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Friday, October 28, 2005

Post-Contract Event Can Cut Off Damages

United_kingdom_flag When you measure contract damages, you usually do so as of the time of the breach.  But what if something happens after the breach that would have caused the plaintiff to suffer some of the loss even if the contract had been performed?  That was the question before the English Court of Appeal in Golden Strait Corporation v. Nippon Yusen Kubishiki Kaisha, decided last week.

In July 1998, NYKK chartered the tanker Golden Victory from Golden Strait.  The charter period was for seven years, through July 2005.  The charter had a specific provision governing wars:

33.  If war or hostilities break out between any two or more of the following countries: U.S.A., former U.S.S.R., P.R.C., U.K., Netherlands, Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar, Iraq, both Owners and Charterers have the right to cancel this charter.

In December 2001, NYKK returned the ship to Golden Strait and repudiated the charter, apparently without any excuse.  In March 2003, the Second Gulf War broke out, involving the U.S., the U.K., and Iraq.  It was undisputed that the war would have justified NYKK in terminating the charter.  So the question was whether damages should be measured until July 2005, the original charter period, or should end as of March 2003.

The general rule, said the court, is that damages are measured as of the time of the breach.  But this rule isn’t invariable, nor is it the most basic rule of damages.  The most basic rule is that damages should put the party into the position it would have been in but for the breach.  If measuring damages at the time of the breach would create an injustice, a court may use another method.  Here, even if the contract had not been breached, NYKK would have had the right to terminate the charter in March 2003.  Golden Strait therefore could claim damages only to that point.

[Frank Snyder - thanks to Andrew Tettenborn for the tip]

http://lawprofessors.typepad.com/contractsprof_blog/2005/10/postcontract_ev.html

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