Fulton Shipping Inc of Panama v. Globalia Business Travel S.A.U. (The New Flamenco)  UKSC 43
When claiming damages for early termination of a time charter, Owners were not required to give Charterers credit for the difference between the sale value of the vessel at the time of repudiation in 2007 and the diminished value at the contractual end of the charterparty in 2009.
The long-awaited Supreme Court decision in the New Flamenco was handed down on 28 June 2017, in a significant judgment on the measure of damages following a repudiatory breach and applicable principles of mitigation.
Background Facts 背景
The Charterers repudiated a time charter by redelivering the vessel early, in October 2007, rather than in November 2009. There was no available market for a replacement charterparty in October 2007 and the Owners sold the vessel for USD23.8m. The Owners claimed damages from the Charterers for loss of profit on time charter earnings across the remaining charter period of almost two years in the amount of €7,558,375.
The Charterers argued that the Owners had avoided a drop in the capital value of the vessel, because if there had been no early termination and the charterparty had continued until 2009, the vessel would in 2009 only have been worth USD7m. Accordingly, the Charterers said that the Owners had made a windfall of USD16.8m by selling the vessel in 2007 rather than 2009.
The Charterers said that they should be given credit for the benefit obtained by Owners against any liability to pay damages. This credit would wipe out the Owners’ claim for loss of profits. Accordingly, the Charterers argued that the Owners had in fact suffered no loss.
The path to the Supreme Court
The matter was initially referred to arbitration, where the Tribunal held in favour of the Charterers on the quantum issue, on the basis that the sale of the vessel was caused by the Charterers’ breach and there was therefore no reason why capital savings could not be taken into account when assessing the Owners’ loss.
Owners succeeded on appeal in the Commercial Court, which held that no credit should be given to the Charterers, because the benefit obtained by the Owners in realising the capital value of the vessel was not legally caused by the Charterers’ breach.
船东上诉到Commercial Court，Commercial Court认为不应考虑船东的卖船获益，原因是船东的卖船获益与租家违约之间没有因果关系。
The Charterers were then successful in the Court of Appeal, which held that where a claimant acquires a benefit as a result of doing something by way of mitigation arising out of the consequences of the breach and which is in the ordinary course of business, that benefit should normally be brought into account when assessing the claimant’s loss.
租家上诉到Court of Appeal，Court of Appeal认为：如索赔人在减损（减少对方违约所造成损失）的过程中获得收益，则在计算索赔人的损失时，应考虑该获益。
The Supreme Court decision
In giving the lead judgment, Lord Clarke (with whom all the other judges agreed) preferred the approach in the Commercial Court to that in the Court of Appeal, and allowed the Owners’ appeal on the basis that the alleged benefit was legally irrelevant: the fall in value of the vessel was not caused by the Charterers’ breach, or by a successful act of mitigation.
在判决中，Lord Clarke（其它法官全部同意）更倾向于Commercial Court的观点（与Court of Appeal的观点相比）；认为船东卖船获益在法律上是无关的，船价下跌并不是租家违约造成的，也不是减损造成的。
If a benefit is to be brought into account, it must have been caused by a breach of charterparty or by a successful act of mitigation. That was not the case here. The difference in value of the vessel was caused by the financial crash in 2008, rather than by the Charterers’ breach.
The ship sale was a type of transaction that the Owners were able to enter into irrespective of the Charterers’ breach of the charterparty. That breach may have provided an occasion which enabled the Owners to sell the vessel, but the decision to sell the vessel was legally independent of the Charterers’ breach. If the Charterers had not repudiated the charterparty, the Owners could have chosen to sell the vessel on terms which enabled the new owner to perform the remainder of the charterparty. In fact the Owners had themselves purchased the vessel during the currency of the charterparty.
There was no reason to assume that a sale would have followed from the lawful delivery at the end of the charterparty, and, had the value of the vessel risen between 2007 and 2009, the Owners would not have been able to claim that positive difference in value as an additional head of claim.
The sale of the vessel was also not an act of mitigation, because it was incapable of reducing the loss of the Owners’ income stream. The only relevant loss was a loss of income, not a loss of capital.
This decision brings a welcome degree of clarity to the law on the measure of loss and mitigation of damages in the context of repudiatory breach and termination of contracts.
In focusing on the causal link between the breach and the alleged benefit as being the key legal test, the Supreme Court appears to have put to one side the relevance of asking whether the alleged benefit is of the same kind as the loss caused by the breach.
This suggests that, if an innocent party obtains a windfall that is sufficiently caused by a breach, the innocent party would have to account for the benefit obtained even if the benefit was of a different kind to the loss caused by the breach, in determining the net loss suffered. Fluctuations in the sale and purchase market value of a vessel ought not be relevant to claims for loss of income under a time charter, so long as the decision to sell the vessel was not caused by the breach of the charterparty.
The Supreme Court has also outlined the boundaries of the law on mitigation. In indicating that the sale of the vessel was not an act of mitigation, the Supreme Court has arguably placed a limit on the ability of a party in repudiatory breach to point to post-termination actions taken by the innocent party to reduce the quantum of claims.