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There are two elementary principles that apply when assessing damages
for a breach of contract. Firstly, the damages should put the claimant in
the same position as if the contract had never been performed (ie
compensate him fully for his losses). Secondly, the quantum of damages
should be assessed as at the date of breach.
But, what happens when those two principles are in conflict? This point
was recently address by the HL in an important decision involving a
contract that had been repudiated. A ship had been chartered for a fixed
period until 2005. However, the hirer returned the ship early (in 2001),
so repudiating the contract. The owner of the ship accepted that
repudiation, and the question then arose as to the damages that should
be payable. That issue was made more complicated, however, by the
outbreak of the Iraq War in 2003 which would have brought the charter
arrangement to an automatic end (the charter agreement contained a
standard clause allowing either side to cancel the contract if the UK, US,
or certain other countries went to war). On that basis, the hirer argued
that damages should be limited to the period to 2001 to 2003. Against
that, the owner argued that damages should be assessed as at the time
of the breach and so cover the period 2001 to 2005.
Surprisingly, there has never been a senior authority on this point. The
HL came out in favour of the hirer, taking the view that it was more
important to achieve ‘an accurate assessment of the damages based on
the loss actually incurred’. Thus, post-repudiation events (ie the Iraq
War) could be taken into account in assessing the damages – which
were not to be assessed solely as at the date of repudiation.
As a note from practicallaw.com points out, this case is potentially of
significance within the property sector (eg where T hands back a property
before the expiry of a lease). It opens up the possibility of T being able
to argue that post-repudiation events might affect the quantum of
damages due to L (ie it should be less than the mere balance of rent
due). However, the caveat to that is that the charter agreement in this
case specifically contemplated the possibility of war (ie a war risks
clause) and that was the post-repudiation event taken into account by
the HL; accordingly, the case is not authority for saying that other events
not contemplated by the parties can be taken into account. But, if there
is a clause in the lease (eg destruction by fire clause) then logic would
seem to dictate that such a clause could be taken into account when
assessing damages to be paid by a repudiating T.
Golden Strait v Nippon [2007] UKHL 12. Source: www.practicallaw.com (subscription service).
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