Globalia Business Travel v Fulton Shipping Inc [2017] UKSC 43

KEY POINTS

• The sale of the ship did not, at first glance, constitute a successful act of mitigation.
• If a charter market had been available, the loss would have been calculated as the variance between the actual charterparty rate and the assumed rate of a substitute contract. In such a scenario, the sale of the vessel would have held no relevance.
• In the absence of a viable market, the measure of the loss is determined by the discrepancy between the contract rate and the amount that could reasonably have been earned through shorter charterparties, such as the spot market.
• In this context, effective mitigation entails obtaining an alternative income stream that serves as a substitute for the income generated under the original charterparty.
• The sale of the vessel, in and of itself, does not qualify as an act of mitigation since it is incapable of alleviating the loss incurred from the income stream.

FACTS

• On March 4, 2005, the owners purchased a cruise ship named the New Flamenco. The vessel had previously been chartered to the charterers under a time charter party.
• Through a novation agreement, the owners assumed the rights and liabilities of the previous owner under the charterparty, starting from March 7, 2005.
• In August 2005, the owners and charterers agreed to extend the charterparty for an additional two years, until October 28, 2007.
• However, during a meeting on June 8, 2007, the owners and charterers reached an oral agreement to further extend the charterparty for two years, expiring on November 2, 2009. The charterers disputed this agreement and insisted on returning the vessel on October 28, 2007.
• The owners treated the charterers' refusal to honour the agreement as a repudiatory breach, terminating the charterparty. The vessel was returned on October 28, 2007. Prior to the vessel's return, the owners had agreed to sell it to a third party for US$23,765,000. The owners initiated arbitration in London to seek damages for the charterers' breach.
• The arbitrator confirmed the existence of the oral contract to extend the charterparty and determined that the charterers were in repudiatory breach, justifying the owners' termination of the charterparty.
• However, the arbitrator also acknowledged a significant difference in the vessel's value at the time of sale compared to its value in November 2009, which was estimated at US$7,000,000.
• As a result, the arbitrator declared that the charterers were entitled to a credit of €11,251,677 (equivalent to US$16,765,000), representing the difference in value, which would be deducted from any damages payable by the charterers to the owners.
• Since the credit exceeded the owners' loss of profit claim, they would not receive any damages from the charterers.

COMMENTARY

• Globalia Business Travel v Fulton Shipping Inc [2017] UKSC 43 is a significant case that explores the concepts of limitation of damages and the duty of mitigation within the framework of contractual disputes.
• This case offers valuable insights into how these principles should be applied and provides important guidance on the parties' obligations in mitigating their losses.