19th November 2001
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Before:
Sir CHRISTOPHER STAUGHTON
Mr. WILLIAM PACKARD
Mr. MICHAEL BAKER-HARBER
WHEREAS:
(A) By a charterparty on an amended New York Produce Exchange 1946 Form the Claimants, as charterers, chartered the m.v. Sine Nomine from the Respondents, as disponent owners, upon terms more particularly set out therein. The charter was for a period of 4/6 months plus/minus 10 days, which in the event began on 14th July 1999.
(B) The Charterparty further provided, by Clauses 17 and 72, for any disputes between the parties to be referred to arbitration in London, with English law to apply, in the manner therein specified. A dispute having arisen regarding the withdrawal of the vessel by the Respondents from the Claimants' service, the Claimants appointed the undersigned William Packard of 20, Victory Road, West Mersea, Essex as arbitrator and the Respondents appointed the undersigned Christopher Staughton of 20 Essex Street, London WC2 as arbitrator. We in turn duly appointed the undersigned Michael Baker-Harber of Ixworth House, 37 Ixworth Place, London SW3 to be the third arbitrator.
(C) By an interim final award published on 29th February 2000 we found and held that the withdrawal of the vessel by the Respondents from the service of the Claimants on 18th October 1999 was unlawful and in breach of the charter-party.
(D) By a second interim final award made on 5 November 2001 after a further hearing we awarded that the Respondents should pay to the Claimants the sum of U.S.$418,116.97 and £121,874.72 with other relief in respect of certain items of the claim, with all other issues reserved for future determination.
(E) The parties have agreed that the Tribunal will in a third interim final award determine the issue whether the wrongful profits claim made by the Claimants is well founded in principle, but not whether any amount is due in respect of that claim if it is well founded.
(F) Written submissions have been made on that issue by Elborne Mitchell on behalf of the Claimants on 5th, 15th and 20th June 2001 and by Waltons & Morse on behalf of the Respondent on 7th, 13th, 20th and 26th June. There were further submissions from Waltons & Morse which the Tribunal regarded as superfluous. The parties agreed that no oral hearing was required.
NOW THEREFORE WE, the said William Packard, Christopher Staughton and Michael Baker-Harber, having carefully and conscientiously considered the submissions and materials before us, having conferred with each other and having agreed DO MAKE, ISSUE and PUBLISH this our THIRD INTERIM FINAL AWARD as follows:
1 The Claimants in their original submissions dated 8th December 1999 included this:
AB Corporation reserve the right to seek a declaration that CD Company be required to account to AB Corporation for all and any profits made by CD Company in consequence of their breach of contract.
In further formal submissions dated 6th December 2000 it was said that an issue which would require to be determined was Profits made by CD Company as a result of CD Company's breach. A further stage was reached on 5th June 2001, when the Claimants' solicitors wrote:
The Claimants claim profits made by the Respondents from their own employment of Sine Nomine after the vessel had wrongfully been withdrawn from the Claimants' service. No quantified claim has been pleaded because, as yet, the Respondents have given no details of those profits.
2 We did not then order, and have not ordered since, that there be disclosure by the Respondents of documents which would show what profits (if any) the Respondents did make in the remainder of the charter period. The only information we have is that which is suggested in the Claimants' solicitors' letter of 5th June:
The Claimants understand that when the Respondents withdrew the vessel from the Claimants' service they employed the vessel, at least in part for their own direct purposes in the sense that they used the vessel to carry their own cargoes. It may be that subsequently the Respondents sub-chartered the vessel out to third parties.
3 The absence of any factual information about profits which the Respondents may have made illustrates the problem which is likely to arise if the Claimants' claim for wrongful profits (as they call it) succeeds. Charterers who are wrongfully deprived of the services of a vessel in the future when the market has risen will no doubt claim, as in the past and as in this case, what we might call the standard measure of damages. This is the difference between the market rate of hire and the charter rate for the remaining period of the charter: see the judgment of Mr Justice Goff in Koch Marine Inc v. D'Amica Societa A.R.L. (The Elena D'Amico) [1980] 1 Lloyd's Rep. 75. If in the future they will be able to claim wrongful profits in the alternative, in every such case the claimant's solicitor will be duty bound to demand extensive disclosure in order to find out whether such a claim is worth pursuing.
