The case of Flame SA v Glory Wealth Shipping Pte Ltd (The "GLORY WEALTH") [2013] emphasises the importance of the compensatory principle in the assessment of damages. The Court showed its reluctance to find that an innocent party be placed in a better position than it would have been in, had the party in breach not repudiated the contract.

Glory Wealth as "disponent owners of the Glory Wealth to be nominated motorship" (the Owner) and Flame AS (the Charterer) entered into a contract of affreightment dated 19 August 2008 (the COA). Following the collapse of the market shortly thereafter, the charterer failed to declare laycans in respect of a number of shipments under the COA. The Owner commenced London arbitration proceedings, and claimed that the measure of loss that it was entitled to was the difference between the COA rate and market rate, this being USD 5,426,608.60. The Charterer argued that, as a result of the market collapse, the Owner would have been incapable of providing the required vessels had laycans been declared, and the Owner should prove that it would have been able to perform the voyages in order to be entitled to damages.

The arbitration tribunal found that the Charterer was in repudiatory breach of the COA, and awarded the Owner the damages claimed. The tribunal reached its finding on the following grounds:

(a) It was not open to the Charterer as "contract-breaker", to allege that the Owner, as the innocent party, still bore the burden of proving its loss on the balance of probabilities after Owner's acceptance of the Charterer's repudiatory breach

(b) The words "disponent owners of the Glory Wealth to be nominated motorship" meant only that the Owner was obliged to nominate vessels at its disposal (by whatever means) that would perform the voyage, and the Owner was not required to own or actually to have time or voyage chartered the vessels

The Charterer challenged these two points of law in the High Court under section 69 Arbitration Act 1996. In addition, the Charterer challenged the award on the grounds of three heads of serious irregularity under section 68.

In respect of the first point of law, the Owner submitted that in assessing loss, it had to be assumed that the innocent party would have performed its obligations, had there been no repudiatory breach by the contract-breaker. Once the innocent party has accepted the repudiation, it is excused from future performance. The Charterer submitted that this was "based upon a logical fallacy" and that in order to determine the loss, it is necessary hypothetically to consider what would have happened had the contract been performed.

The Court took the starting point that the compensatory principle governs the assessment of damages; the award of damages is to put the innocent party in the same position, and in no better position, than it would have been in had the contract been performed. The Court then gave detailed consideration to the relevant authorities in order to determine whether it should adopt a different approach and, in particular, to assume that an innocent party would have performed its obligations if there had been no repudiatory breach.

The Court held that it was not bound by any clear authority providing an exception to the compensation principle, the principle should apply and therefore the arbitration tribunal had erred. The innocent party, as the party claiming damages, has the burden of proving its loss. When hypothetically assessing damages, it is necessary to assume that the party in breach has performed its obligations, not that the innocent party would have performed its obligations.

The tribunal had found as a matter of fact that the Owner would have been able to perform the COA if called upon to do so. Accordingly, there was no cause to reconsider the assessment of quantum.

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