• Home
• Order now
• Prices
• How we help
• Press
• Law marking
• Contact us
• Resources
• Log in

Contract Damages Law

Contract Damages Law

OBLIGATIONS 1: CONTRACT LAW

The dissenting judgements

Golden Strait Corporation v Nippon Yusen Kubishka Kaisha

The House of Lords in 2007 was presented with an appeal from the Court of Appeal (Civil Division) regarding the assessment of damages resulting from a breach of contract (or charterparty in this instance). The House was to decide at what date damages should be assessed; the date of repudiation of the contract or a date that was predestined in terms of events that would occur after repudiation and listed in the contract as a clause for early termination. The House of Lords held that although the general rule regarding damages resulting in a breach of contract entitles the injured party to recover damages from the date repudiation was accepted to the official contract termination date respecting the requirement to mitigate loss, the House also upheld the respondent’s claim and the Court of Appeal’s decision that the quantification of damages should be limited to a date where an event occurred (in this instance the Second Gulf War). This essay will discuss Lord Bingham of Cornhill and Lord Walker of Gestingthorpe’s dissenting judgements relating to limitation of quantifying damages after the fact, estimation of damages, and certainty in commercial transactions.

Lord Bingham in his judgement approached the question presented to the House in a strict application of the law of contract. He argues that the appellants claim for damages, being the recompense of nearly four years the charter still had to run is undoubtedly the legal solution to this question. The law of contract proclaims that in the event a party breaches their contract, and bearing in mind that the injured party accepts the repudiation ‘the damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed’. Lord Bingham and Lord Walker believe that it is at this time, when the repudiation had been accepted by the owners of the vessel, that damages should be assessed with care given to mitigation of loss and remoteness. Had it not been for the lengthy debate and opposition from the charterers as to how to quantify the damages and comply with their secondary obligation to the contract, the Gulf War factor would have been irrelevant.

The fact that the Gulf War occurred after the breach of contract and during the prolonged assessment of damages only gives the charterers the scapegoat to minimise their liability. It has been accepted that at the time of the breach ‘…war or large-scale hostilities…was not inevitable or even probable, but merely a possibility’. This was distinguished from the facts in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH that at the date of acceptance of repudiation, the events were predestined to occur. In interpreting the word predestined, the accepted understanding is that it means inevitable. But, at the time of the breach of contract, this was not the case. It is therefore an event after the fact, and not the true cause for breach. So, it stands to reason that it should not be relevant to the appropriate estimation of damages.

It is argued, however, that the purpose of estimation is largely due to the fact that one cannot predict the future, and therefore assessment considers market trends to reach the closest value, as possible. In applying “the Bwllfa principle” the court making an assessment of damages has knowledge of what actually happened and need not speculate about what might have happened but should base itself on the known facts. Here, however, through prolonged deliberation, the chore to the courts of having to estimate this value of damages has been replaced by an actual series of events which gives rise to an exact (within reason) value. After all, there is no need to estimate when the actual value can be calculated. Lord Bingham maintains that although this principle is judicially sound, the facts of the case ‘…bear little, if any, resemblance to the present’.

The question however is should the courts value the principles of what is defined as a breach of contract and when damages should fall to be assessed, or should they take leave of such principle to ultimately provide each party with a perceived fair outcome? By allowing Golden Strait Corporation a successful claim for the remaining four years would ultimately lead to unjustifiable enrichment according to Nippon Yusen Kubishka Kaisha. Clause 33 was placed in the contract for a reason, and it would seem unlikely that either party wouldn’t exercise their options to terminate the contract if the outbreak of war in the Middle East seemed likely.

The charterers in fact would have ended the contract early relying on Clause 33 when the Gulf War broke out, if the contract was still running. But, it was not. In assessing the damages to be awarded in Koch Marine Inc v D’Amica Società di Navigazione ARL the 3-month more or less option was not calculated into the final amount awarded. It was for the remainder of the contractual period with respect to mitigation of loss. It is with that in mind that Nippon Yusen Kubishka Kaisha should be expected to pay for the contracted period without any reprieve for the clause.

It seems that a business engaging in lawful conduct cannot rely in the certainty of contract law, according to Lords Bingham and Walker. There is no dispute throughout this case as to the date the contract was breached. There is also no doubt that repudiation was accepted upon delivery of the vessel by the respondents. It is therefore a leave of principle that assessment of damages should in fact be based on an event beyond these two dates for the perceived reason of prolonging an inevitable outcome, a gamble that in this instance the respondents have won. The level of certainty expected at law is a cornerstone and traditional strength of English commercial law and its on this merit that Lord Bingham and Lord Walker would have allowed this appeal.

LIST OF CASES CITED

• Bwllfa and Merthyr Dare Steam Colleries (1891) Limited c Pontypridd Waterworks Company [1903] AC 426

• Golden Strait Corporation v Nippon Yusen Kubishka Kaisha [2007] UKHL 12

• Koch Marine Inc v D’Amica Società di Navigazione ARL (The “Elena D’Amico”) [1980] 1 Lloyd’s Rep 75

• Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164

Secure your law degree, order your law essay today!

Order Now. It takes less than 2 minutes.

1. * Name   
2. * Email   
3. * Phone   

1. * Your essay question 
   (please give as much detail as possible)  

Copyright © 2012 All Answers Ltd. All Answers Ltd is a company registered in England and Wales with Company Registration No: 4964706 VAT Registration No: 842417633 - Law Teacher - The law essay professionals