Golden Strait Corporation v. Nippon Yusen Kubishka Kaisha

This appeal concerned the proper date and method for assessing damages for loss of charter hire where a charterer has repudiated a time charter and the owner accepts that repudiation but an available market exists in which the owner could reasonably have re-let the vessel. The court restated the compensatory principle: damages should put the injured party in the position he would have been in had the contract been performed, and where an available market exists the ordinary rule is to assess loss at or shortly after the date of acceptance of repudiation, allowing for reasonable mitigation (drawing on Koch Marine v D'Amica (The Elena D'Amico)).

The central issue was whether the assessment must ignore subsequent events (here the outbreak of the Second Gulf War and the charterparty's war/cancellation clause (clause 33)) or whether the assessor may take account of events known at the time of assessment that would have rendered the contractual rights less valuable or valueless. The majority held that subsequent events which in fact occurred and which would have terminated or reduced the value of the contract may be taken into account when assessing damages, applying the Bwllfa principle that known facts available at the time of assessment may replace conjecture. The court therefore allowed the charterers to rely on the March 2003 war to limit recoverable damages to the period up to that event. Lord Bingham dissented, favouring assessment as of the date of acceptance of repudiation.

The owners (Golden Strait Corporation) chartered the tanker Golden Victory to the charterers (Nippon Yusen) by a time charter dated 10 July 1998 until 6 December 2005 (subject to charterers' option). The charter contained a war/cancellation clause (clause 33) permitting cancellation on the outbreak of war between specified countries including the United Kingdom, the United States and Iraq. The charterers repudiated the charter on 14 December 2001 by redelivering the vessel and the owners accepted repudiation on 17 December 2001. The owners claimed damages for the loss of hire for the balance of the charter term. Arbitration determined liability for repudiation and other preliminary issues in the owners' favour; the quantification of damages raised the present dispute.

Nature of the claim/application: an arbitration and subsequent court appeals concerning the quantification of damages for loss of charter hire following an accepted repudiation; the owners sought damages for the full remaining contractual term, the charterers sought limitation of damages to the date (March 2003) when war occurred and clause 33 would have operated.

Procedural history: interim and declaratory awards by the arbitrator (including 16 September 2002 and 27 October 2004); appeal to the Commercial Court (Langley J) [2005] EWHC 161 (Comm) dismissing the owners' challenge; Court of Appeal [2005] EWCA Civ 1190 dismissing the owners' appeal; appeal to the House of Lords ([2007] UKHL 12).

Issues framed by the court:

• Whether, and to what extent, a subsequent event (the outbreak of the Second Gulf War) which would have enabled lawful termination under a contractual war clause limits the period for which damages for loss of hire may be recovered after an accepted repudiation.
• Whether damages should be assessed as of the date of acceptance of repudiation (subject to reasonable mitigation in an available market) or whether the assessor may take account of events which had occurred by the date of assessment.

Court's reasoning: the majority held that the compensatory principle governs and that, although the availability of a market ordinarily leads to assessment at or shortly after the date of acceptance of repudiation (to reflect reasonable mitigation), the assessor is not precluded from taking into account later events which are known at the date of assessment and which demonstrate that the contractual benefit lost would in fact have been reduced or brought to an end. The Bwllfa principle (that facts known at the time of assessment may supersede conjecture) and authorities where subsequent events were taken into account supported this approach. The result was that the outbreak of war in March 2003 could be relied upon to limit recoverable damages to the period up to that event. Lord Bingham dissented, emphasising commercial certainty and arguing that the correct approach is to value the contractual right at the date it was lost (17 December 2001) subject only to accounting for contingencies reasonably to be appraised at that date.

Appeal dismissed. The majority concluded that while the ordinary rule is to assess loss at or shortly after the date of accepted repudiation where an available market allows mitigation, the assessor may take into account subsequent events known at the time of assessment which in fact occurred and which would have rendered the contractual rights less valuable or valueless (applying the Bwllfa principle and compensatory principle). Accordingly the outbreak of the Second Gulf War could limit the period for which damages were recoverable. Lord Bingham dissented, favouring assessment at the date of acceptance of repudiation.

Arbitration (interim declaratory award 16 September 2002; further declaratory award 27 October 2004) → Commercial Court, Langley J, [2005] EWHC 161 (Comm) (appeal from arbitrator dismissed) → Court of Appeal, [2005] EWCA Civ 1190 (appeal dismissed) → House of Lords, [2007] UKHL 12 (appeal dismissed).