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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Fulton Shipping Inc of Panama v Globalia Business Travel S.A.U. (Formerly Travelplan S.A.U.)  EWCA Civ 1299 (21 December 2015)
Cite as:  2 All ER (Comm) 366,  WLR(D) 547,  WLR 2450,  1 Lloyd's Rep 383,  4 All ER 77,  EWCA Civ 1299,  1 WLR 2450
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE POPPLEWELL
Strand, London, WC2A 2LL
B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE CHRISTOPHER CLARKE
THE RIGHT HONOURABLE LORD JUSTICE SALES
| FULTON SHIPPING INC OF PANAMA
|- and -
|GLOBALIA BUSINESS TRAVEL S.A.U. (FORMERLY TRAVELPLAN S.A.U.)
Mr Steven Gee QC & Mr Tom Whitehead (instructed by Gateley Plc) for the Respondents
Hearing dates: 17th & 18th November 2015
Crown Copyright ©
Lord Justice Longmore:
The Award and the Judgment
"3: It was common ground between the parties that when the Charterers declared that they did not accept that a binding agreement for a two year extension had been agreed and that they were not going to perform it, there was no suitable timecharter employment for the vessel. The Owners therefore sold the Vessel in October 2007…
23: …the Charterers [had] accepted that there was no charterparty employment for the vessel at the time in question and that her sale was reasonable…
60: It was common ground that when the "NEW FLAMENCO" was redelivered to the Owners on 28th October 2007, it would not have been possible for the Owners to conclude an alternative substitute two year time charterparty. The need to sell the vessel was clearly caused by the breach. It was common ground that the sale price achieved was reasonable…
62: I was advised by counsel for the parties that there was no directly applicable authority on the point. That is perhaps not surprising because it would not be very often that the premature termination of a time charterparty would cause the sale of a vessel…
70: As I have already commented, in this case it was clear that the necessity for the sale had been brought about by the refusal to perform the two year extension.
72: …here, there was a benefit arising out of actions taken by the claimant to mitigate the loss that would otherwise have been suffered…"
"73. I could see no reason, both in applying general principles and on the facts of this case, why the benefit that accrued to the Owners by the sale of the vessel should not be brought into account. Normally vessels will not reasonably need to be sold and would not be sold following the premature termination of a charterparty so that any movement in the capital value of a vessel will not crystallise and will not be relevant to a claim for a net loss of earnings. On the unusual facts of this case, where the Owners acted in reasonable mitigation of damages caused by a breach of a time charterparty by selling the vessel, there was no reason why capital savings could not and should not be brought into account in considering the net loss suffered by the Owners."
"When assessing shipowners' damages for loss of profits on earnings of hire under a time charter party which has been repudiated by the charterers and the repudiation accepted by the owners as terminating the contract, are the charterers entitled to have taken into account as diminishing the loss of earnings/hire sustained by the owner as a result of the accepted repudiation "a benefit" said to consist of avoidance of a drop in the capital value of the vessel because the vessel has been sold shortly after acceptance of the repudiation whereas if the vessel had been retained until after performance of the charter party, it would have had a lower capital value by reason of decline in the capital value of the vessel through market decline in ship sale values in that period?"
"9-004 (1) The first and most important rule is that the claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant's wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for avoidable loss.
9-005 (2) The second rule is the corollary of the first and is that, where the claimant does take reasonable steps to mitigate the loss to him consequent upon the defendant's wrong, he can recover for loss incurred in do doing; this is so even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss.
9-006 (3) The third rule is that, where the claimant does take steps to mitigate the loss to him consequent upon the defendant's wrong and these steps are successful, the defendant is entitled to the benefit accruing from the claimant's action and is liable only for the loss as lessened; this is so even though the claimant would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule. In addition, where the loss has been mitigated other than by steps taken by the claimant subsequent to the wrong, the claimant can again recover only for the loss as lessened, provided that the benefit gained is not to be regarded as collateral. Put shortly, the claimant cannot recover for avoided loss."
It is the third of these principles that is of most relevance in this case.
"(1) In order for a benefit to be taken into account in reducing the loss recoverable by the innocent party for a breach of contract, it is generally speaking a necessary condition that the benefit is caused by the breach: Bradburn's case, British Westinghouse, The Elena D'Amico. …
(2) The causation test involves taking into account all the circumstances, including the nature and effects of the breach and the nature of the benefit and loss, the manner in which they occurred and any pre-existing, intervening or collateral factors which played a part in their occurrence: The Fanis.
(3) The test is whether the breach has caused the benefit; it is not sufficient if the breach has merely provided the occasion or context for the innocent party to obtain the benefit, or merely triggered his doing so: The Elena D'Amico. Nor is it sufficient merely that the benefit would not have been obtained but for the breach: Bradburn, Laverack v Woods, Needler v Taber.
(4) In this respect it should make no difference whether the question is approached as one of mitigation of loss, or measure of damage; although they are logically distinct approaches, the factual and legal inquiry and conclusion should be the same: Hussey v Eels.
(5) The fact that a mitigating step, by way of action or inaction may be a reasonable and sensible business decision with a view to reducing the impact of the breach, does not of itself render it one which is sufficiently caused by the breach. A step taken by the innocent party which is a reasonable response to the breach and designed to reduce losses caused thereby may be triggered by a breach but not legally caused by the breach: The Elena D'Amico.
