Louis Dreyfus Commodities Suisse SA v MT Maritime Management BV

The Smith v M’Guire measure is the prima facie measure of damages for loss of profit on a repudiated voyage charter. It normally confines the calculation of that loss to the contract voyage and credits substitute earnings during that period. It is not an inflexible rule. Where the breach causes a distinct loss, such as delay in repositioning the vessel for more lucrative employment, that loss may be recovered in addition if it is caused by the breach, sufficiently proved, not too remote and not avoided by mitigation. The compensatory principle does not impose a universal cut-off at the end of the contract voyage.

The charterers repudiated a voyage charter for the MTM Hong Kong. The vessel proceeded towards South America, where the owners eventually obtained substitute employment. That fixture ended after the date on which the charter voyage would have ended. The arbitrators awarded damages reflecting both the lost profit on the charter voyage and the loss caused by delayed return to the higher-rate North Atlantic market.

The charterers appealed under section 69 of the Arbitration Act 1996, arguing that damages had to be assessed by reference to actual and hypothetical earnings only up to the end of the contract voyage. The central issue was whether the arbitrators had erred in law by taking account of the vessel’s subsequent employment and loss of follow-on voyages.

1. The appeal was dismissed. The arbitrators had made no error of law. The court declined to give an answer that would apply in all circumstances.
2. The fundamental principle is compensation: the innocent party should, so far as possible, be placed in the financial position it would have occupied if the contract had been performed. The Smith v M’Guire measure is the prima facie measure for loss of profit from the repudiated charter. It ordinarily reflects causation and mitigation, and usually makes it unnecessary and wrong to look beyond the contract-voyage period.
3. The prima facie measure does not address a different kind of loss caused by the breach. A voyage charter includes the benefit of having the vessel returned to the stipulated discharge location or range, ready for future employment. Loss caused by delayed repositioning may therefore be recoverable in addition to the lost charter profit.
4. Such additional loss remains subject to causation, mitigation, remoteness and proof. The more complex and speculative the hypothetical calculation, the less likely the claim is to succeed. There is no general rule preventing reference to earnings after the notional end of the charter voyage.
5. On the facts, the arbitrators had found that the owners acted reasonably, that the loss was caused by the repudiation, and that the vessel would have performed two follow-on voyages and returned to Europe at approximately the same time as the substitute fixture ended. The loss was therefore capable of calculation with reasonable confidence.
6. The proposed implied term excluding responsibility for all loss of profit after the contract voyage was too wide and inconsistent with the normal implied assumption of responsibility for losses reasonably foreseeable as not unlikely to result from breach. No sufficient findings supported exclusion on remoteness or market-understanding grounds.

This was an appeal from a maritime arbitration award under section 69 of the Arbitration Act 1996. The judgment does not state a separate lower-court decision.