UK: Assessment of Damages Following a Breach of Contract - The "Mamola Challenger"

Last Updated: 9 September 2010
Article by Ian Woods

This case discusses the extent to which a contracting party can claim, as damages for breach of contract, expenditure incurred in preparation of a contract that has been wasted as a result of breach of that contract by the other party. The facts of this claim arose from a breach of a Charterparty by the Charterers.

The Owners of the vessel MAMOLA CHALLENGER (the 'Vessel') entered into a 5 year Charterparty with the defendant Charterers who were to sub-charter the Vessel to Shell Nigeria Exploration & Production Company Limited ("SNEPCO"). Under the terms of the Charterparty the Owners had to make modifications to the Vessel prior to delivery which included the installation of a new crane. As a result Owners incurred various expenses in preparation for these modifications including the cost of removing a crane from another Vessel which they intended to install on the MAMOLA CHALLENGER.

It became apparent that the Charterers would not be able to perform this fixture because SNEPCO would not be sub-chartering the Vessel from the Charterers. The Owners accepted this breach as bringing the Charter to an end, the result was that the expenditure incurred by the Owners had been wasted and had no residual benefit to the Owners.

Following the repudiation of the Charterparty the Owners concluded a number of short-term fixtures for the Vessel. However, since the date on which the Charterparty was concluded the market rate of hire had increased and as a result the Owners were able to trade the Vessel at the higher market rate. If the Charterparty had not been breached Owners would have been restricted to the lower contractual rate, which was $7,500 per day lower than the higher market rate post breach. The consequence of this was that the Owners did not suffer any net loss as a result of losing the Charterparty, in fact they had more than recuperated their loss and the initial wasted expenditure. The Owners nevertheless claimed $675,000 damages for the expenses they had incurred and arbitration proceedings were commenced.

The arbitral tribunal held as fact that the Owners had more than recuperated the losses they were claiming but they still awarded the Owners damages in the sum of $86,534. In finding that the Owners were entitled to damages for the wasted expenditure the tribunal followed the authority of C&P Haulage v Middleton [1983] 1 WLR 1461] and held that "[The expenses] were simply wasted as a result of the termination of the contract by the other party. The fact that the Vessel might have been occupied in more gainful employment as a result of the termination of the Charterparty by the Charterers is not a matter to be brought into account."

On appeal the Charterers submitted that the tribunal's decision was wrong in law on the basis that the Owners had not suffered any loss by reason of the Charterers' breach. The Charterers argued that because the market rate of hire was higher than in the Charterparty, the Owners had "more than recuperated the losses they [claimed in the] arbitration". In these circumstances it was argued that the tribunal had breached the principle that an award of damages for breach of contract are compensatory and are designed to put the innocent party in the position he would have been had the contract been performed rather than the position he would have been had no contract been made.

Arguing that the tribunal's decision was correct the Owners submitted that where the law protects a party's "reliance" interest, as where expenditure is claimed, the benefit flowing from the substitute employment cannot be taken into account to reduce or extinguish a claim for wasted expenditure.

These arguments discussed the theory that damages for breach of contract can be recovered on two bases; (1) on the 'expectancy basis' and (2) on the 'reliance basis'. The expectancy basis is where a party is entitled to recover the benefit that he would have gained had the contract been carried out and the reliance basis allowing a party to recover damages in the sum of the expenses incurred by him in reliance on the contract being performed (effectively putting him back into the position that he would have been had he not entered into the contract). It was argued in the present case that the Owners had abandoned their claim for damages on the expectancy basis and were claiming the wasted expenses incurred on reliance of the contract being performed.

Mr Justice Teare hearing the appeal began his discussion with the principle set out in Robinson v Harman (1848) 1 Exch.850 that states:

"The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."

It should be noted that in this case the claimant claimed both expenses incurred in reliance on the contract and damages for loss of bargain. The court then went on to consider cases in relation to both damages on the expectancy and reliance bases.

