Key takeaways
Court of Appeal upholds owners’ right to damages
Late redelivery claims stand despite sale agreements.
Res inter alios acta principle broadly applied
Collateral arrangements ignored in damage assessment.
MOA terms shielded from disclosure requests
Protect sale negotiations in charterparty disputes.
The Court of Appeal has reversed the Commercial Court decision and ruled that a shipowner can claim damages for late redelivery even when it had sold the vessel on the basis that it would not charter the vessel further.
The judgment provides comfort to owners who see their sale and purchase (S&P) negotiations being protected from disclosure requests but gives cause for concern to charterers who may see this outcome as a windfall for owners.
The dispute also generates an interesting debate as to the extent of the principle “res inter alios acta” or when a benefit does or does not reduce a claimant’s recoverable loss.
The background facts
The owners of the SKYROS and the owners of the AGIOS MINAS (Owners) time-chartered the Vessels to the Charterers. While the Charterparties where being performed, the Owners agreed to sell the Vessels under memoranda of agreement (MOAs), pursuant to which the Owners agreed not to enter into any further charter fixtures before delivering the Vessels to the Buyers.
The Charterers redelivered the Vessels late and the Owners claimed damages for late redelivery. One of the Charterers’ defences was that the Owners had suffered no real loss because the MOAs prevented them from chartering the Vessels after redelivery.
The issue of whether the MOA provision precluded recovery was the subject of a preliminary issue in the arbitration. The Tribunal found in favour of the Owners on multiple bases:
the Owners were entitled to a quantum meruit – i.e. consideration for complying with an implied request by the Charterers for performance outside the scope of the Charterparties against an implied agreement to pay for such performance at the current market rate; alternatively,
the Owners were entitled to user damages – i.e. a form of compensation for wrongful use of a valuable asset; in the further alternative,
negotiating damages – i.e. a form of damages reflecting what would have been agreed in a hypothetical negotiation between the parties. The Tribunal regarded the MOA prohibition on further employment as irrelevant to the charterparty claims (res inter alios acta).
The Commercial Court allowed the Charterers’ appeal on all three grounds. Importantly, the judge found that the principle of res inter alios acta only meant that collateral benefits would not be taken into account. So the sale price under the MOAs was irrelevant. However, the issue was what was the Owners’ loss. In considering that issue, the trial judge held that he could take into account the sale arrangements. He concluded that, where an owner has agreed that it would not take advantage of the market following redelivery, it is not entitled to substantial damages in case of late redelivery, because it has not lost an opportunity to market the vessel.
The Court of Appeal decision
The Court of Appeal reversed the lower court decision and held that the Owners were entitled to bring a claim for late redelivery in the ordinary way (although not for user damages).
Two out of the three appeal judges agreed that the starting point is the principle that whether the owner would or could in fact have concluded a new fixture (or when) is irrelevant to a claim for late redelivery. The principle of res inter alios acta does not only apply to collateral benefits. It applies to collateral matters. What this means is that any arrangements which the Owners may have made for the further employment of the Vessels after redelivery arise independently of the circumstances giving rise to the Charterers’ breach and are ignored in their entirety for the purposes of assessing damages.
The third judge on the panel reached the same conclusion on the basis of an alternative route and held that the MOAs were an accidental circumstance which was irrelevant to the assessment of damages.
Comment
Res inter alios acta: The judgment highlights the technical nature of the English law on damages. It is entirely possible that a party may be entitled to recovery in circumstances where, in the real world, it has suffered no actual loss. Other potential illustrations of this principle are cases where the cost of a breach is borne by insurers or subsequent charterers.
Scope of the principle: The Court of Appeal decision raises the question as to whether the res inter alios acta principle applies to collateral benefits (as the Commercial Court had found) or to collateral arrangements as a whole. The narrower reading of the trial judge (which is supported by recent Supreme Court authority) was not considered in detail by the Court of Appeal. The market would certainly benefit from guidance from the Supreme Court on the precise scope of res inter alios acta.
Ring-fencing MOA negotiations: As matters presently stand, MOA terms are safe from disclosure in the context of charterparty claims. However, the case serves as a useful reminder of the need to consider the potential knock-on effect of contractual provisions.
This article was co-authored by Vassilis Mavrakis.
