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

Where a time charterparty is repudiated and no available market exists, damages are assessed by reference to actual loss and the consequences of reasonable mitigation. If the owner sells the vessel because of the breach, the benefit of avoiding a later fall in its value is ordinarily brought into account, provided the sale arose from the breach, occurred in the ordinary course of business and was undertaken in mitigation. The benefit need not be of the same kind as the loss. Causation is a question of fact and degree, resolved by a common-sense assessment of all relevant circumstances. The available-market rule is not automatically transferable to a case without such a market.

The charterers repudiated an agreed two-year extension of a time charterparty and redelivered the vessel early. No suitable substitute time charter was available. The owners sold the vessel shortly after redelivery for US$23,765,000, whereas its value at the contractual expiry date was later found to be US$7,000,000.

The arbitrator found that the sale was caused by the breach and was reasonable mitigation, and directed that the capital benefit be credited against the owners’ loss. Popplewell J disagreed and held that the benefit was not legally caused by the breach: [2015] 1 All E R Comm 1205. The central issue before the Court of Appeal was whether the avoided fall in capital value had to be brought into account.

Appeal allowed. The arbitrator had not made an error of law in directing that the benefit obtained from the sale of the vessel be credited against the owners’ damages.

1. The governing principle is compensation. A claimant is to be placed, so far as money can do it, in the position it would have occupied if the contract had been performed. Where a claimant adopts a reasonable mitigating measure arising from the consequences of the breach in the ordinary course of business, a resulting benefit is normally brought into account. This follows from British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] A.C. 673.
2. The available-market rule in The Elena D’Amico [1980] 1 Lloyd’s Rep 75 is a gloss on the underlying compensation principle. It applies where an available substitute market exists and the innocent party chooses not to use it. It cannot be automatically transposed to a case where no available market exists.
3. Where there is no available market, the consequences of reasonable mitigation, including spot trading or sale of the vessel, may be taken into account. The relevant question is whether the benefit arose from the consequences of the breach and was obtained by way of mitigation. That is a factual and evaluative inquiry requiring a common-sense assessment of all the circumstances.
4. The arbitrator was entitled to conclude that the early termination caused the sale and that the sale produced a benefit which reduced the owners’ loss. The fact that the benefit was capital rather than income did not prevent it being credited. There is no requirement that the benefit be of the same kind as the loss. Considerations of fairness and justice remain relevant, but they do not impose an inflexible rule excluding benefits reflecting the claimant’s own business judgment.
5. The point of law was therefore answered affirmatively, subject to the benefit having arisen from the consequences of the breach in the ordinary course of business and by way of mitigation.

1. Court of Appeal (Civil Division): allowed the charterers’ appeal and rejected the High Court’s conclusion that the capital benefit was legally irrelevant.
2. High Court, Commercial Court: Popplewell J held that the benefit from the sale was not sufficiently caused by the breach and granted permission to appeal. The decision is reported at [2015] 1 All E R Comm 1205.
3. Arbitration: the arbitrator found that the sale was caused by the breach, constituted reasonable mitigation and produced a credit against the owners’ damages.