Case No: 2009 FOLIO 1048
Neutral Citation Number: [2010] EWHC 1692 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 08/07/2010

Before :

MR JUSTICE DAVID STEEL
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Between :

	GLORY WEALTH  SHIPPING PTE  LIMITED	Applicants
(Respondent in the Arbitration)	
	
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	 NORTH CHINA SHIPPING LIMITED

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M/V “NORTH PRINCE”	Respondents
(Claimant in the Arbitration)

	

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MR PAUL KEY (instructed by KENNEDYS SOLICITORS) for the Claimant
MR NEVIL PHILLIPS (instructed by REED SMITH SOLICITORS) for the Defendant

Hearing dates: 27 May 2010
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Judgment
MR JUSTICE DAVID STEEL : 
Introduction
1.	By an order of Hamblen J dated 18 February 2010, the claimant sub-charterers were granted leave to appeal against an arbitration award dated 8 July 2009.  By the award the claimants were ordered to pay damages to the respondent disponent owners in the amount of US$ 5,468,477 in respect of their wrongful early redelivery of the vessel under a time charter dated 8 August 2007.  
2.	The time charter was governed by English law.  The time charter period was from the date of delivery to “minimum 27 June 2009”.  The vessel was actually delivered to the sub-charterers on 16 November 2007.  The terms of the contract were that the daily hire rate was US$55,000 for the period to 16 August 2008, US$45,000 for the period to 16 May 2009 and US$50,000 for the balance of the charterparty period.  
3.	A dispute arose between the parties which was referred to LMAA Arbitration.  The tribunal held that the charterers had repudiated the time charter and that that repudiation had been accepted on 5 January 2009.  The tribunal awarded the owners damages representing the difference between:
i)	the contract rate for the remaining 173.46 days of the minimum charter period; and 
ii)	the actual earning potential on the market as from 5 January 2009 to the end of the original charterparty period. 
4.	In fact the disponent owners in due course re-delivered the vessel to the owners on 5 June 2009 (i.e. 22 days before the earliest contractual expiry of the sub-charter).  Against that background the sub-charterers had contended that in calculating damages account had to be taken of the savings which the disponent owners had made as regards hire payments under the head charter as a result of the early redelivery.  
5.	It is implicit in the tribunal’s reasons that this submission was rejected.  In granting leave to appeal Hamblen J redrafted the issue of law as follows:-
“Where damages for repudiation of a sub-charter by charterers are assessed by reference to the actual earnings of the vessel during the balance of the sub-charter period, should the fact that the vessel is re-delivered under the head charter before the end of the balance of the sub-charter period be taken into account in the assessment of damages, and if so, how?”.
Discussion
6.	It was the underlying theme of the appellant’s submissions on this appeal that the arbitrators had expressly chosen not to assess the notional market timecharter rate for the balance of the sub-charter period (broadly 6 months) and deduct that from the contractual rate.  Instead, it was contended, the tribunal had had regard to the actual fixtures for which the vessel had been fixed and thus had calculated the actual shortfall from the sub-charterparty rate.  Having embarked on that course, so the argument ran, it was necessary to have regard to the fact that the vessel was redelivered early to the head owners and, accordingly, no hire continued to be payable up the line.  As explained it was on this basis that the question of law was formulated.
7.	The origin of this submission is to be found in paragraphs 36 to 44 of the award.  The owners had argued that the correct measure of damages was by reference to the available market rate as explained in the The Elena D’Amico [1980] 1 Lloyds Rep.75.  The charterers argued that a more accurate measure of the loss could be derived from the actual fixtures entered into for the balance of the charter period.  Having in this regard emphasised the fixtures made from 13 January 2009 at rates somewhat above the market rate contended for by the owners, the charterers advanced a further submission to the effect that since the owners redelivered the vessel to the head owners on 5 June which was before the termination date of the sub-charter, namely 27 June 2009, the owners should account for the savings this made in hire payments between those two dates.
8.	Importantly the tribunal accepted that there was in fact a “prevailing market” but considered that “the correct method of calculating damages in a situation such as this where a charterer redelivers early is to deduct the actual earnings during the balance of the charter period from the net hire which would have been received.”
9.	Some of the relevant fixtures were available but “it was simply not possible on the basis of this information and documentation to calculate what the substitute earnings were”.  However, the tribunal concluded that “the vessel was trading throughout and it should have been possible to prepare a calculation …..which would have come up with a time charter equivalent for the unexpired period of 173 days”. The tribunal went on to rely on an expert’s report to assess the earnings right through until 27 June 2009.
10.	Implicit in this of course is the rejection of the argument that allowance should be made for the early redelivery of the head charter.   The appellants say that since the tribunal was having regard to “actual” earnings, that rejection is unsustainable.  But the first difficulty with the charterers’ argument is that the suggested outcome was something of a moveable feast.  The consequence of allowing for the early redelivery to owners was variably put as:
i)	The disponent owners had sustained no loss in the 22 day period.
ii)	The charter hire saved during that period should be deducted from the claim.
