Web Alert: The 'MTM Hong Kong': Damages available for wrongful termination of a voyage charter revisited

Introduction

The English High Court has recently revisited the general legal principles as to damages, specifically for wrongful termination of a voyage charter by charterers, in MTM Hong Kong[1].

The overridding principle under English law governing damages for breach of contract is the compensatory principle i.e. the law attempts to put the injured party back in the position they would have been in had the contract been properly performed.

Therefore, the usual measure of damages available to an owner when a voyage charterer walks away from a contract is the amount of freight (less expenses) and demurrage that would have been earned on the performing voyage (the profit) less what the ship actually earned during that same period (the voyage made in mitigation). 

An owner’s losses are therefore ordinarily capped at the losses incurred by the owner in the period up to the date when the ship should have been delivered back under the (wrongfully terminated) charterparty. The question for the English court in MTM Hong Kong, which came on appeal from an earlier arbitration award, was whether additional damages could be recovered to compensate an owner for future trading losses suffered; something which would not normally be recoverable.

The Facts

The MTM Hong Kong was chartered for the carriage of vegoil from South America to one safe berth in the Gibraltar-Rotterdam range. The ship suffered delays on the approach voyage and the charterer wrongfully terminated the contract on 21 January 2011. The owner nevertheless continued to South America in search of a substitute fixture (an action which was held, on the facts of this case, to be reasonable) but were unable to fix the ship until 24 February 2011, where she was fixed for a voyage to Rotterdam.

The replacement fixture completed on 12 April 2011. The Court however found that the original voyage, if it had taken place, would have completed on 17 March 2011 and that the owner would have been able to perform two more profitable voyages to the US and back in this time.

The Decision

The Court upheld the arbitration tribunal’s decision to award additional damages for the loss of profit that would have been eared on these two subsequent fixtures. The damages awarded to the owner was therefore extended to the profit the ship would have earned if the intended voyage and two subsequent voyages had been performed, less what the ship actually earned for that same time period. 

Importantly, the English High Court held that where an owner suffers a different type of loss (essentially, here, the loss of opportunity to perform additional voyage(s)), the damages for the different loss can be recovered, in addition to the ordinary measure of damages - for lost profit on the intended voyage.

Comment

It must be stressed that this decision will not be applicable to all situations. The Court took into consideration the reasonableness of the owner’s decision to continue to South America to mitigate their loss and the facts leading upto the unexpected delay in finding a replacement fixture. Importantly, the Court in this case was satisfied that the additional losses were caused by the charterer's wrongful breach of charter (not, say, the owner's unreasonble steps taken in mitigation) and that the losses incurred were not too remote. Therefore the compensatory principle was ultimately upheld.

Although this case demonstrates that future trading losses may be taken into consideration when assessing damages for repudiation of a voyage charter in some situations, the specific facts of any given case will always need to be carefully considered.

[1] Louis Dreyfus v. MT Maritime Management ('MTM Hong Kong') [2015] EWHC 2505

This article intends to provide only general guidance on the above issues, arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. ​In case of any doubt, the member should not hesitate to contact the authors, or their usual club contact. The law is not static and if in any doubt The Standard Club is always on hand to assist.