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Commercial and civil litigation - assessment of damages in contract claims
07 October 2011
The Commercial Court has recently considered the question of assessment of contractual damages.
As many readers will be aware, English law dictates that where there has been a breach of contract, the innocent party is entitled to be put back in the position it would have been if the contract had been properly performed. However, that party is expected to mitigate its loss. This means that where (as in this case and for example) a charterer repudiates a contract for the charter of a vessel by redelivering early, the other party, whilst having a right to damages, must seek to mitigate its loss by going to the charter market, if there is such a market available, and chartering the vessel for a period equivalent to the balance of the original charter (that had been terminated through repudiation).
Where there is no available market, then damages will be assessed on the basis of the actual losses.
In the case in question, the Commercial Court had to consider what happened where there was no available market at the time of the termination, but the market subsequently revived and there is still considerable time to run under the original charter.
The owners of the vessel took advantage of the spot charter market, which was profitable for them, despite the long term charter market eventually picking up. They still claimed losses on the basis of a "like-for-like" charter.
The Court found that the damages should be calculated on the basis of their actual losses for the whole of the balance of the charter period, even if a similar replacement charter became available some months after termination. The Court found that there was no basis for requiring a party to go back to the market at the end of every spot voyage, or to disregard short charters in case the market for longer charters emerged.
Andrew Petchey, Partner, Litigation Team