The court used the case of British Westinghouse v Undergrounds Railways [1912] AC 673 as authority that when assessing damages on the expectancy basis any benefit that the innocent party enjoys as a result of the breach of contract must be taken into account when assessing damages.

The court considered a number of authorities in relation to reliance based damages, but in particular L. Albert & Son v Armstrong Rubber Co. (1948) 178 Fed. Rep. 182, a decision in the United States Court of Appeals, Second Circuit, presiding over the Federal Court was Chief Judge Learned Hand. In this case it was agreed that a "promissee could recover his outlay in necessary preparation for the performance of a contract, subject to several limitations, of which one was that the promisor may deduct whatever he can prove the promisee would have lost if the contract had been fully performed", in this decision he also noted the "very simple formula" suggested by Professor Fuller in an article written in the 1936 Yale Law Journal that:

"We will not in a suit for reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied had the contract been fully performed."

This approach was also followed by a Canadian Court in Bowlay Logging Limited v Domtar Limited [1978] 4 WWR 105 where the Judge concluded that:

"The law of contract compensates a plaintiff for damages resulting from the defendant's breach; it does not compensate the plaintiff resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses that he has incurred are losses flowing from entering into contract, not losses flowing from the Defendant's breach"

All of the principles above were followed by the English Court of Appeal in the case of C&P Haulage v Middleton. In the present case the Judge reasoned that during the course of commercial dealings, parties enter into a contract with a view to recouping their expenditure initially and going on to then securing profit. For this reason damages for breach of contract, are often called 'loss of profits'. However, when assessing the total level of profits expected from a contract any expenditure must be subtracted from that figure, not to do so would put the Claimant in a better position than he would have been if the contract had been completed.

Mr Justice Teare concluded that both bases of damages are founded on the fundamental principle set out in Robinson v Harman and that expectation loss is the only basis on which damages should be awarded. Initial expenditure is always incurred in the expectation that the contract will be performed and as such the court must have regard to the claimant's actual position and what it would have been had the contract been performed. He affirmed the principle in C&P Haulage that the claimant should not be placed in a better position than if the contract had been performed. Also to award expenditure incurred without regard to what the position would have been had the contract been performed the defendant would in effect underwrite the claimant's decision to enter into the contract.

Finally the Judge concluded that any action in mitigation by the innocent party must be set against the loss which would otherwise have been sustained.


In this case the Judge decided that the arbitral tribunal were wrong in law to find that a claim for 'wasted expenditure' and 'loss of profits' were two different types of loss that should not be 'mixed'. On appeal the Judge held that when assessing the loss of profits the initial expenditure must be taken into account and set against the sum earned from performance of the contract. If the claimant was unlikely to have made back his initial expenditure had the contract been performed then the court is of the opinion that it is unreasonable to make the defendant pay damages for the claimant entering into a bad bargain. The effect would be to place the claimant in a better position than if the contract had been performed.

It was argued in the case that not every contract will be made to return a profit, e.g. in the case where purchases are made for a charitable purpose or for pleasure. In these cases the Owners argued that dismissing the reliance basis approach will deny recovery for wasted expenditure in these cases. The Judge disagreed on the basis that in this scenario the defendant would not be able to show that the expenditure outweighed the benefits. As a result the expenditure would be recoverable as damages, this highlights where the burden of proof lies in such a claim.

It appears that three principles can be derived from this case when assessing damages from a breach of contract:

  1. Damages are always assessed on the expectation basis and the court will take into account the claimant's position had the contract been performed;
  2. The claimant should not be placed in a better position than he would have been had the contract been performed; and
  3. Where the claimant has taken steps to mitigate his loss this must be set against the loss which would otherwise have been sustained.

It is clear that in this case the claimant took action to mitigate his loss and as a result suffered no overall net loss, a factor that the tribunal should have taken into account when awarding damages. Mr Justice Teare overturned the tribunal's award.

For further information please contact Ian Woods:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.