iii)	The loss over the period should be the difference between the head charter and sub-charter hire.
11.	It is not at all clear which of these alternatives was ever argued before the arbitrators.  For the purposes of seeking leave to appeal, the charterers placed considerable emphasis on Andrew Weir & Co v. Dobell [1916] 1 KB 722, where the owners entered into a voyage charterparty which gave a liberty to the charterers to cancel in a certain event (which occurred).  Sub-charterers at a higher freight rate refused to load.  In the meantime the market had fallen below the head charter rate.  The trial before Rowlatt J and a jury led to the conclusion that, since the charterers were able to cancel so as to save the payment to the owners, their loss was measured by the difference between the two charter rates of freight and not the difference between the sub-charter rate and the market rate.  
12.	As Rowlatt J observed at p.725.
“As the plaintiffs only had the ship for this voyage, the giving of her up and thereby saving 21s. per ton was the same thing as finding a charterer for her at 21s. for that voyage, though if they had held her under a longer charter the effect of so surrendering her could  not have been so measured… the right of the plaintiffs to cancel, that is to say, to dispose of the ship for the 21s. thereby saved to themselves, was a circumstance essentially affecting the value of the specific thing which was thrown upon their hands, namely the use of the ship for this voyage.  They could either put her on the market and receive 17s. while paying 21s., or save the 21s. and receive nothing.  I think they were bound to choose the latter course, as in fact they did. ”
13.	But I do not derive any assistance from that decision in the present case given the absence of any entitlement to cancel the head charterparty.  Indeed in Weir there was no residue of the head charterparty following termination of the subcharter to preserve.  The claimant had in short to effect a cancellation.  Here the arbitrators made no finding about the basis of early re-delivery by the disponent owners to the head owners, let alone that the termination of the head charter was sufficiently closely connected with the breach to require being brought into account: The Fani [1994] 1 Lloyds Rep. 633. 
14.	This approach somewhat faded during the course of oral argument.  The favoured outcome became that, given the early redelivery, it followed that the charterers had avoided any loss at all during the relevant period.  Of course it is long established that damages for breach of contract are intended to place the claimant in the same position as it would have been if the contract had been performed: see e.g. Wertheim v. Chicoutimi Pulp Co. [1921] A.C. 301.  But if the sub-charter contract had been performed, it is by the same token not remotely established that redelivery under the head charter would have nonetheless occurred on 5 June.  
15.	To the contrary the probabilities are all the other way.  The early redelivery, of which little if any evidence is available, should be treated as an independent speculation not caused by the repudiation of the sub-charter.  Indeed, it is implicit in the arbitrator’s calculation of damages through to 27 June on either basis that they have so concluded.  It is not made out that loss associated with the 22 day period has been avoided.
The appeal
16.	In my judgment the appeal can be dealt with quite briefly. The short answer is that the charterers’ argument is based on a misconception as to the reliance placed on “actual earnings” by the tribunal.  It is manifest that the known fixtures were being used by the tribunal to assess the loss sustained but only during their currency.  There was a voyage charter dated 13 January and two time charter trips dated 3 March and 14 April.  No further information was available.  Nonetheless the expert evidence of overall “estimated expected earnings” ran through the entire balance of the charter period.  In short the evidence of actual earnings converted as necessary into time charter equivalents was used to supplement the evidence of the prevailing six month time charter market (the outcome not being substantially different).
17.	The tribunal expressly found that the vessel was trading “throughout” and that thus it was possible to calculate the earnings during the entire balance of the charter period.  Yet as the respondents submitted it was self evident that they did not have the vessel available after the redelivery to the head owners.  The tribunal had thus approached the assessment of damages by reference to fixtures performed until the earliest date for redelivery regardless of whether they were performed for the respondents’ account.
18.	The tribunal approached the issue in a conventional and appropriate manner.  In The Elena d’Amico [1980] 1 Lloyd’s Rep 75, Goff J held:
 “But, as in other cases, there is, I consider, a normal measure of recovery in case of premature wrongful repudiation of a time charter by the owners, and that normal measure is that, if there is at the time of the termination of the charter-party an available market for the chartering in of a substitute vessel, the damages will generally be assessed on the basis of the difference between the contract rate for the balance of the charterparty period and the market rate for the chartering in of a substitute vessel for that period…. The position is comparable to the law as set out in the Sale of Goods Act, 1893”: p.87.
 “…If however the time charterer decides not to take advantage of that market, then, generally speaking, that will be his own business decision independent of the wrong; and the consequences of that decision are his…It does not matter…that his decision was a reasonable one, or was a sensible business decision, taken with a view of reducing the impact upon him of the legal wrong committed by the shipowners.  The point is that his decision so to act is independent of the wrong”:p. 89.
Conclusion
19.	The only significance of the actual earnings of the vessel was by way of reflection of the market: Time Charters: Coghlin 6th Ed para 4.41.  In my judgment the appeal must be dismissed.