Breaches of contract can sometimes be fortuitous and result in unforeseen benefits to the injured party – but to what extent, if at all, should such windfalls be taken into account when assessing damages? In an important case, the Supreme Court considered that issue in the context of a cruise ship charter.
The charterer of the vessel had orally agreed with her owner to extend the charter for a further two years. In breach of contract, the charterer prematurely terminated the charter and re-delivered the vessel to the owner, who then sold it for $23,765,000. Had the vessel been sold two years later, at the end of the charter period, it would have fetched just $7 million.
In those circumstances, arbitrators to whom the dispute was referred found that the charterer was entitled to credit for the difference between those two values, or $16,750,000. That was more than the owner’s loss of profit arising from the breach and it was thus awarded no compensation. The arbitrators’ decision was subsequently upheld by the Court of Appeal.
In allowing the owner’s appeal against the latter ruling, however, the Supreme Court found that the owner’s loss arising from the breach had not been mitigated by the vessel’s sale at an advantageous price. The subsequent fall in her value was irrelevant because the owner’s interest in her capital value had nothing to do with the interest injured by the charterer’s repudiatory breach of contract.
The premature termination of the charter had not necessitated the vessel’s sale and the decision to dispose of her was a commercial one, made at the owner’s risk. The owner would not have been able to claim the difference in the vessel’s market value had that value risen between the sale and the date on which the charter would, but for the breach, have come to an end.