“GOLDEN VICTORY” – A Pyrrhic One?

Seldom do learned authors of differing chapters of the same leading textbook disagree on the effect of a House of Lords judgment but a quick study of Chapters 9 and 19 of the Eighth Edition of Benjamin’s “Sale of Goods” shows that this can happen. The difference of opinion in question relates to how damages for a repudiatory breach of contract should be assessed, following the decision in Golden Shipping Strait Corp v Nippon Yusen Kubishika Kaisha (the “Golden Victory”) [2007] 2 AC 353.

In the recent case of Flame S.A. v Glory Wealth Shipping Pte. Ltd. [2013] EWHC 3153 (“Glory Wealth”) the Court has ruled that a claimant still bears the burden of proving its loss in circumstances where it has accepted the repudiatory breach of the contract-breaker. In such a case it is a well-established principle that the innocent party is relieved of future performance but some academics appear still to hold the view that only a future event (giving a contractual right to cancel) that is highly likely or “predestined” to happen is to be taken into account when assessing an innocent party’s damages for wrongful repudiation. However, this was the minority view of the House of Lords in the Golden Victory. Furthermore, this approach appears to conflate two separate but well-established principles: (i) that a party who accepts a repudiatory breach is relieved of its own obligation of future performance and (ii) that an innocent party has the burden of proving its loss on the balance of probabilities.

Professor Bridge, the General Editor of Benjamin, noting that the question that was left open by the earlier authorities on sale of goods cases, namely whether a buyer in repudiatory breach could plead that the seller would be unable to perform when their performance became due, says that this was answered by the Golden Victory. In that case, the majority of their Lordships held that the rule requiring damages to be assessed as at the date of breach (known as the Bwllfa principle) does not require that events taking place before the assessment of damages is actually made to be ignored. This is because it could result, for example, in the hopelessly insolvent innocent party getting a windfall due to the failure to assess accurately its loss and in that eventuality the overriding principle of damages, that an innocent party should be put in the position it would have been had the contract breaker performed, would not be met.

In this latest authority, brought on appeal from an arbitration award, with the leave of the court, the tribunal had found that it was not open to the “contract-breaker” to argue that the innocent party still bore the burden of proving its loss on the balance of probabilities. The Tribunal also found that, despite Glory Wealth’s financial incapacity from 2009, such incapacity constituted a future breach by Glory Wealth only, and therefore the contract breaker, could not rely on any such future breach to displace the prima facie measure of damages. The Court has held that the approach of the tribunal in this respect was wrong.

In Glory Wealth, Mr. Justice Teare undertook a thorough review of the cases which have divided academic opinion. Whilst recognising that the reasoning of the House of Lords in Gill & Duffus v Berger and in the Golden Victory lead in different directions, he pointed out that neither case was a decision on the point of law to be determined. As the court could only follow one approach and since there was no clear binding authority on it pursuant to which application of the contractual principles regarding an accepted repudiation might lead to an award of damages putting the innocent party in a better position than it would have been in had the contract been performed, Teare J. concluded that the court should follow the compensatory principle endorsed by the House of Lords in the Golden Victory. This was also consistent with the approach of McArthur J. in YP Barley Producers Ltd. V Robertson (EC) Pty Ltd., Leggatt J. in The Simona, Salmon LJ in Esmail v Rosenthal & Sons Ltd. and Tomlinson LJ in Acre 1127 Limited v De Montfort Fine Art. He went on to say that:

the assessment of loss necessarily requires a hypothetical exercise to be undertaken, namely, an assessment of what would have happened had there been no repudiation. That enables the true value of the rights which have been lost to be assessed. The innocent party is claiming damages and therefore the burden lies on that party to prove its loss. That requires it to show that, had there been no repudiation, the innocent party would have been able to perform his obligations under the contract. If the court were to assume that the innocent party would have been able to perform, rather than to consider what was likely to have happened in the event that there had been no repudiation, the court might well put the innocent party in a better position than he would have been in had the contract been performed. …. When assessing what the innocent party would have earned had the contract been performed the court must assume that the party in breach has performed his obligations”.

There was another point of law under consideration on appeal in the Glory Wealth case, which was whether, in order to fulfil contractual obligations under a contract of affreightment (a “COA”) it is sufficient for the vessel “owner” to arrange for vicarious performance of its contractual obligations (i.e. by procuring vessels over which it had no contractual control), or whether contractual control by an Owner or disponent Owner over a nominated vessel was an essential characteristic of a COA contractual nomination. Based on the wording of the recap and proforma charterparty in question, the tribunal had found that the owners were simply obliged to nominate vessels which they had at their disposal “by whatever means” and that those vessels would carry the charterers’ cargo. Although Mr. Justice Teare was clearly troubled by the analysis of the tribunal, he was unpersuaded that the panel had erred in law in their construction of the COA.

SUMMARY

In summary, unless or until there is a further challenge to this decision or a further suitable case comes before the courts which will allow further examination of the legal principles in play in a case of accepted repudiation, it is likely that the Bwllfa principle must yield to the compensatory principle of damages, which was the majority view in the Golden Victory. In the Glory Wealth case it would seem that the appellant charterers have thus far derived no benefit from this latest examination of the law of damages, but it may be that the result in the Golden Victory will be longer lived than some academics care.

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  • Robert Walker Consultant

    Rob is a partner with more than 30 years' experience in 'dry' work and assists with issues arising out of marine casualties.

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