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13 January 2025

Hedging And Damages For Breach Of Contract

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In Rhine Shipping v Vitol [2024], the Court of Appeal upheld the decision that Vitol's internal swaps, unaffected by Rhine's breach of contract, did not reduce Vitol's damages. Rhine's re-cast appeal was dismissed due to lack of trial evidence.
United Kingdom Transport

Rhine Shipping DMCC v Vitol SA [2024] EWCA Civ 580

In Rhine Shipping v Vitol [2024] EWCA Civ 580, the Court of Appeal heard an appeal from the judgment of Simon Birt KC (reported at [2024] 1 Lloyd's Rep 652) in which the Deputy Judge concluded that profits on internal swaps booked within Vitol's risk management system, and which were varied in response to Rhine Shipping's breach of a voyage charter, did not reduce Vitol's damages for breach of contract. That was because (i) such swaps – being purely internal – had no effect on Vitol's financial position; (ii) a portfolio of risks which had booked a gain in respect of those internal swaps could not be treated as a separate legal entity from another portfolio of risks which had made an equal and opposite loss on those internal swaps; (iii) even if Vitol could be treated as having made a gain on the internal swaps, the gain was to be ignored for the purpose of assessing Vitol's damages on the basis that such benefit was res inter alios acta, being ultimately derived from physical trades concluded by Vitol independently both of Rhine Shipping's breach of contract and the underlying affected physical trades.

Before the Court of Appeal, Rhine Shipping did not seek to pursue the appeal on the basis that it had advanced its case before Simon Birt. Indeed, the Court of Appeal observed that Simon Birt's analysis was “unimpeachable” and “compelling”.

Rather Rhine Shipping sought to re-cast its case arguing that the gain which Vitol had obtained as a result of the breach of contract was the avoidance of a lossmaking external hedge which, but for the breach, Vitol would have concluded.

The Court of Appeal held, by reference to cases such as Singh v Dass [2019] EWCA Civ 360, that it was not open to Rhine Shipping to advance such a case on Appeal as the argument was, in substantial part, one of fact and the factual matters had not been investigated at trial still less been the subject of factual findings of the first instance judge.

Popplewell LL also expressed doubt that, had the point been open to Rhine Shipping, it would have succeeded stating at [59] that “the collateral benefit principles would place formidable difficulties in the way of Rhine's new argument”.

The Court of Appeal did, however, express agreement at [12] with Simon Birt's view that had the swaps in question not been internal but rather external with a third party, the gain made under such an equivalent external hedge would have been taken into account in reducing Vitol's damages either applying the principles of mitigation or avoided loss.

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