Future Interpretation of the Law in Shipping

The essay will consider the decision in Omak Maritime Ltd v Mamola Challenger Shipping Co (2010) EWHC 2026 (Comm) and the implications of this decision will be evaluated and discussed. The writer will consider the substantive law that contextualizes the case, and the writer will consider how the decision made in the case may impact on the future interpretation of the law in the area of shipping, and contract law.

The facts of Omak Maritime Ltd v Mamola Challenger Shipping Co were agreed at trial. They were that the charterers, Omak Maritime Ltd (the respondents in the case of Omak Maritime Ltd v Mamola Challenger Shipping Co) agreed to charter a vessel Mamola Challenger from the claimants for a period of five years. Under the charterparty, the owners of the vessel were required to make certain modifications to the vessel which included the installation of a new crane. The owners incurred expenses in preparing to make these modifications, including costs associated with acquiring a new crane. The vessel was held at Cape Town by the claimants when it became clear that the charterers may not have been able to fulfill the obligations under the charterparty. The owners accepted the conduct of the respondents as bringing the charter to an end, and the claimants incurred expenses at this stage. After the arrangement came to an end, the owners were able to put the vessel to uses which garnered more income than would have been possible under the original charterparty. The owners nevertheless made a claim for the losses that they incurred in preparing the charterparty despite the awarding tribunal concluding that no net loss was sustained by the claimants in regards to the operation of the charterparty. This was the subject of the appeal, as it raised complex issues in contract law as to the requirement of actual loss and damage before a claim for loss can be successful. The claimants argued that the subsequent profits gained by the owners were irrelevant to the question of whether an award should have been made. The charterers appealed on the grounds that the award of damages in circumstances where there was no net loss incurred was wrong in law because awards of damages were compensatory, and were designed to put the person into the same position that that person was in prior to the breach complained of. The appeal made by the charterers in Omak Maritime Ltd v Mamola Challenger Shipping Co was successful, and whereas the owners had lodged a cross-appeal, this was dismissed in the final disposition of the case [1] .

Implications of the decision

The decision has important implications within the area of shipping and also within the area of contract law. The interpretation of two established principles of contract law set out in the case of British Westinghouse v Underground Railways (1912) AC 673 were raised as a critical part of the appeal. These were (i) a person who proves a breach of a bargain to supply what he contracted to get is to be placed as far as money allow in as good a situation as if the contract had been performed, and (ii) where reasonable steps to mitigate a loss caused by a breach of contract results in the reduction of the loss this is relevant to the question of damages, in that it reduces the award of damages [2] . The decision in the appeal in Omak Maritime Ltd v Mamola Challenger Shipping Co was to accept that it was a logical corollary of the established principles in British Westinghouse v Underground Railways (1912) AC 673 that where an act of mitigation of losses actually results in an extinguishment of the damage that was caused, then this extinguishes the claim for any damages that would, originally have been valid. It is easy to see why this was and remains a controversial ruling [3] .

An objection may be raised on the basis of natural justice, and the desirability of certainty of law in contract claims. The claimants in a position where they suffer a loss [4] , and subsequently make a claim for damages may be seen to be acting on the basis that they are certain that they have a claim that is valid in law, and should succeed assuming that they prove all of the facts that their case is based upon [5] .

Following the decision in Omak Maritime Ltd v Mamola Challenger Shipping Co these perfectly valid assumptions may no longer be made in cases where mitigation of losses actually extinguish the positive financial liability of the defendant [6] . It may be argued that it is difficult to reconcile this rationale with the idea of fairness and justice. Practical consequences may also be created as it may be argued that disincentives to actually fully mitigate loss are created. Additionally the Omak Maritime Ltd v Mamola Challenger Shipping Co case may be seen to have implications for a whole range of claimants affected by defective performance of contracts. Imagine a contractor is engaged to build a house, and builds a house that is entirely different to the specifications that were agreed upon at the point of instruction. Although such a state of affairs may give rise to a claim for loss of amenity, it is not at all clear that the claimant would be able to claim damages that would enable them to construct a property to their original specifications. This is what happened in Ruxley Electronics and Construction Ltd v Forsyth (1996) 1 AC 344 [7] . The facts of the case were that a claimant requested a builder to build a swimming pool to a depth of seven feet six inches. The builder actually built a swimming pool that was six feet and nine inches in depth. The claimant sued the builder, and a court found that the difference in market value of pools with each respective set of dimensions was nil. As such the court refused to compensate the claimant other than to award an amount of £2500 for loss of amenity. The Court of Appeal however overturned the ruling and awarded the full cost of having another pool constructed with the originally requested specifications. On appeal to the House of Lords the defendants’ appeal was granted, and held that the appropriate measure of damages is the difference in value between pools with these two sets of respective dimensions, even if that value is nil as it was in this case [8] .

The court in Ruxley Electronics and Construction Ltd v Forsyth (1996) 1 AC 344 did recognize that the market value of a defendants’ performance may be distinguished in law from the value that a defendant places on the performance [9] , but this was only in terms of a low-value award for loss of amenity [10] . It is clear therefore that the cold calculation of loss in pure financial terms applied in Omak Maritime Ltd v Mamola Challenger Shipping Co can have many unsatisfactory consequences and implications, and in addition to this it is difficult to reconcile this case with principles of fairness and justice to the claimant who has suffered the disappointment of their expectations through no fault of their own [11] .

Even if the end result of the Ruxley saga might be seen as harsh on the original claimant who must make do with the existing pool or pay out of their own pocket for it to be rebuilt [12] , the case does however do something that Omak Maritime Ltd v Mamola Challenger Shipping Co fails to do – it recognizes that there are cases where “nil” financial losses can actually create adverse consequences for the claimant which in law give rise to a financial remedy [13] . So, should there have been an award on similar terms in Omak Maritime Ltd v Mamola Challenger Shipping Co, remembering that the loser pays the winner’s costs as might well have been the case in Ruxley in the event that damages for loss of amenity were not awarded?

The case of Omak Maritime Ltd v Mamola Challenger Shipping Co may however be differentiated on two grounds [14] . First the claimants were involved in transactions as two businesses, whereas the same may not be said of the claimant in Ruxley Electronics and Construction Ltd v Forsyth, and additionally there was no tangible object involved that was the subject of the proceedings as was the case in Ruxley Electronics and Construction Ltd v Forsyth. It seems therefore that contract cases are focused on resolving legal claims even where the end result is an arbitrary one and in the advent of Omak Maritime Ltd v Mamola Challenger Shipping Co it seems that the courts are more comfortable with outcomes that are arbitrary where the actors involved are engaged in commercial transactions [15] .

Conclusion

The case of Omak Maritime Ltd v Mamola Challenger Shipping Co may be seen as a case that has created an arbitrary outcome that cannot be reconciled with the idea of natural justice or conceptions of fairness. This is particularly the case given that in the UK legal system, the loser plays the winner’s costs [16] . While many would see this as the price to be paid in a system where finality and certainty of outcomes are paramount [17] , it may be argued that this depends on your interpretation of certainty and how much value is placed in the idea of flexible applications of the law where this achieves a more “just” outcome [18] .