Omak Maritime Ltd v Mamola Challenger Shipping Co & Ors

Reliance or wasted-expenditure damages are governed by the fundamental compensatory principle in Robinson v Harman: the claimant must be placed, so far as money can do it, in the position it would have occupied had the contract been performed.

A claimant may frame its claim by reference to expenditure incurred in reliance on performance, but cannot recover more than its performance position. Benefits obtained through reasonable mitigation must therefore be brought into account. Where the defendant alleges that the contract would have been loss-making, the evidential burden may fall on the defendant to prove that the expenditure would not have been recouped.

The Owners chartered a vessel to the Charterers for five years. The Charterers repudiated the charterparty, which the Owners accepted. The Owners incurred expenditure preparing the vessel for performance, but subsequently employed her at market rates substantially higher than the charterparty rate.

An LMAA tribunal awarded the Owners damages for wasted expenditure, despite finding that their substitute earnings more than recouped the claimed losses. The Charterers appealed under the applicable arbitration procedure. The Owners cross-appealed in relation to lost earnings during the period when the vessel was held ready for the charterparty. The central issue was whether reliance damages could be awarded without accounting for the claimant’s overall position after mitigation.

1. The Charterers’ appeal was allowed and the Owners’ cross-appeal was dismissed. The tribunal’s award was set aside.
2. Per Teare J, the starting point was the compensatory rule in Robinson v Harman, namely that damages should place the innocent party, so far as money can do it, in the position it would have occupied had the contract been performed. That rule also prevents an award from placing the claimant in a better position than performance would have produced.
3. Reliance or wasted-expenditure damages are not governed by an independent juridical principle directed to restoring the claimant to the position it would have occupied had no contract been made. They are a species or manifestation of expectation damages. A claimant may elect to formulate its claim by reference to expenditure, but the election concerns the manner of presenting the claim and does not displace the compensatory rule.
4. The mitigation principle in British Westinghouse v Underground Electric Railways requires benefits obtained through reasonable mitigation to be brought into account. The Owners’ substitute employment at higher market rates therefore had to be set against the loss which would otherwise have resulted from the breach. Awarding the wasted expenditure without that comparison would put the Owners in a better position than performance.
5. The reasoning in L. Albert & Son v Armstrong Rubber Co., Bowlay Logging Limited v Domtar Limited and CCC Films (London) Ltd. v Impact Quadrant Films Ltd. supported placing on the defendant the evidential burden of showing that the contract would have been loss-making or that the expenditure would not have been recouped. That issue did not alter the result because the tribunal found that the Owners had more than recouped the claimed expenditure through substitute earnings.
6. The cross-appeal failed because it arose only if the tribunal’s approach to the primary claim was correct. Teare J nevertheless observed that, had that approach been accepted, a negative-interest claim could in principle include earnings forgone while the vessel was kept ready for performance. That observation was obiter. The tribunal’s award would then have required remission for findings concerning the relevant period and calculation of lost hire.

The judgment concerned an appeal from an award of an LMAA tribunal. The Charterers’ appeal was allowed, the Owners’ cross-appeal was dismissed, and the award was set aside.