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

When damages for breach of contract are assessed, a benefit is brought into account only if it was caused by the breach or by a successful act of mitigation. The benefit need not be of the same kind as the loss, but a sufficiently close causal link is essential.

A commercially reasonable response to a breach is not necessarily an act of mitigation. The sale of an asset does not mitigate a lost contractual income stream where it merely exercises a proprietary right independent of the contract. A resulting gain from market movements therefore remains outside the damages calculation. Without an available market, mitigation of lost hire ordinarily requires a substitute income stream from alternative employment.

Globalia Business Travel S.A.U. (formerly TravelPlan S.A.U.) of Spain v Fulton Shipping Inc of Panama concerned damages for the charterers’ repudiation of a two-year extension to a cruise ship time charter. The owners accepted the repudiation and sold the vessel in October 2007. Its value at the contractual redelivery date in November 2009 would have been substantially lower following the financial crisis.

The arbitrator held that the charterers should receive credit for the owners’ avoidance of that fall in capital value. Popplewell J allowed the owners’ appeal under section 69 of the Arbitration Act 1996, holding that the benefit was not legally caused by the breach: [2014] 2 Lloyd’s Rep 230. The Court of Appeal reversed that decision: [2015] EWCA Civ 1299.

The central issue before the Supreme Court was whether the benefit arising from the vessel’s earlier sale diminished the owners’ recoverable loss of contractual hire.

1. Appeal unanimously allowed. Lord Clarke delivered the judgment, with which Lord Neuberger, Lord Mance, Lord Sumption and Lord Hodge agreed. The owners did not have to credit the charterers with the capital loss avoided by selling the vessel before the market fell.

2. The governing inquiry was causation. A benefit is brought into account only where there is a sufficiently close link between it and the breach. It must have been caused by the breach or by a successful act of mitigation. It need not be of the same kind as the loss, because similarity in kind is too vague and arbitrary a criterion. The causal approach reflected in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (No 2) [1912] AC 673 was applied.

3. The charterers’ repudiation caused a prospective loss of income. It did not make a sale of the vessel necessary, either at all or at any particular time. The owners could have sold the vessel subject to the charter while it remained in force. Their decision to realise its capital value was therefore an independent commercial decision concerning a proprietary interest outside the subject matter of the charterparty. The repudiation was merely the occasion for the sale, not its legal cause. The reasoning in The Elena D’Amico [1980] 1 Lloyd’s Rep 75 concerning independent market decisions was applied by analogy.

4. The avoided fall in capital value was consequently irrelevant. The same causal analysis would have prevented the owners from claiming a subsequent rise in the vessel’s value. Nor was the sale itself successful mitigation: it could not replace the lost income stream. In the absence of an available charter market, the relevant measure was the difference between the contractual hire and what was, or ought reasonably to have been, earned by employing the vessel under shorter charterparties.

5. A sale during the unexpired charter period could shorten the period for which lost hire was recoverable. A reduced sale price might also be recoverable if it capitalised the value of remaining hire. Those possibilities would not make the sale itself an act of mitigation.

6. The Court restored Popplewell J’s order setting aside the arbitrator’s declaration that the charterers were entitled to a credit of €11,251,677. The remaining issues were to be identified and remitted to the arbitrator.

• United Kingdom Supreme Court: Unanimously allowed the owners’ appeal, reversed the Court of Appeal and restored Popplewell J’s order. The remaining issues were to be remitted to the arbitrator: [2017] UKSC 43 .

• Court of Appeal: Allowed the charterers’ appeal, holding that the benefit obtained through the sale should be brought into account: [2015] EWCA Civ 1299 .

• High Court: Popplewell J allowed the owners’ appeal under section 69 of the Arbitration Act 1996. He held that the avoided capital loss was not legally caused by the breach: [2014] 2 Lloyd’s Rep 230.

• Arbitration: The sole arbitrator found repudiatory breach but declared that the charterers were entitled to a credit of €11,251,677 for the avoided fall in the vessel’s capital value.