Calculate Charterparty Loss

Where Party (W) breaches his contractual obligation, Party (I) may suffer loss. Party (I) will want to recover that loss against Party (W), who has breached the contract.

An Award or Judgment in respect of these losses, for instance, by arbitrators or by Court Judge is called Damages.

Basic Rules on Calculating Charterparty Loss:

1- The innocent Party (I) must prove his loss.

2- Only losses which are directly caused by the breach can be recovered. If the loss, therefore, is not caused by the breach, then it is not the other Party’s (W) fault and the innocent Party (I) should not be compensated for it.

3- Contractual damages are a sum of money which would put the innocent Party (I) in the position he would be in if the contract had been properly performed.

4- Losses are calculated net. If a breach of contract results in savings for the innocent Party (I), as well as losses, those savings must be taken into account in calculating his overall losses. For example, if a voyage charterer fails to provide goods to load and owners were responsible for loading, then their losses would have to take into account the owners’ saving of the costs of loading the goods.

5- The loss claimed must be a foreseeable consequence of the breach, and not too remote. There may be many losses suffered by an innocent Party (I), which are the direct result of the breach, but which are in reality unconnected with it. For example, if a time charterer fails to pay hire on time, in breach of the Charterparty, it may mean the owner is unable to pay his office rent, causing his landlord to terminate his lease on his office. That termination of the office lease is a direct consequence of charterers failing to pay hire on time, but it is not a foreseeable consequence of it.

6- Liquidated damages. These are damages agreed in advance by the parties if there is a particular breach. The amount of loss does not need to be proved, as it is agreed. An example is demurrage where a daily rate of damages for delay to the vessel is agreed.

7- Losses are often calculated by market value. For example, if, in breach of charter, an owner fails to deliver a vessel to a charterer, the charterer may have to fix a replacement vessel, which is more expensive. However, the charterer is only allowed to recover damages for the difference between the original Charterparty rate and the market rate for a replacement vessel. If the charterer paid more than the market rate for a replacement vessel, then English law considers that is his fault, not the owners’. This also prevents suspicious deals between innocent charterers and other owners, at the cost of owners in breach.

Recent Case: Achilleas (2008) This was a case of late redelivery of a vessel under a time Charterparty. Late redelivery is a breach of the Charterparty by the charterer. England’s Supreme Court, the House of Lords, ruled that the only damages which owners could recover were the difference between the Charterparty rate for the late redelivered vessel and the (higher) market Charterparty rate for the due redelivery date and the actual redelivery date.

Previously, in the same case, the Court of Appeal had held that owners could recover their lost profits under their next fixture. In this case, the late redelivery of the vessel meant that the vessel missed her cancelling date on her next charter. The market rate had fallen substantially in that time and the next charterers cancelled the Charterparty.

The owners were forced to re-let the vessel on the market and obtain much less than the cancelled charterparty rate. They claimed that their substantial daily lost profit over 6 months following late re-delivery was due entirely to the late re-delivery. Wren (2011) This was a case of early redelivery of a vessel under a time Charterparty.

In most cases, damages for early redelivery of a vessel will be the difference between the charterparty rate for the vessel, and the (lower) market Charterparty rate on the date of early redelivery, for the period remaining of the Charterparty. However, in this case there was no market for the redelivered vessel, and so, no market rate. Owners argued that their damages should be calculated on the basis of a market rate, when a market became available, even if that was after the date of redelivery.

The Arbitrators had agreed, but on appeal the judge determined that that was not correct. The Judge ruled that the basic principle, that damages should represent no more than the value of the contractual benefits of which the Claimant has been deprived, required an analysis of the owners’ Actual Loss.