(6) Whilst a mitigation analysis requires a sufficient causal connection between the breach and the mitigating step, it is not sufficient merely to show in two stages that there is (a) a causative nexus between breach and mitigating step and (b) a causative nexus between mitigating step and benefit. The inquiry is also for a direct causative connection between breach and benefit (Palatine), in cases approached by a mitigating analysis no less than in cases adopting a measure of loss approach: Hussey v Eels, The Fanis. Accordingly, benefits flowing from a step taken in reasonable mitigation of loss are to be taken into account only if and to the extent that they are caused by the breach.
(7) Where, and to the extent that, the benefit arises from a transaction of a kind which the innocent party would have been able to undertake for his own account irrespective of the breach, that is suggestive that the breach is not sufficiently causative of the benefit: Laverack v Woods, The Elena D'Amico.
(8) There is no requirement that the benefit must be of the same kind as the loss being claimed or mitigated: Bellingham v Dhillon, Nadreph v Willmett, Hussey v Eels, The Elbrus, cf The Yasin; but such a difference in kind may be indicative that the benefit is not legally caused by the breach: Palatine.
(9) Subject to these principles, whether a benefit is caused by a breach is a question of fact and degree which must be answered by considering all the relevant circumstances in order to form a commonsense overall judgment on the sufficiency of the causal nexus between breach and benefit: Hussey v Eels, Needler v Taber, The Fanis.
(10) Although causation between breach and benefit is generally a necessary requirement, it is not always sufficient. Considerations of justice, fairness and public policy have a role to play and may preclude a defendant from reducing his liability by reference to some types of benefits or in some circumstances even where the causation test is satisfied: Palatine, Parry v Cleaver.
(11) In particular, benefits do not fall to be taken into account, even where caused by the breach, where it would be contrary to fairness and justice for the defendant wrongdoer to be allowed to appropriate them for his benefit because they are the fruits of something the innocent party had done or acquired for his own benefit: Shearman v Folland, Parry v Cleaver and Smoker's case."
i) the Owners were not obliged to sell the vessel in order to mitigate their loss (para 67);
ii) the arbitrator's conclusion that the sale was, in fact, in reasonable mitigation of the loss could not be conclusive when the sale was not itself caused by the breach but by the independent decision of the Owners to realise the capital value of the vessel (para 68);
iii) the loss which was being mitigated was a loss of income; the benefit gained by selling the vessel was a "different kind of loss"; that difference was "indicative" that the benefit was not caused by the breach (para 69);
iv) the sale of the vessel was a transaction into which the Owners could enter at any time irrespective of the Charterers' breach; this was a "further indication" that the capital benefit received by the Owners was "not legally caused" by the breach (para 70);
v) if benefits accruing from the sale were to be taken into account, so (logically) should the use of the proceeds be taken into account; this would lead to an endless regression (para 71); and
vi) the Owners had taken the business risk of acquiring the vessel in 2005 and selling it in 2007; it would be contrary to public policy to allow the contract-breaking Charterers to appropriate the result of the Owners' business acumen (para 73).
i) the judge had been over-influenced by The Elena D' Amico in which, unlike this case, there had been an available market;
ii) if there was no available market, the actual trading of the vessel was always taken into account and fluctuations in the chartering market would thus inevitably have to be taken into account; there was no reason to say that the sale of a vessel (if made in mitigation of loss) should be treated differently;
iii) it was irrelevant that the Owners may not have been obliged to mitigate their loss, by selling the vessel. British Westinghouse  A.C. 673 showed that if loss was mitigated and a resulting benefit was received, it should be credited;
iv) the judge's 11 principles were over-complex in what was essentially a factual inquiry; principle (6) in particular was an over-legal elaboration of what should be a simple question which was primarily a question of fact; and
v) however much a particular circumstance might be "indicative" that a benefit was not "legally caused" by the breach, such circumstances could not be sufficiently cogent for a judge to say that its presence mandated any particular result in law.
i) fluctuations in capital assets should not be taken into account by way of mitigation; and
ii) (contrary to the decision of the judge) before any benefit could be brought into account by way of mitigation, it had to be of the same "kind" or "type" as the loss.
The correct approach
"… there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on the plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James LJ in Dunkirk Colliery Co v Lever (1), "The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business."
As James LJ indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act."
After citing Staniforth v Lyall (1830) 7 Bing. 169 he continued (page 690):-
"… provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.
… The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business."
He then distinguished the insurance case of Bradburn v Great Western Railway Co (1875) L.R. 10 Ex 1 as concerning a contract "wholly independent" of the relationship of the parties.
The judge's main criticism of the Award
Other criticisms by the judge of the award
"When the defendant's breach of contract combines with another effective cause to result in loss to the claimant, the loss is recoverable … the same principle must apply to gains."
(2) Fairness and justice
(3) Endless regression?
"The general issue is in my view appropriately stated as being whether any profit or loss arose out of or was sufficiently closely connected with a breach to require to be brought into account in assessing damages. Resolution of that issue involves taking into account all the circumstances, including the nature and effects of the breach and the nature of the profit or loss, the manner in which it occurred and any intervening or collateral factors which played a part in its occurrence, in order to form a common sense overall judgment on the sufficiency of the casual nexus between breach and profit or loss."
Following this the arbitrator made his own "common sense overall judgment" and I cannot see that he has made an error of law in so doing.
"Yes, provided the acquisition of the benefit arose out of the consequences of the breach in the ordinary course of business and by way of mitigation of the claimant's loss."
Lord Justice Christopher Clarke:
Lord Justice Sales: