sub-chartered resulting in the owner’s new charter getting delayed and the hire rates
dropping. The question was whether this attracted the rule that a party may recover
losses which were foreseeable.
63 The charterers were not liable for the owner’s
losses in the absence of a clause making them so. Lord Brown in The Golden
Victory,
64 held as follows:
It is one thing to say that the injured party, mitigating his loss as the breach date rule requires
him to do, thereby takes any future market movement out of the equation and to that extent
crystallises the measure of his loss; it is quite another to say, as the owners do here, that it
requires the arbitrator or court when finally determining the damages to ignore subsequent
events (save where the defendants can demonstrate that at the date of breach some suspensive condition would inevitably and immediately have operated to cancel the contract)”.
Similarly, in Bunge SA v. Nidera,
65 commercial certainty was held to be of prime
importance, even though its significance may fluctuate from one situation to another.
The House of Lords laid down the principle that where, after the date on which the
market price is to be ascertained, a supervening event occurs which shows that
neither the original contract (had it continued), nor the notional substitute contract at
the market price, would ever have been performed, the innocent party has suffered
no loss, and so can recover no damages; also, that the GAFTA default clause does
not exclude the common law principle of mitigation of loss. The compensatory
principle always trumped.
4 Conclusion
The final message is that maritime parties must be able to capture as much as they
can in the contract and to expressly incorporate the principle of good faith. Absence
of express good faith or intended good faith by parties only leads parties into
disputes which could have been avoided had there been express terms in the contract.
Doubtless, it is difficult to reach this equilibrium point through mutual cooperation
as parties tend to look at contracts microscopically which allows only unilateral
perception. Mutual cooperation instead of mutual defection help parties avoid
litigation time and expenses. As well, costs can be huge when parties have opaque
strategies to achieve. The legal requirement of good faith could definitely build a
robust system where self- interests are taken care of without trampling over each
other’s interests. There would be no opportunity for parties to rewrite or renegotiate
or exclude certain express terms in the absence of a normative good faith principle
embedded in the contract itself. Commercial prudence and legal foresight must be
63 Hadley v. Baxendale, [1854] EWHC J70.
64 The question was whether future contingencies (Gulf war in this case) should be taken account by
the court in assessing damages where a contract is terminated for an accepted repudiatory breach.
[2007] 2 Lloyds Rep 164.
65 BV [2015] UKSC 43.
128
S. Choudhury and P. Das
dropping. The question was whether this attracted the rule that a party may recover
losses which were foreseeable.
63 The charterers were not liable for the owner’s
losses in the absence of a clause making them so. Lord Brown in The Golden
Victory,
64 held as follows:
It is one thing to say that the injured party, mitigating his loss as the breach date rule requires
him to do, thereby takes any future market movement out of the equation and to that extent
crystallises the measure of his loss; it is quite another to say, as the owners do here, that it
requires the arbitrator or court when finally determining the damages to ignore subsequent
events (save where the defendants can demonstrate that at the date of breach some suspensive condition would inevitably and immediately have operated to cancel the contract)”.
Similarly, in Bunge SA v. Nidera,
65 commercial certainty was held to be of prime
importance, even though its significance may fluctuate from one situation to another.
The House of Lords laid down the principle that where, after the date on which the
market price is to be ascertained, a supervening event occurs which shows that
neither the original contract (had it continued), nor the notional substitute contract at
the market price, would ever have been performed, the innocent party has suffered
no loss, and so can recover no damages; also, that the GAFTA default clause does
not exclude the common law principle of mitigation of loss. The compensatory
principle always trumped.
4 Conclusion
The final message is that maritime parties must be able to capture as much as they
can in the contract and to expressly incorporate the principle of good faith. Absence
of express good faith or intended good faith by parties only leads parties into
disputes which could have been avoided had there been express terms in the contract.
Doubtless, it is difficult to reach this equilibrium point through mutual cooperation
as parties tend to look at contracts microscopically which allows only unilateral
perception. Mutual cooperation instead of mutual defection help parties avoid
litigation time and expenses. As well, costs can be huge when parties have opaque
strategies to achieve. The legal requirement of good faith could definitely build a
robust system where self- interests are taken care of without trampling over each
other’s interests. There would be no opportunity for parties to rewrite or renegotiate
or exclude certain express terms in the absence of a normative good faith principle
embedded in the contract itself. Commercial prudence and legal foresight must be
63 Hadley v. Baxendale, [1854] EWHC J70.
64 The question was whether future contingencies (Gulf war in this case) should be taken account by
the court in assessing damages where a contract is terminated for an accepted repudiatory breach.
[2007] 2 Lloyds Rep 164.
65 BV [2015] UKSC 43.
128
S. Choudhury and P. Das