4 We say that wrongful profits are an alternative claim; that must be the case. The Respondents may have been making a profit on the charter to the Claimants, before the withdrawal, and may have made a larger profit thereafter, either because the market had risen or for some other reason. It is only the excess which represents a wrongful profit; the first part of the profit was not brought about by any wrongdoing of the Respondents. If the Claimants may claim the wrongful part of the profit made by the Respondents and also damages because they have been deprived of the services of the vessel on a rising market, they will be compensated twice over for the same loss. (One can compare the old doctrine that a plaintiff could waive a tort and bring an assumpsit, thus treating the wrongdoer as his agent to earn money on his behalf; see the speech of Lord Nicholls in Attorney General v. Blake [2000] 4 All ER 385 at p. 393.) It so happens that we have already given the Charterers the standard measure of damages in our Second Interim Final Award. It might perhaps be said that the Charterers have exercised their option and cannot now change their choice. However, that has not been said; and the Charterers in the correspondence have been contemplating not all the profits, but profits "above the normal market rate for which the Claimants may seek compensatory damages".
5 Until Blake's case the only authority known to us which is directly in point is Occidental Worldwide Investment v. Skibs A/S Avanti (The Siboen and the Sibotre) [1976] 1 Lloyd's Rep. 293 when Mr Justice Kerr summarily dismissed in one short paragraph the notion that the charterers could obtain an account of profits from the shipowners.
6 But now we have Blake's case. It is not for us to indulge in a lengthy analysis of the speech of Lord Nicholls, with whom Lord Goff, Lord Browne-Wilkinson and Lord Steyn agreed. It is clear that there has to be something exceptional, something out of the ordinary, for a plaintiff to obtain wrongful profits as damages for breach of contract; and that the precise test is not defined. Lord Steyn has suggested (at p. 403) that exceptions to the general rule "are best hammered out on the anvil of concrete cases". We are tempted to answer, as one well-known Judge used to say in days gone by "not in the Reading County Court".
7 Lord Hobhouse said in his dissenting speech (at p. 411):
I must also sound a note of warning that if some more extensive principle of awarding non-compensatory damages for breach of contract is to be introduced into our commercial law, the consequences will be very far-reaching and disruptive.
Lord Nicholls, on the other hand, said (at p. 398):
The main argument against the availability of an account of profits as a remedy for breach of contract is that the circumstances where this remedy may be granted will be uncertain. This will have an unsettling effect on commercial contracts where certainty is important. I do not think that those fears are well founded.
We of course accept what Lord Nicholls says. We observe only that the floodgates argument seldom succeeds in these days, as a ground for resisting new liabilities or new remedies. It is no wonder that the resources of the courts are strained.
8 However there is this passage in the speech of Lord Nicholls (p. 398) which we find helpful for cases that we are likely to encounter in practice:
Lord Woolf MR. also suggested three facts which should not be a sufficient ground for departing from the normal basis on which damages are awarded: the fact that the breach was cynical and deliberate; the fact that the breach enabled the defendant to enter into a new and more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract the defendant put it out of his power to perform his contract with the plaintiff. I agree that none of these facts would be, by itself, a good reason for ordering an account of profits.
9 It is by no means uncommon for commercial contracts to be broken deliberately because a more profitable opportunity has arisen. Or the contract-breaker takes an over-generous view of his rights, knowing that the law may ultimately be against him. In such a case he may have little or nothing to lose by taking the chance; the downside at worst is that he will have to pay the costs of both sides. International commerce on a large scale is red in tooth and claw. We do not say that the Respondents' action was either deliberate or cynical wrongdoing in this case; they had a respectable argument on liability, although a commercial judge refused their application for leave to appeal.
10 Our solution to the present problem is that there should not be an award of wrongful profits where both parties are dealing with a marketable commodity - the services of a ship in this case - for which a substitute can be found in the market place. In the ordinary way the damages which the claimant suffers by having to buy in at the market price will be equal to the profit which the wrongdoer makes by having his goods or his ships' services to sell at a higher price. It is in the nature of things unlikely that the wrongdoer will make a greater profit than that. And if he does, it is an adventitious benefit which he can keep. The commercial law of this country should not make moral judgments, or seek to punish contract-breakers; we do not, for example, award triple damages, as in the USA.
11 Accordingly WE DECLARE that the wrongful profits claim made by the Claimants is not well-founded in principle, and that it fails.
12 WE ORDER that the Claimants pay the Respondents costs of this issue, modest as we expect them to be, in any event (in other words, when the final disposal of all the issues in this arbitration is reached), with interest at six per cent per annum from today's date.
13 WE FURTHER ORDER that the Claimants pay our fees for this Third Interim Final Award in the sum of £3,850, and that if that sum is paid in the first instance by the Respondents it be reimbursed to them by the Claimants in any event as aforesaid with interest at six per cent per annum from the date of publication of this award.
14 WE RESERVE to ourselves the right to determine in a further award or awards all remaining issues in this arbitration.
MADE AND PUBLISHED the 19th day of November 2001
Christopher Staughton
William Packard
Michael Baker-Harber