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Wednesday, March 28, 2007

House of Lords Okays Hindsight Limitation on Damages

Uk_flag A case from the English Court of Appeal that was featured here on October 28, 2005, has been affirmed affirmed today by the House of Lords.  The case offers a fascinating question about the point at which damages should be calculated.  Andrew Tettenborn (Exeter) sends us this report:

The case is Golden Strait Corporation v. Nippon Yusen Kubishiki Kaisha, [2007] UKHL 12 (available on LEXIS, Westlaw or on http://www.bailii.org).

In July 1998, NYK chartered a tanker at a high rate for seven years through July 2005.  The charter had a specific provision about war:

   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, NYK  repudiated the charter and the owners accepted the repudiation by taking the ship back.  In 2003, the Second Gulf War started; had the charter still been going NYK could, and undoubtedly would, have invoked Clause 33 to cancel.  Question: when the owners sued for damages, were they entitled to an award reflecting lost hire till the end of the charter (July 2005), or only till NYK could have canceled (March 2003)?  The Court of Appeal held, with the charterers, that the
latter was correct. The owners appealed, but the Law Lords affirmed.

Hindsight showed that in fact the owners wouldn't have received charter hire after 2003: hence that was the measure of their loss and there was no reason to give them any more.  The two dissenters (the two commercial lawyers sitting) argued that the contract rights infringed should be valued at the time of the breach: that since no-one knew then about the imminence of the Gulf War the value of those rights should reflect the full period of the charter: and that the events of 2003 should therefore
be ignored.

[Frank Snyder]

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