#6624 - Omak Maritime V. Challenger Shipping - Commercial Remedies BCL

Omak Maritime v. Challenger Shipping (The Mamola Challenger)

Facts

The charterers agreed to charter the owner's vessel Mamola Challenger for five years. Under the charterparty the owners were required to make certain modifications to the vessel prior to delivery which included the installation of a new crane. (ii) The owners incurred various expenses in preparation for these modifications, including the cost of removing from another vessel the crane which owners intended to install on Mamola Challenger .

Ultimately the owners accepted the charterers' conduct as bringing the charter to an end (on 29 January 2007). The expenses which the owners had incurred were wasted; they had no residual value or benefit for the owners. (iv) After the repudiation of the charterparty the owners concluded a number of short-term fixtures. (The vessel arrived at Luanda, Angola, on 5 February 2007 where she was delivered into the first of such fixtures.) The tribunal has held that, over the five-year term for which the charterparty would have run, the owners have earned, or will earn, more from these fixtures than they would have earned under the charterparty, and the excess is greater than the amount of the wasted expenditure.

Holding

General Principles of damages

A corollary of that principle is that an award of damages for breach of contract should not put the claimant in a better position than he would have been in had the contract been performed: see Wertheim v Chicoutimi Pulp Co [1911] AC 301, 308.

British Westinghouse v. Underground Railway, Viscount Haldane:

“the duty of taking all reasonable steps to mitigate the loss consequent on the breach … 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.”

Reliance interest and performance interest

The law of damages permits a claimant to seek damages on the reliance basis rather than upon the expectancy basis. He may “elect” to claim damages by reference to the expenses incurred by him in reliance on the contract being performed: see Cullinane v. British “Rema” Manufacturing Co Ltd [1954] 1 QB 292.

Does the principle in Robinson v. Harman apply to Reliance losses?

In the present case the claimant, having abandoned his claim to damages on the expectancy basis, claimed damages in the sum of the expenses incurred by him in reliance on the contract being performed. There is no dispute that damages may be claimed on that basis but the question raised by Mr Brenton's submission is whether and if so how the principle in Robinson v Harman 1 Exch 850 applies so as ensure that the claimant is not put in a better position than he would have been in had the contract been performed.

Learned Hand in L Albert & Son v. Armstrong Rubber Co (1949) 178 F 2d 182:

… recovery of the promisee's outlay in necessary preparation for the performance, subject to several limitations, of which one was that the promisor may deduct whatever he can prove the promisee would have lost if the contract had been fully performed. He further noted, at p 191, with obvious approval the “very simple formula” suggested by Professor Fuller in an article written in 1936 in the Yale Law Journal, “The Reliance Interest in Contract Damages” 46 YLJ 52, 79: “We will not in a suit for reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied had the contract been fully performed.”

Thus the effect of the decision was that the claimant was not entitled to claim damages on a basis which would place him in a better position than he would have been in had the contract been performed.

I consider that the weight of authority strongly suggests that reliance losses are a species of expectation losses and that they are neither, to use Mr Brenton's phrase, “fundamentally different” nor awarded on a different “juridical basis of claim”. That they are a species of expectation losses is supported by the decision of the Court of Appeal in C & P Haulage v Middleton and by very persuasive authorities in the United States, Canada and Australia.

Cases where performance of contract would have resulted in a loss

It seems to me that the expectation loss analysis does provide a rational and sensible explanation for the award of damages in wasted expenditure cases. The expenditure which is sought to be recovered is incurred in expectation that that the contract will be performed. It therefore appears to me to be rational to have regard to the position that the claimant would have been in had the contract been performed.

If there were an independent principle pursuant to which expenditure incurred in expectation of the performance of a contract was recoverable without regard to what the position would have been had the contract been performed the defendant would in effect underwrite the claimant's decision to enter the contract. If the contract was unwise from his point of view, because his expenses were likely to exceed any gross profit, it is difficult to understand why the defendant should pay damages in an amount equal to that expenditure. His breach has not caused that loss. The claimant's expenditure should only be recoverable where the likely gross profit would at least cover that expenditure.

Burden of proof is on the defendant

In that latter type of case the question arises as to which party should bear the evidential burden of proof. Should the burden be on the claimant to show that the likely profits would at least equal his expenditure or on the defendant to show that the likely profits would not at least equal the claimant's expenditure? The authorities to which I have referred, in particular L Albert & Son v Armstrong Rubber Co Ltd and CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16 provide a rational and sensible explanation for the view that...