.
2. The compensatory principle governs damages for repudiatory breach. The innocent party should be placed, so far as money can do so, in the position it would have occupied had the contract been performed. The date-of-breach approach is usual in sale cases but is not absolute where another approach is needed to avoid injustice, as explained in Johnson v Agnew [1980] AC 367.
3. For a long-term time charter, a contractual contingency which would have reduced or extinguished the charterers’ obligations must be taken into account when it becomes established. The War Clause was inherent in the charter, so the owners never possessed an unconditional asset lasting seven years. The arbitrator found that the later war occurred and that the charterers would have cancelled. Damages therefore had to reflect the shorter period and the owners’ actual loss.
4. There was no requirement that the later event should have been predestined at the date of repudiation. The court could consider a contingency or chance and assess whether cancellation would probably have occurred. This accorded with the approach in The Seaflower [2000] 2 Ll.R. 37 and the compensatory reasoning in The Mihalis Angelos [1971] 1 QB 164.
5. The available-market rule fixes a substitute rate for comparison with the original rate. It does not remove the original charter’s terms or their effects. A notional substitute charter should correspond as closely as possible with the actual charter, including relevant cancellation provisions, following Arta Shipping Co. Ltd. v. Thai Europe Tapioca Service Ltd. [1977] 2 Ll.R. 1. Certainty and finality could not justify recovery exceeding the loss actually suffered.

• Court of Appeal (Civil Division): Mance LJ gave the leading judgment, with Tuckey LJ and Auld LJ agreeing. The appeal was dismissed.
• Queen’s Bench Division, Commercial Court: Langley J upheld the shorter-term assessment of damages in a judgment and order dated 15 February 2005 and granted permission to appeal.