Avoided loss or collateral benefit?

AMS Ameropa Marketing and Sales AG and another -v- Ocean Unity Navigation Inc (Doric Valor) [2024] EWCA Civ 1312

The Court of Appeal’s decision in this case reflects the well-established principle that when cargo is damaged by a shipowner in the course of a voyage, a bill of lading holder with title to sue is (in the absence of special circumstances) entitled to recover damages based on the difference between the sound arrived value and the actual value of the damaged cargo, without giving credit for a payment received pursuant to a contract of sale to which the bill of lading holder is a party. 

In unanimously dismissing the shipowner’s appeal, the Court of Appeal held that any money that the bill of lading holder received from the seller of the goods was a collateral benefit and independent of the circumstances giving rise to the loss. Therefore, it did not amount to loss that was avoided and did not reduce the quantum of damages recoverable from the shipowner.

The background facts

AMS Ameropa Marketing and Sales AG (Ameropa) purchased a cargo of yellow soybeans from Zen-Noh Grain Corporation (Zen-Noh) on FOB terms and, on 7 July 2020, chartered the vessel for carriage of the cargo from Convent, Louisiana, to Abu Qir, Egypt. The vessel was owned by Ocean Unity Navigation Inc (Owners).

On 15 July 2020, Ameropa sold 50,000mts of US No. 2 grade or better yellow soybeans in bulk +/- 10% on CIF terms to International Oil Multiseed Extraction Co (Oilex) on CIF terms. The sale contract provided that quality and condition would be final at loading.

On 3 and 4 August 2020, Zen-Noh shipped a total of 49,574.949mts of yellow soybeans. The cargo was loaded in apparent good order and condition, with the official USDA inspection certificate issued for the cargo showing that it fell within the specifications of the sale contract. 

Clean bills of lading were issued on 4 August 2020. The bills named Zen-Noh as shipper and were “to order”. Oilex was identified as the notify party.

On 25 August 2020, Ameropa issued an invoice to Oilex for US$ 21,565,102.82, with the sale price stated as US$ 435 p/mt. Oilex paid the invoice around 2 September 2020 and became the holder of the bills of lading and the owner of the cargo.

At the discharge port, some of the cargo was found to be damaged. Oilex rejected the damaged cargo and Ameropa arranged a salvage sale on behalf of Oilex, to whom the price was payable. In addition, Ameropa undertook in writing to compensate Oilex with the difference between the salvage price obtained (US$ 355/mt) and the sale contract price (US$ 433.20/mt). It subsequently did so by way of a credit note for the relevant amount.

In July 2021, Ameropa arrested the vessel to secure the claim against the Owners. Oilex then assigned their rights in respect of the claim to Ameropa, albeit in a backdated assignment.

The Commercial Court decision

By the time of trial, the Owners had admitted liability for the damaged cargo. However, they disputed Ameropa’s title to sue on the ground that by the time that Oilex had assigned their rights to Ameropa, Oilex had already been reimbursed in full for their losses and so they had no cause of action against the Owners to assign.

The Court rejected this argument. It relied among other things on the decision in The Baltic Strait [2018] 2 Lloyd’s Rep 33, which made clear that a bill of lading holder suing on the bill of lading in contract may recover full damages despite an earlier recovery from an intermediate seller, i.e. a recovery prior to the date on which damages are awarded. 

The Court also dismissed the Owners’ argument that Ameropa had unreasonably failed to mitigate their losses. It awarded damages based on the difference between the sound value of the rejected cargo and its actual value on discharge.

The Court of Appeal decision

The Court of Appeal unanimously dismissed the appeal. In doing so, it referred to a number of key authorities, including the Supreme Court decision in Swynson Lt -v- Lowick Rose LLP [2017] UKSC 32 on avoided loss. 

As stated by the Supreme Court, the general rule is that loss which has been avoided is not recoverable as damages. However, collateral payments or benefits which arise independently of the circumstances giving rise to the loss are not treated as reducing the claimant’s loss and are not, therefore, taken into account when calculating what the claimant can recover from the party liable for the loss. 

On the authorities, whether a benefit is collateral will depend on the nature of the benefit and on the facts of the particular case. What matters is the effective cause of the receipt of the benefit. A benefit does not necessarily arise out of the transaction giving rise to the loss merely because it would not have been received but for the defendant’s breach. 

Reference was made to R & W Paul -v- National Steamship Co (1937) 59 Ll LR 28, in which the bill of lading holder, to whom property in the cargo of maize had passed, brought a claim pursuant to the bills of lading, even though it had been fully compensated for the cargo damage by its seller as a result of an arbitration held under the contract of sale. In that case, the Court held that the bill of lading holder was nevertheless entitled to recover the difference between the sound arrived value of the cargo and its actual value on arrival. 

The Court of Appeal dismissed the attempt to distinguish that decision on the basis that the seller in that case was liable to compensate the buyer both pursuant to the terms of the sale contract and also pursuant to the arbitration award, whereas in this case risk passed on shipment and Ameropa was not liable to make a payment to Oilex. 

In the Court of Appeal’s view, Ameropa made the relevant payment by reason of the sale contract, which was a different transaction to the one that led to the cargo damage, for which the shipowner was liable. Ultimately, the apportionment of liability between the parties to and under the sale contract had nothing to do with, and did not affect the liability of, the shipowner.

There was also evidence that suggested Oilex was in fact demanding payment from Ameropa, who might have faced potential liability to Oilex under the sale contract. Whilst such a claim, if brought in arbitration, should have failed on the facts, this would not have been apparent to Ameropa at the time.

The Court of Appeal reiterated the principle that the provisions of sale contracts to which the goods owner is a party are, in the absence of special circumstances, not taken into account in assessing the damages to be paid to the goods owner. This principle promotes certainty in commercial life and is straightforward to apply.

The Court of Appeal also made clear that full recovery in respect of damaged cargo was not limited to cases where the claimant owned or was entitled to immediate possession of the cargo when the damage was sustained. Assuming title to sue in contract, it was sufficient that the bill of lading holder later came to own the damaged cargo, even if it did not do so at the time the damage was sustained. The carrier will be liable to pay damages in full to: (i) a receiver who receives damaged rather than sound goods; or (ii) a claimant who owned the goods at the time they were damaged even if it did not receive the goods, irrespective in each case of how financial loss reflecting or resulting from the cargo damage is or comes to be distributed across the sale of goods chain.

Comment

The Court of Appeal agreed with the Commercial Court that the payment by Ameropa to Oilex was a commercial settlement and directly linked to rights under the existing sale contract. Therefore, it was a collateral benefit and was irrelevant for the purposes of damages payable by the shipowner.

The decision also confirms what constitutes loss for these purposes. The right to recover substantial damages can be demonstrated by proving ownership of the relevant goods. A shipowner cannot argue that cargo interests suffered no damage because they had subsequently been paid by end users. As soon as the goods are damaged, the owner of the goods suffers loss. Whether or not he can recover that loss from another source is a separate question.