Flame SA v Glory Wealth Shipping PTE Ltd

Damages for breach of contract must reflect the claimant’s actual contractual loss. Where an innocent party accepts a repudiatory breach, it is relieved from future performance obligations, but that does not entitle it to damages calculated on the assumption that it would have performed when performance would probably have been impossible. The claimant bears the burden of proving substantial loss. The court must assess the hypothetical position had the contract been performed by the party in breach, including whether the innocent party could have performed and earned the contractual benefit.

A “disponent owner” under a contract of affreightment need not have contractual control of the nominated vessel when nomination occurs. The obligation is to provide the nominated vessel when the cargo is to be carried.

Flame SA appealed under section 69 of the Arbitration Act 1996 against an arbitration award of US$5,426,608.60 for failure to declare laycans under a contract of affreightment. It also challenged the award under section 68 for alleged serious irregularities concerning disclosure, preparation for cross-examination and the tribunal’s treatment of an allegation of dishonesty.

The section 69 appeal raised whether the owners had to prove that they would have been able to perform the relevant voyages when assessing damages, and whether “disponent owners” had to possess contractual control over the nominated vessel. The section 68 challenge concerned the tribunal’s conduct of the arbitration.

1. The section 69 appeal was dismissed. The tribunal had erred in law on the assessment of damages, but its factual finding that the owners would have been able to perform meant that the error could not affect the award.

2. The compensatory principle requires damages to place the innocent party in the position it would have occupied had the contract been performed, and no better position. The assessment requires a hypothetical comparison. The party in breach is assumed to have performed its obligations, but the claimant must prove the loss it would actually have suffered. That includes proving, on the balance of probabilities, that it would have been able to perform its own obligations and earn the contractual revenue. Otherwise substantial damages could constitute a windfall.

3. The authorities concerning readiness and willingness to perform after an accepted repudiation principally addressed the claimant’s cause of action. They did not establish that a claimant must receive substantial damages where that would place it in a better position than performance would have done. The court followed the compensatory approach in The Golden Victory and disagreed with the inconsistent approaches in North Sea Energy Holdings NV v Petroleum Authority of Thailand and Chiemgauer Membran und Zeltbau GMBH v The New Millenium Experience Company Limited.

4. The arbitration panel correctly construed “disponent owners of the Glory Wealth to be nominated motorship”. The expression required the owners to provide the nominated vessel, but did not require a particular contractual relationship or contractual control at the time of nomination. The means by which the vessel was provided were for the owners to determine. Clause 25 supported that construction because the disponent owner remained liable even if another owner performed the voyage.

5. The section 68 challenge was dismissed. Section 68 is a long-stop remedy available only in extreme cases and concerns the conduct of the arbitration, not the correctness of the tribunal’s decisions. Delayed disclosure, even if wrongly managed, did not establish a serious irregularity. The tribunal had considered and rejected the dishonesty allegation, and complaints about the conclusions drawn from disclosure concerned the merits rather than procedural irregularity.

The judgment itself records that the arbitration panel awarded damages and that permission to appeal the factual finding on ability to perform was refused. The High Court dismissed both the statutory appeal and the challenge.