UK: Does A Shipowner Have To Sell Its Ship In Order To Mitigate Its Loss?

Co-author: Chloe S. Clift

The greatly anticipated Supreme Court judgment on the New Flamenco is due to be heard later this year. The decision will address principles of mitigation and the assessment of damages for repudiatory breach of a time charterparty. In particular, it will consider whether an owner that sells its vessel following such a breach must give credit for any benefit flowing from such a sale.

A brief recap of the facts

By a charterparty on an NYPE form and subsequent addenda, the cruise ship, the New Flamenco was time chartered for a period of over five years from 2004. The Charterers redelivered the vessel in October 2007 but the Owners' position was that the earliest redelivery date under the charterparty was in November 2009. The Owners treated the Charterers as being in anticipatory repudiatory breach and accepted such repudiation as terminating the charterparty. In late October 2007, the Owners entered into an MOA for the sale of the vessel for US$23,765,000.

The arbitrator found that the minimum redelivery date under the charterparty was in November 2009 and that the value of the vessel in November 2009 was US$7,000,000. The arbitrator further found that Owners' sale of the vessel in October 2007 was caused by the Charterers' early redelivery and was in reasonable mitigation of loss. It was not in dispute that there was no available market for a substitute charter at the time of the Charterers' breach.

The arbitrator declared that the Charterers were entitled to a credit of US$16,765,000; the difference between the value of the vessel in October 2007 and November 2009. This would be set off against the Owners' claim for damages. That is, the Charterers were entitled to a credit in the assessment of the Owners' damages claim for the 'benefit' that accrued to the Owners by selling the vessel for more in October 2007 than what it would have been worth at the end of the charter period in November 2009.

The Owners appealed. A fundamental part of their appeal was that the benefit they had obtained was not sufficiently causally linked to the Charterers' early redelivery such that it should be taken into account when assessing damages. The Owners argued that the capital value of a vessel is different in kind from the type of loss for which they were claiming (i.e. loss of an income stream).

On the Owners' appeal to the High Court, Mr Justice Popplewell held that the Owners' decision to sell the vessel was independent of the Charterers' breach in redelivering the vessel two years early and, therefore, the difference in value could not be taken into account to reduce the loss recoverable. The Charterers successfully appealed to the Court of Appeal.

The law of damages and mitigation

The general rule for damages is that they should place the claimant in the same position that it would have been in if the contract had been properly performed. It is often said that the claimant has a 'duty to mitigate'. Put another way, a claimant is not entitled to recover in respect of loss which could have reasonably been avoided. Moreover, if a claimant takes steps to mitigate and the loss is thereby avoided, the claimant cannot recover in respect of that avoided loss.

Court of Appeal Decision

Overturning the High Court decision at first instance, the Court of Appeal held that the owners of a vessel claiming damages for the repudiation of a time charterparty must give credit to the charterers for the 'benefit' accrued following the sale of the vessel. That is, the owners must give credit for the difference in value between when the vessel was sold and when it would have been sold had the charterers performed the contract. In the present case, there had been a finding of fact that the sale had been caused by the early redelivery of the vessel by the Charterers and that such sale was a reasonable mitigation of the Owners' loss.

One of the key statements made by Lord Justice Longmore was that the assessment of damages should be based upon the following principle:

"[I]f a claimant adopts by way of mitigation a measure which arises out of the consequences of the breach and is in the ordinary course of business and such measure benefits the claimant, that benefit is normally to be brought into account in assessing the claimant's loss unless the measure is wholly independent of the relationship of the claimant and the defendant."

The question then arises: does it follow that shipowners may be required to sell their vessel in mitigation of their loss? Put another way, if a charterer breaches the terms of a chaterparty by redelivering the vessel early, and there is no available market for re-chartering, are the owners required to realise the capital value of that asset rather than wait until the market recovers? Will the owners' recovery be reduced if they choose not to sell the ship but instead to wait until the market recovers?

Lord Justice Longmore further stated that:

"The doctrine of mitigation may, indeed, sometimes require an owner to sell the vessel he has hired out to a hirer or a charterer if the relevant chattel is returned early."

The tree or the fruit?

Should the capital value of an asset be used when determining the compensation a party may recover for being unable to obtain income? Does a shipowner have to consider selling its ship in order to mitigate loss following a wrongful early redelivery under a charterparty? The law on this subject is unclear and requires clarification.

As was argued on behalf of the Owners, the capital value of the vessel is different in kind from the loss recoverable for a charterer's breach of a time charter; namely the loss of income. The former is the tree, whereas the latter is the fruit. If an owner decides that it wishes to retain the vessel, being its investment that will bear fruit in the future, will the owner receive less in damages for failing to mitigate?

What's next?

The decision of the Court of Appeal has been appealed to the Supreme Court, which will readdress these issues. This will be heard between 21 and 24 November 2016.

Without a doubt, the Supreme Court's judgment will be greatly anticipated by the shipping industry. If the Court upholds the decision made by the Court of Appeal it may have a significant impact on the way damages are assessed and the 'reasonable' steps shipowners will be required to take in order to mitigate their losses – even, ultimately, to sell their vessels.

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.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


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.