application involves no more uncertainty than is inherent in the process of contractual interpretation. He showed good faith as a malleable and workable concept.”
44
Further, in Abu Dhabi National Tanker C.o v Product Star Shipping Ltd. (No.2)
45
when considering the exercise of the discretion of a ship’s master in deciding
whether a port was dangerous. Leggatt LJ accepted that the discretion must be
exercised honestly and in good faith.
In maritime contracts, parties dabble with deeper uncertainty, steep liabilities,
hinged to sudden decisions of the Master or threaded to chains of rights and
liabilities passed in between. It is interesting to understand the application of good
faith in maritime contracts and the behaviour of the parties stuck in a dilemma. What
would good faith bring to maritime law contracts if it acted as the fulcrum towards
which parties tried to align their interests? In the performance of a contract, parties
have their own set of goals to be achieved, like two players in a game working
towards fulfilment of their tasks by employing separate strategies. Once these
strategies gravitate towards the focal point of good faith, no party would face
surprising or hidden inconveniences.
In Fulton,
46 the arbitrator found that the parties had concluded an oral agreement
on the terms of ‘Addendum B’ and the charterparty had been terminated by the
owners in response to the charterer’s repudiatory breach. As to the quantum of
damages, he found that at the date of the breach there was no suitable time charter
employment for the vessel, that the owners acted reasonably in selling the vessel and
that the need to sell the vessel was caused by the breach. Accordingly, the owners
had to give credit for the difference in value, being a benefit arising from their actions
taken to mitigate their loss.
The owners claimed damages calculated by reference to the net loss of profits
during the remaining 2-year period amounting to 7,558,375 pounds. The charterers
argued that the owners were bound to give credit for the difference between the
amount for which the vessel had been sold in October 2007. The owners argued that
the difference in value was legally irrelevant. When the owners appealed before the
High Court on the point of damages, the Court allowed the appeal. As per the Court,
it was not a benefit caused by the breach. Even though the owners benefited from the
vessel sale in 2007 and that the benefit was more than the claim the owners had
against the charterers, yet the charterers were liable to pay the damages. The owner’s
action was considered as an independent commercial decision by the High Court.
However, the Court of Appeal overturned the decision of Popewell J. and reaffirmed
the arbitrator’s reasoning that the sale of the vessel contributed to the mitigation of
loss and had to be counted in. In the above case, the Owner’s free riding on the
market value of the vessel that essentially was arrived at due to the repudiation of the
contract by the charterers in 2007 was against good faith. For the benefits of an act
44 See Steyn (1991), para 152.
45 [1993] 1 Lloyd’s Rep 397, 404.
46 Fullton Shipping Inc of Panama v. Globalia Business Travel Sau (Formerly Travelplan Sau) of
Spain (The New Flamenco) [2017] UKSC 43.
124
S. Choudhury and P. Das
44
Further, in Abu Dhabi National Tanker C.o v Product Star Shipping Ltd. (No.2)
45
when considering the exercise of the discretion of a ship’s master in deciding
whether a port was dangerous. Leggatt LJ accepted that the discretion must be
exercised honestly and in good faith.
In maritime contracts, parties dabble with deeper uncertainty, steep liabilities,
hinged to sudden decisions of the Master or threaded to chains of rights and
liabilities passed in between. It is interesting to understand the application of good
faith in maritime contracts and the behaviour of the parties stuck in a dilemma. What
would good faith bring to maritime law contracts if it acted as the fulcrum towards
which parties tried to align their interests? In the performance of a contract, parties
have their own set of goals to be achieved, like two players in a game working
towards fulfilment of their tasks by employing separate strategies. Once these
strategies gravitate towards the focal point of good faith, no party would face
surprising or hidden inconveniences.
In Fulton,
46 the arbitrator found that the parties had concluded an oral agreement
on the terms of ‘Addendum B’ and the charterparty had been terminated by the
owners in response to the charterer’s repudiatory breach. As to the quantum of
damages, he found that at the date of the breach there was no suitable time charter
employment for the vessel, that the owners acted reasonably in selling the vessel and
that the need to sell the vessel was caused by the breach. Accordingly, the owners
had to give credit for the difference in value, being a benefit arising from their actions
taken to mitigate their loss.
The owners claimed damages calculated by reference to the net loss of profits
during the remaining 2-year period amounting to 7,558,375 pounds. The charterers
argued that the owners were bound to give credit for the difference between the
amount for which the vessel had been sold in October 2007. The owners argued that
the difference in value was legally irrelevant. When the owners appealed before the
High Court on the point of damages, the Court allowed the appeal. As per the Court,
it was not a benefit caused by the breach. Even though the owners benefited from the
vessel sale in 2007 and that the benefit was more than the claim the owners had
against the charterers, yet the charterers were liable to pay the damages. The owner’s
action was considered as an independent commercial decision by the High Court.
However, the Court of Appeal overturned the decision of Popewell J. and reaffirmed
the arbitrator’s reasoning that the sale of the vessel contributed to the mitigation of
loss and had to be counted in. In the above case, the Owner’s free riding on the
market value of the vessel that essentially was arrived at due to the repudiation of the
contract by the charterers in 2007 was against good faith. For the benefits of an act
44 See Steyn (1991), para 152.
45 [1993] 1 Lloyd’s Rep 397, 404.
46 Fullton Shipping Inc of Panama v. Globalia Business Travel Sau (Formerly Travelplan Sau) of
Spain (The New Flamenco) [2017] UKSC 43.
124
S. Choudhury and P. Das