Fulton Shipping Inc of Panama v Globalia Business Travel S.A.U. (formerly Travelplan S.A.U) of Spain

[2014] EWHC 1547 (Comm)

Summary

Benefits obtained after a breach are not automatically credited against damages merely because the breach provided the occasion for obtaining them. The benefit must be legally caused by the breach. That requires a sufficient causative connection assessed in all the circumstances, including intervening or collateral factors. It is insufficient that the breach merely triggered the transaction or that the benefit would not have been obtained but for the breach.

There is no general requirement that the benefit and the loss must be of the same kind. However, a difference in kind may indicate that the benefit was not caused by the breach. Considerations of fairness, justice and public policy may also prevent a wrongdoer from appropriating benefits obtained from the claimant’s own investment or prior contractual rights.

Factual background

The claimant shipowner appealed under section 69 of the Arbitration Act 1996 against an award concerning the charterers’ repudiation of a time charter.

The arbitrator found that the charterers’ repudiation caused the vessel to be sold in reasonable mitigation. The vessel was sold in October 2007 for US$23,765,000, whereas its value at the contractual redelivery date in November 2009 was US$7,000,000. The arbitrator held that the owners had to credit the difference against their claim for lost charter profits.

The central issue was whether the fall in the vessel’s capital value, realised through the sale, was a benefit legally caused by the repudiation and therefore deductible from damages.

Held

  1. Appeal allowed. The arbitrator had erred in law in treating the finding that the sale was caused by the repudiation and constituted reasonable mitigation as sufficient to establish that the capital benefit was caused by the breach.
  2. The compensatory principle does not itself determine which benefits must be brought into account. Some benefits, including insurance proceeds and benefits arising from the claimant’s own investment, may be excluded despite leaving the claimant better off.
  3. The governing inquiry is whether the breach caused the benefit. The court must consider all the circumstances, including the nature and effects of the breach, the nature of the benefit and loss, the manner in which they arose, and any pre-existing, intervening or collateral factors. A breach which merely provides the occasion, context or trigger for a transaction is insufficient.
  4. Where mitigation is relied upon, it is not enough to establish causation between breach and mitigating step and then between step and benefit. There must also be a direct causative connection between breach and benefit. A reasonable business decision may be triggered by a breach without being legally caused by it.
  5. There is no requirement that benefit and loss be of the same kind. A difference between a capital benefit and an income loss may nevertheless indicate that the benefit was not caused by the breach. The question is one of fact and degree, producing a commonsense judgment on the sufficiency of the causal nexus.
  6. On the facts, the fall in the vessel’s value resulted from market conditions and the owners’ decision to realise their capital investment. The sale was open to the owners as a transaction for their own account, irrespective of the breach. The breach caused the sale in relation to operating-cost savings, but did not cause the capital benefit. Fairness and justice also precluded the charterers from appropriating the fruits of the owners’ investment.

The court’s approach to earlier authorities

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Appellate history

Arbitration: The arbitrator awarded a credit of €11,251,677 for the capital benefit obtained on sale of the vessel, which exceeded the owners’ lost-profit claim.

High Court (Commercial Court): The appeal under section 69 of the Arbitration Act 1996 was allowed.

Appeal route

  1. This judgment [2014] EWHC 1547 (Comm) High Court (Commercial Court)
  2. Appealed to[2015] EWCA Civ 1299Outcomeappeal allowed (unanimous)
  3. Appealed to[2017] UKSC 43Outcomeappeal allowed unanimously; high court order restored and remaining issues remitted to the arbitrator

Key cases cited

15 authorities cited.

  • Golden Strait Corporation (Appellants)v.Nippon Yusen Kubishka Kaisha (Respondents) [2007] UKHL 12
  • Parry v Cleaver [1970] AC 1
  • British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
  • Coles & Ors v Hetherton & Ors [2013] EWCA Civ 1704
  • Lavarack v Woods of Colchester Ltd [1967] 1 QB 278
  • DALWOOD MARINE CO v NORDANA LINE A/S (THE “ELBRUS”) [2010] 2 Lloyd's Rep 315
  • Needler Financial Services Ltd -v- Taber [2002] 3 All ER 501
  • FAMOSA SHIPPING CO. LTD. v. ARMADA BULK CARRIERS LTD. (THE “FANIS”) [1994] 1 Lloyd's Rep 633
  • Hussey v Eels [1990] 2 QB 227
  • Palatine Graphic Arts Co Ltd v Liverpool City Council [1986] QB 335
  • KOCH MARINE INC. v. D'AMICA SOCIETA DI NAVIGAZIONE A.R.L. (THE "ELENA D'AMICO") [1980] 1 Lloyd's Rep 75
  • THE "YASIN" [1979] 2 Lloyd's Rep 45
  • Nadreph Ltd v Willmett & Co [1978] 1 WLR 1537
  • Bellingham v Dhillon [1973] QB 304
  • Bradburn v The Great Western Railway Company LR 10 Ex 1

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Cases citing this case

7 later cases · 4 positive · 2 neutral · 1 caution

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