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Web alert: breach of a COA – what is the correct measure of damages? Can an innocent party recover for breach of a law and jurisdiction clause?

02 April 2015

In this recent English High Court case [1] the contracting parties agreed to a contract of affreightment (COA) for six shipments of coal, departing South Africa with discharge to be at one safe port in India. A dispute subsequently arose when the claimant alleged that the defendant had failed to nominate the last four shipments. As a result, the claimant terminated the COA for repudiatry breach and brought legal proceedings against the defendant for damages. The breach and termination were not disputed.

  1. Quantum:  The first issue before the court concerned establishing the proper quantum of the claim. To calculate quantum under English law you normally take the profits which would have been made under the original contract, less any profit which would have been made on any replacement shipments at market rate. The question here became, what point in time do you use to calculate the market rate? This was important, as market fluctuations meant large differences in the amount due to the claimant. The English court confirmed that ‘the market price is assessed at the time when the contract could last have been performed in accordance with the extensions or indulgences given by the party claiming damages’
  2. Available market:  The second damages issue considered by the court was whether there were any replacement shipments which could reasonably have been found by the owner (at the time of the breach) to offset the damages otherwise due and payable to him under the COA. Agreeing with the claimant, the court stated an ‘available market’ requires an actual market rate in order to ascertain the figures. In this case it was suggested that the missing voyages could not have been replaced as these fixtures were ‘non-existent’ and therefore the ‘market rate’ could not be used to offset against any damages.
  3. Jurisdiction clause:  The final issue before the court did not dwell on damages, but the consequences of breaching a jurisdiction clause. The clause in this COA stated that the ‘contract is governed by English law and any dispute… shall be submitted to the… High Court of Justice of England and Wales.’ Despite this, the defendant initiated proceedings in India. Eventually, the Indian courts dismissed these proceedings on the grounds of absence of jurisdiction but, as a result, the claimant incurred significant legal costs in relation to the Indian proceedings and the pursuit of anti-suit injunctions. It was argued that these costs were due to a breach of the jurisdiction clause in the COA and, as a result, could be claimed from the defendant through damages. The court once again sided with the claimant stating that ‘it is well established that such costs can be recovered’ in this manner.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.  Members requiring further information on this topic should direct their enquiries to either their usual contact at the club or to the authors of this article. 

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[1] Swissmarine Services v. Gupta Oil [2015] EWHC 265 (Comm)