After six months in gestation, the decision only contains seven paragraphs of reasoning and no reference to previous authorities, which is a little disappointing for mitigation enthusiasts like me...

But, despite its brevity, I think that the reasoning is basically correct. The key points are:

(1)    The test is causation

[30] The relevant link is causation. The benefit to be brought into account must have been caused either by the breach of the charterparty or by a successful act of mitigation.  

[32] That difference or loss was, in my opinion, not on the face of it caused by the repudiation of the charterparty.

Unfortunately, Lord Clarke does not say how he thinks this causation test is to be applied. Clearly, it is not just ‘but-for’ causation, because in a but-for sense, the sale of the vessel plainly was caused by the breach. In my view, the explanation here is what Hart and Honoré called ‘common-sense’ causation, according to which voluntary human conduct (choices) are identified as causes from amongst the range of necessary (but-for) conditions of an event.

(2)    The importance of choice

[32] there was nothing about the premature termination of the charterparty which made it necessary to sell the vessel, either at all or at any particular time. Indeed, it could have been sold during the term of the charterparty. If the owners decide to sell the vessel, whether before or after termination of the charterparty, they are making a commercial decision at their own risk about the disposal of an interest in the vessel which was no part of the subject matter of the charterparty and had nothing to do with the charterers.

This is the dispositive part of the reasoning. The owners made a choice to sell the vessel: it was not ‘necessary’; they made a ‘commercial decision’.

The CA agreed with this reasoning, but reached a different conclusion on the facts. The CA concluded that the owners had no choice but to sell the vessel, because on the ‘unusual’ facts of the case, there was no available market for substitute hire. The UKSC effectively rejected this conclusion on the basis that:

[34] In the absence of an available market, the measure of the loss is the difference between the contract rate and what was or ought reasonably to have been earned from employment of the vessel under shorter charterparties, as for example on the spot market. The relevant mitigation in that context is the acquisition of an income stream alternative to the income stream under the original charterparty.

So, the UKSC reasoned that even though there was no available market for a substitute two-year charter (as under the original charterparty), the owners could instead have sought a series of shorter charterparties. In this context, they still had a choice whether or not to sell the vessel.

It is a shame, though, that there was no finding of fact by the arbitrator as to the availability of shorter charterparties. If there had also been no shorter charterparties available, then I think there would have been a good argument that the owners had no choice but to sell the vessel in the circumstances, and hence that the consequences of sale should be taken into account for better or worse.

(3)    Principle of reflection

[33] they could not have claimed the difference in the market value of the vessel if the market value would have risen between the time of the sale in 2007 and the time when the charterparty would have terminated in November 2009. For the same reason, the owners cannot be required to bring into account the benefit gained by the fall in value.

This reasoning appears in most of the leading cases on mitigation/‘avoided loss’ (although unfortunately none of these cases were cited by the UKSC…).

The point is that the mitigation rule cuts both ways – if the claimant makes a choice not to restore the non-breach position (here, by seeking substitute hire), then it is responsible for the outcome of that choice, for better or worse. Likewise, if the claimant had no choice, then the consequences are taken into account in the assessment of damages (i.e. the defendant is responsible for the outcome), again for better or worse.

Best wishes,

Andy