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Compensation Principle Prevails in Shipping Contract Row

shipDamages awards for breach of contract are not calculated in accordance with arcane formulae by modern judges, who adhere to the principle that compensation should reflect losses actually suffered. That was certainly so in one case in which ship owners won more than $1.2 million from a charterer who backed out of a deal.

The ship was en route from Africa to South America to pick up a cargo of vegetable oil when the charterer cancelled the contract. That interrupted a string of planned voyages and the vessel was redundant for almost a month before a substitute cargo could be found. Maritime arbitrators subsequently found the charterer in repudiatory breach of contract and awarded the ship owners $1,212,316 in damages.

In challenging the amount of the award, the charterer argued that it should be liable only for the loss of profit on the cancelled voyage. It was submitted that the arbitrators had erred in law in taking into account the impact on the ship’s future schedule and that damages should have been assessed at less than $480,000.

In dismissing the charterer’s appeal, however, the Court of Appeal noted that the ship owners’ reaction to the breach had been reasonable. The award reflected the real and foreseeable losses arising from the breach and there was no rule of law which limited damages by reference to the period when the voyage agreed upon would have come to an end.