Priyanka Shipping Ltd v Glory Bulk Carriers PTE Limited

Negative contractual covenants will ordinarily be enforced by injunction, although the remedy remains discretionary. The covenantor bears the burden of showing that enforcement would be unconscionable or oppressive. Hardship, inconvenience, or the availability of damages is not ordinarily sufficient. The court may consider whether damages would be a sufficient and appropriate remedy, but it must not replace the contractual bargain with a general balance-of-convenience assessment.

Negotiating damages are not available for every contractual breach. They may be awarded where the breach causes the loss of a valuable asset created or protected by the contractual right, or where damages are awarded under Senior Courts Act 1981 in substitution for withheld equitable relief. A former vessel owner’s contractual restriction on the buyer’s trading of the vessel did not protect an asset in which the seller retained a proprietary or financial interest.

The claimant bought a bulk carrier from the defendant under a memorandum of agreement providing that the vessel was sold for demolition only. The claimant guaranteed that it would not trade the vessel or resell it for trading.

The claimant nevertheless concluded three trading fixtures. The defendant sought an injunction enforcing the negative covenant and claimed substantial damages, including negotiating damages. The claimant sought declarations that the defendant was entitled only to nominal damages for past and future breaches.

The court had to determine whether an injunction should be granted, whether negotiating damages were available in principle for the first two breaches, and whether declaratory relief should extend to possible future breaches.

1. Injunction. The court granted a final injunction enforcing clause 19. Negative covenants are ordinarily enforced by injunction. The claimant had deliberately breached a clear covenant, including by concluding the third fixture shortly before trial with knowledge that an injunction was sought. The burden lay on the claimant to show that enforcement would be unconscionable or oppressive.
2. The claimant’s economic motivation and the loss which might result from scrapping the vessel did not justify relief from its bargain. The claimant could have laid up the vessel. The defendant had a legitimate commercial interest in insisting upon compliance with the demolition restriction and in reducing the oversupply of Capesize tonnage. Damages were uncertain and difficult to quantify and were not a sufficient and appropriate remedy.
3. The court rejected the submission that the defendant’s interest was merely financial or that its conduct in seeking security in India was necessarily vexatious. The injunction permitted completion of the loaded voyage being performed when the order was made, but prohibited performance of the third fixture.
4. Damages. The defendant’s pleaded damages claims were based on the economic value of the right allegedly breached and on a hypothetical release fee. Following the majority reasoning in One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, negotiating damages are available only where the breach results in the loss of a valuable asset created or protected by the infringed right, or in the limited statutory context of damages in substitution for an injunction.
5. The defendant retained no proprietary or financial interest in the vessel after its sale and delivery. The contractual right not to trade the vessel was not analogous to a restrictive covenant over land, intellectual property protection, or confidentiality. The defendant therefore could not recover negotiating damages. Since no conventional loss was pleaded or proved, only nominal damages were recoverable for the first and second fixtures.
6. Declaration. The court declared that only nominal damages were recoverable for the past breaches, but refused to declare the same outcome for any future breach. Future circumstances and loss were unknown, and the court would not provide comfort to a party contemplating deliberate future breaches.